In a joint statement, SEC Chair Jay Clayton and CFTC Chair J. Christopher Giancarlo said they look forward to working together to consider the various issues raised with respect to the CFTC's proposed rulemaking about the swap dealer de minimis exception. However, they said that the agencies have not interpreted joint rulemaking to be necessary with respect to the de minimis exception to the swap dealer definition.
Mr. Clayton and Mr. Giancarlo expressed commitments to harmonizing their respective agencies' swap dealer and security-based swap dealer regulations under Title VII of the Dodd-Frank Act. They further noted that the harmonization goal will be a critical part of the CFTC's and SEC's 2019 policy agendas.
Commentary / Nihal Patel
The joint statement clears a path for the CFTC to adopt certain proposals made but not adopted with respect to the CFTC's swap dealer de minimis threshold. It is also a response to concerns about those proposals raised by CFTC Commissioners Rostin Behnam and Dan M. Berkovitz, who would likely seek to block the proposal. In statements concerning the de minimis exception, Mr. Behnam viewed changes to the de minimis threshold as requiring "meaningful, congressionally-required collaboration" with the SEC and Mr. Berkovitz criticized certain aspects of the proposals as not complying with the joint rulemaking provisions in the Dodd-Frank Act.
The issue raises questions of statutory interpretation. Mr. Berkovitz's statement does a good job of outlining the issue. Essentially, Section 712(d) of Dodd-Frank requires joint rulemaking as to the definition of "swap dealer," but the amended CEA, in Section 1a(49)(D), grants the CFTC sole authority as to rulemaking for "factors with respect to" the swap dealer de minimis determination.
On the one hand, Mr. Berkovitz and Mr. Behnam are correct to observe that the proposed new IDI exception, housed as part of the de minimis exception rather than the general "swap dealer" definition, is effectively an amendment to the definition of "swap dealer" which would seem to trigger the joint rulemaking provisions. However, requiring SEC involvement in the rulemaking is a fairly technical, even hypertechnical, argument and it's questionable that the - let's say "quirky" - drafting of Dodd-Frank was intended to achieve this result as a matter of policy. While it makes sense that Congress would want the SEC and CFTC to work together to ensure that "swap dealer" and "security-based swap dealer" are generally comparably defined, Congress also chose to provide an exclusion for certain swaps made in connection with loans by insured depository institutions in the "swap dealer" definition but not the "security-based swap dealer" definition. Interpreting that exclusion would most sensibly be wholly within the jurisdiction of the CFTC. The SEC has no comparable exclusion to address and the provision itself does not involve SEC-regulated products.
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