On October 26, 2017, the Commodity Futures Trading Commission (“CFTC” or “Commission”) issued an order extending the termination of the phase-in period for keeping the swap dealer de minimis threshold at $8 billion. The new phase-in termination date is extended by one year to end on December 31, 2019. The CFTC had previously set December 31, 2018 as the date by which the de minimis threshold would be automatically lowered to $3 billion. In extending the deadline, the Commission reasoned that it will have, in the near future, more detailed swap data analysis to predicate any possible modifications to the de minimis exception. The CFTC would then need to go through certain procedural steps to propose a rule, seek public comment and finalize any amendments. Since the threshold takes into account a full twelve-month look back for entities’ swap transactions, the extension to 2019 gives certainty to swaps dealers that might be affected by a reporting requirement in 2018. According to the order, the extension also gives new CFTC commissioners and staff time to parse through the issues surrounding the swap dealer definition and the de minimis exception. A copy of the order can be accessed here
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) directed the CFTC and the U.S. Securities and Exchange Commission to jointly further define the term “swap dealer” and to include a de minimis exception. According to the CFTC’s current rules, an entity comes within the definition of “swap dealer” (and is required to register as such) if the aggregate gross notional amount of the swap positions connected with the entity’s swap dealing activity over the preceding twelve months exceeds a threshold of $3 billion. This threshold is subject to a phase-in period during which the gross notional amount threshold is set at $8 billion. See 17 CFR §1.3(ggg)(4). However, if the entity enters into swaps with “special entities,” e.g. states, cities, or municipalities, a much lower threshold of $25 million applies so that the swap dealers entering into swaps with special entities are subject to certain statutory and regulatory requirements that aim to provide greater protections for special entities. See 17 CFR §1.3(ggg)(4)(i)(A). The CFTC’s order extending the deadline for the phase-in of the $3 billion threshold notes that the order does not impact the de minimis thresholds for swaps with “special entities.” However, the CFTC’s regulations provide an exception to this lower $25 million threshold for swaps with special entities that are utilities. Specifically, an entity dealing in "utility operations-related swaps" with "utility special entities" may exclude those swaps in determining whether that entity has exceeded the $25 million de minimis threshold. See 17 CFR §1.3(ggg)(4)(i)(B).
For more information on this or any other CFTC or Dodd Frank Act energy issues, please contact Peter J. Scanlon
or Bhaveeta K. Mody