By Douwe Miedema
WASHINGTON, March 27 Oil companies are largely
escaping the close scrutiny of derivatives trading they once
warned would harm their business and are seeking further delays
from U.S. regulators.
Beginning in January this year, the top U.S. derivatives
regulator has required that companies register as dealers if
they trade more than $8 billion in swaps a year, unless they do
so to hedge price swings in their day-to-day business.
But no large energy companies have yet joined the ranks of
the 70 or so investment banks that have registered as swap
dealers and are subject to the toughest level of oversight, two
people briefed on the matter said.
BP Plc has told the Commodity Futures Trading
Commission (CFTC) it would register, one of the two people said,
but probably not for several more months. BP declined to
Royal Dutch Shell Plc was the other oil major
considering becoming a dealer, both people said. A spokeswoman
for Shell said it would do so if and when it exceeds the
"The lack of swap dealer registration by the energy
companies has been interesting. They ... have kept that close to
their vest as to when they will register," said a third person,
speaking on the condition of anonymity.
All the sources declined to be named because they were
either not authorized to speak publicly or were protecting
A successful lobby campaign has ensured that the majority of
large energy companies sidestepped the regulatory crackdown on
the $650 trillion overall swap market following the financial
crisis that occurred late in the last decade.
However, this might pose an unexpected problem for companies
such as utilities that use swaps. That is because the smaller
companies have to go through the administrative headache of
reporting their own swaps if they do not trade with a registered
During the commodity boom in the mid-2000s, large oil
companies started offering swaps products to smaller players,
speculating on derivative markets in much the same way as
Because of their head-on battle with Wall Street, oil
traders feared being swept up by a deluge of new rules when
watchdogs clamped down on derivatives trading to prevent a
repetition of the 2007-09 financial collapse.
However, while most large banks are now listed as swap
dealers, there is not a single oil company in the registry that
is kept by the National Futures Association, and only one
commodity firm, trading group Cargill Inc.
Energy trading companies such as Total SA,
Glencore Inter national Plc, Vitol SA and
Trafigura AG initially seen as candidates to become
swap dealers are now considered unlikely to do so.
And there was still some lack of clarity about whether
certain exotic swap products would count toward the CFTC's
threshold, the second of the two people said. If that was the
case, more companies might have to sign up.
The CFTC's $8 billion annual threshold looks comfortably
higher than the trading volume of most energy companies and is
well above the agency's initial much lower cap, which was raised
several times after lobbying by energy companies.
Another reason for the lower-than-expected registrations is
that market participants have stopped using swaps and are
instead using similar derivatives called futures, which do not
count toward the threshold.
"Many of the (companies) have made a lot of changes, so that
they are ... below the $8 billion swap dealer threshold," said
the third person, who works in the derivatives industry.
That is a problem for smaller firms hoping that oil majors
would take on the data reporting. If an end-user enters into a
swap with a swap dealer, the latter has the reporting
obligation. But if two end-users engage in a swap, they need to
decide between themselves who reports the trade to one of three
"We feel we're not seeing ... as ... many come forward as
we'd expect," said a fourth person about the number of companies
that had started reporting data.
"We think that is more to do with the lack of recognition of
the rules ... some of that will be because they don't really
deal with the CFTC as a regulator at all."
Shedding more light on the opaque swaps market through
better data reporting is a key part of the Dodd-Frank overhaul
of Wall Street and the CFTC now demands that any swap position
is sent to one of the data warehouses from April 10. But two
groups representing end-users have asked to push that back six
months because many of their members are struggling to meet the
The Commercial Energy Working Group requested a delay in a
letter to the CFTC on March 1. It says its members are oil
companies, energy utilities and others.
PAYING THE PIPER
End-users hope more oil companies will be registered as swap
dealers in half a year's time and that the delay, if granted,
would free them from having to report the often complex data.
The Coalition for Derivatives End-Users, a much bigger
lobby, has also asked for a six-month delay, albeit for
different reasons involving other derivatives such as interest
rate and credit default swaps.
The CFTC - which has often granted temporary relief as it
rushed to finish dozens of new rules mandated under the
Dodd-Frank law - said it could not comment on the request
because it was still deliberating the matter.
The agency admitted to problems with the data when
Commissioner Scott O'Malia said it could not upload the vast
files it already gets without crashing its computers.
The data are collected by three Swap Data Repositories run
by the CME Group Inc, the world's largest futures
exchange; the IntercontinentalExchange Inc and the
Depository Trust and Clearing Corp.
"It's quite a big ask to understand the rules and send all
the data," the fourth person added. "Everybody that we've dealt
with has struggled to try and compile that data set and probably
end-users will do more so."