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U.S. weighs higher threshold for swap dealers: report
April 12, 2012 / 3:35 AM / 5 years ago

U.S. weighs higher threshold for swap dealers: report

WASHINGTON (Reuters) - Regulators are considering a threshold of up to $8 billion for determining which derivatives traders should be classified as ‘swap dealers’ and would be required to set aside more capital under rules designed to overhaul Wall Street, Bloomberg News reported on Wednesday.

The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are debating when the notional value of a company’s annual swaps trade should require registration, according to the report that cited two people briefed on the rule.

The CFTC first proposed a level of $100 million in 2010 and has steadily increased the amount. The futures regulator said last month it was weighing a $3 billion cut off, and the threshold under debate by regulators could now be as high as $8 billion, according to the Bloomberg report.

CFTC and SEC officials declined to comment.

The 2010 Dodd-Frank Wall Street overhaul law requires the SEC and the CFTC to jointly impose stringent regulatory requirements on companies such as Goldman Sachs Group Inc and Morgan Stanley, which deal heavily in derivatives.

Any company dubbed a swap dealer or major trader of swaps would be required to set aside more capital and margin. Dealers will also be subject to new business conduct standards.

Regulators have long since missed a deadline to write the final swap dealer definition rule, but for months now, they have continued to delay a final vote as they struggle to agree on a final classification.

The CFTC announced on Wednesday it would put the definitions of “swap dealer”, and “major swap participant” to a final vote on April 18. The SEC, which has to jointly approve the rules, has not scheduled a vote.

Credit default swaps, a type of over-the-counter derivative, were blamed for amplifying market distress in 2008 as the world slipped into economic recession.

The Dodd-Frank law established a framework for watchdogs to boost oversight of the previously opaque $700 trillion OTC swaps market.

The agencies have been struggling to identify a cut-off amount, concerned that a figure too low could unfairly capture legitimate hedgers in the agriculture or energy markets - players that don’t create systemic risk or problems to the marketplace.

Big banks have long expected to be classified as swap dealers.

Reporting By John Crawley; Editing by Joseph Radford

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