FIA Groups Urge CFTC to Maintain De Minimis Swap Threshold

FIA and the FIA Principal Traders Group (FIA) have submitted a detailed letter in reposnse to a US Commodity Futures Trading Commission (CFTC) proposed rule making that urges the Commission to retain the current $8 billion de minimis threshold for swap dealer registration.

The associations also suggest the CFTC modifies the calculation methodology to “better align it with the goals of a well-regulated derivatives market”.  

The letter states that the FIA supports the proposed $8 billion de minimis threshold for swap dealer registration purposes, as well as excepting swaps that are exchange-traded and/or cleared from de minimis calculations, without a notional backstop or haircut.

The FIA has also thrown its support behind the exclusion of swaps entered into for the purpose of hedging financial positions from de minimis calculations, but believes the Commission should remove certain proposed conditions. The letter notes that a person can only exclude hedges of financial positions from de minimis calculations if that person “is not the price maker and does not receive or earn a bid/ask spread, fee, commission, or other compensation for entering into the swap.” 

FIA says, “These conditions are not required to exclude hedges of physical positions, and should not be required to exclude hedges of financial positions, either.”

It continues, “The [Proposed Rule] states that the Commission’s rationale for excluding hedging swaps “applies broadly to swaps that hedge both financial and physical positions,” and that the proposed exclusion of swaps hedging financial positions from de minimis calculations “is consistent with the CFTC’s position” in excluding swaps hedging physical positions from the “swap dealer” definition. Respectfully, though, that is not the case. The Commission’s “swap dealer” definition excludes swaps that hedge physical positions even if the person is a price maker of the swap or receives compensation for the swap; by contrast, the Proposal excludes swaps that hedge financial positions only if the person is not a price maker of the swap and does not receive compensation for the swap. The Proposal offers no explanation for this disparity in treatment, or in result.” 

The FIA says it also supports excepting non-deliverable forwards from de minimis calculations based on their equivalence to FX forwards, which have been exempted from such calculations; and, supports a process to determine the methodology to calculate notional amount, but believes such determinations should be made by the Commission subject to public notice and an opportunity for comment.

“FIA supports the Commission’s effort in the proposal to provide clarity to the market on the swap dealer registration threshold,” says FIA senior vice president and general counsel Allison Lurton. “We also appreciate the willingness to make necessary adjustments to Dodd-Frank rulemakings with the benefit of the passage of time and the collection of additional data.”

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Colin Lambert

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