June 4, 2018 / 4:51 PM / 6 months ago

U.S. CFTC proposes rule to keep higher threshold for swap dealers

WASHINGTON (Reuters) - The U.S. derivatives regulator on Monday proposed maintaining the existing cutoff for U.S. firms to register as swaps dealers, backing off an earlier plan that would have subjected more firms to stricter oversight under the 2010 Dodd-Frank financial reform law.

FILE PHOTO - J. Christopher Giancarlo Chairman, U.S. Commodity Futures Trading Commission, speaks at the Milken Institute 21st Global Conference in Beverly Hills, California, U.S. April 30, 2018. REUTERS/Mike Blake

The proposed rule from the Commodity Futures Trading Commission would set a permanent threshold for registration at $8 billion in notional value, stepping back earlier plans envisioned under Dodd-Frank to require more institutions to register as swap dealers.

That threshold was scheduled to fall to $3 billion by the end of 2019, barring intervention by the CFTC.

Twice before, the regulator had delayed the lower threshold from taking effect, arguing the matter merited further study.

Chairman J. Christopher Giancarlo said making the higher level permanent would ensure the regulator can monitor the major swap dealers in the market without exposing smaller nonfinancial companies that use swaps to hedge risk from the burdens of registration and stricter oversight.

“The data shows quite clearly that a drop in the de minimis definition ... would not have an appreciable impact on coverage of the marketplace,” said Giancarlo. “On the other hand, the drop in the threshold would pose unnecessary burdens for nonfinancial companies that engage in relatively small levels of swap dealing to manage business risk.”

Giancarlo said he wanted to finalize the rule by the end of 2018.

At the same meeting, the CFTC also advanced a proposed rewrite of the “Volcker Rule,” which had been first unveiled by the Federal Reserve on Wednesday.

That proposal is aimed at making compliance with the rule banning proprietary trading by banks simpler for both banks and their supervisors. The CFTC shares joint authority over the rule with four other financial regulators, who have or are expected to advance identical proposals.

Banks had criticized the original rule as onerous and subjective, and regulators have said the proposed version aims to be more workable without substantially weakening the core goal of limiting risky trading by banks.

However, liberals like Senator Elizabeth Warren were quick to criticize the easier rule, warning it could open the door to banks engaging in riskier activity while enjoying a government backstop.

Reporting by Pete Schroeder; Editing by David Gregorio

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