In April, the CFTC and SEC (the Commissions) finalized rules defining what swap or security-based swap activities will cause a person or company to be a major swap participant or a swap dealer under Dodd-Frank. Mutual funds and insurance companies have been concerned primarily with the major swap participant definition, as the swap dealer definition would apply to such companies’ activities only in exceptional circumstances.

In general, the final rules define a major swap participant by reference to the same complex quantitative tests that the Commissions proposed in late 2010. Each mutual fund and insurance company will need to consider its use of derivatives in light of these final rules, as the Commissions declined to provide any blanket exemption from major swap participant (or a swap dealer) status for such companies’ activities.

However, a number of changes do reduce the possibility of major swap participant status—particularly for mutual funds and their advisers. For example, the adopting release for the final rules provides that swap positions of a client account generally will not be attributed to the adviser or manager of that account. Also, a swap will be attributed to a parent company, other affiliate or guarantor only if the counterparty would have recourse to such parent, affiliate or guarantor.

On the other hand, the Commissions rejected comments by insurance industry representatives and regulators that would have tailored the rules’ tests to the unique circumstances of insurance companies in certain important respects. Although this may make it more difficult for some insurance companies, the adopting release still estimates that the total number of major swap participants under the CFTC’s jurisdiction will be “six or fewer” and those under the SEC’s jurisdiction will be “fewer than five and, in actuality, [perhaps] zero.”