The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") analyzed alternative metrics for calculating the swap dealer ("SD") de minimis threshold. The report came in response to a request by CFTC Chair J. Christopher Giancarlo.
In the report, DSIO analyzes potential effects that might result from excluding on-venue (i.e., Designated Contract Market or Swap Execution Facility-executed) and/or cleared swaps from counting for purposes of the de minimis threshold. The report uses data drawn from the de minimis rulemaking in 2018 and draws from data reported to swap data repositories. DSIO identified entities "potentially engaging in swap dealing activity" and estimates "regulatory coverage" (i.e., the amount of swaps that would involve at least one registered SD) if on-venue and/or cleared swaps were excluded from the de minimis counting requirement.
CFTC Commissioner Brian Quintenz stated that the report demonstrates: (1) that regulatory coverage of the market remains the same even with on-venue and cleared swaps excluded and (2) the "glaring deficiencies" of using notional amounts for de minimis determinations.
Commentary / Nihal Patel
In the report, DSIO notes that it determined entities "potentially engaging in swap dealing activity" (a determination that can be difficult to make) without explaining exactly how that determination was made. DSIO also stated that a filter requiring a minimum of 10 counterparties was established. The data is presented with a series of defined terms and references back to row coding that makes it somewhat difficult to digest. It is interesting that the CFTC might look to rely on swap data repositories data from 2017 for making policy decisions when elsewhere the CFTC has suggested that swap data repository data is "substantially wrong and inaccurate." This may just be a case of the best of what is available.
In any event, the underlying aims of the report are appropriate. Rethinking the policy behind the de minimis rule continues to make sense, and Mr. Quintenz continues to be the Commissioner most interested in seeing that the CFTC gets around to doing that.
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