“Under the current rules, just one contract could exceed the de minimis threshold for special entities and cause the counterparty to become a ‘swap dealer,’” the association wrote in an Aug. 14 letter. That designation will discourage trades with utilities for companies that do not want to become dealers, the group said in its letter.
The American Bankers Association has urged the CFTC to publish guidance about the types of clients that are still permitted to trade over-the-counter swaps. Dodd-Frank restricted the private swaps market to so-called eligible contract participants. The CFTC has yet to provide clarity about how banks are supposed to verify that clients meet the requirements, according to the ABA.
Separately, under the CFTC’s determination of which contracts are swaps, companies would need to start tallying foreign-exchange swaps and forwards toward the threshold for becoming swap dealers, commodity pools and so-called major swaps participants. Dodd-Frank gave the Treasury Department power to exempt foreign-exchange derivatives from most rules.
In April 2011, Treasury proposed an exemption for the trades and said the foreign-exchange market already had adequate levels of price transparency, risk management and electronic trading. A coalition of 20 firms, including Deutsche Bank AG, Bank of New York Mellon Corp. and UBS AG, asked Treasury Secretary Timothy F. Geithner for the exemption.
Treasury will probably reach a final decision by the end of the year, according to a senior Obama administration official who spoke on condition of anonymity because work on the determination is ongoing.
The Investment Company Institute and Securities Industry and Financial Markets Association are among groups that have asked regulators to grant an exemption before Oct. 12.
“Failure to do so will have substantial and unintended consequence,” the groups said in a Sept. 28 letter. “If the Treasury Secretary will be unable to do so, we request that he issue an interim determination that FX products should be exempt from the swap definition.”
Treasury and the CFTC have faced pressure from lawmakers to complete the determination and improve coordination.
“If Treasury ultimately plans to provide an exemption, it would be a complete waste of time, effort and resources to force companies which will ultimately be exempt to go through the registration process, restructure their activities or even withdraw from the FX market solely because of inconsistencies between your two agencies’ timetables,” Representative Barney Frank, a Massachusetts Democrat, said in a Sept. 21 letter to Geithner and Gensler.