July 10 (Bloomberg) -- The U.S. Commodity Futures Trading Commission voted today to define when trades are considered swaps under the Dodd-Frank Act, a step that triggers more than a dozen rules under the 2010 financial-regulation overhaul.
The agency’s commissioners voted 4-1 to approve a 600-page measure governing when interest-rate, credit, commodity and other trades involving companies including JPMorgan Chase & Co., Barclays Plc and Cargill Inc. should face rules to limit risk in the $648 trillion global market. The Securities and Exchange Commission unanimously approved the rule in a private vote on July 6, the agency said in a statement yesterday.
“This is significant to the American public because now we will bring transparency to these markets,” CFTC Chairman Gary Gensler said in a Bloomberg Television interview after the meeting. “We will have dealers registering. We will lower the risk to the American public. Congress said further define a term. We further defined it. Two months from now a lot of Dodd- Frank comes into being.”
The two agencies, working under a Dodd-Frank mandate that they craft oversight to prevent a repeat of the 2008 credit crisis, missed the July 2011 deadline to complete rules. The swap definition will trigger almost 20 Dodd-Frank measures for reporting, clearing, trading and record-keeping that may take effect as early as September.
The swap definition contains a series of exemptions for insurance and retail transactions. Life insurance, and property and casualty insurance are exempt. Interest-rate caps on consumer mortgages and home heating oil agreements are also left out.
The CFTC will also allow exemption of forwards tied to non- financial commodities. The agency is seeking comment on exempting energy contracts with so-called volumetric optionality.
“In order to meet varying customer demands, natural gas and electricity suppliers frequently enter into commercial transactions with embedded optionality as to the volume of energy that is physically delivered,” Scott O’Malia, a Republican commissioner, said at the meeting. Mark Wetjen, a Democratic commissioner, supported seeking comment on the exemption.
The Working Group of Commercial Energy Firms, a lobbying organization represented by law firm Hunton & Williams LLP, urged the CFTC to exempt the contracts. Executives at firms such as ConocoPhillips have testified for the group.
“They provide commercial energy firms with the flexibility necessary to reliably acquire and deliver physical commodities necessary to meet the specific requirements of buyers and sellers of the commodities,” the group said in a letter to the CFTC in July 2011.