WASHINGTON The top U.S. futures regulator said on Wednesday firms engaged in proprietary trading that make a market in over-the-counter swaps may have to register as swaps dealers, under the financial regulation framework being implemented in the wake of the financial crisis.
Commodity Futures Trading Commission Chairman Gary Gensler said in an interview that Congress laid out a number of specific instances where an entity would be required to register as a dealer in swaps, such as if they make a market in these OTC derivatives and routinely have a regular business in dealing.
Among firms that would have to register would be those that use their own capital to trade for profit, also called proprietary trading.
"If they otherwise meet this test of market making, if they're really making a market on a routine basis and it's a regular business that's exactly what Congress said would have to register," Gensler said shortly after testifying before the House Agriculture Committee.
"That's how we proposed it," said Gensler, who gave no indication there would be a change in the final version.
The CFTC may vote on March 9 on tougher rules on the swaps market by defining who will be a designated swap dealer, making it clearer which energy companies, banks and other firms will have to set aside more funds to cover their deals.
The agency is jointly working on the measure with the Securities and Exchange Commission. The CFTC has cancelled a series of meetings this year to finalize the rule.
The new regulations could be a shock to commodity firms that will now have to set aside capital and margin requirements on some of their transactions as swap dealer and major swap participants.
Commodity companies such as Shell, BP and Vitol contend that while they may trade billions of dollars a year in swaps, their trades are done to shield themselves from market risk such as changes in commodity prices or fluctuations in currency. As a result, they should not be subjected to the new regulations.
The rules are part of the new regulatory framework being put in place to boost oversight for the previously opaque $700 trillion over-the-counter derivatives market required under the 2010 Dodd-Frank law. The CFTC is months behind in implementing many of the rules, and has so finalized nearly 30 regulations.
(Reporting By Christopher Doering; Editing by Alden Bentley)