27444 Federal Register / Vol. 83, No. 113 / Tuesday, June 12, 2018 / Proposed Rules 

1 5 U.S.C. 552. 

2 17 CFR 145.9. Commission regulations referred 

to herein are found at 17 CFR chapter I. 

3Public Law 111–203, 124 Stat. 1376 (2010), 

available at https://www.cftc.gov/idc/groups/public/ 

@swaps/documents/file/hr4173_enrolledbill.pdf. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038–AE68 

De Minimis Exception to the Swap 

Dealer Definition 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing to amend the de 

minimis exception within the ‘‘swap 

dealer’’ definition in the Commission’s 

regulations by: Setting the aggregate 

gross notional amount threshold for the 

de minimis exception at $8 billion in 

swap dealing activity entered into by a 

person over the preceding 12 months; 

excepting from consideration when 

calculating the aggregate gross notional 

amount of a person’s swap dealing 

activity for purposes of the de minimis 

threshold: Swaps entered into with a 

customer by an insured depository 

institution in connection with 

originating a loan to that customer; 

swaps entered into to hedge financial or 

physical positions; and swaps resulting 

from multilateral portfolio compression 

exercises; and providing that the 

Commission may determine the 

methodology to be used to calculate the 

notional amount for any group, 

category, type, or class of swaps, and 

delegating to the Director of the Division 

of Swap Dealer and Intermediary 

Oversight (‘‘DSIO’’) the authority to 

make such determinations (collectively, 

the ‘‘Proposal’’). In addition, the 

Commission is seeking comment on the 

following additional potential changes 

to the de minimis exception: Adding a 

minimum dealing counterparty count 

threshold and a minimum dealing 

transaction count threshold; excepting 

from consideration when calculating the 

aggregate gross notional amount for 

purposes of the de minimis threshold 

swaps that are exchange-traded and/or 

cleared; and excepting from 

consideration when calculating the 

aggregate gross notional amount for 

purposes of the de minimis threshold 

swaps that are categorized as nondeliverable forward transactions. 

DATES: Comments must be received on 

or before August 13, 2018. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AE68, by any of 

the following methods: 

• CFTC Comments Portal: https://

comments.cftc.gov. Select the ‘‘Submit 

Comments’’ link for this rulemaking and 

follow the instructions on the Public 

Comment Form. 

• Mail: Send to Christopher 

Kirkpatrick, Secretary of the 

Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW, 

Washington, DC 20581. 

• Hand Delivery/Courier: Follow the 

same instructions as for Mail, above. 

Please submit your comments using 

only one of these methods. To avoid 

possible delays with mail or in-person 

deliveries, submissions through the 

CFTC Comments Portal are encouraged. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to https://

comments.cftc.gov. You should submit 

only information that you wish to make 

available publicly. If you wish for the 

Commission to consider information 

that is exempt from disclosure under the 

Freedom of Information Act (‘‘FOIA’’),1

a petition for confidential treatment of 

the exempt information may be 

submitted according to the procedures 

set forth in § 145.9 of the Commission’s 

regulations.2

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse, or 

remove any or all of your submission 

from https://comments.cftc.gov that it 

may deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under FOIA. 

FOR FURTHER INFORMATION CONTACT: 

Matthew Kulkin, Director, 202–418– 

5213, mkulkin@cftc.gov, Erik Remmler, 

Deputy Director, 202–418–7630, 

eremmler@cftc.gov, Rajal Patel, 

Associate Director, 202–418–5261, 

rpatel@cftc.gov, or Jeffrey Hasterok, Data 

and Risk Analyst, 646–746–9736, 

jhasterok@cftc.gov, Division of Swap 

Dealer and Intermediary Oversight; 

Bruce Tuckman, Chief Economist, 202– 

418–5624, btuckman@cftc.gov or Scott 

Mixon, Associate Director, 202–418– 

5771, smixon@cftc.gov, Office of the 

Chief Economist; Mark Fajfar, Assistant 

General Counsel, 202–418–6636, 

mfajfar@cftc.gov, Office of General 

Counsel, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Statutory Authority 

B. Regulatory History 

C. Policy Considerations 

1. Swap Dealer Registration Policy 

Considerations 

2. De Minimis Exception Policy 

Considerations 

D. De Minimis Calculation 

II. The Proposal 

A. $8 Billion De Minimis Threshold 

1. Methodology 

2. Data and Analysis 

3. Request for Comments 

B. Swaps Entered Into by Insured 

Depository Institutions in Connection 

With Loans to Customers 

1. Background 

2. Proposal 

3. Request for Comments 

C. Swaps Entered Into To Hedge Financial 

or Physical Positions 

1. Background and Proposal 

2. Request for Comments 

D. Swaps Resulting From Multilateral 

Portfolio Compression Exercises 

1. Background and Proposal 

2. Request for Comments 

E. Methodology for Calculating Notional 

Amounts 

1. Background and Proposal 

2. Request for Comments 

III. Other Considerations 

A. Dealing Counterparty Count and Dealing 

Transaction Count Thresholds 

1. Background 

2. Potential Thresholds 

B. Exchange-Traded and/or Cleared Swaps 

C. Non-Deliverable Forwards 

IV. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

C. Cost-Benefit Considerations 

1. $8 Billion De Minimis Threshold 

2. Swaps Entered Into by Insured 

Depository Institutions in Connection 

With Loans to Customers 

3. Swaps Entered Into To Hedge Financial 

or Physical Positions 

4. Swaps Resulting From Multilateral 

Portfolio Compression Exercises 

5. Methodology for Calculating Notional 

Amounts 

6. Request for Comment 

D. Antitrust Considerations 

I. Background 

A. Statutory Authority 

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (‘‘DoddFrank Act’’) was signed into law on July 

21, 2010.3 Title VII of the Dodd-Frank 

Act established a statutory framework to 

reduce risk, increase transparency, and 

promote market integrity within the 


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4The CEA is found at 7 U.S.C. 1, et seq. 

5See 7 U.S.C. 6s(a)(1). 

6 Dodd-Frank Act section 712(d)(1). See the 

definitions of ‘‘swap dealer’’ in CEA section 1a(49) 

and § 1.3 of Commission regulations. 7 U.S.C. 

1a(49); 17 CFR 1.3. 

7See Dodd-Frank Act section 721. 

8 7 U.S.C. 1a(49)(A). In general, a person that 

satisfies any one of these prongs is deemed to be 

engaged in swap dealing activity. 

9 7 U.S.C. 1a(49)(D). 

10 7 U.S.C. 1a(49)(A). 

11Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant’’ and ‘‘Eligible Contract Participant,’’ 75 

FR 80174 (proposed Dec. 21, 2010). 

12Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant’’ and ‘‘Eligible Contract Participant,’’ 77 

FR 30596 (May 23, 2012). 

13See 17 CFR 1.3, Swap dealer. As discussed in 

more detail in section II, the Commission notes that 

a joint rulemaking with the SEC is not required to 

amend the de minimis exception, pursuant to 

paragraph (4)(v) of the SD Definition. See 17 CFR 

1.3, Swap dealer, paragraph (4)(v); 77 FR at 30634 

n.464. 

14 17 CFR 1.3, Swap dealer, paragraph (4)(i)(A). 

Paragraph (4)(i)(A) also provides for a de minimis 

threshold of $25 million with regard to swaps in 

which the counterparty is a ‘‘special entity’’ 

(excluding ‘‘utility special entities’’ as provided in 

paragraph (4)(i)(B) of the SD Definition) as defined 

in CEA section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C). This 

proposal would not change the de minimis 

threshold for swaps with special entities. 

15See Order Establishing De Minimis Threshold 

Phase-In Termination Date, 81 FR 71605 (Oct. 18, 

2016); Order Establishing a New De Minimis 

Threshold Phase-In Termination Date, 82 FR 50309 

(Oct. 31, 2017). 

16See 77 FR at 30632–34. In making their 

determination, the Commissions considered the 

limited and incomplete swap market data that was 

available at that time and concluded that the $3 

billion level appropriately considers the relevant 

regulatory goals. Id. at 30632. The Commissions 

found merit in determining the threshold by 

multiplying the estimated size of the domestic swap 

market by a 0.001 percent ratio suggested by several 

commenters. Id. at 30633. 

17 Id. at 30633. 

18See id. at 30633–34. 

19 17 CFR 1.3, Swap dealer, paragraph (4)(ii)(B). 

20 17 CFR 1.3, Swap dealer, paragraph (4)(ii)(C). 

21See Swap Dealer De Minimis Exception 

Preliminary Report (Nov. 18, 2015), available at 

Continued 

financial system by regulating the swap 

market. Among other things, the DoddFrank Act amended the Commodity 

Exchange Act (‘‘CEA’’) 4 to provide for 

the registration and regulation of swap 

dealers (‘‘SDs’’).5 The Dodd-Frank Act 

directed the CFTC and the U.S. 

Securities and Exchange Commission 

(‘‘SEC’’ and together with the CFTC, 

‘‘Commissions’’) to jointly further 

define, among other terms, the term 

‘‘swap dealer,’’ 6 and to exempt from 

designation as an SD a person that 

engages in a de minimis quantity of 

swap dealing.7

CEA section 1a(49) defines the term 

‘‘swap dealer’’ to include any person 

who: (1) Holds itself out as a dealer in 

swaps; (2) makes a market in swaps; (3) 

regularly enters into swaps with 

counterparties as an ordinary course of 

business for its own account; or (4) 

engages in any activity causing the 

person to be commonly known in the 

trade as a dealer or market maker in 

swaps (collectively referred to as ‘‘swap 

dealing,’’ ‘‘swap dealing activity,’’ or 

‘‘dealing activity’’).8 The statute also 

requires the Commission to promulgate 

regulations to establish factors with 

respect to the making of a determination 

to exempt from designation as an SD an 

entity engaged in a de minimis quantity 

of swap dealing.9 CEA section 1a(49) 

further provides that in no event shall 

an insured depository institution be 

considered to be an SD to the extent it 

offers to enter into a swap with a 

customer in connection with originating 

a loan with that customer.10

B. Regulatory History 

Pursuant to the statutory 

requirements, in December 2010, the 

Commissions issued a proposing release 

further defining, among other things, the 

term ‘‘swap dealer’’ (‘‘SD Definition 

Proposing Release’’).11 Subsequently, in 

May 2012, the Commissions issued an 

adopting release (‘‘SD Definition 

Adopting Release’’) 12 further defining, 

among other things, the term ‘‘swap 

dealer’’ in § 1.3 of the CFTC’s 

regulations (the ‘‘SD Definition’’) and 

providing for a de minimis exception in 

paragraph (4) therein.13 The de minimis 

exception states that a person shall not 

be deemed to be an SD unless its swaps 

connected with swap dealing activities 

exceed an aggregate gross notional 

amount (‘‘AGNA’’) threshold of $3 

billion (measured over the prior 12- 

month period), subject to a phase-in 

period during which the AGNA 

threshold is set at $8 billion.14 The 

phase-in period was originally 

scheduled to terminate on December 31, 

2017, and the de minimis threshold was 

scheduled to decrease to $3 billion at 

that time. However, as discussed below, 

pursuant to paragraph (4)(i)(D) of the SD 

Definition, the Commission issued two 

successive orders to set new termination 

dates, and the phase-in period is 

currently scheduled to terminate on 

December 31, 2019.15

When the $3 billion de minimis 

exception threshold was established, the 

Commissions explained that the 

information then available regarding 

certain portions of the swap market was 

limited, and that they expected more 

information to be available in the future 

(following the implementation of swap 

data reporting), which would enable the 

Commissions to make a more informed 

assessment of the proper level for the de 

minimis exception and to revise it as 

appropriate.16 In establishing the AGNA 

threshold of $3 billion, the 

Commissions stated that ‘‘there may be 

some uncertainty regarding the exact 

level of swap dealing activity, measured 

in terms of a gross notional amount of 

swaps that should be regarded as de 

minimis.’’ 17 In light of this uncertainty, 

the Commissions provided for the 

phase-in period during which the de 

minimis threshold was set at $8 billion, 

explaining that this would: (1) Permit 

market participants and the 

Commissions to become familiar with 

the application of the SD Definition and 

regulatory requirements; (2) afford the 

Commissions time to study the swap 

market as it evolved and to consider 

new information about the swap market 

that became available (e.g., through 

swap data reporting); (3) provide 

potential SDs that engage in smaller 

amounts of activity additional time to 

adjust their business practices, while at 

the same time preserving a focus on the 

regulation of the largest and most 

significant SDs; and (4) address 

comments suggesting that the de 

minimis threshold be set higher initially 

to provide for efficient use of regulatory 

resources and that implementation of 

SD requirements in general be phased.18

In recognition of these limitations and 

in anticipation of additional swap 

market data becoming available to the 

CFTC through the reporting of 

transactions to swap data repositories 

(‘‘SDRs’’), paragraph (4)(ii)(B) of the SD 

Definition was adopted, which directed 

CFTC staff to complete and publish for 

public comment a report on topics 

relating to the definition of the term 

‘‘swap dealer’’ and the de minimis 

threshold as appropriate, based on the 

availability of data and information.19

Paragraph (4)(ii)(C) of the SD Definition 

provided that after giving due 

consideration to the staff report and any 

associated public comment, the CFTC 

may either set a termination date for the 

phase-in period or issue a notice of 

proposed rulemaking to modify the de 

minimis exception.20

In the interest of providing ample 

opportunity for public input on the 

relevant policy considerations, as well 

as on staff’s preliminary analysis of the 

SDR data, and to ensure that the 

Commission had as much information 

and data as practicable for purposes of 

its determinations with respect to the de 

minimis exception, in November 2015 

staff issued a preliminary report 

concerning the de minimis exception 

(‘‘Preliminary Staff Report’’).21 The 


pmangrum on DSK30RV082PROD with PROPOSALS2
27446 Federal Register / Vol. 83, No. 113 / Tuesday, June 12, 2018 / Proposed Rules 

http://www.cftc.gov/idc/groups/public/@swaps/

documents/file/dfreport_sddeminis_1115.pdf. 

22For the Preliminary Staff Report, staff analyzed 

data from April 1, 2014 through March 31, 2015. 

23The comment letters are available on the 

Commission website at http://comments.cftc.gov/

PublicComments/CommentList.aspx?id=1634. 

24See Swap Dealer De Minimis Exception Final 

Staff Report (Aug. 15, 2016), available at http://

www.cftc.gov/idc/groups/public/@swaps/

documents/file/dfreport_sddeminis081516.pdf. 

25For the Final Staff Report, staff analyzed data 

from April 1, 2015 through March 31, 2016. 

26 Given that all of the CEA section 4s 

requirements have not yet been implemented by 

regulation, the term ‘‘registered SD’’ refers to an 

entity that is a provisionally registered SD. See 17 

CFR 3.2(c)(3)(iii). 

27See section II.A below for additional discussion 

regarding the Staff Reports. 

28 81 FR 71605. 

29 82 FR 50309. 

30 Dodd-Frank Act, Preamble (indicating that the 

purpose of the Dodd-Frank Act was to promote the 

financial stability of the United States by improving 

accountability and transparency in the financial 

system, to end ‘‘too big to fail,’’ to protect the 

American taxpayer by ending bailouts, to protect 

consumers from abusive financial services 

practices, and for other purposes). 

31For example, registered SDs have specific 

requirements for risk management programs and 

margin. See, e.g., 17 CFR 23.600; 17 CFR 23.150– 

23.161. 

32For example, registered SDs are subject to 

rigorous external business conduct standard 

regulations designed to provide counterparty 

protections. See, e.g., 17 CFR 23.400–23.451. 

33 77 FR at 30628 (‘‘On the one hand, a de 

minimis exception, by its nature, will eliminate key 

counterparty protections provided by Title VII for 

particular users of swaps and security-based 

swaps.’’). 

34 Id. at 30629 (‘‘The statutory requirements that 

apply to [SDs] . . . include requirements . . . 

aimed at helping to promote effective operation and 

transparency of the swap . . . markets.’’). See also 

id. at 30703 (‘‘Those who engage in swaps with 

entities that elude [SD] or major swap participant 

status and the attendant regulations could be 

exposed to increased counterparty risk; customer 

protection and market orderliness benefits that the 

regulations are intended to provide could be muted 

or sacrificed, resulting in increased costs through 

reduced market integrity and efficiency. . . .’’). 

35See, e.g., 17 CFR 23.200–23.205; 17 CFR part 

45; 17 CFR 23.502–23.503. 

36See 77 FR at 30628. 

37See 77 FR at 30628–30, 30707–08. 

38 In considering the appropriate de minimis 

threshold, the Commissions stated that ‘‘exclud[ing] 

entities whose dealing activity is sufficiently 

modest in light of the total size, concentration and 

other attributes of the applicable markets can be 

useful in avoiding the imposition of regulatory 

burdens on those entities for which dealer 

regulation would not be expected to contribute 

significantly to advancing the customer protection, 

market efficiency and transparency objectives of 

dealer regulation.’’ Id. at 30629–30. 

Preliminary Staff Report sought to 

analyze the available swap data, in 

conjunction with relevant policy 

considerations, to assess the $8 billion 

AGNA de minimis threshold and 

potential alternatives to the AGNA de 

minimis exception.22 Commission staff 

received 24 comment letters responsive 

to the Preliminary Staff Report.23

After consideration of the public 

comments received in response to the 

Preliminary Staff Report, and further 

data analysis, in August 2016 staff 

issued a final staff report 24 concerning 

the de minimis exception (‘‘Final Staff 

Report,’’ and together with the 

Preliminary Staff Report, ‘‘Staff 

Reports’’). The Final Staff Report 

refreshed much of the analysis 

conducted in the Preliminary Staff 

Report for a subsequent review period,25

and similar to the Preliminary Staff 

Report, discussed observations with 

respect to the $8 billion de minimis 

threshold, as well as the de minimis 

exception alternatives considered in the 

Preliminary Staff Report, in light of 

refreshed data and comments received. 

The data analysis in the Staff Reports 

provided some insights into the 

effectiveness of the de minimis 

exception as currently implemented. 

For example, staff analyzed the number 

of swap transactions involving at least 

one registered SD,26 which is indicative 

of the extent to which swaps are subject 

to SD regulation at the current $8 billion 

threshold. Data reviewed for the Final 

Staff Report indicated that 

approximately 96 percent of all reported 

swap transactions involved at least one 

registered SD.27

To provide additional time for more 

information to become available to 

reassess the de minimis exception, in 

October 2016 the Commission issued an 

order, pursuant to paragraph (4)(ii)(C)(1) 

of the SD Definition, establishing 

December 31, 2018, as the new 

termination date for the $8 billion 

phase-in period.28 As noted above, 

absent any action, the phase-in period 

would have terminated, and the de 

minimis threshold would have 

decreased to $3 billion, on December 31, 

2017. To enable staff to conduct 

additional analysis, in October 2017 the 

Commission further extended the phasein period to December 31, 2019.29

Generally, the extensions provided 

additional time for Commission staff to 

conduct more complete data analysis 

regarding the de minimis exception, and 

gave market participants additional time 

to begin preparing for a change, if any, 

to the de minimis exception threshold. 

C. Policy Considerations 

1. Swap Dealer Registration Policy 

Considerations 

In adopting the SD Definition, the 

Commissions identified the policy goals 

underlying SD registration and 

regulation generally to include reducing 

systemic risk, increasing counterparty 

protections, and increasing market 

efficiency, orderliness, and 

transparency. 

Reducing systemic risk: The DoddFrank Act was enacted in the wake of 

the financial crisis of 2008, in 

significant part, to reduce systemic risk, 

including the risk to the broader U.S. 

financial system created by 

interconnections in the swap market.30

Pursuant to the Dodd-Frank Act, the 

Commission has adopted regulations 

designed to mitigate the potential 

systemic risk inherent in the previously 

unregulated swap market.31

Increasing counterparty protections: 

Providing regulatory protections for 

swap counterparties who may be less 

experienced or knowledgeable about the 

swap products offered by SDs 

(particularly end-users who use swaps 

for hedging or investment purposes) is 

a fundamental policy goal advanced by 

the regulation of SDs.32 The 

Commissions recognized that a 

narrower or smaller de minimis 

exception would increase the number of 

counterparties that could potentially 

benefit from those regulatory 

protections.33

Increasing market efficiency, 

orderliness, and transparency: 

Increasing swap market efficiency, 

orderliness, and transparency is another 

goal of SD regulation.34 Regulations 

requiring SDs, for example, to keep 

detailed daily trading records, report 

trade information, and engage in 

portfolio reconciliation and 

compression exercises help achieve 

these market benefits.35

2. De Minimis Exception Policy 

Considerations 

The Commissions also recognized 

that, consistent with Congressional 

intent, ‘‘an appropriately calibrated de 

minimis exception has the potential to 

advance other interests.’’ 36 The 

Commissions explained that these 

interests include increasing efficiency, 

allowing limited swap dealing in 

connection with other client services, 

encouraging new participants to enter 

the market, and focusing regulatory 

resources.37 The policy objectives 

underlying the de minimis exception 

are designed to encourage participation 

and competition by allowing persons to 

engage in a de minimis amount of 

dealing without incurring the costs of 

registration and regulation.38

Increasing efficiency: A de minimis 

exception based on an objective test 

with a limited degree of complexity 

enables entities to engage in a lower 

level of swap dealing with limited 

concerns about whether their activities 


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39 Id. at 30628–29 (‘‘[T]he de minimis exception 

may further the interest of regulatory efficiency 

when the amount of a person’s dealing activity is, 

in the context of the relevant market, limited to an 

amount that does not warrant registration . . . . In 

addition, the exception can provide an objective 

test . . . .’’). 

40 Id. at 30707–08 (‘‘On the other hand, requiring 

market participants to consider more variables in 

evaluating application of the de minimis exception 

would likely increase their costs to make this 

determination.’’). 

41 Id. at 30629, 30708. 

42 Id. at 30629. 

43 Id. at 30628–29. 

44 Id. at 30628. See also SD Definition Proposing 

Release, 75 FR at 80179 (The de minimis exception 

‘‘should apply only when an entity’s dealing 

activity is so minimal that applying dealer 

regulations to the entity would not be warranted.’’). 

45 17 CFR 1.3, Swap dealer, paragraph (4)(i)(A); 

Interpretive Guidance and Policy Statement 

Regarding Compliance With Certain Swap 

Regulations, 78 FR 45292, 45323 (July 26, 2013). 

46See 17 CFR 1.3, Swap dealer, paragraph (5); 77 

FR at 30620–24. 

47See 17 CFR 1.3, Swap dealer, paragraph (6)(i); 

77 FR at 30624–25. 

48See 17 CFR 1.3, Swap dealer, paragraph (6)(ii); 

77 FR at 30625–26. 

49See 17 CFR 1.3, Swap dealer, paragraph (6)(iii); 

77 FR at 30611–14. 

50See 17 CFR 1.3, Swap dealer, paragraph (6)(iv); 

77 FR at 30614. The floor trader exclusion was also 

addressed in no-action relief. See CFTC Staff Letter 

No. 13–80, No-Action Relief from Certain 

Conditions of the Swap Dealer Exclusion for 

Registered Floor Traders (Dec. 23, 2013), available 

at https://www.cftc.gov/idc/groups/public/@

lrlettergeneral/documents/letter/13-80.pdf. 

51See Determination of Foreign Exchange Swaps 

and Foreign Exchange Forwards Under the 

Commodity Exchange Act, 77 FR 69694, 69704–05 

(Nov. 20, 2012); Further Definition of ‘‘Swap,’’ 

‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap 

Agreement’’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping, 77 FR 48208, 48253 

(Aug. 13, 2012). 

52 17 CFR 32.3; Commodity Options, 77 FR 

25320, 25326 n.39 (Apr. 27, 2012). 

53See 78 FR 45292; CFTC Staff Letter No. 12–61, 

No-Action Relief: U.S. Bank Wholly Owned by 

Foreign Entity May Calculate De Minimis 

Threshold Without Including Activity From Its 

Foreign Affiliates (Dec. 20, 2012), available at 

https://www.cftc.gov/sites/default/files/idc/groups/

public/@lrlettergeneral/documents/letter/12-61.pdf; 

CFTC Staff Letter No. 12–71, No-Action Relief: U.S. 

Bank Wholly Owned by Foreign Entity May 

Calculate De Minimis Threshold Without Including 

Activity From Its Foreign Affiliates (Dec. 31, 2012), 

available at https://www.cftc.gov/idc/groups/public/ 

%40lrlettergeneral/documents/letter/12-71.pdf; and 

CFTC Letter No. 18–13, No-Action Position: Relief 

for Certain Non-U.S. Persons from Including Swaps 

with International Financial Institutions in 

Determining [SD] and Major Swap Participant 

Status (May 16, 2018), available at https://

www.cftc.gov/sites/default/files/idc/groups/public/

%40lrlettergeneral/documents/letter/2018-05/18- 

13.pdf. 

54CFTC Staff Letter No. 12–62, No-Action Relief: 

Request that Certain Swaps Not Be Considered in 

Calculating Aggregate Gross Notional Amount for 

Purposes of the Swap Dealer De Minimis Exception 

for Persons Engaging in Multilateral Portfolio 

Compression Activities (Dec. 21, 2012), available at 

https://www.cftc.gov/idc/groups/public/@

lrlettergeneral/documents/letter/12-62.pdf. 

55See 77 FR at 30693. 

would require registration.39 The de 

minimis exception thereby fosters 

efficient application of the SD 

Definition. Additionally, the 

Commission is of the view that the 

potential for regular or periodic changes 

to the de minimis threshold may reduce 

its efficacy by making it challenging for 

persons to calibrate their swap dealing 

activity as appropriate for their business 

models. Further, the existing de 

minimis exception reduces regulatory 

uncertainty and increases efficiency by 

establishing a simple threshold test for 

all of a person’s swaps connected with 

swap dealing activity. Conversely, the 

more variables included in the de 

minimis calculation, the more complex 

the determination of whether a person 

must register, potentially resulting in 

less efficiency.40

Allowing limited ancillary dealing: A 

de minimis exception allows persons to 

accommodate existing clients that have 

a need for swaps (on a limited basis) 

along with other services.41 This interest 

enables end-users to continue 

transacting within existing business 

relationships, for example to hedge 

interest rate or currency risk. 

Encouraging new participants: A de 

minimis exception also promotes 

competition by allowing a person to 

engage in some swap dealing activities 

without immediately incurring the 

regulatory costs associated with SD 

registration and regulation.42 Without a 

de minimis exception, SD regulation 

could become a barrier to entry that may 

stifle competition. An appropriately 

calibrated de minimis exception could 

lower the barrier to entry of becoming 

an SD by allowing smaller participants 

to gradually expand their business until 

the scope and scale of their activity 

warrants regulation (and the costs 

involved with compliance). 

Focusing regulatory resources: 

Finally, the de minimis exception also 

increases regulatory efficiency by 

enabling the Commission to focus its 

limited resources on entities whose 

swap dealing activity is sufficient in 

size and scope to warrant oversight.43

The Commissions explained that 

‘‘implementing the de minimis 

exception requires a careful balancing 

that considers the regulatory interests 

that could be undermined by an unduly 

broad exception as well as those 

regulatory interests that may be 

promoted by an appropriately limited 

exception.’’ 44 A narrower de minimis 

exception would likely mean that a 

greater number of entities would be 

required to register as SDs and become 

subject to the regulatory framework 

applicable to registered SDs. However, a 

de minimis exception that is too limited 

could, for example, discourage persons 

from engaging in swap dealing activity 

in order to avoid the burdens associated 

with SD regulation. 

D. De Minimis Calculation 

Whether a person’s activities 

constitute swap dealing is based on a 

facts and circumstances analysis. 

Generally, a person must count towards 

its AGNA de minimis threshold all 

swaps it enters into for dealing purposes 

over any rolling 12-month period. In 

addition, each person whose own swaps 

do not exceed the de minimis threshold 

must also include in its de minimis 

calculation the AGNA of swaps of any 

other unregistered affiliate controlling, 

controlled by, or under common control 

with that person (referred to as 

‘‘aggregation’’).45

Pursuant to various CFTC regulations, 

certain swaps, subject to specific 

conditions, need not be considered in 

determining whether a person is an SD, 

including: (1) Swaps entered into by an 

insured depository institution (‘‘IDI’’) 

with a customer in connection with 

originating a loan to that customer; 46 (2) 

swaps between affiliates; 47 (3) swaps 

entered into by a cooperative with its 

members; 48 (4) swaps hedging physical 

positions; 49 (5) swaps entered into by 

floor traders; 50 (6) certain foreign 

exchange (‘‘FX’’) swaps and FX 

forwards; 51 and (7) commodity trade 

options.52 In addition, certain crossborder swaps 53 and swaps resulting 

from multilateral portfolio compression 

exercises 54 need not be counted 

towards the person’s de minimis 

threshold, subject to certain conditions, 

pursuant to CFTC interpretive guidance 

and staff letters. Further, certain intergovernmental or quasi-governmental 

international financial institutions are 

not included within the term ‘‘swap 

dealer.’’ 55

II. The Proposal 

Given the more complete information 

now available regarding certain portions 

of the swap market, the data analytical 

capabilities developed since the SD 

regulations were adopted, and five years 

of implementation experience, the 

Commission believes that modifications 

to the de minimis exception are 

necessary to increase efficiency, 

flexibility, and clarity in the application 

of the SD Definition. 

Additionally, in March 2017, 

Chairman Giancarlo initiated an agencywide internal review of CFTC 

regulations and practices to identify 

those areas that could be simplified to 

make them less burdensome and costly 


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56See Remarks of then-Acting Chairman J. 

Christopher Giancarlo before the 42nd Annual 

International Futures Industry Conference in Boca 

Raton, FL (Mar. 15, 2017), available at https://

www.cftc.gov/PressRoom/SpeechesTestimony/

opagiancarlo-20. 

57Project KISS, 82 FR 21494 (May 9, 2017), 

amended by 82 FR 23765 (May 24, 2017). The 

Federal Register Request for Information, and the 

suggestion letters filed by the public are available 

at https://comments.cftc.gov/KISS/

KissInitiative.aspx. 

58See Letters from BP Energy Company and BP 

Products North America Inc. (collectively, ‘‘BP’’) 

(Sep. 29, 2017); Chatham Financial Corp. 

(‘‘Chatham’’) (Sep. 29, 2017); Coalition for 

Derivatives End-Users (‘‘CDE’’) (Sep. 29, 2017); The 

Commercial Energy Working Group (‘‘CEWG’’) 

(Sep. 30, 2017); Commodity Markets Council 

(‘‘CMC’’) (Sep. 29, 2017); EDF Trading North 

America, LLC (‘‘EDF’’) (Sep. 29, 2017); Edison 

Electric Institute and the Electric Power Supply 

Association (collectively, ‘‘EEI/EPSA’’) (Sep. 29, 

2017); Financial Services Roundtable (‘‘FSR’’) (Sep. 

30, 2017); Futures Industry Association (‘‘FIA’’) 

(Sep. 28, 2017); Institute of International Bankers 

(‘‘IIB’’) (Sep. 29, 2017); International Energy Credit 

Association (‘‘IECA’’) (Sep. 30, 2017); International 

Swaps and Derivatives Association, Inc. (‘‘ISDA’’) 

(Sep. 29, 2017); Natural Gas Supply Association 

(‘‘NGSA’’) (Sep. 29, 2017); Northern Trust Company 

(‘‘Northern Trust’’) (Sep. 21, 2017); Securities 

Industry and Financial Markets Association 

(‘‘SIFMA’’) (Sep. 29, 2017); Custom House USA, 

LLC and Western Union Business Solutions (USA), 

LLC (collectively, ‘‘Western Union’’) (Sep. 25, 

2017); and Custom House USA, LLC, Western 

Union Business, GPS Capital Markets, Inc., and 

Associated Foreign Exchange, Inc. (collectively, 

‘‘WU/GPS/AFEX’’) (Sep. 29, 2017). 

59These proposed exceptions would be in 

addition to the existing exclusions in paragraphs (5) 

and (6)(iii) of the SD Definition for swaps entered 

into by IDIs and swaps entered into for the purpose 

of hedging physical positions, respectively. 60See CFTC Staff Letter No. 12–62, supra note 54. 61 7 U.S.C. 1a(49)(D). See also 17 CFR 1.3, Swap 

dealer, paragraph (4)(v). 62 77 FR at 30634 n.464 (‘‘We do not interpret the 

joint rulemaking provisions of section 712(d) of the 

Dodd-Frank Act to require joint rulemaking here, 

because such an interpretation would read the term 

‘‘Commission’’ out of CEA section 1a(49)(D) (and 

Exchange Act section 3(a)(71)(D)), which 

themselves were added by the Dodd-Frank Act.’’). 

63As required by § 712(a)(1) of the Dodd-Frank 

Act. 

64See ICI v. CFTC, 720 F.3d 370, 379 (D.C. Cir. 

2013) (‘‘[A]s the Supreme Court has emphasized, 

‘[n]othing prohibits federal agencies from moving in 

an incremental manner.’ ’’) (quoting FCC v. Fox 

Television Stations, Inc., 556 U.S. 502, 522 (2009)). 

65See Introducing ENNs: A Measure of the Size 

of Interest Rate Swap Markets (Jan. 2018), available 

at http://www.cftc.gov/idc/groups/public/@

economicanalysis/documents/file/oce_

enns0118.pdf; Remarks of Chairman J. Christopher 

Giancarlo before Derivcon 2018, New York City, NY 

(Feb. 1, 2018), available at https://www.cftc.gov/

PressRoom/SpeechesTestimony/opagiancarlo35. 

(‘‘Project KISS’’).56 The Commission 

subsequently published in the Federal 

Register a Request for Information 

soliciting suggestions from the public 

regarding how the Commission’s 

existing rules, regulations, or practices 

could be applied in a simpler, less 

burdensome, and less costly manner.57

As discussed below, a number of 

responses submitted pursuant to the 

Project KISS Request for Information 

also support modifications to the de 

minimis exception.58

The amendments proposed herein 

support a clearer and more streamlined 

application of the SD Definition. They 

also provide greater clarity regarding 

which swaps need to be counted 

towards the de minimis threshold and 

consider the practical application of 

swaps in different circumstances. This 

Proposal includes amendments 

regarding: (1) The appropriate de 

minimis threshold level; and (2) the 

swap transactions that are not required 

to be counted towards that threshold. 

With respect to the appropriate 

threshold level, the Commission is 

proposing to amend the de minimis 

exception in paragraph (4) of the SD 

Definition by setting the AGNA 

threshold at $8 billion in swap dealing 

activity. Additionally, to complement 

the Commission’s definitions of the 

types of activities that do not constitute 

swap dealing, the Commission is 

proposing to add specific exceptions 

from the de minimis threshold 

calculation for certain swaps entered 

into: (1) By IDIs in connection with 

loans to customers; and (2) to hedge 

financial or physical positions.59

Additionally, the Commission is 

proposing to except from a person’s de 

minimis threshold calculation swaps 

that result from multilateral portfolio 

compression exercises, in a manner 

consistent with relief granted in a 2012 

DSIO staff no-action letter.60 Lastly, the 

Commission is proposing to provide 

that, for purposes of paragraph (4) of the 

SD Definition, the Commission may 

determine the methodology to be used 

to calculate the notional amount for any 

group, category, type, or class of swaps. 

The Commission is also proposing to 

delegate authority to the Director of 

DSIO to make such determinations. 

The proposed rule changes would 

amend the de minimis exception 

provision in paragraph (4) of the SD 

Definition, pursuant to the 

Commission’s authority under CEA 

section 1a(49), which requires the 

Commission to promulgate regulations 

to establish factors with respect to the 

making of this determination to exempt 

a de minimis quantity of swap 

dealing.61 The Commissions issued the 

SD Definition Adopting Release 

pursuant to section 712(d)(1) of the 

Dodd-Frank Act, which requires the 

CFTC and SEC to jointly adopt rules 

regarding the definition of, among other 

things, the term ‘‘swap dealer.’’ The 

CFTC continues to coordinate with the 

SEC on SD and security-based swap 

dealer regulations. However, as 

discussed in the SD Definition Adopting 

Release, a joint rulemaking is not 

required with respect to the de minimis 

exception-related factors.62 The 

Commission notes that it is consulting 

with the SEC and prudential regulators 

regarding the changes to the SD 

Definition discussed in this Proposal.63

Although this Proposal includes 

several potential rule amendments in a 

single notice, the CFTC may in the 

future issue separate adopting releases 

for any aspect of this Proposal that is 

finalized.64

A. $8 Billion De Minimis Threshold 

As discussed above, the de minimis 

threshold for the AGNA of a person’s 

swap dealing activity is scheduled to 

decrease to $3 billion on December 31, 

2019, requiring persons to begin 

calculating towards the lower threshold 

on January 1, 2019. Based on the data 

and analysis described below, the 

Commission is proposing to amend 

paragraph (4)(i)(A) of the SD Definition 

by setting the de minimis threshold at 

$8 billion. For added clarity, the 

Commission is also proposing to change 

the term ‘‘swap positions’’ to ‘‘swaps’’ 

in paragraph (4)(i)(A). Additionally, the 

Commission is proposing to delete a 

parenthetical clause in paragraph 

(4)(i)(A) referring to the period after 

adoption of the rule further defining the 

term ‘‘swap,’’ and to remove and reserve 

paragraph (4)(ii) of the SD Definition, 

which addresses the phase-in procedure 

and staff report requirements of the de 

minimis exception (discussed above in 

section I.B), since both of those 

provisions would no longer be 

applicable. 

The Commission recognizes the 

benefits and drawbacks of an SD 

Definition that relies upon AGNA for SD 

registration purposes. The Commission 

is aware of potential viable alternative 

metrics and remains open to the 

possibility of relying on a different 

approach in the future, such as a 

threshold based on entity-netted 

notional amounts 65 or other risk 

metrics, including, but not limited to, 

initial margin, open positions, material 

swaps exposure, net current credit 

exposure, gross negative or positive fair 

value, potential future exposure, valueat-risk, or expected shortfall. However, 

at this time, the Commission continues 

to believe that the de minimis exception 

should include an AGNA threshold 

component. As noted in the SD 

Definition Adopting Release, a notional 

value test is useful to measure the 

relative amount of an entity’s swap 

dealing activity, and it avoids potential 


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66 77 FR at 30630. 

67The data used in this Proposal was sourced 

from data reported to the four registered SDRs: 

BSDR LLC, Chicago Mercantile Exchange Inc., 

DTCC Data Repository, and ICE Trade Vault. 

68The term ‘‘FX swaps’’ is used in this Proposal 

to only describe those FX transactions that are 

counted towards a person’s de minimis calculation. 

The term ‘‘FX swaps’’ does not refer to swaps and 

forwards that are not counted towards the de 

minimis threshold pursuant to the exemption 

granted by the Secretary of the Treasury. See 77 FR 

at 69704–05; 77 FR at 48253. Section III.C below 

discusses the Secretary of the Treasury’s exemption 

in more detail in the context of non-deliverable 

forward transactions. 

69See Preliminary Staff Report, supra note 21, at 

21–22; Final Staff Report, supra note 24, at 19. 

70See Preliminary Staff Report, supra note 21, at 

15; Final Staff Report, supra note 24, at 19. 

71See Preliminary Staff Report, supra note 21, at 

13–21; Final Staff Report, supra note 24, at 4–6, 19– 

20. 

72See 17 CFR part 45 app.1. 

73See section I.D (discussing the de minimis 

threshold calculation). The Commission notes that 

entity-based exclusions are not a determinative 

means of assessing whether any particular entity is 

engaged in swap dealing. See Preliminary Staff 

Report, supra note 21, at 12; Final Staff Report, 

supra note 24, at 6. 

74See 17 CFR 1.3, Swap dealer, paragraph (6)(i). 

75See generally 78 FR 45292. 

76The majority of In-Scope Entities are banks, 

broker-dealers, non-bank financial entities, and 

affiliates thereof. 

77For example, if Bank A entered into swaps with 

each of three entities that are all affiliated with 

Bank B (i.e., Bank A entered into swaps with each 

of Bank B–1, Bank B–2, and Bank B–3), and also 

entered into a swap with Bank C, Bank A was 

considered to have four counterparties (Bank B–1, 

Bank B–2, Bank B–3, and Bank C). Additionally, 

each invalid identifier (i.e., an invalid LEI or a nonLEI identifier) was considered its own counterparty. 

However, it is possible that each invalid identifier 

does not actually represent a distinct counterparty 

because one counterparty may be associated with 

multiple invalid identifiers. 

78See generally Final Staff Report, supra note 24; 

Preliminary Staff Report, supra note 21. 

79Compare Letter from American Petroleum 

Institute, Commodity Markets Council, Edison 

Electric Institute, Electric Power Supply 

Association, Independent Petroleum Association of 

America, and Natural Gas Supply Association (Sep. 

20, 2012) (stating that ‘‘The notional amount for 

Continued 

distorting effects from measures that 

reflect netting or collateral offsets.66

1. Methodology 

(i) Filters and Assumptions 

For this Proposal, CFTC staff 

conducted an analysis of SDR data from 

January 1, 2017, through December 31, 

2017 (the ‘‘review period’’).67 Generally, 

employing methodologies similar to 

those used for purposes of the Staff 

Reports, staff attempted to calculate 

persons’ swaps activity in terms of 

AGNA to assess how the swap market 

might be impacted by potential changes 

to the current de minimis exception. 

Given improvements in the quality of 

data being reported to SDRs since the 

Staff Reports were issued, Commission 

staff was able to analyze the AGNA of 

swaps activity for interest rate swaps 

(‘‘IRS’’), credit default swaps (‘‘CDS’’), 

FX swaps,68 and equity swaps (while by 

comparison, in the Staff Reports, AGNA 

analysis was limited to IRS and CDS).69

However, given certain limitations 

discussed below, AGNA data was not 

available for non-financial commodity 

(‘‘NFC’’) swaps. In addition to nowavailable AGNA information for FX 

swaps and equity swaps, there were also 

continued improvements in the 

consistency of legal entity identifier 

(‘‘LEI’’) and unique swap identifier 

reporting. However, as explained in the 

Staff Reports, the SDR data lacks: (1) A 

reporting field to indicate whether a 

swap was entered into for dealing 

purposes (as opposed to hedging, 

investing, or proprietary trading); and 

(2) a reporting field to indicate whether 

a specific swap need not be considered 

in determining whether a person is an 

SD or need not be counted towards the 

person’s de minimis threshold, pursuant 

to one of the exclusions or exceptions 

identified above in section I.D.70 These 

constraints limited the usefulness of the 

SDR data to identify which swaps 

should be counted towards a person’s 

de minimis threshold, and the ability to 

precisely assess the current de minimis 

threshold or the impact of potential 

changes to the current exclusions. 

As noted above, for purposes of this 

Proposal, staff utilized assumptions and 

methodologies similar to those detailed 

in the Staff Reports to approximate 

potential swap dealing activity.71 To 

attempt to account for the various 

exclusions relevant to the SD Definition, 

filters were applied to the data to 

exclude certain transactions and entities 

from the analysis. The reason an entity 

enters into a swap (e.g., dealing, 

hedging, investing, proprietary trading) 

is not collected under the reporting 

requirements in part 45 of the 

Commission’s regulations.72

Accordingly, staff used filters to identify 

and exclude certain categories of 

entities—such as funds, insurance 

companies, cooperatives, governmentsponsored entities, most commercial 

end-users, and international financial 

institutions—as potential SDs because 

these entities generally use swaps for 

investing, hedging, or proprietary 

trading and do not seem to be engaged 

in swap dealing activity, or otherwise 

enter into swaps that would not be 

included in determining whether the 

entity is an SD.73 Further, additional 

filters allowed for the exclusion of interaffiliate 74 and non-U.S. swap 

transactions.75

With the benefits of improved data 

quality and analytical tools, staff was 

able to conduct a more granular 

analysis, as compared to the Staff 

Reports, in order to more accurately 

identify those entities that, based on 

their observable business activities, are 

potentially engaged in swap dealing 

activity (‘‘In-Scope Entities’’) 76 versus 

those likely engaged in other kinds of 

transactions (e.g., entering into swaps 

for investment purposes). Further, for 

the purposes of this Proposal, a 

minimum unique counterparty count of 

10 counterparties was utilized to better 

identify the entities that are likely to be 

engaged in transactions that have to be 

considered for the SD Definition. Each 

distinct, unaffiliated counterparty of a 

person was regarded as one unique 

counterparty (hereinafter referred to as 

‘‘counterparty’’).77 A threshold of 10 

counterparties was utilized because, 

after excluding inter-affiliate and nonU.S. swap transactions, 83 percent of 

registered SDs had 10 or more reported 

counterparties, while approximately 97 

percent of unregistered entities had 

fewer than 10 counterparties. Therefore, 

this appeared to be a reasonable 

threshold to better identify entities 

likely engaged in swap dealing. Adding 

this filter to the analysis reduced the 

likelihood of false positives—i.e., 

reduced the potential that entities likely 

engaged in hedging or other non-dealing 

activity would be identified as potential 

SDs. 

The updated analysis largely 

confirmed the analysis conducted for 

the Staff Reports; 78 however, there is 

greater confidence in the results given 

the improved data and refined 

methodology. Nonetheless, given the 

lack of a swap dealing indicator for 

individual swaps, and the lack of an 

indicator to identify whether a specific 

swap need not be considered in 

determining whether a person is an SD 

or counted towards the person’s de 

minimis threshold, staff’s analysis is 

based on a person’s AGNA of swaps 

activity, as opposed to AGNA of swap 

dealing activity. 

With respect to NFC swaps, 

Commission staff encountered a number 

of challenges in calculating notional 

amounts. These included: (1) The vast 

array of underlying commodities with 

differing characteristics; (2) the multiple 

types of swaps (e.g., fixed-float, basis, 

options, multi-leg, exotic); (3) the 

variety of data points required to 

calculate notional amounts (e.g., price, 

quantity, quantity units, location, 

grades, exchange rate); (4) localityspecific terms; and (5) lack of industry 

standards for notional amountequivalent calculations.79 However, 


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options should be based on the absolute value of 

the product of the notional quantity of the option 

(without adjustment for the option delta) multiplied 

by the transaction value for the option (i.e., the 

premium).’’), attached to a 2016 comment letter 

available at https://comments.cftc.gov/

PublicComments/

ViewComment.aspx?id=60595&SearchText, with 

Letter from Futures Industry Association Principal 

Traders Group (Dec. 20, 2012) (proposing a 

methodology that does not utilize premium value 

or the strike price, but does include option delta in 

the calculation), available at https://ptg.fia.org/file/ 

487/download?token=HSUPcHmL. See also Ernst & 

Young, Notional value under Dodd-Frank: survey of 

energy commodities participants (2013) (‘‘While the 

term notional value is commonly used in industry, 

in practice there isn’t a single accepted 

definition.’’), available at http://www.ey.com/

Publication/vwLUAssets/Notional_value_-_under_

Dodd-Frank/$FILE/Notional_value_under_Dodd_

Frank.pdf. 

80As discussed below, the analysis explored the 

hypothetical effects on the swap market of changing 

the AGNA threshold to various amounts between $3 

billion and $100 billion. 

81The Commission also notes that setting the 

threshold at $8 billion would be consistent with a 

non-binding Congressional Directive stating that the 

Commission should establish a de minimis 

threshold of $8 billion or greater within 60 days of 

enactment of the Consolidated Appropriations Act 

of 2016. See Accompanying Statement to the 

Consolidated Appropriations Act of 2016, 

Explanatory Statement Division A at 32 (Dec. 2015), 

available at http://docs.house.gov/meetings/RU/

RU00/20151216/104298/HMTG-114-RU00- 

20151216-SD002.pdf; H.Rpt. 114–205 at 76 (July 14, 

2015), available at https://www.congress.gov/114/

crpt/hrpt205/CRPT-114hrpt205.pdf. 

82SD regulations include, among other things, 

registration, internal and external business conduct 

standards, reporting, recordkeeping, risk 

management, margin, and chief compliance officer 

requirements. However, the requirement to report a 

swap to an SDR applies regardless of whether an 

SD is a counterparty to the swap. 

83See section II.A.1 above for additional 

discussion regarding the methodology utilized to 

conduct the analysis. 

given the limitations in the AGNA data, 

counterparty counts and transaction 

counts were used to analyze likely swap 

dealing activity for participants in the 

NFC swap market. 

(ii) Regulatory Coverage Analysis 

To assess the relative impact on the 

swap market of potential changes to the 

de minimis exception, CFTC staff 

analyzed the extent to which the swap 

market was subject to SD regulation 

during the review period because at 

least one counterparty to a swap was a 

registered SD (‘‘2017 Regulatory 

Coverage’’). For purposes of this 

analysis, any person listed as a 

provisionally registered SD on 

December 31, 2017, was considered to 

be a registered SD. Specifically, with 

regard to 2017 Regulatory Coverage, 

staff identified the extent to which: (1) 

Swaps activity, measured in terms of 

AGNA, was subject to SD regulation 

during the review period because at 

least one counterparty to a swap was a 

registered SD (‘‘2017 AGNA Coverage’’); 

(2) swaps activity, measured in terms of 

number of transactions, was subject to 

SD regulation during the review period 

because at least one counterparty to a 

swap was a registered SD (‘‘2017 

Transaction Coverage’’); and (3) swaps 

activity was subject to SD regulation 

during the review period, measured in 

terms of number of counterparties who 

transacted with at least one registered 

SD (‘‘2017 Counterparty Coverage’’). 

Additionally, staff estimated 

regulatory coverage by assessing the 

extent to which the swap market would 

have been subject to SD regulation at 

different de minimis thresholds because 

at least one counterparty to a swap was 

identified as a ‘‘Likely SD’’ (‘‘Estimated 

Regulatory Coverage’’). For purposes of 

this analysis, the term ‘‘Likely SD’’ 

refers to an In-Scope Entity that exceeds 

a specified AGNA threshold level, and 

trades with at least 10 counterparties. 

With regard to Estimated Regulatory 

Coverage, staff identified the extent to 

which: (1) Swaps activity, measured in 

terms of AGNA, would have been 

subject to SD regulation during the 

review period, at a specified de minimis 

threshold, because at least one 

counterparty to a swap was identified as 

a Likely SD at that de minimis threshold 

(‘‘Estimated AGNA Coverage’’); (2) 

swaps activity, measured in terms of 

number of transactions, would have 

been subject to SD regulation during the 

review period, at a specified de minimis 

threshold, because at least one 

counterparty to a swap was identified as 

a Likely SD at that de minimis threshold 

(‘‘Estimated Transaction Coverage’’); 

and (3) counterparties in the swap 

market would have transacted with at 

least one Likely SD during the review 

period, at a specified de minimis 

threshold (‘‘Estimated Counterparty 

Coverage’’). 

2. Data and Analysis 

For this Proposal, the Commission 

considered reducing the AGNA de 

minimis threshold to $3 billion, 

maintaining the threshold at $8 billion, 

or increasing the threshold. Based on 

the data and related policy 

considerations discussed below, the 

Commission is of the view that 

maintaining the current $8 billion 

AGNA de minimis threshold is 

appropriate. The policy objectives 

underlying SD regulation—reducing 

systemic risk, increasing counterparty 

protections, and increasing market 

efficiency, orderliness, and 

transparency—would not be 

significantly advanced if the threshold 

were to decrease to $3 billion or to 

increase from the current $8 billion 

level.80 Nor does the Commission 

believe that the policy objectives 

furthered by a de minimis exception— 

increasing efficiency, allowing limited 

ancillary dealing, encouraging new 

participants, and focusing regulatory 

resources—would be significantly 

advanced if the threshold were to be 

changed.81

Analysis of the data indicates that: (1) 

The current $8 billion threshold 

subjects almost all swap transactions (as 

measured by AGNA or transaction 

count) to SD regulations; 82 (2) at a lower 

threshold of $3 billion, there would 

only be a small amount of additional 

AGNA and swap transactions subject to 

SD regulation, and potentially reduced 

liquidity in the swap market, as 

compared to the $8 billion threshold; (3) 

counterparty protections may be 

reduced at higher thresholds; and (4) a 

lower threshold could lead to reduced 

liquidity for NFC swaps, negatively 

impacting end-users and commercial 

entities who utilize NFC swaps for 

hedging purposes. Additionally, the 

Commission expects that maintaining 

an $8 billion threshold would foster the 

efficient application of the SD 

Definition by providing continuity and 

addressing the uncertainty associated 

with the end of the phase-in period. 

The analysis below is based on a 

January 1, 2017, through December 31, 

2017, review period, and includes swap 

transactions reported to SDRs, 

excluding inter-affiliate and non-U.S. 

transactions.83 The total size of the swap 

market that was analyzed, after 

excluding inter-affiliate and non-U.S. 

transactions, was approximately $221.1 

trillion in AGNA of swaps activity 

(excluding NFC swaps), approximately 

4.4 million transactions, and 39,107 

counterparties. 

(i) Regulatory Coverage at $8 Billion 

Threshold 

As shown below, the data indicates 

that, at the $8 billion threshold, there 

was nearly complete 2017 Regulatory 

Coverage as measured by 2017 AGNA 

Coverage and 2017 Transaction 

Coverage. 


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84Coverage is approximately 99.99 percent due to 

rounding. 

85The actual number of entities without a single 

transaction with a registered SD is likely lower than 

6,440. Of the 6,440 entities, 1,780 have invalid 

identifiers that staff was unable to manually replace 

with a valid LEI. It is possible that these 1,780 

invalid identifiers actually represent fewer than 

1,780 distinct counterparties because one 

counterparty may be associated with multiple 

invalid identifiers. 86See 17 CFR 1.3, Swap dealer, paragraph (5). 

TABLE 1—SWAPS SUBJECT TO SD REGULATION

2017 TRANSACTION COVERAGE

Asset class 

Total 

number of 

transactions 

Number of 

transactions 

including at 

least one 

registered SD 

2017 

transaction 

coverage 

(%) 

IRS ......................................................................................................................................... 945,593 937,975 99.19 

CDS ....................................................................................................................................... 133,570 132,899 99.50 

FX swaps ............................................................................................................................... 2,443,659 2,435,537 99.67 

Equity swaps .......................................................................................................................... 281,219 281,211 >99.99 

NFC swaps ............................................................................................................................ 633,943 546,823 86.26 

Total ................................................................................................................................ 4,437,984 4,334,445 97.67 

As seen in Table 1, at the $8 billion 

threshold, almost all swap transactions 

involved at least one registered SD as a 

counterparty, greater than 99 percent for 

IRS, CDS, FX swaps, and equity swaps. 

For NFC swaps, approximately 86 

percent of transactions involved at least 

one registered SD as a counterparty. As 

discussed in more detail in section 

II.A.2.iv, although that percentage is 

lower than the approximately 99 

percent for the other asset classes, the 

Commission is of the view that with 

respect to NFC swaps, lower SD 

regulatory coverage is acceptable given 

the unique characteristics of the NFC 

swap market. Overall, approximately 98 

percent of transactions involved at least 

one registered SD. 

TABLE 2—SWAPS SUBJECT TO SD REGULATION

2017 AGNA COVERAGE

Asset class Total AGNA 

($Bn) 

AGNA including 

at least one 

registered SD 

($Bn) 

2017 AGNA 

coverage 

(%) 

IRS ......................................................................................................................................... 182,961 182,847 99.94 

CDS ....................................................................................................................................... 7,527 7,490 99.51 

FX swaps ............................................................................................................................... 28,794 28,775 99.93 

Equity swaps 84 ...................................................................................................................... 1,850 1,850 99.99 

Total ................................................................................................................................ 221,132 220,963 99.92 

As seen in Table 2, at the $8 billion 

threshold, almost all AGNA of swaps 

activity included at least one registered 

SD, greater than 99 percent for IRS, 

CDS, FX swaps, and equity swaps. 

The 2017 Transaction Coverage and 

2017 AGNA Coverage ratios indicate 

that SD regulations covered nearly all 

swaps in these asset classes, signifying 

that nearly all swaps already benefited 

from the policy considerations 

discussed above (e.g., reducing systemic 

risk, increasing counterparty 

protections, and increasing market 

efficiency, orderliness, and 

transparency) at the existing $8 billion 

threshold. 

The Commission notes the 2017 

Counterparty Coverage was 

approximately 83.5 percent—i.e., 

approximately 16.5 percent of the 

counterparties in the swap market did 

not transact with at least one registered 

SD on at least one swap (6,440 

counterparties out of a total of 39,107), 

and therefore potentially did not benefit 

from the counterparty protection aspects 

of SD regulations.85 However, given the 

2017 AGNA Coverage and 2017 

Transaction Coverage statistics, these 

6,440 entities overall had limited swaps 

activity. Collectively, the 6,440 entities 

entered into 77,333 transactions, an 

average of approximately 12 

transactions per entity, and represented 

only approximately 1.7 percent of the 

overall number of transactions during 

the review period. Additionally, 

collectively, the 6,440 entities had an 

AGNA of approximately $68 billion in 

swaps activity, an average of 

approximately $10.6 million per entity, 

and they represented only 

approximately 0.03 percent of the 

overall AGNA of swaps activity during 

the review period in IRS, CDS, FX 

swaps, and equity swaps. 

The Commission also believes that 

this limited activity indicates that, to 

the extent these 6,440 entities are 

engaging in swap dealing activities, 

such activity is likely ancillary and in 

connection with other client services, 

potentially advancing the policy 

rationales behind a de minimis 

exception. For example, of the 6,440 

entities, 5,302 are active in IRS, 

indicating that these entities may be 

entering into loan-related swaps with 

banks. These banks may be entering into 

an outright amount of swap dealing 

activity at a level below the de minimis 

threshold, or do not have to register 

because of the exclusion for swaps 

entered into by IDIs in connection with 

originating loans.86

Generally, the Commission is of the 

view that the policy considerations 

underlying SD regulation—reducing 

systemic risk, increasing counterparty 

protections, and increasing market 

efficiency, orderliness, and 


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87Transactions that do not include at least one 

registered SD as a counterparty would generally not 

be subject to SD-specific regulations (e.g., margin, 

business conduct standard, and risk management 

requirements). However, such transactions would 

still be subject to swap reporting requirements (e.g., 

17 CFR part 45), among other regulations. 

88The term ‘‘Likely SD’’ refers to an In-Scope 

Entity that exceeds a notional threshold test, and 

trades with at least 10 counterparties. 

89See 17 CFR part 45 app. 1. 

90Some registered SDs were not captured in the 

Estimated Regulatory Coverage analysis since they 

primarily are involved in the NFC swap market, 

which is excluded from this AGNA-based analysis. 

In addition, some of the existing registered SDs 

reported AGNA of swaps activity below $8 billion 

in 2017 but remained registered SDs. 

91Note that the market totals of 3.8 million 

transactions and 34,774 counterparties exclude NFC 

swaps, whereas the market totals, in section II.A.2.i 

above, of 4.4 million transactions and 39,107 

counterparties include NFC swaps. 

transparency—are being appropriately 

advanced at the current $8 billion 

threshold given the regulatory coverage 

statistics discussed above. Only a low 

percentage of swaps activity is not 

currently covered by SD regulationrelated requirements,87 indicating that 

the current threshold is appropriate. 

Additionally, as discussed below in 

sections II.A.2.ii and II.A.2.iv, a 

reduction in the de minimis threshold 

could negatively affect the policy 

considerations underlying the de 

minimis exception, as compared to the 

current $8 billion threshold. 

(ii) Regulatory Coverage at Lower 

Threshold 

Given the high percentage of swaps 

that were subject to SD regulation at the 

existing $8 billion threshold during the 

review period, a lower threshold of $3 

billion would result in only a small 

amount of additional activity being 

directly subjected to SD regulation. To 

estimate the effect of a lower de minimis 

threshold during the review period, staff 

compared the number of Likely SDs and 

the Estimated AGNA Coverage, 

Estimated Transaction Coverage, and 

Estimated Counterparty Coverage at $8 

billion and $3 billion thresholds. 

Table 3 estimates the percentage of 

IRS, CDS, FX swaps, and equity swaps 

that would involve at least one Likely 

SD at de minimis thresholds of $3 

billion and $8 billion. To make these 

calculations, staff used the methodology 

described in section II.A.1 to determine 

Likely SDs at the indicated thresholds.88

Because SDR data does not include 

information indicating the underlying 

purposes of a swap,89 the analysis likely 

includes swaps that were not required 

to be counted under the SD Definition 

(e.g., swaps entered into for hedging, 

investing, or proprietary trading 

purposes). Therefore, the estimates of 

the number of Likely SDs at various 

AGNA thresholds may differ from the 

actual number of entities that would be 

required to register at those thresholds. 

For example, Table 3 shows that an 

estimated 108 entities could be required 

to register as SDs at the $8 billion 

threshold, whereas the figures in Table 

1 are based on the 100 actual registered 

SDs.90 Nevertheless, the Commission 

believes that Table 3 presents a 

reasonably accurate estimate of how the 

number of SDs that are required to 

register will fluctuate with changes in 

the threshold. 

TABLE 3—NUMBER OF LIKELY SDS AND ESTIMATED REGULATORY COVERAGE

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Number of 

likely SDs 

Likely SD 

count 

change vs. 

$8 Bn 

threshold 

Estimated 

AGNA 

coverage 

(%) 

Estimated 

transaction 

coverage 

(%) 

Estimated 

counterparty 

coverage 

(%) 

1 2 3 4 5 6 

3 ........................................................................................... 121 13 99.96 99.83 90.75 

8 ........................................................................................... 108 ........................ 99.95 99.77 88.80 

Column 1 of Table 3 lists the AGNA 

thresholds for which information is 

being presented. Column 2 is the 

number of Likely SDs at each given 

threshold as determined using the 

methodology described above, including 

a 10 counterparty minimum. Column 3 

is the change in the number of Likely 

SDs, as compared to the current $8 

billion threshold. Columns 4, 5, and 6 

illustrate the Estimated Regulatory 

Coverage, in percentage terms, for the $3 

billion and $8 billion de minimis 

thresholds during the review period. 

The percentages are based on a total 

market size in IRS, CDS, FX swaps, and 

equity swaps of approximately $221.1 

trillion in AGNA of swaps activity, 3.8 

million transactions, and 34,774 

counterparties, after excluding interaffiliate and non-U.S. transactions.91

As columns 2 and 3 indicate, the 

number of Likely SDs increases from 

108 at an $8 billion AGNA threshold to 

121 at a $3 billion AGNA threshold—an 

increase of 13 entities. However, as 

columns 4 through 6 indicate, and as 

explained in more detail below in 

Tables 4 through 6, if these 13 entities 

were all registered as SDs, the increase 

in Estimated Regulatory Coverage would 

be small. 

TABLE 4—ESTIMATED AGNA COVERAGE ($3 Bn and $8 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Estimated 

AGNA 

coverage 

(%) 

Change in 

estimated 

AGNA 

coverage 

(pct. point) 

Estimated 

AGNA 

coverage 

($Bn) 

Change in 

estimated 

AGNA 

coverage 

($Bn) 

3 ....................................................................................................................... 99.96 0.01 221,039 19 

8 ....................................................................................................................... 99.95 ........................ 221,020 ........................


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92Registered SDs are subject to a broad range of 

regulatory requirements. See, e.g., supra note 82. 

93 ‘‘Other’’ refers to commercial entities, such as 

consumers, merchants, producers, or traders of 

physical commodities, who appear to be engaging 

in some swap dealing activity. 

As seen in Table 4, at a $3 billion 

threshold, the Estimated AGNA 

Coverage would have increased from 

approximately $221,020 billion (99.95 

percent) to $221,039 billion (99.96 

percent)—an increase of $19 billion (a 

0.01 percentage point increase). 

TABLE 5—ESTIMATED TRANSACTION COVERAGE ($3 Bn and $8 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties) 

AGNA threshold 

($Bn) 

Estimated 

transaction 

coverage 

(%) 

Change in 

estimated 

transaction 

coverage 

(pct. point) 

Estimated 

transaction 

coverage 

(number of 

trades) 

Change in 

estimated 

transaction 

coverage 

(number of 

trades) 

3 ....................................................................................................................... 99.83 0.06 3,797,734 2,404 

8 ....................................................................................................................... 99.77 ........................ 3,795,330 ........................

As seen in Table 5, at a $3 billion 

threshold, the Estimated Transaction 

Coverage would have increased from 

3,795,330 trades (99.77 percent) to 

3,797,734 trades (99.83 percent)—an 

increase of 2,404 trades (a 0.06 

percentage point increase). 

TABLE 6—ESTIMATED COUNTERPARTY COVERAGE ($3 Bn and $8 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Estimated 

counterparty 

coverage 

(%) 

Change in 

estimated 

counterparty 

coverage 

(pct. point) 

Estimated 

counterparty 

coverage 

(number of 

counterparties) 

Change in 

estimated 

counterparty 

coverage 

(number of 

counterparties) 

3 ....................................................................................................................... 90.75 1.96 31,559 680 

8 ....................................................................................................................... 88.80 ........................ 30,879 ........................

As seen in Table 6, at a $3 billion 

threshold, the Estimated Counterparty 

Coverage would have increased from 

30,879 counterparties (88.80 percent) to 

31,559 counterparties (90.75 percent)— 

an increase of 680 counterparties (a 1.96 

percentage point increase). 

The Commission is of the view that 

these small increases in Estimated 

AGNA Coverage, Estimated Transaction 

Coverage, and Estimated Counterparty 

Coverage indicate that the systemic risk 

mitigation, counterparty protection, and 

market efficiency benefits of SD 

regulation would be enhanced in only a 

very limited manner if the de minimis 

threshold decreased from $8 billion to 

$3 billion. Additionally, the limited 

regulatory and market benefits of a $3 

billion threshold should be considered 

in conjunction with the costs associated 

with a lower threshold. In particular, 

the persons required to register would 

incur the likely significant costs of 

implementing, among other things, 

policies and procedures, technology 

systems, and training programs to 

address requirements imposed by SD 

regulations.92

Further, if the de minimis threshold 

decreases to $3 billion, it is possible that 

the number of Likely SDs would be 

smaller than estimated because the 

analysis includes swaps that would not 

be required to be counted under the SD 

Definition (e.g., swaps entered into for 

hedging, investing, or proprietary 

trading purposes). Further, persons 

engaged in swap dealing in amounts 

between $3 billion and $8 billion may 

also reduce their swap dealing activity 

to remain under a lower threshold, thus 

further reducing the actual incremental 

change. 

To more fully understand the 

potential market impact of a lower 

threshold, the Commission also 

analyzed the 13 entities that were 

identified as Likely SDs at a $3 billion 

threshold but not at an $8 billion 

threshold. 

TABLE 7—CATEGORIES OF LIKELY SDS ($3 Bn and $8 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

Category $3 Bn $8 Bn Difference 

Bank/Bank subsidiary/Bank affiliate ............................................................................................ 105 95 10 

Non-bank financial ....................................................................................................................... 14 11 3 

Other 93 ........................................................................................................................................ 2 2 0 

Total ...................................................................................................................................... 121 108 13 


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94See Letters from BP, Chatham, CDE, CMC, EDF, 

EEI/EPSA, FSR, IIB, IECA, ISDA, NGSA, SIFMA, 

Western Union, and WU/GPS/AFEX, supra note 58. 95See generally Letters from BP, Chatham, CDE, 

CMC, EDF, EEI/EPSA, FSR, IIB, IECA, ISDA, NGSA, 

SIFMA, Western Union, and WU/GPS/AFEX, supra 

note 58; Final Staff Report, supra note 24, at 11– 

12 (citing comment letters submitted in response to 

Preliminary Staff Report, supra note 21). 96Additionally, as discussed in section II.A.2.ii, 

the percentages are based on a total market size in 

IRS, CDS, FX swaps, and equity swaps of 

approximately $221.1 trillion in AGNA of swaps 

entered into, 3.8 million transactions, and 34,774 

counterparties, after excluding inter-affiliate and 

non-U.S. transactions. 

As seen in Table 7, for IRS, CDS, FX 

swaps, and equity swaps, entities that 

would potentially have to register at a 

lower threshold primarily include banks 

or bank affiliates, 10 of the 13 entities 

in total. In the aggregate, these 13 

entities have only approximately $19 

billion in AGNA of swaps activity 

(approximately 0.01 percent of the 

overall market) and 2,406 transactions 

(approximately 0.06 percent of the 

overall market) with currently 

unregistered market participants, further 

indicating that decreasing the threshold 

to $3 billion would yield only a small 

increase in Estimated Regulatory 

Coverage. After reviewing the list of the 

10 banking entities’ counterparties, it is 

also likely that some of the activity for 

the 10 banking entities consists of swaps 

that would be excluded from the de 

minimis calculation pursuant to the 

exclusion for swaps entered into by IDIs 

in connection with loans to customers 

(as provided for in paragraph (5) of the 

SD Definition), potentially reducing the 

likelihood that all or some of these 

entities would be required to register at 

a lower threshold. 

In addition to a negligible increase in 

the AGNA or number of transactions 

that would be subject to SD regulation 

at a $3 billion threshold, policy 

considerations may indicate that 

lowering the threshold would not be 

beneficial to the market. A number of 

Project KISS suggestions addressed 

these policy-related concerns.94

The Commission believes that a $3 

billion AGNA de minimis threshold 

could lead certain entities to reduce or 

cease swap dealing activity to avoid 

registration and its related costs. 

Generally, the costs associated with 

registering as an SD may exceed the 

revenue from dealing swaps for many 

small or mid-sized banks and nonfinancial entities. Additionally, some 

persons engaged in swap dealing 

activities below the current $8 billion 

threshold have indicated that swap 

dealing is not a major source of revenue 

and is only complementary to other 

client-facing businesses, suggesting that 

these smaller dealing entities could 

reduce or eliminate their swap dealing 

activities if the threshold is lowered. 

Although the magnitude of this effect is 

not certain, reduced swap dealing 

activity could lead to increased 

concentration in the swap dealing 

market, reduced availability of potential 

swap counterparties, reduced liquidity, 

increased volatility, higher fees, wider 

bid/ask spreads, or reduced competitive 

pricing. The end-user counterparties of 

these smaller swap dealing entities may 

be adversely impacted by the above 

consequences and could face a reduced 

ability to use swaps to manage their 

business risks.95

Based on the likely small increase in 

regulatory coverage, and the potential 

negative market effects of a $3 billion de 

minimis threshold, the Commission is 

of the view that, on balance, the overall 

policy goals of SD registration and the 

de minimis exception would not be 

advanced by lowering the threshold 

from $8 billion. 

(iii) Regulatory Coverage at Higher 

Thresholds 

To assess the effect of a higher de 

minimis threshold, staff compared the 

number of Likely SDs and the Estimated 

AGNA Coverage, Estimated Transaction 

Coverage, and Estimated Counterparty 

Coverage at $8 billion, $20 billion, $50 

billion, and $100 billion thresholds. As 

with the analysis above regarding $3 

billion and $8 billion thresholds, to 

make these calculations, staff used the 

methodology described in section II.A.1 

to determine Likely SDs at the indicated 

thresholds.96 As discussed, if a swap 

transaction includes at least one Likely 

SD, that transaction would theoretically 

be subject to SD-related regulations. 

TABLE 8—NUMBER OF LIKELY SDS AND REGULATORY COVERAGE

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Number of 

likely SDs 

Likely SD 

count 

change vs. 

$8 Bn 

threshold 

Estimated 

AGNA 

coverage 

(%) 

Estimated 

transaction 

coverage 

(%) 

Estimated 

counterparty 

coverage 

(%) 

1 2 3 4 5 6 

8 ........................................................................................... 108 ........................ 99.95 99.77 88.80 

20 ......................................................................................... 93 (15) 99.94 99.72 86.00 

50 ......................................................................................... 81 (27) 99.91 99.35 83.09 

100 ....................................................................................... 72 (36) 99.88 99.20 81.19 

As seen in Table 8, the number of 

Likely SDs decreases from 108 at an $8 

billion AGNA threshold to 93, 81, and 

72 Likely SDs, at the $20 billion, $50 

billion, and $100 billion thresholds, 

respectively. As columns 4 and 5 

indicate, and as explained in more 

detail below in Tables 9 and 10, the 

reduction in the number of Likely SDs 

would lead to only a relatively small 

decrease in Estimated AGNA Coverage 

and Estimated Transaction Coverage at 

higher AGNA thresholds of up to $100 

billion. However, as column 6 indicates, 

and as explained in more detail below 

in Table 11, there would potentially be 

a more pronounced reduction in 

Estimated Counterparty Coverage at 

higher AGNA thresholds. 


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TABLE 9—ESTIMATED AGNA COVERAGE ($8 Bn, $20 Bn, $50 Bn, and $100 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Estimated 

AGNA 

coverage 

(%) 

Change in 

estimated 

AGNA 

coverage 

(pct. point) 

Estimated 

AGNA 

coverage 

($Bn) 

Change in 

estimated 

AGNA 

coverage 

($Bn) 

8 ....................................................................................................................... 99.95 ........................ 221,020 ........................

20 ..................................................................................................................... 99.94 (0.01) 221,005 (15) 

50 ..................................................................................................................... 99.91 (0.04) 220,935 (85) 

100 ................................................................................................................... 99.88 (0.06) 220,877 (143) 

As seen in Table 9, at a $100 billion 

threshold, the Estimated AGNA 

Coverage would have decreased from 

approximately $221,020 billion (99.95 

percent) to $220,877 billion (99.88 

percent)—a decrease of $143 billion (a 

0.06 percentage point decrease). The 

decrease would be lower at thresholds 

of $20 billion and $50 billion, at 0.01 

percentage points and 0.04 percentage 

points, respectively. 

TABLE 10—ESTIMATED TRANSACTION COVERAGE ($8 Bn, $20 Bn, $50 Bn, and $100 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Estimated 

transaction 

coverage 

(%) 

Change in 

estimated 

transaction 

coverage 

(pct. point) 

Estimated 

transaction 

coverage 

(number of 

trades) 

Change in 

estimated 

transaction 

coverage 

(number of 

trades) 

8 ....................................................................................................................... 99.77 ........................ 3,795,330 ........................

20 ..................................................................................................................... 99.72 (0.05) 3,793,454 (1,876) 

50 ..................................................................................................................... 99.35 (0.42) 3,779,466 (15,864) 

100 ................................................................................................................... 99.20 (0.58) 3,773,440 (21,890) 

As seen in Table 10, at a $100 billion 

threshold, the Estimated Transaction 

Coverage would have decreased from 

3,795,330 trades (99.77 percent) to 

3,773,440 trades (99.20 percent)—a 

decrease of 21,890 trades (a 0.58 

percentage point decrease). The 

decrease would be lower at thresholds 

of $20 billion and $50 billion, at 0.05 

percentage points and 0.42 percentage 

points, respectively. 

TABLE 11—ESTIMATED COUNTERPARTY COVERAGE ($8 Bn, $20 Bn, $50 Bn, and $100 Bn) 

IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

AGNA threshold 

($Bn) 

Estimated 

counterparty 

coverage 

(%) 

Change in 

estimated 

counterparty 

coverage 

(pct. point) 

Estimated 

counterparty 

coverage 

(number of 

counterparties) 

Change in 

estimated 

counterparty 

coverage 

(number of 

counterparties) 

8 ....................................................................................................................... 88.80 ........................ 30,879 ........................

20 ..................................................................................................................... 86.00 (2.80) 29,907 (972) 

50 ..................................................................................................................... 83.09 (5.71) 28,893 (1,986) 

100 ................................................................................................................... 81.19 (7.61) 28,234 (2,645) 

As seen in Table 11, at a $100 billion 

threshold, the Estimated Counterparty 

Coverage would have decreased from 

30,879 counterparties (88.80 percent) to 

28,234 counterparties (81.19 percent)— 

a decrease of 2,645 counterparties (a 

7.61 percentage point decrease). The 

decrease would be lower at thresholds 

of $20 billion and $50 billion, at 2.80 

percentage points and 5.71 percentage 

points, respectively. 

The small decrease in Estimated 

AGNA Coverage and Estimated 

Transaction Coverage at higher 

thresholds potentially indicates that 

increasing the threshold to up to $100 

billion may have a limited effect on the 

systemic risk and market efficiency 

policy considerations of SD regulation. 

Additionally, a higher threshold could 

enhance the benefits associated with a 

de minimis exception, for example by 

allowing entities to increase ancillary 

dealing activity. However, the decrease 

in Estimated Counterparty Coverage 

indicates that fewer entities would be 

transacting with registered SDs, and 

therefore, the counterparty protection 

benefits of SD regulation might be 

reduced if the de minimis threshold 

increased from $8 billion to $20 billion, 

$50 billion, or $100 billion. 


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97Five have greater than $8 billion in AGNA of 

swaps activity. 

98The transaction and counterparty totals are not 

mutually exclusive, as some of the 44 registered 

SDs transact with the 42 unregistered entities. The 

44 registered SDs also transact with some of the 

same counterparties as the 42 unregistered entities. 

99 Including existing registered SDs with fewer 

than 10 counterparties would only add 167 trades 

to the analysis. 

Also, the Commission is preliminarily 

of the view that maintaining the status 

quo signals long-term stability of the de 

minimis threshold. This should provide 

for the efficient application of the SD 

Definition as it allows for long-term 

planning based on the current AGNA de 

minimis threshold. 

(iv) Regulatory Coverage of NFC Swap 

Market 

As indicated in Table 1 above, 

approximately 86 percent of NFC swaps 

involved at least one registered SD. 

Although that percentage is lower than 

the approximately 99 percent for other 

asset classes, as discussed below, the 

Commission is of the view that lower 

SD regulatory coverage is acceptable 

given the unique characteristics of the 

NFC swap market. Table 12 presents 

information on the category and SD 

registration status of In-Scope Entities 

with at least 10 NFC swap 

counterparties. 

TABLE 12—CATEGORIES AND REGISTRATION STATUS

IN-SCOPE ENTITIES

[Minimum 10 NFC counterparties] 

Category Registered 

SDs 

Unregistered 

entities 

Bank/Bank subsidiary/Bank affiliate ........................................................................................................................ 39 12 

Non-bank financial entity (e.g., traders without physical assets) ............................................................................ 2 8 

Other (e.g., commercial entities, such as consumers, merchants, producers, or traders of physical commodities, who appear to be engaging in some swap dealing activity) ....................................................................... 3 22 

Total .................................................................................................................................................................. 44 42 

Analysis of SDR data indicates that 

were 86 In-Scope Entities with 10 or 

more NFC swap counterparties during 

the review period. As seen in Table 12, 

of these 86 entities, 44 are registered 

SDs and 42 are unregistered entities. Of 

the 42 unregistered entities, 22 have a 

primary business that is non-financial in 

nature. Specifically, these are 

commercial entities, such as consumers, 

merchants, producers, or traders of 

physical commodities, who appear to be 

engaging in some swap dealing activity. 

Moreover, half of the 12 unregistered 

banks or bank affiliates active in the 

NFC swap market are small or mid-sized 

in nature. Further, of the 42 

unregistered entities, only seven have 

AGNA of swaps activity greater than $3 

billion in IRS, CDS, FX swaps, and 

equity swaps, indicating that the 

majority of these entities are primarily 

or exclusively active in NFC swaps.97 In 

addition to the fact that entering into 

NFC swaps is the primary swaps 

activity for the majority of these 42 

entities, a review of these entities’ 

transaction data indicates that they 

appear to provide NFC swaps generally 

to smaller end-user counterparties, 

potentially to permit these 

counterparties to hedge risks associated 

with physical commodities. 

TABLE 13—NFC SWAP TRANSACTION STATISTICS

IN-SCOPE ENTITIES

[Minimum 10 NFC counterparties] 98

Statistic 

Registered 

SDs 

(44 total) 

Unregistered 

entities 

(42 total) 

Transactions: 

Mean ................................................................................................................................................................. 12,638 2,195 

Total .................................................................................................................................................................. 546,656 85,025 

Total as Percent of all NFC transactions ......................................................................................................... 86% 13% 

Counterparties: 

Mean ................................................................................................................................................................. 176 40 

Total .................................................................................................................................................................. 4,626 1,207 

Total as Percent of all NFC counterparties ...................................................................................................... 83% 22% 

Table 13 indicates that registered SDs 

with 10 or more counterparties entered 

into 86 percent of the transactions in the 

NFC swap market, and faced 83 percent 

of counterparties in at least one 

transaction,99 indicating that the 

existing $8 billion de minimis threshold 

has helped extend the benefits of SD 

registration to much of the NFC swap 

market. The trading activity of the 42 

unregistered entities represents 

approximately 13 percent of the overall 

NFC swap market by transaction count. 

However, as compared to the existing 44 

registered SDs with at least 10 

counterparties, these 42 unregistered 

entities have significantly lower mean 

transaction and counterparty counts, 

indicating that they may only be 

providing ancillary dealing services to 

accommodate commercial end-user 

clients, and/or be engaged in non-swap 

dealing activity, such as hedging 

activity or proprietary trading. 

Lacking notional-equivalent data for 

NFC swaps, it is unclear how many of 

the 42 entities would actually be subject 

to SD registration at any given de 

minimis threshold. It is possible that a 

portion of the swaps activity for some or 

all of these entities qualifies for the 

physical hedging exclusion in paragraph 

(6)(iii) of the SD Definition or is 


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100Hypothetically, if all 42 entities registered, the 

percentage of all NFC swaps facing at least one 

registered SD would rise from approximately 86 

percent to 98 percent. 

101See Letters from BP, CDE, CMC, EDF, EEI/

EPSA, FSR, IIB, IECA, ISDA, NGSA, and SIFMA, 

supra note 58. 

102The 705 entities comprise 12.6 percent of the 

5,578 counterparties who entered into NFC swaps. 

103The 48,413 NFC swaps comprise 7.6 percent 

of the 633,943 NFC swaps entered into during the 

review period. 

104Comments from market participants have 

specifically indicated that some entities would 

reduce or stop dealing activity if the de minimis 

threshold is reduced. See generally Letters from BP, 

CMC, EDF, IIB, and NGSA; Final Staff Report, supra 

note 24, at 11–12, 16–17 (citing comment letters 

submitted in response to Preliminary Staff Report, 

supra note 21). 105See generally Letters from BP, CDE, CMC, 

EDF, EEI/EPSA, FSR, IIB, IECA, ISDA, NGSA, and 

SIFMA, supra note 58; Final Staff Report, supra 

note 24, at 11–12, 16–17 (citing comment letters 

submitted in response to Preliminary Staff Report, 

supra note 21). 106CFTC Responsibilities, available at https://

www.cftc.gov/About/MissionResponsibilities/

index.htm. 

107See e.g., Letter from CDE, supra note 58; Final 

Staff Report, supra note 24, at 12 (citing comment 

letters submitted in response to Preliminary Staff 

Report, supra note 21). 

108As discussed above in section II.A.1.i, there 

were challenges in calculating notional amounts for 

NFC swaps. 

otherwise not swap dealing activity, 

regardless of the de minimis threshold 

level.100

The Commission believes that the 

available data, related policy 

considerations, and comments from 

market participants 101 demonstrate that 

maintaining an $8 billion threshold is 

also appropriate with respect to the NFC 

swap asset class. 

First, a reduced de minimis threshold 

likely would have negative impacts on 

NFC swap liquidity. Specifically, some 

entities may reduce dealing to avoid 

registration and its related costs. Many 

of the entities identified in Table 12 that 

are not registered as SDs are nonfinancial in nature and trade in physical 

commodity markets, or are small or 

mid-sized banks. Based on analysis of 

data and comments from swap market 

participants, it is likely that much of the 

swap dealing by these entities serves 

small or mid-sized end-users in their 

localized markets. Often, the end-users 

served by these entities do not have 

trading relationships with larger, 

financial-entity SDs, and the end-users 

rely on these small to mid-sized and/or 

non-financial entities to access liquidity 

provided by larger dealers. 

For example, the 42 unregistered InScope Entities described above entered 

into NFC swaps with 1,207 

counterparties, 1,174 of which were not 

registered SDs. Of these 1,174 entities, 

705 had no transactions with registered 

SDs. Almost all of the 705 entities are 

commercial end-users.102 Of the 52,396 

NFC swaps that these 705 entities 

entered into, 48,813 were entered into 

with the 42 unregistered In-Scope 

Entities discussed above.103 Therefore, 

it is likely that these 705 entities are 

generally relying on the 42 unregistered 

In-Scope Entities for access to the NFC 

swap market. It is unclear if these 705 

entities would be able to establish 

trading lines with registered SDs if some 

of the 42 entities reduced or eliminated 

their NFC swap dealing activities. 

If the de minimis threshold is 

decreased, the Commission is of the 

view that this would negatively affect 

swap market access and liquidity for 

commercial end-user counterparties of 

currently unregistered entities that are 

active in NFC swaps. Specifically, these 

entities may reduce or stop dealing 

activity if a lower threshold would 

subject them to SD registration.104 The 

swap dealing activity of unregistered 

entities dealing in NFC swaps is likely 

a smaller part of those entities’ overall 

business activities, and may not support 

the costs associated with SD registration 

and compliance.105

Generally, a reduction in the 

threshold could negatively affect the 

ability of these entities to provide 

ancillary services involving swap 

transactions, a stated benefit for having 

a de minimis exception. Further, if the 

threshold is maintained at $8 billion, it 

is possible that unregistered entities that 

currently limit trading activity to below 

$3 billion may increase dealing volumes 

to levels closer to $8 billion, potentially 

increasing liquidity in the NFC swap 

market. As the Commission has stated: 

The futures and swaps markets are 

essential to our economy and the way that 

businesses and investors manage risk. 

Farmers, ranchers, producers, commercial 

companies, municipalities, pension funds, 

and others use these markets to lock in a 

price or a rate. This helps them focus on 

what they do best: innovating, producing 

goods and services for the economy, and 

creating jobs. The CFTC works to ensure 

these hedgers and other market participants 

can use markets with confidence.106

Allowing small to mid-sized nonfinancial entities with a presence in the 

physical commodity markets to provide 

ancillary services involving swap 

transactions helps fulfill this goal. 

Second, even if the threshold were 

decreased, it is unclear if or to what 

extent the 2017 Counterparty Coverage 

statistic of 86 percent would increase for 

NFC swaps since several of those 

entities likely already have less than $3 

billion in AGNA of swap dealing 

activity. Additionally, as discussed 

above, many of these entities would 

likely reduce activity to remain below 

the SD de minimis threshold, further 

reducing any increase in Estimated 

Counterparty Coverage from a lower 

threshold. 

Third, many of the entities engaged in 

limited swap dealing activity for NFC 

swaps appear to have a unique role in 

the market in that their primary 

business is generally non-financial in 

nature and the swap dealing activity is 

ancillary to their primary role in the 

market. Further, these firms generally 

pose less systemic risk than financial 

market SDs.107 For these reasons, the 

Commission believes that there are 

strong public policy arguments not to 

require that all of these entities register 

with the Commission. 

Fourth, although it has not conducted 

an analysis of AGNA activity in NFC 

swaps,108 the Commission is of the 

preliminary view that increasing the de 

minimis threshold could potentially 

lead to fewer entities being required to 

register as SDs due to their NFC swap 

market activity. This could reduce the 

number of entities transacting with 

registered SDs, and therefore also 

reduce the benefits of those SD 

regulations concerned with 

counterparty protections. 

Preliminarily, the Commission does 

not believe that decreasing or increasing 

the de minimis threshold would have 

much benefit for the NFC swap market. 

Rather, there is a concern that a change 

in the threshold would cause harm to 

that market. 

(v) Setting an $8 Billion Threshold 

Avoids Potential Administrative 

Burdens 

The Commission notes that setting the 

de minimis threshold at $8 billion 

would allow persons to continue to use 

existing calculation procedures and 

business processes that are geared 

towards the $8 billion threshold. 

Modifying the threshold could require 

entities to revise monitoring processes, 

modify internal systems, and amend 

policies and procedures tied to an $8 

billion threshold, leading to increased 

costs. Further, as discussed, the 

Commission expects that maintaining 

an $8 billion threshold would foster the 

efficient application of the SD 

Definition by providing continuity and 

addressing the uncertainty associated 

with the end of the phase-in period. 

Based on the available data and policy 

considerations discussed above, the 

Commission proposes to maintain the 

de minimis threshold for AGNA of swap 

dealing at $8 billion. 


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109 7 U.S.C. 1a(49)(A). 

110 17 CFR 1.3, Swap dealer, paragraph (5). 

111 17 CFR 1.3, Swap dealer, paragraph (5)(i)(A). 

112 17 CFR 1.3, Swap dealer, paragraph (5)(i)(B). 

113 17 CFR 1.3, Swap dealer, paragraph (5)(i)(C). 

114 17 CFR 1.3, Swap dealer, paragraph (5)(i)(D). 

115 17 CFR 1.3, Swap dealer, paragraph (5)(i)(E). 

116 17 CFR 1.3, Swap dealer, paragraph (5)(i)(F). 

117 17 CFR 1.3, Swap dealer, paragraph (5)(iii)(A). 

118 17 CFR 1.3, Swap dealer, paragraph (5)(iii)(B). 

119See, e.g., Letters from Chatham, FSR, and 

Northern Trust, supra note 58; Final Staff Report, 

supra note 24, at 17 (citing comment letters 

submitted in response to Preliminary Staff Report, 

supra note 21). 

120A joint rulemaking is not required with 

respect to changes to the de minimis exceptionrelated factors. 77 FR at 30634 n.464 (‘‘We do not 

interpret the joint rulemaking provisions of section 

712(d) of the Dodd-Frank Act to require joint 

rulemaking here, because such an interpretation 

would read the term ‘‘Commission’’ out of CEA 

section 1a(49)(D) (and Exchange Act section 

3(a)(71)(D)), which themselves were added by the 

Dodd-Frank Act.’’). As noted above, pursuant to 

section 712(a)(1) of the Dodd-Frank Act, the 

Commission is consulting with the SEC and 

3. Request for Comments 

The Commission requests comments 

on the following questions. To the 

extent possible, please quantify the 

impact of issues discussed in comments, 

including costs and benefits, as 

applicable. 

(1) Based on the data and related 

policy considerations, is an $8 billion 

de minimis threshold appropriate? Why 

or why not? 

(2) Should the de minimis threshold 

be reduced to $3 billion? Why or why 

not? 

(3) Should the de minimis threshold 

be increased? If so, to what threshold? 

Why or why not? 

(4) Are the assumptions discussed 

above regarding a $3 billion de minimis 

threshold, an $8 billion de minimis 

threshold, or a higher de minimis 

threshold accurate, including, but not 

limited to, compliance costs and market 

liquidity assumptions? 

(5) As an alternative or in addition to 

maintaining an $8 billion threshold, 

should the Commission consider a 

tiered SD registration structure that 

would establish various exemptions 

from SD compliance requirements for 

SDs whose AGNA of swap dealing 

activity is between the $3 billion and $8 

billion? 

(6) What is the impact of the de 

minimis threshold level on market 

liquidity? Are there entities that would 

increase their swap dealing activities if 

the Commission raised the de minimis 

exception, or decrease their swap 

dealing activities if the Commission 

lowered the threshold? How might these 

changes affect the swap market? 

(7) Are there additional policy or 

statutory considerations underlying SD 

regulation or the de minimis exception 

that the Commission should consider? 

(8) Have there been any structural 

changes to the swap market such that 

the policy considerations have evolved 

since the adoption of the SD Definition? 

(9) Are entities curtailing their swap 

dealing activity to avoid SD registration 

at $8 billion or $3 billion thresholds, 

and if so, what impact is that having on 

the swap market? Are certain asset 

classes or product types more affected 

by such curtailed dealing activity than 

others? 

(10) Does registration as an SD allow 

persons to substantially increase their 

swap dealing activity, or is increased 

swap dealing activity constrained by 

capital requirements at the firm level 

and other considerations? 

(11) Should an entity’s AGNA of swap 

dealing activity continue to be tested 

against the de minimis threshold for any 

rolling 12-month period, only for 

calendar year periods, or for some other 

regular 12-month period such as 

quarterly or semi-annual testing? 

(12) What are the benefits and 

detriments to using AGNA of swap 

dealing activity as the relevant criterion 

for SD registration, as compared to other 

options, including, but not limited to, 

entity-netted notional amounts or credit 

exposures? 

B. Swaps Entered Into by Insured 

Depository Institutions in Connection 

With Loans to Customers 

1. Background 

The CEA provides that in no event 

shall an IDI be considered to be an SD 

to the extent it offers to enter into a 

swap with a customer in connection 

with originating a loan with that 

customer.109 With respect to the 

statutory exclusion, the Commissions 

jointly adopted paragraph (5) of the SD 

Definition, which allows an IDI to 

exclude—when determining whether it 

is an SD—certain swaps it enters into 

with a customer in connection with 

originating a loan to that customer (the 

‘‘IDI Swap Dealing Exclusion’’).110

For a swap to be considered to have 

‘‘been entered into . . . in connection 

with originating a loan,’’ the IDI Swap 

Dealing Exclusion requires that: (1) The 

IDI enter into the swap no earlier than 

90 days before and no later than 180 

days after execution of the loan 

agreement (or transfer of principal); 111

(2) the rate, asset, liability, or other 

notional item underlying the swap be 

tied to the financial terms of the loan or 

be required as a condition of the loan to 

hedge risks arising from potential 

changes in the price of a commodity; 112

(3) the duration of the swap not extend 

beyond termination of the loan; 113 (4) 

the IDI be the source of at least 10 

percent of the principal amount of the 

loan, or the source of a principal 

amount greater than the notional 

amount of swaps entered into by the IDI 

with the customer in connection with 

the loan; 114 (5) the AGNA of swaps 

entered into in connection with the loan 

not exceed the principal amount 

outstanding; 115 (6) the swap be reported 

as required by other CEA provisions if 

it is not accepted for clearing; 116 (7) the 

transaction not be a sham, whether or 

not the transaction is intended to 

qualify for the IDI Swap Dealing 

Exclusion; 117 and (8) the loan not be a 

synthetic loan, including, without 

limitation, a loan credit default swap or 

a loan total return swap.118 A swap that 

meets the above requirements would not 

be considered when assessing whether a 

person is an SD. 

Based on information gained from 

market participants,119 as well as 

analysis of data submitted to SDRs, the 

Commission believes that the IDI Swap 

Dealing Exclusion: (1) Has 

unnecessarily restrictive conditions; (2) 

is not clear in certain instances; and (3) 

limits the ability of IDIs to provide 

swaps that would allow their customers 

to properly hedge risks associated with 

bank loans. In general, these issues 

make it more difficult for IDIs that are 

not registered as SDs to provide swaps 

to loan customers because of the 

concern that certain swaps would not 

qualify for the IDI Swap Dealing 

Exclusion. Certain IDIs are restricting 

loan-related swaps because of the 

potential that such swaps would have to 

be counted towards an IDI’s de minimis 

threshold, leading the IDI to register as 

an SD and incur registration-related 

costs. The restrictions on loan-related 

swaps by IDIs may result in reduced 

availability of swaps for the loan 

customers of these IDIs, potentially 

hampering the ability of end-user 

borrowers to enter into hedges in 

connection with their loans. 

The Commission is not at this time 

proposing to amend the IDI Swap 

Dealing Exclusion in paragraph (5) of 

the SD Definition. As discussed above, 

pursuant to requirements of section 

712(d)(1) of the Dodd-Frank Act, the 

CFTC and SEC jointly adopted the IDI 

Swap Dealing Exclusion in paragraph 

(5) as part of the definition of what 

constitutes swap dealing activity. Rather 

than proposing to revise the scope of 

activity that constitutes swap dealing, 

the Commission is proposing to amend 

paragraph (4) of the SD Definition, 

which addresses the de minimis 

exception.120 In particular, the 


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prudential regulators regarding the changes to the 

de minimis exception discussed in this Proposal. 

121Based on information on the Federal Deposit 

Insurance Corporation website, available at https:// 

www5.fdic.gov/idasp/advSearch_warp_download_

all.asp. 

122As discussed above in section II.A.1.i, there 

were challenges in calculating notional amounts for 

NFC swaps. Therefore, the analysis in this section 

focuses on the other asset classes. 123The AGNA totals are not mutually exclusive 

across rows, and therefore cannot be added together 

without double counting. For example, some IDIs 

in the $1 billion to $3 billion range transact with 

IDIs in the $3 billion to $8 billion range. 

Transactions that involve entities from multiple 

rows are reported in both rows. 

124Although staff did not manually identify the 

category of every counterparty with less than $1 

billion of activity, there are at least 200 entities 

generally identified as banks, each with AGNA of 

swaps activity below $1 billion and with at least 10 

counterparties. 

125See generally supra note 119. 

Commission is proposing to add specific 

factors that an IDI can consider when 

assessing whether swaps entered into 

with customers in connection with 

loans to those customers must be 

counted towards the IDI’s de minimis 

calculation. The IDI could assess these 

factors and exclude qualifying swaps 

from the de minimis calculation 

regardless of whether the swaps would 

qualify for the IDI Swap Dealing 

Exclusion. 

Specifically, the Commission is 

proposing new paragraph (4)(i)(C) of the 

SD Definition, which would except from 

the calculation of the de minimis 

threshold certain loan-related swaps 

entered into by IDIs (the ‘‘IDI De 

Minimis Provision’’). The IDI De 

Minimis Provision would have 

requirements that are similar to the IDI 

Swap Dealing Exclusion, but would 

encompass a broader scope of loanrelated swaps. The proposed IDI De 

Minimis Provision includes: (1) A 

lengthier timing requirement for when 

the swap must be entered into; (2) an 

expansion of the types of swaps that are 

eligible; (3) a reduced syndication 

percentage requirement; (4) an 

elimination of the notional amount cap; 

and (5) a refined explanation of the 

types of loans that would qualify. 

The Commission notes that any swap 

that meets the requirements of the IDI 

Swap Dealing Exclusion in paragraph 

(5) of the SD Definition would also meet 

the requirements of the proposed IDI De 

Minimis Provision. However, proposed 

paragraph (4)(i)(C) provides additional 

flexibility as to what swaps need to be 

counted towards an IDI’s de minimis 

calculation. The Commission believes 

that the broader scope of the proposed 

IDI De Minimis Provision, described in 

further detail below, may advance the 

policy objectives of the de minimis 

exception by allowing some IDIs to 

provide swaps to customers in 

connection with loans without having to 

register as an SD. In other words, the 

proposed provision would facilitate 

swap dealing in connection with other 

client services and may encourage more 

IDIs to participate in the swap market— 

two policy objectives of the de minimis 

exception. Greater availability of loanrelated swaps may also improve the 

ability of customers to hedge their loanrelated exposure. The Commission also 

believes that the more flexible 

provisions of the proposed IDI De 

Minimis Provision may allow for more 

focused, efficient application of the SD 

Definition to the activities of IDIs that 

offer swaps in connection with loans. 

Commission staff reviewed data to 

assess the potential impact of the IDI De 

Minimis Provision. Table 14 below 

provides information regarding the 

AGNA of swaps activity entered into by 

entities that were identified as IDIs 121

with at least 10 counterparties in IRS, 

CDS, FX swaps, and equity swaps.122

The table summarizes the AGNA of 

swaps activity of smaller IDIs within 

various AGNA ranges from $1 billion to 

$50 billion. Note that persons that are 

affiliated with IDIs were not included in 

this analysis (e.g., broker-dealer 

subsidiaries, other non-IDI affiliates). 

TABLE 14—IDI ACTIVITY (RANGES BETWEEN $1 Bn AND $50 Bn) IRS, CDS, FX SWAPS, AND EQUITY SWAPS

[Minimum 10 counterparties] 

Range of AGNA of swaps activity 

($Bn) 

Number of IDIs AGNA of swaps activity 123

Registered 

as SDs 

Not registered 

as SDs 

Total with at 

least one 

registered SD 

($Bn) 

Total with no 

registered SDs 

($Bn) 

Total with no 

registered SDs 

(percent of 

overall market) 

1–3 ....................................................................................... 0 13 13.5 8.9 0.004 

3–8 ....................................................................................... 0 10 37.5 16.5 0.007 

8–20 ..................................................................................... 0 4 42.6 6.5 0.003 

20–50 ................................................................................... 2 3 160.7 14.2 0.006 

As seen in Table 14, there are a 

number of IDIs that have 10 or more 

counterparties and are active in the 

swap market at lower AGNAs.124 For 

example, there are 13 IDIs that are not 

currently registered as SDs and have 

between $1 billion and $3 billion in 

AGNA of swaps activity. Based on 

market participant comments 125 and 

review of the trading data, the 

Commission believes that many of the 

unregistered entities engaged in $1 

billion to $50 billion in AGNA of swaps 

activity are entering into swaps with 

customers in connection with loans to 

those customers. Additionally, many of 

these IDIs could be restricting their 

swaps activity because the IDI Swap 

Dealing Exclusion limits, or is 

ambiguous regarding, which swaps are 

considered to be ‘‘in connection with’’ 

originating a loan (and therefore are 

excluded from the SD analysis). 

As Table 14 indicates, the AGNA of 

swaps activity that these unregistered 

IDIs enter into with other non-registered 

entities is low relative to the total swap 

market analyzed. For example, there are 

10 IDIs that have between $3 billion and 

$8 billion each in AGNA of swaps 

activity—none of which are registered 

SDs. In aggregate, these IDIs entered into 

approximately $54.0 billion in AGNA of 

swaps activity. However, only $16.5 

billion of that activity was between two 

entities not registered as SDs, 

representing only 0.007 percent of the 

total AGNA of swaps activity during the 

review period. Depending on the range 

of AGNA of swaps activity examined, 

the level of activity occurring between 

two entities not registered as SDs (at 

least one of which is an IDI) varies 

between only approximately 0.003 

percent and 0.007 percent of the total 

AGNA of swaps activity. 

Given those low percentages, the 

Commission is of the view that the 

policy benefits of SD regulation likely 

would not be significantly diminished if 

the proposed IDI De Minimis Provision 


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126 17 CFR 1.3, Swap dealer, paragraph (5)(i)(A). 

127See 17 CFR 1.3, Swap dealer, paragraph 

(5)(i)(B); 77 FR at 30622. 

128 77 FR at 30622. 

is adopted and some of the unregistered 

IDIs marginally expand the number and 

AGNA of swaps they enter into with 

customers in connection with loans to 

those customers. This low percentage of 

swap activity between two unregistered 

entities may also indicate that the limits 

of the IDI Swap Dealing Exclusion are 

restricting certain IDIs from taking full 

advantage of the exclusion. Further, 

though these entities are active in the 

swap market, the Commission is of the 

view that their activity poses less 

systemic risk as compared to larger IDIs 

because of their limited AGNA of swaps 

activity as compared to the overall size 

of the market. Generally, the reduced 

potential for risk, combined with the 

potential that end-user loan customers 

may benefit from increased access to 

loan-related swaps, provides support for 

the proposed IDI De Minimis Provision. 

The proposed rule text described 

below may provide greater ability for 

IDIs to not count loan-related swaps 

towards their de minimis threshold 

calculations, potentially increasing the 

availability of loan-related swaps for 

their borrowers and advancing the 

stated policy goals of the de minimis 

exception. 

2. Proposal 

(i) Timing Requirement 

Pursuant to the IDI Swap Dealing 

Exclusion in paragraph (5) of the SD 

Definition, if an IDI enters into a swap 

in connection with originating a loan to 

a customer, that swap must be entered 

into no more than 90 days before or 180 

days after the date of execution of the 

loan agreement (or date of transfer of 

principal to the customer) for the IDI 

Swap Dealing Exclusion to apply.126

The Commission is proposing new 

paragraph (4)(i)(C)(1) of the SD 

Definition, which, for purposes of an 

IDI’s de minimis calculation, does not 

include the 180-day restriction. 

Therefore, an IDI would not have to 

count towards its de minimis 

calculation any swap entered into in 

connection with a loan after the date of 

execution of the loan agreement (or date 

of transfer of principal). Additionally, 

the Commission is proposing to 

generally maintain the restriction for 

swaps entered into more than 90 days 

before loan funding, except where an 

executed commitment or forward 

agreement for the applicable loan exists, 

in which case the 90-day restriction 

would not apply. 

The Commission believes that the 

timing restrictions in the IDI Swap 

Dealing Exclusion limit the ability of 

IDIs to effectively provide hedging 

solutions to end-user borrowers. 

Depending on market conditions or 

business needs, it is not uncommon for 

a borrower to wait for a period of time 

greater than 180 days after a loan is 

originated to enter into a hedging 

transaction. For example, if an IDI 

provides a loan with a 10-year term, and 

the borrower chooses to wait until 181 

days after the loan to hedge interest rate 

risk underlying that loan, the swap 

would not qualify for the IDI Swap 

Dealing Exclusion. However, under the 

proposed IDI De Minimis Provision, if 

the borrower entered into the hedge 181 

days after execution, the swap would 

not have to be counted towards an IDI’s 

de minimis calculation. Given that 

many of the entities that the 

Commission expects to utilize the IDI 

De Minimis Provision are small and 

mid-sized banks, not including this 

timing restriction could lead to 

increased swap availability for the 

borrowing customers that rely on such 

IDIs for access to swaps (and thereby 

advance a policy objective of the de 

minimis exception). 

For a swap to be considered ‘‘in 

connection with’’ a loan for the 

purposes of the IDI De Minimis 

Provision, the Commission believes 

there should be a reasonable expectation 

that the loan will be entered into with 

a customer. Therefore, the proposed 90- 

day restriction is suitable because it 

requires that the swap be entered into 

within an appropriate period of time 

prior to the execution of the loan. 

However, where an executed 

commitment or forward agreement to 

loan money exists between the IDI and 

the borrower prior to the 90-day limit, 

the Commission believes a reasonable 

expectation for the loan is 

demonstrated. Accordingly, for 

purposes of the IDI De Minimis 

Provision, the Commission is proposing 

that an IDI may enter into a swap with 

a customer, in connection with a loan to 

that customer, more than 90 days prior 

to the execution of the loan where there 

is an executed commitment or forward 

agreement to loan money. 

(ii) Relationship of Swap to Loan 

The IDI Swap Dealing Exclusion 

requires that the rate, asset, liability, or 

other notional item underlying such 

swap is, or is directly related to, a 

financial term of such loan or that such 

swap is required, as a condition of the 

loan under the insured depository 

institution’s loan underwriting criteria, 

to be in place in order to hedge price 

risks incidental to the borrower’s 

business and arising from potential 

changes in the price of a commodity 

(other than an excluded commodity).127

As explained in the SD Definition 

Adopting Release, the first category is 

for ‘‘adjusting the borrower’s exposure 

to certain risks directly related to the 

loan itself, such as risks arising from 

changes in interest rates or currency 

exchange rates,’’ and the second 

category is to ‘‘mitigate risks faced by 

both the borrower and the lender, by 

reducing risks that the loan will not be 

repaid.’’ 128 Therefore, both categories of 

swaps are directly related to repayment 

of the loan. 

The Commission is proposing new 

paragraph (4)(i)(C)(2), which states that 

for purposes of the IDI De Minimis 

Provision, a swap is ‘‘in connection 

with’’ a loan if the rate, asset, liability 

or other term underlying such swap is, 

or is related to, a financial term of such 

loan, or if such swap is required as a 

condition of the loan, either under the 

insured depository institution’s loan 

underwriting criteria or as is 

commercially appropriate, in order to 

hedge risks incidental to the borrower’s 

business (other than for risks associated 

with an excluded commodity) that may 

affect the borrower’s ability to repay the 

loan. 

The Commission is of the view that 

the proposed language would further 

the policy objectives of the de minimis 

exception by providing flexibility to 

reflect the actual market practices of 

end-users who hedge their risk. The first 

provision refers to a ‘‘term’’ rather than 

a ‘‘notional item,’’ and does not include 

the word ‘‘directly,’’ for added 

flexibility. Because the second provision 

in the proposed language allows for 

swaps that are not explicitly required as 

a condition of the IDI’s underwriting 

criteria, it provides flexibility for IDIs to 

enter into certain swaps with borrowers 

to hedge risks (e.g., commodity price 

risks) that may not have been evident at 

the time the loan was entered into or 

that are determined based on the unique 

characteristics of the borrower rather 

than the standard bank underwriting 

criteria. For example, physical 

commodity-related hedging decisions 

may not be made at the time the loan 

is entered into, but rather at a future 

point when inventory is purchased or 

produced. Additionally, in these cases, 

the underwriting criteria may not 

explicitly require that the borrower 

enter into swaps to hedge commodity 

price risk. This additional flexibility 

allows IDIs to enter into swaps, as 

commercially appropriate, with 

borrowers to hedge risks—in this case, 


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129 17 CFR 1.3, Swap dealer, paragraph (5)(i)(D). 

130Moreover, as discussed below in section 

II.B.2.iv, if the IDI is responsible for at least five 

percent of a syndicated loan, the Commission is 

proposing to not include the restriction that the 

AGNA of swaps entered into in connection with the 

loan not exceed the principal amount outstanding. 

131 17 CFR 1.3, Swap dealer, paragraph (5)(i)(E). 

132As discussed above in section II.B.2.iii in 

connection with proposed paragraph (4)(i)(C)(4)(ii), 

if an IDI is a source of less than a five percent of 

the maximum principal amount of the loan, the 

notional amount of all swaps the IDI enters into in 

connection with the financial terms of the loan 

cannot exceed the principal amount of the IDI’s 

loan. 

133 77 FR at 30622 n.326 (‘‘To constitute a loan 

there must be (i) a contract, whereby (ii) one party 

transfers a defined quantity of money, goods, or 

services, to another, and (iii) the other party agrees 

to pay for the sum or items transferred at a later 

date.’’ (internal citations omitted)). 134 Id. at 30622. 135 17 CFR 1.3, Swap dealer, paragraph (5)(iii). 

See 77 FR at 30622, 30708. 

commodity price risk—that may affect 

the borrower’s ability to repay the loan 

without the limitation that such swaps 

must be contemplated in the original 

underwriting criteria in order not to be 

counted towards an IDI’s de minimis 

calculation. The Commission believes 

that this proposal benefits both IDIs and 

customers and serves the purposes of 

the de minimis exception by allowing 

for greater use of swaps in effective and 

dynamic hedging strategies. The 

Commission also believes that this 

aspect of the proposed new provision 

would facilitate efficient application of 

the SD Definition by reducing the 

concern that ancillary dealing activity 

may subject the IDI to SD registrationrelated requirements. 

(iii) Syndicated Loan Requirement 

For a loan-related swap with a 

notional amount equal to the full 

principal amount of the loan to qualify 

for the IDI Swap Dealing Exclusion, an 

IDI must be responsible for at least 10 

percent of a syndicated loan.129 In the 

proposed IDI De Minimis Provision, 

new paragraph (4)(i)(C)(4)(i) requires an 

IDI to be, under the terms of the 

agreements related to the loan, the 

source of at least five percent of the 

maximum principal amount under the 

loan for a related swap not to be 

counted towards its de minimis 

calculation.130 In addition to this 

different syndication requirement, 

proposed paragraph (4)(i)(C)(4)(i) also 

includes a single provision that 

consolidates the separate provisions in 

paragraphs (5)(i)(D)(1) and (5)(i)(D)(2) of 

the IDI Swap Dealing Exclusion. 

For loans that are widely syndicated, 

lenders may not have control over their 

final share of the syndication. It is not 

uncommon for borrowers to enter into 

negotiations regarding related swaps 

before the underlying loan has been 

executed. The need to have at least a 10 

percent share of the syndicate can make 

it more difficult for IDIs to determine, in 

advance, whether a swap they have 

negotiated with a borrower will qualify 

for the IDI Swap Dealing Exclusion. The 

lower syndication threshold of five 

percent in this Proposal provides 

additional flexibility for IDIs to enter 

into a greater range of loan-related 

swaps without having those swaps 

count towards their de minimis 

calculations. 

The Commission is also proposing to 

add paragraph (4)(i)(C)(4)(ii), which 

states that if an IDI is a source of less 

than a five percent of the maximum 

principal amount of the loan, the 

notional amount of all swaps the IDI 

enters into in connection with the 

financial terms of the loan cannot 

exceed the principal amount of the IDI’s 

loan in order to qualify for the IDI De 

Minimis Provision. This provision is 

similar to existing paragraph (5)(i)(D)(3) 

of the IDI Swap Dealing Exclusion, 

except that it uses a five percent 

participation threshold. 

(iv) Total Notional Amount of Swaps 

The IDI Swap Dealing Exclusion 

requires that the AGNA of swaps 

entered into in connection with the loan 

not exceed the principal amount 

outstanding.131 The Commission is 

proposing to not include this restriction 

in the IDI De Minimis Provision in the 

case of IDIs responsible for at least five 

percent of the loan principal.132 It is not 

uncommon for an IDI-related loan to 

have related swaps that hedge multiple 

categories of exposure. For example, it 

is possible for a borrower to hedge some 

combination of interest rate, foreign 

exchange, and/or commodity risk in 

connection with a loan. The 

Commission notes that the AGNA of 

such swaps entered into in connection 

with the loan could exceed the principal 

amount outstanding; therefore, this 

restriction might unduly restrict the 

ability of certain IDIs to provide loanrelated swaps to their borrowing 

customers to more effectively allow the 

customers to hedge loan-related risks. 

Not including this restriction in the IDI 

De Minimis Provision would thereby 

advance the policy objectives of the de 

minimis exception noted above. 

(v) Types of Loans 

The requirements of the IDI Swap 

Dealing Exclusion do not account for 

types of credit financings that are 

similar to loans (e.g., credit enhanced 

bonds, letters of credit, leases, revolving 

credit facilities). When the Commission 

adopted the IDI Swap Dealing 

Exclusion, it generally referenced 

existing common law definitions for the 

term ‘‘loan,’’ 133 stating that ‘‘[r]ather 

than examine at this time the many 

particularized examples of financing 

transactions cited by some commenters, 

the term ‘loan’ for purposes of this 

exclusion should be interpreted in 

accordance with this settled legal 

meaning.’’ 134 Additionally, to prevent 

evasion, the Commission adopted 

restrictions stating that the term ‘‘loan’’ 

shall not include any synthetic loan, 

including, without limitation, a loan 

credit default swap or loan total return 

swap, and stating that the term ‘‘loan’’ 

does not include sham loans, whether or 

not intended to qualify for the exclusion 

from the definition of the term swap 

dealer in this rule.135

Similarly, to prevent evasion, the 

Commission is proposing new 

paragraph (4)(i)(C)(6), which states that 

the IDI De Minimis Provision shall not 

apply to any transaction that is a sham 

and shall not apply to any synthetic 

loan. The Commission believes it is 

appropriate to continue to require that 

swaps associated with synthetic loans 

be counted towards the de minimis 

exception. However, for added 

simplicity, the Commission has not 

included the provision specifically 

listing ‘‘a loan credit default swap or 

loan total return swap.’’ The 

Commission notes that certain loan 

credit default swaps and loan total 

return swaps may be valid loan 

structures. Nonetheless, to the extent a 

credit default swap, loan total return 

swap, or any other financial instrument 

would be considered a synthetic lending 

arrangement, swaps entered into in 

connection with such a synthetic 

lending arrangement would not qualify 

for the IDI De Minimis Provision. 

The Commission is of the view that 

swaps entered into in connection with 

non-synthetic lending arrangements that 

are commonly known in the market as 

‘‘loans’’ would generally not need to be 

counted towards an IDI’s de minimis 

calculation if the other requirements of 

the IDI De Minimis Provision are also 

met. Although the Commission is not 

proposing to assess individual 

categories of transactions to determine 

whether they qualify as loans, it 

recognizes the common law definition 

cited in the SD Definition Adopting 

Release. Additionally, the Commission’s 

regulations in part 75 (regarding 

‘‘Proprietary Trading and Certain 

Interests in and Relationships with 

Covered Funds’’) define a loan as any 

loan, lease, extension of credit, or 


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136 17 CFR 75.2(s). 137 17 CFR 1.3, Swap dealer, paragraph ¶ (6)(iii). 

138 77 FR at 30631 n.433 (‘‘For purposes of the de 

minimis exception to the [SD Definition] . . . the 

relevant question in determining whether swaps 

count as dealing activity against the de minimis 

thresholds is whether the swaps fall within the [SD 

Definition] . . . . If hedging or proprietary trading 

activities did not fall within the definition, 

including because of the application of [paragraph 

(6) of the SD Definition in § 1.3], they would not 

count against the de minimis thresholds.’’). 

139See Letters from IIB, Western Union, and WU/ 

GPS/AFEX, supra note 58. 

secured or unsecured receivable that is 

not a security or derivative.136 The 

Commission is of the view that this 

definition would also apply for 

purposes of the IDI De Minimis 

Provision. Generally, allowing swaps 

entered into in connection with other 

forms of financing commonly known as 

loans not to be counted towards the de 

minimis threshold calculation better 

reflects the breadth of lending products 

and credit financings that borrowers 

often utilize and thereby advances the 

policy objectives of the de minimis 

exception noted above. 

(vi) Additional Requirements 

The remaining requirements for the 

IDI De Minimis Provision are 

substantively identical to the IDI Swap 

Dealing Exclusion provisions in 

paragraph (5) of the SD Definition. 

Proposed paragraph (4)(i)(C)(3) is 

identical to paragraph (5)(i)(C), stating 

that the termination date of the swap 

cannot extend beyond termination of 

the loan. 

Proposed paragraph (4)(i)(C)(5) states 

that a swap is considered to have been 

entered into in connection with 

originating a loan to a customer if the 

IDI: (1) Directly transfers the loan 

amount; (2) is part of a syndicate of 

lenders that is the source of the loan 

amount; (3) purchases or receives a 

participation in the loan; or (4) under 

the terms of the agreements related to 

the loan, is, or is intended to be, the 

source of funds for the loan. This 

provision is similar to paragraph (5)(ii) 

of the IDI Swap Dealing Exclusion, 

except that it also encompasses a loanrelated swap if the IDI ‘‘is intended to 

be’’ the source of the funds. This 

difference is consistent with the timing 

requirement provision, discussed above 

in section II.B.2.i, which does not 

include the 90 days before execution of 

the loan restriction in situations where 

an executed commitment or forward 

agreement for the applicable loan exists. 

3. Request for Comments 

The Commission requests comments 

on the following questions. To the 

extent possible, please quantify the 

impact of issues discussed in the 

comments, including costs and benefits, 

as applicable. 

(1) Based on the data and related 

policy considerations, is the proposed 

IDI De Minimis Provision appropriate? 

Why or why not? 

(2) How will the proposed IDI De 

Minimis Provision impact IDIs who 

enter into swaps with customers in 

connection with loans? Will IDIs enter 

into more swaps with loan customers as 

result of the proposed IDI De Minimis 

Provision? 

(3) If the underlying loan is called, 

put, accelerated, or if it goes into default 

before the scheduled termination date, 

should the related swap be required to 

be terminated to remain eligible for the 

IDI De Minimis Provision? 

(4) Are there circumstances that can 

be anticipated at the time of loan 

origination that would support 

permitting the termination date of the 

swap to extend beyond termination of 

the loan? 

(5) Does the provision in proposed 

paragraph (4)(i)(C)(1) referencing 

‘‘executed commitment’’ or ‘‘forward 

agreement’’ sufficiently reflect market 

practice regarding how swaps may be 

entered into in connection with a loan 

in advance of the loan being executed? 

(6) Is it common for an IDI to have as 

low as five percent participation in a 

syndicated loan and also provide swaps 

in connection with the loan? 

(7) Is it common for the AGNA of 

loan-related swaps to exceed the 

outstanding principal amount of the 

loan? In what circumstances? 

(8) Should the Commission define 

‘‘synthetic loan’’? How should that term 

be defined? 

(9) Are there circumstances in which 

a loan credit default swap or loan total 

return swap would not be considered a 

synthetic lending arrangement? 

(10) If an IDI would have to register 

as an SD but for the IDI De Minimis 

Provision, should that IDI be required to 

provide notice to the Commission, 

Commission staff, or the National 

Futures Association? Alternatively, to 

utilize the proposed IDI De Minimis 

Provision, should IDIs be required to 

directly reference the related loan in the 

written swap confirmation? 

C. Swaps Entered Into To Hedge 

Financial or Physical Positions 

1. Background and Proposal 

In adopting the SD Definition, the 

Commission provided that, subject to 

certain requirements, swaps entered 

into by a person for purposes of hedging 

physical positions are not considered in 

determining whether the person is an 

SD (the ‘‘Physical Hedging 

Exclusion’’).137 However, the regulatory 

text does not include a specific 

exclusion for swaps entered into for 

purposes of hedging financial positions. 

Rather, the Commission stated that 

swaps entered into for hedging purposes 

that did not fall within the SD 

Definition, including those that qualify 

for an exclusion in the SD Definition, 

would not count towards the de 

minimis threshold.138

Based on feedback from swap market 

participants during implementation of 

the SD regulations and in connection 

with Project KISS,139 the Commission 

believes that although there is a specific 

exclusion for swaps entered into in 

connection with hedging physical 

positions, the absence of an explicit 

exclusion in the regulations for swaps 

entered into for purposes of hedging 

financial positions has caused 

uncertainty in the marketplace 

regarding whether swaps that hedge, for 

example, interest rate risk, credit risk, or 

foreign exchange risk, would also need 

to be counted towards a person’s de 

minimis threshold. This uncertainty 

could cause inefficient application of 

the SD Definition by leading some 

persons to: (1) Count swaps that they 

enter into to hedge financial positions as 

swap dealing activity for purposes of 

assessing whether the persons would 

need to register as SDs; or (2) not enter 

into swaps to hedge financial positions 

for fear of exceeding the de minimis 

threshold. 

The Commission is of the view that an 

explicit statement of the factors that 

indicate when a swap entered into to 

hedge financial or physical positions 

(‘‘hedging swap’’) is excluded from 

counting towards the de minimis 

threshold would help swap market 

participants know with greater certainty 

what swaps have to be counted towards 

the de minimis threshold, and thereby 

help market participants apply the SD 

Definition more efficiently. The 

Commission is proposing to add a 

hedging exception in new paragraph 

(4)(i)(D) of the SD Definition, permitting 

entities to not count towards their de 

minimis calculations hedging swaps, 

when such swaps meet certain 

conditions (the ‘‘Hedging De Minimis 

Provision’’). Similar to the proposed IDI 

De Minimis Provision, the Hedging De 

Minimis Provision does not revise the 

scope of activity that constitutes swap 

dealing. Rather, the new provision 

would set out explicit factors an entity 

can consider for purposes of assessing 

whether hedging swaps must be 

counted towards the de minimis 


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140See section II.B.1. As discussed, a joint 

rulemaking with the SEC is not required under the 

statute with respect to the de minimis exceptionrelated factors. 77 FR at 30634 n.464. 

141 77 FR at 30613. 

142 77 FR at 30710. 

143The CFTC stated that ‘‘the relevant question in 

determining whether swaps count as dealing 

activity against the de minimis thresholds is 

whether the swaps fall within the [SD Definition] 

. . . . If hedging or proprietary trading activities 

did not fall within the definition . . . they would 

not count against the de minimis thresholds.’’ Id. 

at 30631 n.433. DSIO later stated that back-to-back 

swaps should each undergo a facts and 

circumstances analysis to determine if they should 

be considered swap dealing activity. See Frequently 

Asked Questions (FAQ)—[DSIO] Responds to FAQs 

About Swap Entities (Oct. 12, 2012), available at 

https://www.cftc.gov/idc/groups/public/@

newsroom/documents/file/swapentities_faq_

final.pdf. 

calculation.140 The Commission notes 

that any swap that meets the 

requirements of the Physical Hedging 

Exclusion in paragraph (6)(iii) of the SD 

Definition would also meet the 

requirements of the proposed Hedging 

De Minimis Provision, but meeting the 

requirements of the Physical Hedging 

Exclusion is not a prerequisite for 

application of the Hedging De Minimis 

Provision. In addition, as the 

Commission noted in the SD Definition 

Adopting Release, if a swap does not 

satisfy the criteria of the Hedging De 

Minimis Provision, this does not mean 

the swap is necessarily swap dealing 

activity.141 Rather, such hedging activity 

should then be considered in light of all 

the other relevant facts and 

circumstances to determine whether the 

person is engaging in activity (e.g., 

market making, accommodating 

demand) that brings the person within 

the SD Definition. 

Proposed paragraph (4)(i)(D) states 

that to qualify for the Hedging De 

Minimis Provision, a swap must be 

entered into by a person for the primary 

purpose of reducing or otherwise 

mitigating one or more of the specific 

risks to which it is subject, including, 

but not limited to, market risk, 

commodity price risk, rate risk, basis 

risk, credit risk, volatility risk, 

correlation risk, foreign exchange risk, 

or similar risks arising in connection 

with existing or anticipated identifiable 

assets, liabilities, positions, contracts or 

other holdings of the person or any 

affiliate. Additionally, the person 

entering into the hedging swap must 

not: (1) Be the price maker of the 

hedging swap; (2) receive or collect a 

bid/ask spread, fee, or commission for 

entering into the hedging swap; and (3) 

receive other compensation separate 

from the contractual terms of the 

hedging swap in exchange for entering 

into the hedging swap. 

The requirements that the person not 

be a price maker of the swap or receive 

compensation for the swap should 

ensure that the Hedging De Minimis 

Provision does not improperly exclude 

swap dealing activity. As discussed in 

the SD Definition Adopting Release, in 

connection with swaps that hedge 

physical positions: 

When a person enters into a swap for the 

purpose of hedging the person’s own risks in 

specified circumstances, an element of the 

[SD] definition—the accommodation of the 

counterparty’s needs or demands—is absent. 

Therefore, consistent with our overall 

interpretive approach to the definition, the 

activity of entering into such swaps (in the 

particular circumstances defined in the rule) 

does not constitute swap dealing. Providing 

an exception for such swaps from the [SD] 

analysis reduces costs that persons using 

such swaps would incur in determining if 

they are [SDs].142

The Commission believes that this 

rationale applies broadly to swaps that 

hedge both financial and physical 

positions. When the person is not the 

price maker of the hedging swap, or 

otherwise receiving compensation, the 

person is not accommodating the needs 

of a counterparty, such swap is 

generally not swap dealing activity, and 

therefore should not be counted for 

purposes of the de minimis exception. 

Adding this specific exception as a 

factor to be considered for purposes of 

the de minimis calculation provides 

additional clarity which advances the 

policy objectives of the de minimis 

threshold. In particular, the Commission 

believes that the scope of the Hedging 

De Minimis Provision would encourage 

greater use of swaps (i.e., greater 

participation in the swap market) to 

hedge risks. Additionally, the proposed 

rule accounts for circumstances where 

entities may hedge risks using affiliates. 

The flexible terms of the Hedging De 

Minimis Provision should facilitate an 

efficient application of the SD 

Definition that is more focused on 

activity that is covered by the statutory 

and regulatory definition of swap 

dealing. As noted below, the Hedging 

De Minimis Provision contains elements 

to ensure that it does not improperly 

exclude swap dealing activity that 

should be counted against the de 

minimis threshold. 

The SD Definition Adopting Release 

also states that, generally, swaps that 

hedge positions that were entered into 

as part of swap dealing activity would 

also not need to be counted towards a 

person’s de minimis threshold 

calculation if they meet the 

requirements of the proposed 

exception.143 The proposed Hedging De 

Minimis Provision is consistent with the 

CFTC’s position in the SD Definition 

Adopting Release. 

Lastly, the proposed Hedging De 

Minimis Provision also includes, in 

paragraphs (D)(3) through (D)(5), the 

following requirements that are in the 

Physical Hedging Exclusion: (1) The 

swap must be economically appropriate 

to the reduction of risks that may arise 

in the conduct and management of an 

enterprise engaged in the type of 

business in which the person is 

engaged; (2) the swap must be entered 

into in accordance with sound business 

practices; and (3) the swap is not in 

connection with activity structured to 

evade designation as an SD. The 

Commission believes that these 

requirements are also appropriate for 

this broader Hedging De Minimis 

Provision to ensure that swap dealing 

activity is not improperly being 

excluded from a person’s de minimis 

threshold calculation. 

2. Request for Comments 

The Commission requests comments 

on the following questions. To the 

extent possible, please quantify the 

impact of issues discussed in the 

comments, including costs and benefits 

as applicable. 

(1) Based on the policy 

considerations, is the proposed Hedging 

De Minimis Provision appropriate? Why 

or why not? 

(2) Is the proposed Hedging De 

Minimis Provision too narrowly or 

broadly tailored? 

(3) How will the proposed Hedging De 

Minimis Provision impact entities that 

enter into swaps to hedge financial or 

physical positions? 

(4) The proposed Hedging De Minimis 

Provision would be used to determine 

whether a person has exceeded the 

AGNA threshold set forth in paragraph 

(4)(i)(A) of the SD Definition, whereas 

the Physical Hedging Exclusion in 

paragraph (6)(iii) of the SD Definition 

addresses when a swap is not 

considered in determining whether a 

person is an SD. How might this 

distinction impact how entities analyze 

their swap dealing activity and whether 

they would exceed the de minimis 

threshold? 

D. Swaps Resulting From Multilateral 

Portfolio Compression Exercises 

1. Background and Proposal 

The Commission is proposing new 

paragraph (4)(i)(E) of the SD Definition, 

which would allow a person to exclude 

from its de minimis calculation swaps 

that result from multilateral portfolio 

compression exercises (‘‘MPCE De 


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144Similar to the proposed IDI De Minimis 

Provision and the Hedging De Minimis Provision, 

the MPCE De Minimis Provision does not revise the 

scope of activity that constitutes swap dealing. 

Rather, the new provision sets out factors an entity 

can consider for purposes of assessing whether 

swaps resulting from multilateral portfolio 

compression exercises need to be counted towards 

the de minimis calculation. 

145CFTC Staff Letter No. 12–62, supra note 54. 

146See, e.g., 77 FR at 30606–19 (e.g., 

accommodating demand, market making, holding 

oneself out as a dealer in swaps, seeking to profit 

by providing liquidity, etc.). 

147The Commission noted that ‘‘effective 

notional’’ should be used if the swap is leveraged 

or structurally enhanced. See 17 CFR 1.3, Swap 

dealer, paragraph (4)(i)(A); 77 FR at 30630. 

148 77 FR at 30670 n. 902. 

149See Frequently Asked Questions (FAQ)— 

[DSIO] Responds to FAQs About Swap Entities 

(Oct. 12, 2012), available at https://www.cftc.gov/

idc/groups/public/@newsroom/documents/file/

swapentities_faq_final.pdf. 

150See CPMI and Board of IOSCO, Technical 

Guidance—Harmonisation of critical OTC 

derivatives data elements (other than UTI and UPI) 

(Apr. 2018), available at https://www.bis.org/cpmi/ 

publ/d175.pdf. 

151See Technical Guidance, supra note 150, at 7 

(‘‘The responsibility for issuing requirements for 

market participants on the reporting of OTC 

derivative transactions to [trade repositories] falls 

within the remit of the relevant authorities. 

Therefore, this document does not represent 

guidance on which critical data elements will be 

required to be reported in a given jurisdiction. 

Rather, if such data elements are required to be 

reported in a given jurisdiction, this document 

represents guidance to the authorities in that 

jurisdiction on the definition, the format and the 

allowable values that would facilitate consistent 

aggregation at a global level.’’). 

Minimis Provision’’).144 The MPCE De 

Minimis Provision is consistent with 

DSIO no-action relief issued on 

December 21, 2012 (‘‘Staff Letter 12– 

62’’).145 Specifically, DSIO stated that it 

would not recommend that the 

Commission take enforcement action 

against any person for failure to include 

in its de minimis calculation the 

terminations of swaps (in whole or in 

part) or swaps entered into as 

replacement swaps as part of a 

multilateral portfolio compression 

exercise (as defined in paragraph 

23.500(h) of the Commission’s 

regulations). The relief provided was 

not time-limited. 

The Commission concurs with the 

position taken in Staff Letter 12–62. 

Generally, multilateral portfolio 

compression allows swap market 

participants with large portfolios to ‘‘net 

down’’ the size and number of 

outstanding swaps between them. The 

Commission is of the view that this 

advances the policy considerations 

behind SD regulation by reducing 

counterparty credit risk, lowering the 

AGNA of outstanding swaps, and 

reducing operational risks by decreasing 

the number of outstanding swaps. The 

Commission understands that 

multilateral portfolio compression 

exercises do not permit participants to 

provide liquidity or set prices in the 

market. A participant in a multilateral 

portfolio compression exercise submits 

some criteria for its participation in the 

exercise (e.g., credit or counterparty 

limits), but the outcome of a 

compression cycle will depend on 

several variables that the participants 

cannot know or control, such as the 

positions in counterparties’ portfolios 

and the criteria set by other participants. 

Given this process, the Commission is of 

the view that multilateral portfolio 

compression exercise swaps generally 

do not involve any of the attributes the 

Commission has identified as indicative 

of swap dealing activity.146 Further, the 

Commission notes that counting such 

swaps towards a person’s de minimis 

threshold could discourage 

participation in multilateral portfolio 

compression exercises, reducing the 

market benefit of the risk reduction such 

exercises provide. 

To advance the policy objectives of 

the de minimis exception discussed 

above, proposed paragraph (4)(i)(E) 

would allow a person to exclude from 

its de minimis calculation swaps that 

result from multilateral portfolio 

compression exercises. In particular, the 

MPCE De Minimis Provision’s explicit 

statement that such swaps do not need 

to be counted towards the de minimis 

threshold would facilitate efficient 

application of the SD Definition. 

Moreover, adding this proposed 

exception to the regulatory text would 

therefore be consistent with the goals of 

Project KISS. Additionally, to ensure 

that the scope of this exception is not 

improperly exceeded, the proposed rule 

includes an anti-evasion provision. 

2. Request for Comments 

The Commission requests comments 

on the following questions. To the 

extent possible, please quantify the 

impact of issues discussed in the 

comments, including costs and benefits, 

as applicable. 

(1) Is the proposed MPCE De Minimis 

Provision appropriate? Why or why not? 

(2) Is the proposed MPCE De Minimis 

Provision too narrowly or broadly 

tailored? Are there additional 

restrictions or conditions that should 

apply in order for swaps resulting from 

multilateral portfolio compression 

exercises to not count towards a 

person’s de minimis threshold? 

(3) How will the proposed MPCE De 

Minimis Provision impact entities that 

enter into multilateral portfolio 

compression exercises? 

E. Methodology for Calculating Notional 

Amounts 

1. Background and Proposal 

Given the potential variety of methods 

that could be used to calculate the 

notional amount for certain swaps, 

particularly for swaps where notional 

amount is not a contractual term of the 

transaction (e.g., NFC swaps), the 

Commission is proposing new 

paragraph (4)(vii) of the SD Definition, 

which provides that the Commission 

may approve or establish methodologies 

for calculating notional amounts for 

purposes of determining whether a 

person exceeds the AGNA de minimis 

threshold. Further, the Commission is 

proposing to delegate to the Director of 

DSIO the authority to make such 

determinations. 

In the SD Definition Adopting 

Release, the Commission did not 

prescribe specific calculation 

methodologies for notional amounts 

(except for leveraged swaps),147 and in 

the context of calculating notional 

amounts to determine whether an entity 

was a major swap participant (‘‘MSP’’), 

the Commission explicitly stated that it 

‘‘contemplate[d] the use of industry 

standard practices.’’ 148 Subsequent to 

issuance of the SD Definition Adopting 

Release, DSIO issued interpretive 

responses to frequently asked questions 

regarding calculating notional amounts 

for purposes of the de minimis 

exception (the ‘‘DSIO FAQ 

Guidance’’).149

Further, for purposes of reporting 

swaps to trade repositories, the 

Committee on Payments and Market 

Infrastructures (‘‘CPMI’’) and the Board 

of the International Organization of 

Securities Commissions (‘‘IOSCO’’) 

recently issued guidance regarding the 

definition, format, and usage of key 

over-the-counter derivative data 

elements, which included guidance on 

calculating certain notional amounts 

(the ‘‘Technical Guidance’’).150 The 

calculation methodologies described in 

the Technical Guidance will be 

considered for adoption by the 

Commission in future rulemakings 

related to swap data reporting.151

However, the Commission recognizes 

that the Technical Guidance does not 

necessarily address how notional 

amounts should be calculated for 

purposes of the de minimis exception 

under CFTC regulations. 

The Commission notes that market 

participants have already requested 

clarity regarding how notional amounts 

should be calculated for NFC swaps for 

purposes of determining whether a 

person exceeds the AGNA de minimis 


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Federal Register / Vol. 83, No. 113 / Tuesday, June 12, 2018 / Proposed Rules 27465 

152See, e.g., Letter from CEWG; Letter from 

Natural Gas Supply Association (Jan. 15, 2016), 

available at https://comments.cftc.gov/

PublicComments/

ViewComment.aspx?id=60595&SearchText=. 

153See 17 CFR 140.99. 

154Pursuant to this proposed rule, it is possible 

that methodologies for calculating notional amounts 

for the de minimis calculation could be approved 

or established that differ from methodologies in the 

Technical Guidance. However, the purpose of the 

Technical Guidance was not to consider specific 

requirements that jurisdictions may have with 

respect to calculating notional amount for 

registration purposes. The Commission notes that 

the proposed approach is similar to one taken by 

the Canadian Securities Administrators. See 

Proposed National Instrument 93–102 Derivatives: 

Registration and Proposed Companion Policy 93– 

102 Derivatives: Registration (Apr. 19, 2018) 

(collectively, the ‘‘Proposed Instrument’’), available 

at http://www.albertasecurities.com/

Regulatory%20Instruments/5399899%20_

%20CSA%20Notice%2093-102.pdf. The Proposed 

Instrument includes an alternative notional 

calculation methodology—for the purpose of 

derivative dealer registration thresholds—that 

differs from the Technical Guidance. See Proposed 

Instrument at 6–7, 24–26. 

threshold.152 Additionally, the notional 

amount calculation methodologies 

described in the DSIO FAQ Guidance, 

the methodologies used by market 

participants as industry standard 

practice, and the methodologies 

described in the Technical Guidance 

differ from one another in some 

respects. Thus, the Commission believes 

additional clarity about the appropriate 

notional amount calculation 

methodologies for purposes of the SD de 

minimis threshold would be beneficial. 

Further, additional questions may arise 

regarding notional amount calculations, 

as it relates to the AGNA de minimis 

threshold, given the broad array of 

swaps available across all asset classes 

and the potential for new types of swap 

products becoming available in the 

future. Therefore, the Commission is 

proposing new paragraph (4)(vii)(A) of 

the SD Definition, which sets out a 

mechanism for the Commission, on its 

own or upon written request by a 

person, to determine the methodology to 

be used to calculate the notional amount 

for any group, category, type, or class of 

swaps for purposes of whether a person 

exceeds the AGNA de minimis 

threshold. The Commission notes that 

the process for submitting a written 

request regarding the methodology for 

notional amount calculations would be 

consistent with the process described in 

§ 140.99 of the Commission’s 

regulations.153 Further, the proposed 

rule requires that such methodology be 

economically reasonable and 

analytically supported, and that any 

such determination be made publicly 

available and posted on the CFTC 

website.154

From time to time, DSIO issues 

interpretive guidance or no-action 

letters to registrants on a variety of 

issues, often to address uncertainty 

regarding the application of 

Commission regulations (e.g., the DSIO 

FAQ Guidance). Consistent with that 

practice, the Commission also believes 

it is important to provide clarity 

regarding calculation methodologies, as 

it relates to the AGNA de minimis 

threshold, to market participants on a 

timely basis. Doing so would ensure that 

persons are fully aware of whether their 

activities could lead to (or presently 

entail) SD registration requirements in 

the event of market or regulatory 

changes. Delegation by the Commission 

of this function to DSIO should help to 

provide clarity on a timely basis, and 

provide certainty that DSIO has the 

authority to make notional amount 

calculation determinations. Therefore, 

the Commission is proposing new 

paragraph (4)(vii)(B)(i) of the SD 

Definition, which delegates to the 

Director of DSIO, or such other 

employee(s) that the Director may 

designate, the authority to determine the 

methodology to be used to calculate the 

notional amount for any group, 

category, type, or class of swaps for 

purposes of whether a person exceeds 

the AGNA de minimis threshold. 

Additionally, the Director of DSIO 

would be able to submit any matter 

delegated pursuant to proposed 

paragraph (4)(vii)(A) to the Commission 

for its consideration. Further, as is the 

case with existing delegations to staff, 

the Commission would continue to 

reserve the right to exercise the 

delegated authority itself at any time. 

Consistent with the requirements of 

proposed paragraph (4)(vii)(A), any 

determination made pursuant to this 

proposed delegation must be 

economically reasonable and 

analytically supported, and be made 

publicly available and posted on the 

CFTC website. As is the case with staff 

interpretive letters, once a 

determination is made, either by the 

Commission or the Director of DSIO, all 

persons may rely on the determination. 

Rather than codifying all permitted 

notional amount calculation 

methodologies for purposes of the 

AGNA de minimis threshold, or 

requiring other Commission action each 

time new methodologies are approved, 

the Commission believes that providing 

delegated authority gives the 

Commission and staff appropriate 

flexibility to promptly respond to future 

market developments regarding notional 

amount calculation methodologies. The 

Commission expects that subsequent to 

adopting this delegation of authority, 

either the Commission or the Director of 

DSIO will determine methodologies for 

calculating notional amounts for certain 

categories of swaps. 

2. Request for Comments 

The Commission welcomes comments 

on the following questions regarding the 

proposed process for determining 

methodologies for calculating notional 

amounts, and the proposed delegation 

of authority. To the extent possible, 

please quantify the impact of issues 

discussed in the comments, including 

costs and benefits, as applicable. 

(1) Is the proposed process to 

determine the methodology to be used 

to calculate the notional amount for any 

group, category, type, or class of swaps 

appropriate? Why or why not? 

(2) Is the proposed process too 

narrowly or broadly tailored? 

(3) Is the restriction that a 

methodology be economically 

reasonable and analytically supported 

appropriate? Why or why not? What 

other standards may be appropriate for 

this purpose? 

(4) How will the proposed process 

impact persons that enter into swaps 

where notional amount is not a stated 

contractual term? 

(5) Is the proposed delegation of 

authority too narrowly or broadly 

tailored? 

(6) How will the proposed delegation 

of authority impact persons that enter 

into swaps where notional amount is 

not a stated contractual term? 

(7) Is there a better alternative to this 

proposed process? If so, please describe. 

The Commission also welcomes 

comments on the following questions 

regarding calculation of notional 

amounts for purposes of the de minimis 

exception. Comments regarding the 

calculation of notional amounts should 

focus on the de minimis exception 

(rather than other Commission 

regulations, such as the reporting 

requirements in part 45). To the extent 

possible, please quantify the comments, 

including costs and benefits, as 

applicable. 

(1) Should the notional amount 

(either stated or calculated) for 

transactions with embedded optionality 

be delta-adjusted by the delta of the 

underlying options, provided that the 

methods are economically reasonable 

and analytically supported? Should 

delta-adjusted notional amounts be used 

for all asset classes and product types, 

or only some? 

(2) For swaps without stated 

contractual notional amounts, should 

‘‘price times volume’’ generally be used 


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27466 Federal Register / Vol. 83, No. 113 / Tuesday, June 12, 2018 / Proposed Rules 

155 ‘‘Price times volume’’ is similar to a cash flow 

calculation, while ‘‘stated contractual notional’’ is 

usually the basis that forms a cash flow calculation 

when combined with price, strike, fixed rate, 

coupon, or reference index. Therefore, ‘‘stated 

contractual notional amount’’ may be described as 

more similar to ‘‘volume’’ than ‘‘price times 

volume.’’ For example, for a $100 million interest 

rate swap, the stated notional amount is typically 

the basis of the periodic calculated cash flows 

instead of the actual cash flows, which are 

calculated using the stated notional amount and the 

stated ‘‘price’’ per leg (such as a fixed or floating 

rate index). 

156For example, contractual stated fixed price 

might be required to be used first. Lacking a stated 

fixed price in the swap, spot price of the underlying 

would then be used instead. 

157For an example of ‘‘monthly notional amount 

approximation’’ rather than aggregated total 

notional quantity, see Proposed Instrument, supra 

note 154, at 24–26. 

158 7 U.S.C. 1a(49)(D). 159SD Definition Proposing Release, 75 FR at 

80180. 160 Id. (‘‘Thus, while the proposed factors 

discussed below reflect our attempt to delimit the 

de minimis exemption appropriately, we recognize 

that a range of alternative approaches may be 

reasonable, and we are particularly interested in 

commenters’ suggestions as to the appropriate 

factors.’’). 161 Id. 162 In reaching this conclusion, the Commissions 

considered concerns expressed by commenters that 

‘‘a standard based on the number of swaps . . . or 

counterparties can produce arbitrary results by 

giving disproportionate weight to a series of smaller 

transactions or counterparties.’’ 77 FR at 30630. 

as the basis for calculating the notional 

amount? 

(3) What other notional amount 

calculation methods, aside from ‘‘price 

times volume,’’ could be used for swaps 

without a stated notional amount that 

renders a calculated notional amount 

equivalent more directly comparable to 

the stated contractual notional amount 

typically available in IRS, CDS, and FX 

swaps? 155

(4) For swaps without a stated 

contractual notional amount, does 

calculation guidance exist in other 

jurisdictions and/or regulatory 

frameworks, such as in banking, 

insurance, or energy market regulations? 

Should persons be permitted to use 

such guidance to calculate notional 

amounts for purposes of a de minimis 

threshold calculation? 

(5) What should be used for ‘‘price’’ 

when calculating notional amounts for 

swaps without a stated contractual 

notional? Contractual stated price, such 

as a fixed price, spread, or option strike? 

The spot price of the underlying index 

or reference? The implied forward price 

of the underlying? A different measure 

of price not listed here? Should the 

price of the last available transaction in 

the commodity at the time the swap is 

entered into be used for this 

calculation? Is it appropriate to use a 

‘‘waterfall’’ of prices to calculate 

notional amount, depending on the 

availability of a price type? 156

(6) What metric should be used for 

‘‘price’’ for certain basis swaps with no 

fixed price or fixed spread? 

(7) How should the ‘‘price’’ of swaps 

be calculated for swaps with varying 

prices per leg, such as a predetermined 

rising or falling price schedule? 

(8) What metric should be used for 

‘‘volume’’ when calculating notional 

amounts for swaps without a stated 

contractual notional amount? Should 

the Commission assume that swaps with 

volume optionality will be exercised for 

the full quantity or should volume 

options be delta-adjusted, too? 

(9) Should the total quantity for a 

‘‘leg’’ be used, or an approximation for 

a pre-determined time period, such as a 

monthly or annualized quantity 

approximation? 157

(10) How should the ‘‘volume’’ of 

swaps be calculated for swaps with 

varying notional amount or volume per 

leg, such as amortizing or accreting 

swaps? 

(11) Should the U.S. dollar equivalent 

notional amount be calculated across all 

‘‘legs’’ of a swap by calculating the U.S. 

dollar equivalent notional amount for 

each leg and then calculating the 

minimum, median, mean, or maximum 

notional amount of all legs of the swap? 

(12) Should the absolute value of a 

price times volume calculation be used, 

or should the calculation allow for 

negative notional amounts? 

(13) Given that a derivatives clearing 

organization (‘‘DCO’’) has to mark a 

swap to market on a daily basis, it may 

be possible to determine ‘‘implied 

volatilities’’ for swaptions and options 

that are regularly marked-to-market, 

such as cleared swaps, in order to deltaadjust them. Should DCO evaluations be 

used when there are not better market 

prices available? 

III. Other Considerations 

In addition to the proposed rule 

amendments discussed above, the 

Commission is seeking comment on 

other potential considerations for the de 

minimis threshold, including: (1) 

Adding a minimum dealing 

counterparty count and a minimum 

dealing transaction count threshold; (2) 

excepting from the de minimis 

threshold calculation swaps that are 

exchange-traded and/or cleared; and (3) 

excepting from the de minimis 

threshold calculation swaps that are 

categorized as non-deliverable forwards. 

The Commission may take into 

consideration comments received 

regarding any of these factors in 

formulating the final rule or may in the 

future consider proposing an 

amendment to the SD Definition to 

reflect any of these factors for purposes 

of the de minimis threshold calculation. 

A. Dealing Counterparty Count and 

Dealing Transaction Count Thresholds 

1. Background 

The Commission is re-considering the 

merits of using AGNA, by itself, to 

determine if an entity’s swap dealing 

activity is de minimis. Specifically, the 

Commission is seeking comment on 

whether an entity should be able to 

qualify for the de minimis exception if 

its level of swap dealing activity is 

below any of the following three 

criteria: (1) An AGNA threshold, (2) a 

proposed dealing counterparty count 

threshold, or (3) a proposed dealing 

transaction count threshold. 

Section 1a(49)(D) of the CEA directs 

the Commission to exempt from 

designation as an SD an entity that 

engages in a de minimis quantity of 

swap dealing, and provides the 

Commission with broad discretion to 

promulgate regulations to establish 

factors with respect to the making of 

this determination to exempt.158 The SD 

Definition Proposing Release suggested 

three possible criteria for determining 

when an entity engaged in more than a 

de minimis quantity of dealing activity: 

AGNA of swap dealing activity, number 

of dealing transactions, and number of 

dealing counterparties.159 In selecting 

these three factors as possible 

appropriate measurements of an entity’s 

‘‘quantity’’ of swap dealing activity, the 

Commission also noted that ‘‘a range of 

alternative approaches may be 

reasonable.’’ 160 The Commission stated 

that it selected the proposed factors in 

an effort to focus the de minimis 

exception on ‘‘entities for which 

registration would not be warranted 

from a regulatory point of view in light 

of the limited nature of their dealing 

activities.’’ 161 The SD Definition 

Adopting Release did not include 

factors beyond an AGNA threshold in 

the de minimis exception.162

The Commission seeks comment on 

whether and how the inclusion of these 

additional factors might account for 

modest variations in an entity’s level of 

dealing activity that occur over time and 

provide entities with enhanced 

flexibility to manage their dealing 

activity below the registration threshold. 

The Commission also seeks comment on 

whether these additional criteria could 

better assist the Commission in 

identifying those entities whose dealing 

activity is limited and reduce instances 

of ‘‘false positives’’ of any one measure 

of activity, such as where an entity’s 

dealing activity may marginally exceed 


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Federal Register / Vol. 83, No. 113 / Tuesday, June 12, 2018 / Proposed Rules 27467 

163See, e.g., Preliminary Report, supra note 21, at 

52; Letter from American Bankers Association (Jan. 

19, 2016) (‘‘Risk mitigating commodity swaps are 

. . . of a shorter tenor and a smaller average 

notional size as compared to other asset classes.’’), 

available at https://comments.cftc.gov/

PublicComments/

ViewComment.aspx?id=60596&SearchText=. 

164Based on historical information from archived 

CFTC Swaps Reports, available at https://

www.cftc.gov/MarketReports/SwapsReports/

Archive/index.htm. 165See 17 CFR 1.3, Swap dealer, paragraph (4). 

the current $8 billion AGNA threshold, 

but still be so ‘‘limited in nature’’ that 

it does not warrant SD regulation. 

For example, the inclusion of dealing 

counterparty count and dealing 

transaction count thresholds in the de 

minimis exception could help account 

for differences in transaction sizes 

across asset classes. As commenters 

have noted, certain asset classes tend to 

have higher average notional amounts 

per swap than others.163 As a result, a 

market participant that executes a small 

number of dealing transactions with 

only a few counterparties in an asset 

classes for which the notional amount of 

each transaction is comparatively large 

may be required to register, whereas a 

market participant with the exact same 

number of dealing transactions and 

dealing counterparties in an asset class 

with a smaller average notional amount 

may not be required to register. 

Moreover, differences in the average 

tenor and frequency of swap 

transactions also exist across asset 

classes. For example, depending upon 

the underlying activity that the 

counterparty is trying to hedge, a person 

may prefer to enter into a single oneyear, $1 billion swap, or four 

consecutive three-month, $1 billion 

swaps. One hedging strategy results in 

a calculation of $1 billion for purposes 

of the de minimis threshold, the other 

in a calculation of $4 billion for 

purposes of the threshold. The 

Commission seeks comment on whether 

consideration of dealing counterparty 

count and dealing transaction count 

could address the impact of such 

differences and facilitate relatively 

equal amounts of de minimis dealing 

across asset classes. 

In addition to differences across asset 

classes, the Commission recognizes that 

an entity’s swap dealing volume may 

fluctuate over time. For example, as 

compared to the first quarter of 2017, 

during the first quarter of 2018, overall 

IRS notional amount activity rose by 

approximately 25 percent, while trade 

count grew by approximately 16 

percent.164 The Commission seeks 

comment on whether the inclusion of 

additional metrics in the de minimis 

exception could provide market 

participants with greater flexibility to 

serve their existing customer base 

during periods of volatility or economic 

stress, without the concern that such 

episodic increases in dealing activity 

may somehow trigger SD registration. 

The Commission notes this result could 

also further one of the policy goals of 

the de minimis exception, which is to 

enable end-user counterparties to 

execute hedging swaps with firms with 

whom they have ongoing business 

relationships, rather than forcing such 

entities to establish separate 

relationships with registered SDs. It 

could also potentially provide increased 

liquidity in the swap market during 

periods of financial stress. 

The Commission seeks comment on 

whether including dealing counterparty 

count and dealing transaction count 

thresholds in the de minimis exception, 

in conjunction with an AGNA 

calculation, would further the policy 

goals underlying the exception. The 

Commission also seeks comment on 

whether adding minimum dealing 

counterparty count and dealing 

transaction count thresholds would be 

consistent with the Commission’s goal 

of ensuring that person’s engaged in 

more than a de minimis level of dealing 

are subject to SD regulation. 

2. Potential Thresholds 

The Commission recognizes the 

importance of appropriately calibrating 

potential dealing counterparty count 

and dealing transaction count 

thresholds in order to further the 

Commission’s interest in identifying 

and exempting de minimis dealing 

activity. As part of its preliminary 

consideration of this approach, the 

Commission performed an analysis of 

the counterparty counts and transaction 

counts of Likely SDs and registered SDs 

to determine at what thresholds certain 

entities might be required to register 

using a multi-factor approach. The 

Commission notes that it was unable to 

exclude non-dealing counterparties and 

non-dealing trades. 

As discussed above in section 

II.A.2.ii, there were 108 Likely SDs at 

the $8 billion AGNA threshold with at 

least 10 counterparties (in IRS, CDS, FX 

swaps, and equity swaps). The median 

counterparty count for these 108 Likely 

SDs was 132 counterparties and the 

median transaction count was 5,233 

trades. Of these 108 Likely SDs with at 

least 10 counterparties, 106 also had at 

least 100 transactions, and there were 88 

Likely SDs that had at least 15 

counterparties and 500 transactions. 

There were 78 registered SDs that had 

at least $8 billion in AGNA of swaps 

activity. The median counterparty count 

for these 78 entities was 186 

counterparties and the median 

transaction count was 12,004 trades. Of 

these 78 registered SDs, 72 had at least 

10 counterparties and at least 100 

transactions. Additionally, 70 of the 78 

registered SDs had at least 15 

counterparties and 500 transactions. 

Based on this preliminary analysis, 

the Commission is seeking comment on 

whether it would be appropriate to 

establish a dealing counterparty count 

threshold of 10 counterparties and a 

dealing transaction count threshold of 

500 transactions. 

For purposes of calculating a person’s 

counterparty count under this approach, 

the Commission seeks comment on 

whether it should allow counterparties 

that are members of a single group of 

persons under common control to be 

treated as a single counterparty. In 

addition, the Commission seeks 

comment whether it should consider 

excluding registered SDs and MSPs 

from an entity’s counterparty count. 

Similar to the current dealing AGNA 

threshold, the de minimis calculation 

for counterparty counts and transaction 

counts could also incorporate 

aggregation (after application of relevant 

de minimis calculation-related 

exclusions) of the counterparty counts 

and transaction counts of affiliated 

entities that are not registered SDs.165

The Commission understands that the 

use of additional criteria could lead to 

entities that engage in high levels of 

AGNA of swap dealing activity not 

having to register as SDs if they have 

low counterparty counts or low 

transaction counts. In order to account 

for this possibility, the Commission 

seeks comment on whether it would be 

appropriate to include an AGNA 

backstop above which entities would 

have to register as SDs, regardless of 

their counterparty counts or transaction 

counts. For example, under this 

approach, if an entity exceeds some 

level of AGNA of dealing activity greater 

than $8 billion, it would be required to 

register as an SD, regardless of its 

number of dealing counterparties or 

dealing transactions. With respect to a 

potential AGNA backstop, the 

Commission seeks comment on whether 

a $20 billion AGNA threshold would be 

appropriate. 

A minimum dealing counterparty and 

dealing transaction threshold, in 

combination with an AGNA amount 

backstop, might provide a higher AGNA 

de minimis threshold to small dealers 

that only plan to occasionally deal 

swaps with a limited number of 

counterparties or execute a limited 

number of transactions. As noted above, 


pmangrum on DSK30RV082PROD with PROPOSALS2
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166 17 CFR 1.3, Swap dealer, paragraph (4); 78 FR 

at 45323. 

167The Commission notes that swap market 

participants have submitted comments that address 

this topic. See, e.g., Letters from FIA, FSR, Northern 

Trust, and SIFMA, supra note 58; Final Staff 

Report, supra note 24, at 14 (citing comment letters 

submitted in response to Preliminary Staff Report, 

supra note 21). 

168For example, one of the CEA’s objectives is to 

promote the trading of swaps on swap execution 

facilities and to promote pre-trade price 

transparency in the swaps market. 7 U.S.C. 7b–3(e). 

169Swaps subject to a clearing requirement 

pursuant to CEA section 2(h) must be executed on 

a SEF or DCM, unless no SEF or DCM makes the 

swap available to trade or a clearing exception 

under CEA section 2(h)(7) applies. 7 U.S.C. 2(h)(8). 

170See CEA section 4d(f), 7 U.S.C. 6d(f); 17 CFR 

1.17. 

171See, e.g., 17 CFR 23.402 (‘‘know your 

counterparty’’ requirements only apply when the 

counterparty’s identity is known to the SD prior to 

execution); 17 CFR 23.430 (requirements to verify 

counterparty eligibility are not applicable when the 

swap is executed on a DCM, or on a SEF if the 

identity of the counterparty is not known to the 

SD), 17 CFR 23.431 (disclosure of material 

information and scenario analysis is not required 

when the SD does not know the identity of 

counterparty prior to initiation of a transaction on 

a SEF or DCM). 

this higher effective threshold could 

also provide additional flexibility for 

small dealers to provide clients with 

dealing services without the costs of 

registration, as long as the dealer can 

structure the business to remain below 

the counterparty count and transaction 

count limits and the higher AGNA 

backstop. Generally, adding additional 

metrics could potentially serve to better 

identify the types of entities that are 

engaged in swap dealing activity. 

However, as commenters have noted 

previously, the use of additional metrics 

could make the de minimis calculation 

more complex. 

Given these considerations, the 

Commission welcomes comments on 

the following: 

(1) Taking into account the 

Commission’s policy objectives, should 

minimum dealing counterparty counts 

and minimum dealing transaction 

counts be considered in determining an 

entity’s eligibility for the de minimis 

exception? 

(2) Would a dealing counterparty 

count threshold of 10 dealing 

counterparties be appropriate? Why or 

why not? Is another dealing 

counterparty count threshold more 

appropriate? 

(3) Would a dealing transaction count 

threshold of 500 dealing transactions be 

appropriate? Why or why not? Is 

another dealing transaction count 

threshold more appropriate? 

(4) Under what circumstances might 

entities have a relatively high AGNA of 

swap dealing activity, but low dealing 

counterparty counts or low dealing 

transaction counts? 

(5) Would an AGNA backstop of $20 

billion be appropriate? Why or why not? 

Is another AGNA backstop level more 

appropriate? 

(6) Would adding dealing 

counterparty count and dealing 

transaction count thresholds simplify 

the SD analysis for certain market 

participants, and if so, how and for 

which categories of participants? 

(7) Would adding dealing 

counterparty count and dealing 

transaction count thresholds complicate 

the SD analysis for certain market 

participants, and if so, how and for 

which categories of participants? 

(8) Should registered SDs or MSPs be 

counted towards the dealing 

counterparty count threshold? 

(9) Should dealing counterparty and 

dealing transaction counts be aggregated 

across multiple potential swap dealing 

entities, similar to the existing AGNA 

aggregation standard? 166

(10) For counterparty count purposes, 

should counterparties that are all part of 

one corporate family be counted as 

distinct counterparties, or as one 

counterparty? 

(11) Should a facts and circumstances 

analysis apply to determine if an 

amendment or novation to an existing 

swap is swap dealing activity that 

counts towards a person’s dealing 

transaction count? Why or why not? 

(12) Would adding dealing 

counterparty count and dealing 

transaction count thresholds address the 

impact of differences in transaction 

sizes across asset classes? 

(13) Would it be more appropriate for 

a multi-factor threshold to only include 

a dealing counterparty count threshold 

or a dealing transaction count threshold, 

rather than adding both criteria? 

(14) Are there other criteria that 

should be included in the de minimis 

exception? If so, what are they and how 

could the Commission efficiently 

collect, calculate, and track them? 

B. Exchange-Traded and/or Cleared 

Swaps 

The Commission is seeking comment 

on whether an exception from the de 

minimis calculation for swaps that are 

executed on an exchange (e.g., a swap 

execution facility (‘‘SEF’’) or designated 

contract market (‘‘DCM’’)) and/or 

cleared by a DCO is appropriate,167 and 

may take into consideration comments 

received regarding possible exceptions 

based on these factors in formulating the 

final rule. The Commission is mindful 

of the need to consider how the existing 

de minimis exception may be affecting 

the utilization of exchange trading 168

and/or clearing in the swap market, as 

well as the extent to which the policy 

goals of SD registration and regulation 

may be advanced through exchange 

trading and clearing. 

The Commission believes that 

excepting such swaps from the de 

minimis calculation could improve 

utilization of exchanges and/or 

clearing.169 Generally, systemic risk 

considerations for SD regulation should 

be less significant for swaps that are 

cleared because risk management is 

handled centrally by the DCO. 

Counterparties to the swap post margin 

with the DCO and firms clearing swaps 

on behalf of customers are registered 

with the Commission as futures 

commission merchants and subject to 

capital requirements.170 In addition, 

clearing would potentially be 

encouraged if the Commission adds an 

exception for cleared swaps for 

purposes of the de minimis threshold 

calculation, furthering one of the key 

tenets of the Dodd-Frank Act. 

Additionally, counterparty protection 

policy considerations for SD regulation 

may be less significant for exchangetraded swaps because the counterparty 

protections and trade terms would 

generally be provided by the exchange. 

Through execution of swaps on 

exchanges, counterparties benefit from 

viewing the prices of available bids and 

offers and from having access to 

transparent and competitive trading 

systems or platforms. Further, a number 

of the external business conduct 

standard requirements otherwise 

applicable to SDs do not apply when a 

swap is executed anonymously on an 

exchange. These requirements are either 

inapplicable to such transactions by 

their terms (because, for example, the 

counterparty is anonymous), or do not 

apply to the SD because the exchange 

fulfills the requirements.171 However, 

counterparties could receive reduced 

levels of protection if trades previously 

executed over-the-counter move to 

anonymous trading on exchanges, 

though this concern is partially 

mitigated because products traded on 

exchanges are generally standardized 

and non-negotiated. 

In addition to the benefits described 

above, the market efficiency, 

orderliness, and transparency goals of 

SD regulation would also potentially be 

enhanced since the obligations of, for 

example, reporting trade information 

and engaging in portfolio reconciliation 

and compression exercises would be 

centrally (and more efficiently) managed 

by the exchange and/or DCO, as 

applicable. 


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172See 77 FR at 30610. 

The Commission notes that an 

exclusion exists in paragraph (6)(iv) of 

the SD Definition for certain exchangetraded and cleared swaps entered into 

by floor traders (‘‘Floor Trader 

Exclusion’’). In the SD Definition 

Adopting Release, the Commission 

declined to distinguish exchange-traded 

swaps under the SD Definition, noting, 

among other things, that: 

[A] variety of exchanges, markets, and 

other facilities for the execution of swaps are 

likely to evolve in response to the 

requirements of the Dodd-Frank Act, and 

there is no basis for any bright-line rule 

excluding swaps executed on an exchange, 

given the impossibility of obtaining 

information about how market participants 

will interact and execute swaps in the future, 

after the requirements under the Dodd-Frank 

Act are fully in effect.172

Nonetheless, the Commission created 

a carve-out for exchange-traded and 

cleared swaps executed by floor traders. 

Subject to certain conditions, the Floor 

Trader Exclusion allows registered floor 

traders who trade swaps solely using 

proprietary funds for their own account 

to exclude exchange-traded and cleared 

swaps from their de minimis 

calculation. Therefore, while execution 

and clearing are factors in the Floor 

Trader Exclusion, they are not the sole 

basis for it. The Floor Trader Exclusion 

enables floor traders to provide liquidity 

to exchanges in non-dealing capacities, 

such as proprietary trading, without 

potentially triggering SD regulation. 

However, the Commission notes that the 

market benefits of the Floor Trader 

Exclusion may be complemented if the 

de minimis exception also applied to all 

exchange-traded and/or cleared swaps. 

The CFTC has not conducted robust 

data analysis regarding the potential 

impact of an exception from the de 

minimis calculation for swaps that are 

exchange-traded and/or cleared. 

However, excepting such swaps from 

the de minimis calculation would also 

likely lead to adjustments in how the 

swap market operates; therefore, it is 

difficult to forecast what percentage of 

transactions would ultimately be 

exchange-traded and/or cleared if such 

an exception were implemented. The 

Commission also notes that clearing is 

a post-execution activity and is not tied 

to the pre-execution swap dealing 

activities that determine whether a 

person needs to register as an SD. 

Therefore, adding a clearing-related 

factor to the de minimis exception may 

cause conflation between swap dealing 

and clearing. 

The Commission understands that 

this exception could result in entities 

that engage in a significant amount of 

swap dealing activity in exchangetraded and/or cleared swaps not having 

to register as SDs. In order to account for 

this possibility, the Commission seeks 

comment on whether it would be 

appropriate to establish a AGNA 

backstop such that once an entity’s 

swap dealing activity in exchangetraded and/or cleared swaps exceeds a 

certain notional amount, it would be 

required to register as an SD. 

Alternatively, the Commission is also 

considering whether it may be 

appropriate to apply a haircut to the 

notional amounts of exchange-traded 

and/or cleared swaps for purposes of the 

de minimis calculation. Under this 

approach, persons would only need to 

count a certain percentage of their total 

notional amount of exchange-traded 

and/or cleared swaps towards their de 

minimis threshold. These alternatives 

would ensure that persons with 

significant amounts of exchange-traded 

and cleared swaps would still likely be 

required to register as SDs. 

Given these considerations, the 

Commission welcomes comments on 

the following: 

(1) How would an exception for 

exchange-traded swaps from a person’s 

de minimis calculation impact the 

policy considerations underlying SD 

regulation and the de minimis 

exception? 

(2) How would an exception for 

cleared swaps from a person’s de 

minimis calculation impact the policy 

considerations underlying SD regulation 

and the de minimis exception? 

(3) How would an exception for 

exchange-traded and cleared swaps 

from a person’s de minimis calculation 

impact the policy considerations 

underlying SD regulation and the de 

minimis exception? 

(4) Should all exchange-traded swaps 

be excepted from the de minimis 

calculation, or only certain transactions? 

If so, which transactions? Should only 

those trades that are anonymously 

executed be excepted? How would the 

Commission judiciously differentiate, 

monitor, and track such transactions 

apart from other exchange-traded 

swaps? 

(5) Should all cleared swaps be 

excepted from the de minimis 

calculation, or only certain transactions? 

If so, which transactions? Should the 

Commission differentiate between 

trades that are intended to be cleared 

and trades that are actually cleared? 

How would the Commission judiciously 

differentiate, monitor, and track such 

transactions apart from other cleared 

swaps? 

(6) Should all exchange-traded and 

cleared swaps be excepted from the de 

minimis calculation, or only certain 

transactions? If so, which transactions? 

How would the Commission judiciously 

differentiate, monitor, and track such 

transactions apart from other exchangetraded and cleared swaps? 

(7) If exchange-traded swaps are 

excepted from a person’s de minimis 

calculation, what other conditions, if 

any, should apply for the trade to 

qualify for the exception? 

(8) If cleared swaps are excepted from 

a person’s de minimis calculation, what 

other conditions, if any, should apply 

for the trade to qualify for the 

exception? 

(9) If exchange-traded and cleared 

swaps are excepted from a person’s de 

minimis calculation, what other 

conditions, if any, should apply for the 

trade to qualify for the exception? 

(10) If exchange-traded swaps are 

excepted from the de minimis 

calculation, should the Commission 

establish a notional backstop above 

which an entity must register? If so, 

what is the appropriate level for the 

backstop? 

(11) If cleared swaps are excepted 

from the de minimis calculation, should 

the Commission establish a notional 

backstop above which an entity must 

register? If so, what is the appropriate 

level for the backstop? 

(12) If exchange-traded and cleared 

swaps are excepted from the de minimis 

calculation, should the Commission 

establish a notional backstop above 

which an entity must register? If so, 

what is the appropriate level for the 

backstop? 

(13) Should persons be able to haircut 

the notional amounts of their exchangetraded swaps for purposes of the de 

minimis calculation? If so, would a 50 

percent haircut be appropriate? Why or 

why not? 

(14) Should persons be able to haircut 

the notional amounts of their cleared 

swaps for purposes of the de minimis 

calculation? If so, would a 50 percent 

haircut be appropriate? Why or why 

not? 

(15) Should persons be able to haircut 

the notional amounts of their exchangetraded and cleared swaps for purposes 

of the de minimis calculation? If so, 

would a 50 percent haircut be 

appropriate? Why or why not? 

(16) Would an exception for 

exchange-traded swaps increase the 

volume of swaps executed on SEFs or 

DCMs? 

(17) Would an exception for cleared 

swaps increase the volume of swaps that 

are cleared? 


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173 7 U.S.C. 1a(47). 

174As defined in CEA section 1a(25). 7 U.S.C. 

1a(25) (The term ‘‘foreign exchange swap’’ is 

defined to mean a transaction that solely involves 

an exchange of two different currencies on a 

specific date at a fixed rate that is agreed upon on 

the inception of the contract covering the exchange; 

and a reverse exchange of those two currencies at 

a later date and at a fixed rate that is agreed upon 

on the inception of the contract covering the 

exchange.). 

175As defined in CEA section 1a(24). 7 U.S.C. 

1a(24) (The term ‘‘foreign exchange forward’’ is 

defined to mean a transaction that solely involves 

the exchange of two different currencies on a 

specific future date at a fixed rate agreed upon on 

the inception of the contract covering the 

exchange.). 

176 7 U.S.C. 1a(47)(E). 

177 77 FR 69694. 

178 Id. at 69695. 

179 Id. at 69703 (citing 77 FR at 48254–55). 

(18) Would an exception for 

exchange-traded and cleared swaps 

increase the volume of swaps executed 

on SEFs or DCMs and the volume of 

swaps that are cleared? 

(19) Are there any unique costs or 

benefits associated with excepting 

exchange-traded swaps from an entity’s 

de minimis calculation? 

(20) Are there any unique costs or 

benefits associated with excepting 

cleared swaps from an entity’s de 

minimis calculation? 

(21) Are there any unique costs or 

benefits associated with excepting 

exchange-traded and cleared swaps 

from an entity’s de minimis calculation? 

(22) Has the Floor Trader Exclusion 

encouraged additional trading on SEFs 

and DCMs? 

(23) Has the Floor Trader Exclusion 

encouraged additional clearing of 

swaps? 

(24) Should the Commission consider 

additional modifications to the Floor 

Trader Exclusion in lieu of a broader 

exception for all exchange-traded and/or 

cleared swaps? 

(25) How should transactions 

executed on exempt multilateral trading 

facilities, exempt organized trading 

facilities, and/or exempt DCOs be 

treated? 

C. Non-Deliverable Forwards 

Section 1a(47) of the CEA defines the 

term ‘‘swap,’’ 173 and establishes that 

foreign exchange swaps 174 and foreign 

exchange forwards 175 shall be 

considered swaps unless the Secretary 

of the Treasury makes a written 

determination that either foreign 

exchange swaps or foreign exchange 

forwards or both should be not be 

regulated as swaps 176 (to avoid 

confusion with the term ‘‘FX swap’’ as 

otherwise used in this release, the terms 

‘‘foreign exchange swap’’ and ‘‘foreign 

exchange forward’’ as used in this 

section III.C refer only to those products 

as defined by CEA sections 1a(25) and 

1a(24), respectively). 

In November 2012, the Secretary of 

the Treasury signed a determination that 

exempts both foreign exchange swaps 

and foreign exchange forwards from the 

definition of ‘‘swap,’’ in accordance 

with the CEA (‘‘Treasury 

Determination’’).177 The Treasury 

Determination further explained that 

foreign exchange options, currency 

swaps, and non-deliverable forwards 

(‘‘NDFs’’) may not be exempted from the 

CEA’s definition of ‘‘swap’’ because 

they do not satisfy the statutory 

definitions of a foreign exchange swap 

or foreign exchange forward.178 The 

Treasury Determination explained that: 

[A]n NDF is a swap that is cash-settled 

between two counterparties, with the value 

of the contract determined by the movement 

of exchange rates between two currencies. On 

the contracted settlement date, the profit to 

one party is paid by the other based on the 

difference between the contracted NDF rate 

(set at the trade’s inception) and the 

prevailing NDF fix (usually a close 

approximation of the spot foreign exchange 

rate) on an agreed notional amount. NDF 

contracts do not involve an exchange of the 

agreed-upon notional amounts of the 

currencies involved. Instead, NDFs are cash 

settled in a single currency, usually a reserve 

currency. NDFs generally are used when 

international trading of a physical currency 

is relatively difficult or prohibited.179

The Commission understands from 

market participants that NDFs provide 

an important market function because 

they are used to hedge exposures to 

restricted currencies when the exposure 

is held by someone outside of the home 

jurisdiction. The Commission also 

understands that NDFs are economically 

and functionally similar to deliverable 

foreign exchange forwards in that the 

same net value is transmitted in either 

structure. 

Further, the Commission has learned 

from market participants that markets 

continue to treat both NDFs and 

deliverable foreign exchange forwards 

as the same functional product. Like 

deliverable foreign exchange forwards, 

NDFs settle on a net rather than gross 

basis, which significantly mitigates 

counterparty risk in this context. In 

some cases, market participants that 

previously had settled deliverable 

foreign exchange forwards on a net basis 

(whether to minimize counterparty risk 

or for other reasons) now take steps so 

as to ensure they are able to avail 

themselves of the exemption from swap 

status afforded by the Treasury 

Determination, including settlement of 

foreign exchange forwards on a gross 

basis. 

The Commission could determine to 

amend the de minimis exception in 

paragraph (4) of the ‘‘swap dealer’’ 

definition in § 1.3 of the Commission’s 

regulations by excepting NDFs from 

consideration when calculating the 

AGNA of swap dealing activity for 

purposes of the de minimis threshold. 

Excepting NDFs would result in a more 

comparable regulatory treatment for 

these transactions when compared with 

foreign exchange swaps and foreign 

exchange forwards pursuant to the 

Treasury Determination. 

Given these considerations, the 

Commission welcomes comments on 

the following: 

(1) Should the Commission except 

NDFs from consideration when 

calculating the AGNA of swap dealing 

activity for purposes of the de minimis 

exception? Why or why not? 

(2) Are there other foreign exchange 

derivatives that the Commission should 

except from consideration for counting 

towards the de minimis threshold? 

(3) Do NDFs pose any particular 

systemic risk in a manner distinct from 

foreign exchange swaps and foreign 

exchange forwards? 

(4) If the Commission were to except 

NDFs from consideration when 

calculating the AGNA for purposes of 

the de minimis exception, are there 

particular limits that the Commission 

should consider in connection with this 

exception? 

(5) What would be the market 

liquidity impact if the Commission were 

to except NDFs from counting towards 

the de minimis threshold? 

(6) Is there material benefit to the 

market in requiring participants that 

transact in NDFs to register with the 

Commission, while not imposing 

similar obligations on participants that 

transact in deliverable foreign exchange 

forwards? If so, what benefits accrue 

from imposing such registration 

obligations? 

(7) Please provide any relevant data 

that may assist the Commission in 

evaluating whether to except NDFs from 

counting towards the de minimis 

threshold. 

(8) Please provide any additional 

comments on other factors or issues the 

Commission should consider when 

evaluating whether to except NDFs from 

counting towards the de minimis 

threshold. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 


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180 5 U.S.C. 601 et seq. 

181 44 U.S.C. 3501 et seq. 

182Parties wishing to review the CFTC’s 

information collections on a global basis may do so 

at www.reginfo.gov, at which OMB maintains an 

inventory aggregating each of the CFTC’s currently 

approved information collections, as well as the 

information collections that presently are under 

review. 

183 7 U.S.C. 19(a). 184See 77 FR at 30628–30, 30707–08. 

whether the regulations they propose 

will have a significant economic impact 

on a substantial number of small 

entities.180 This Proposal only affects 

certain entities that are close to the de 

minimis threshold in the SD Definition. 

For example, the Proposal would affect 

entities with a relevant AGNA of swap 

dealing activity between $3 billion and 

$8 billion. Moreover, it also would 

affect entities that engage in swap 

dealing activity above an AGNA of $3 

billion that also enter into hedging 

swaps, or, in the case of IDIs, that enter 

into loan-related swaps. That is, the 

Proposal is relevant to entities that 

engage in swap dealing activity with a 

relevant AGNA measured in the billions 

of dollars. The Commission does not 

believe that these entities would be 

small entities for purposes of the RFA. 

Therefore, the Commission believes that 

this Proposal will not have a significant 

economic impact on a substantial 

number of small entities, as defined in 

the RFA. 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that this 

Proposal will not have a significant 

economic impact on a substantial 

number of small entities. The 

Commission invites comment on the 

impact of this Proposal on small 

entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1955 

(‘‘PRA’’) 181 imposes certain 

requirements on Federal agencies, 

including the Commission, in 

connection with their conducting or 

sponsoring any collection of 

information, as defined by the PRA. The 

Commission may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

Office of Management and Budget 

(‘‘OMB’’) control number. The proposed 

rules will not impose any new 

recordkeeping or information collection 

requirements, or other collections of 

information that require approval of 

OMB under the PRA. 

The Commission notes that all 

reporting and recordkeeping 

requirements applicable to SDs result 

from other rulemakings, for which the 

CFTC has sought OMB approval, and 

are outside the scope of rulemakings 

related to the SD Definition.182 The 

CFTC invites public comment on the 

accuracy of its estimate that no 

additional recordkeeping or information 

collection requirements, or changes to 

existing collection requirements, would 

result from the Proposal. 

C. Cost-Benefit Considerations 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders.183

Section 15(a) further specifies that the 

costs and benefits shall be evaluated in 

light of five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. In this 

section, the Commission considers the 

costs and benefits resulting from its 

determinations with respect to the 

Section 15(a) factors, and seeks 

comments from interested persons 

regarding the nature and extent of such 

costs and benefits. 

The Proposal amends the de minimis 

exception in paragraph (4) of the SD 

Definition in § 1.3 by: (1) Setting the de 

minimis exception threshold at $8 

billion in AGNA of swap dealing 

activity, the same as the current phasein level, and removing the phase-in 

process; (2) adding an exception from 

the de minimis threshold calculation for 

swaps entered into by IDIs in 

connection with originating loans to 

customers; (3) adding an exception from 

the de minimis threshold calculation for 

swaps entered into by a person for 

purposes of hedging financial or 

physical positions; (4) codifying prior 

DSIO guidance regarding the treatment 

of swaps that result from multilateral 

portfolio compression exercises; and (5) 

providing that the Commission may 

determine the methodology to be used 

to calculate the notional amount for any 

group, category, type, or class of swaps, 

and delegating to the Director of DSIO 

the authority to make such 

determinations. 

As part of this cost-benefit 

consideration, the Commission will: (1) 

Discuss the costs and benefits of each of 

the proposed changes; and (2) analyze 

the proposed amendments as they relate 

to each of the 15(a) factors. 

1. $8 Billion De Minimis Threshold 

As discussed above, the SD Definition 

provides an exception from the SD 

Definition for persons who engage in a 

de minimis amount of swap dealing 

activity. Currently, a person shall not be 

deemed to be an SD unless swaps 

entered into in connection with swap 

dealing activity exceed an AGNA 

threshold of $3 billion (measured over 

the prior 12-month period), subject to a 

phase-in period that is currently in 

effect, during which the AGNA 

threshold is set at $8 billion. The 

Commission is proposing to amend the 

de minimis exception to the SD 

Definition to set the de minimis 

threshold at the current $8 billion 

phase-in level. 

There are general policy-related costs 

and benefits associated with the 

proposal to set the de minimis threshold 

at $8 billion. In addition to these policy 

considerations, the proposal to set the 

de minimis threshold at $8 billion 

would also have specific monetary costs 

and benefits as compared to a lower or 

higher threshold. The current $8 billion 

phase-in level threshold, along with the 

prospect that the threshold would 

decrease to $3 billion after December 31, 

2019 in the absence of further 

Commission action, sets the baseline for 

the Commission’s consideration of the 

costs and benefits of the proposed 

alternatives. Accordingly, the 

Commission considers the costs and 

benefits that would result from 

maintaining the current $8 billion 

phase-in level threshold, or 

alternatively, a threshold level below or 

above the current $8 billion threshold. 

The status quo baseline also includes 

other aspects of existing rules related to 

the de minimis exception. The analysis 

also takes into account any no-action 

relief, to the extent such relief is being 

relied upon. As the Commission is of 

the preliminary belief that the existing 

no-action relief related to the de 

minimis exception is being fully relied 

upon by market participants, the costbenefit discussion that follows also 

considered the effects of that relief. 

(i) Policy-Related Costs and Benefits 

There are several policy objectives 

underlying SD regulation and the de 

minimis exception to SD registration. As 

discussed above in section I.C, the 

primary policy objectives of SD 

regulation include reducing systemic 

risk, increasing counterparty 

protections, and increasing market 

efficiency, orderliness, and 

transparency.184 To achieve these policy 


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185See id. 

186See id. at 30628–30, 30703, 30707. 

187Hypothetically, if all 42 entities registered, the 

percentage of all NFC swaps facing at least one 

registered SD would rise from approximately 86 

percent to 98 percent. 

objectives, registered SDs are subject to 

a broad range of requirements, 

including, among other things, 

registration, internal and external 

business conduct standards, reporting, 

recordkeeping, risk management, 

posting and collecting margin on 

uncleared swaps, and chief compliance 

officer designation and responsibilities. 

The Commission also considers policy 

objectives furthered by a de minimis 

exception, which include increasing 

efficiency, allowing limited ancillary 

dealing, encouraging new participants 

to enter the swap dealing market, and 

focusing regulatory resources.185 These 

policy considerations have general costs 

and benefits associated with them 

depending on the level of the de 

minimis threshold. 

As noted in the SD Definition 

Adopting Release, generally, the lower 

the de minimis threshold, the greater 

the number of entities that are subject to 

the SD-related regulatory requirements, 

which could decrease systemic risk, 

increase counterparty protections, and 

promote swap market efficiency, 

orderliness, and transparency.186

However, a lower threshold could have 

offsetting effects that might decrease the 

policy benefits of lowering the de 

minimis exception threshold. For 

example, it is likely that a lower 

threshold would lead to reduced 

ancillary dealing activity and discourage 

new participants from entering into the 

swap market. 

(a) Maintaining the $8 Billion De 

Minimis Phase-In Threshold 

At the $8 billion threshold, the 2017 

Transaction Coverage and 2017 AGNA 

Coverage ratios indicate that nearly all 

swaps were covered by SD regulation, 

giving rise to the benefits from the 

policy objectives of SD regulation 

discussed above. Specifically, as seen in 

Table 1 in section II.A.2.i, almost all 

swap transactions involved at least one 

registered SD as a counterparty, 

approximately 99 percent or greater for 

IRS, CDS, FX swaps, and equity swaps. 

For NFC swaps, approximately 86 

percent of transactions involved at least 

one registered SD as a counterparty. 

Overall, approximately 98 percent of all 

swap transactions involved at least one 

registered SD. As seen in Table 2, 

almost all AGNA of swaps activity 

included at least one registered SD, 

approximately 99 percent or greater for 

IRS, CDS, FX swaps, and equity swaps. 

Further, the Commission notes that 

the 6,440 entities that did not enter into 

any transactions with a registered SD 

had limited activity overall. As 

discussed in section II.A.2.i, the 6,440 

entities entered into 77,333 transactions, 

representing approximately 1.7 percent 

of the overall number of transactions 

during the review period. Additionally, 

collectively, the 6,440 entities had $68 

billion in AGNA of swaps activity, 

representing approximately 0.03 percent 

of the overall AGNA of swaps activity 

during the review period. The 

Commission believes that this limited 

activity indicates that to the extent these 

entities are engaging in swap dealing 

activities, such activity is likely 

ancillary and in connection with other 

client services, potentially indicating 

that the policy rationales behind a de 

minimis exception are being advanced 

at the current $8 billion threshold. 

Additionally, with respect to NFC 

swaps, Table 13 in section II.A.2.iv 

indicates that registered SDs still 

entered into the significant majority (86 

percent) of the overall market’s total 

transactions and faced 83 percent of 

counterparties in at least one 

transaction, indicating that the existing 

$8 billion de minimis threshold has 

helped extend the benefits of SD 

registration to much of the NFC swap 

market. The trading activity of the 42 

unregistered entities with 10 or more 

NFC swap counterparties represents 

approximately 13 percent of the overall 

NFC swap market by transaction count. 

However, as compared to the existing 44 

registered SDs with at least 10 

counterparties, these 42 In-Scope 

Entities have significantly lower mean 

transaction and counterparty counts, 

indicating that they may only be 

providing ancillary dealing services to 

accommodate commercial end-user 

clients, also potentially indicating that 

the policy rationales behind a de 

minimis exception are being advanced 

at the current $8 billion threshold. 

(b) $3 Billion De Minimis Threshold 

The Commission is of the view that 

the systemic risk mitigation, 

counterparty protection, and market 

efficiency benefits of SD regulation 

would be enhanced in only a very 

limited manner if the de minimis 

threshold decreased from $8 billion to 

$3 billion, as would be the case if the 

current regulation and the existing 

Commission order establishing an end 

to the phase-in period on December 31, 

2019 were left unchanged. As seen in 

Table 4 in section II.A.2.ii, the 

Estimated AGNA Coverage would 

increase from approximately $221,020 

billion (99.95 percent) to $221,039 

billion (99.96 percent), an increase of 

$19 billion (a 0.01 percentage point 

increase). As seen in Table 5, the 

Estimated Transaction Coverage would 

increase from 3,795,330 trades (99.77 

percent) to 3,797,734 trades (99.83 

percent), an increase of 2,404 trades (a 

0.06 percentage point increase). As seen 

in Table 6, the Estimated Counterparty 

Coverage would increase from 30,879 

counterparties (88.80 percent) to 31,559 

counterparties (90.75 percent), an 

increase of 680 counterparties (a 1.96 

percentage point increase). The effect of 

these limited increases is further 

mitigated by the fact that at the current 

$8 billion phase-in threshold, the 

substantial majority of transactions are 

already covered by SD regulation—and 

related counterparty protection 

requirements—because they include at 

least one registered SD as a 

counterparty. 

For NFC swaps, as discussed in 

section II.A.2.iv, without notionalequivalent data, it is unclear how many 

of the 42 In-Scope Entities with 10 or 

more counterparties that are not 

registered SDs would actually be subject 

to SD registration at a $3 billion de 

minimis threshold. It is possible that a 

portion of the swaps activity for some or 

all of these entities qualifies for the 

physical hedging exclusion in paragraph 

(6)(iii) of the SD Definition, and 

therefore would not be considered swap 

dealing activity, regardless of the de 

minimis threshold level.187

As discussed in section II.A.2.ii with 

respect to IRS, CDS, FX swaps, and 

equity swaps, and section II.A.2.iv with 

respect to NFC swaps, the Commission 

also notes that it is possible that a lower 

de minimis threshold could lead to 

certain entities reducing or ceasing 

swaps activity to avoid registration and 

its related costs. Although the 

magnitude of this effect is unclear, 

reduced swap dealing activity could 

lead to increased concentration in the 

swap dealing market, reduced 

availability of potential swap 

counterparties, reduced liquidity, 

increased volatility, higher fees, wider 

bid/ask spreads, or reduced competitive 

pricing. The end-user counterparties of 

these smaller swap dealing entities may 

be adversely impacted by the above 

consequences and could face a reduced 

ability to use swaps to manage their 

business risks. 

(c) Higher De Minimis Threshold 

Conversely, a higher de minimis 

threshold would potentially decrease 

the number of registered SDs, which 

could have a negative impact on 


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188See Introducing ENNs: A Measure of the Size 

of Interest Rate Swap Markets, supra note 65. 189Each entity is net long or net short ENNs 

against each of its counterparties, and each entity’s 

total long and short ENNs are the sums of its long 

and short ENNs, respectively, across all of its 

counterparties. See id. 

190 IRS ENNs totals for a hypothetical de minimis 

threshold of $100 billion, however, begin to show 

increased sensitivities compared to other de 

minimis thresholds examined. 

achieving the SD regulation policy 

objectives. For example, a higher de 

minimis threshold would allow a 

greater amount of swap dealing to be 

undertaken without certain 

counterparty protections. This might 

impact the integrity of swap market to 

some extent. However, the Commission 

is unable to quantify how the integrity 

of swap market might be harmed. On 

the other hand, the higher the de 

minimis threshold, the greater the 

number of entities that are able to 

engage in dealing activity without being 

required to register, which could 

increase competition and liquidity in 

the swap market. A higher threshold 

could also allow the Commission to 

expend its resources on entities with 

larger swap dealing activities warranting 

more oversight. 

As seen in Table 9 in section II.A.2.iii, 

in comparison to an $8 billion 

threshold, a $100 billion threshold 

would reduce the Estimated AGNA 

Coverage from approximately $221,020 

billion (99.95 percent) to $220,877 

billion (99.88 percent), a decrease of 

$143 billion (a 0.06 percentage point 

decrease). As seen in Table 10, in 

comparison to an $8 billion threshold, 

a $100 billion threshold would reduce 

the Estimated Transaction Coverage 

from 3,795,330 trades (99.77 percent) to 

3,773,440 trades (99.20 percent), a 

decrease of 21,890 trades (a 0.58 

percentage point decrease). The 

decreases would be more limited at 

higher thresholds of $20 billion or $50 

billion. The data also indicates that at 

higher thresholds, there is a more 

pronounced decrease in Estimated 

Counterparty Coverage. As seen in Table 

11, the Estimated Counterparty 

Coverage would decrease from 30,879 

counterparties (88.80 percent) to 28,234 

counterparties (81.19 percent), a 

decrease of 2,645 counterparties (a 7.61 

percentage point decrease). The 

decrease would be lower at thresholds 

of $20 billion and $50 billion, at 2.80 

percentage points and 5.71 percentage 

points, respectively. 

Although it has not conducted an 

analysis of AGNA activity in NFC 

swaps, the Commission is of the 

preliminary view that increasing the de 

minimis threshold could potentially 

lead to fewer registered SDs 

participating in in the NFC swap 

market, similar to its observations with 

respect to IRS, CDS, FX swaps, and 

equity swaps discussed above in section 

II.A.2.iii. This could reduce the number 

of entities transacting with registered 

SDs. 

The cost of reduced protections for 

counterparties would be realized to the 

extent a higher threshold would result 

in fewer swaps involving at least one 

registered SD. Additionally, depending 

on how the swap market adapts to a 

higher threshold, it is also possible that 

the reduction in Estimated Regulatory 

Coverage would be greater than the data 

indicates to the extent that a higher de 

minimis threshold leads to an increased 

amount of swap dealing activity 

between entities that are not registered 

SDs. In such a scenario, Estimated 

Regulatory Coverage could potentially 

decrease more than the data indicates, 

negatively impacting the policy goals of 

SD regulation. 

(d) Preliminary Entity-Netted Notional 

Amounts Analysis 

As previously discussed, analysis 

indicates that the Estimated AGNA 

Coverage is not very sensitive to 

changes in de minimis threshold level. 

Staff also conducted a preliminary 

analysis of the sensitivity of entitynetted notional amounts (‘‘ENNs’’) 188 of 

Likely SDs in the IRS market to changes 

in the de minimis threshold level. The 

ENNs analysis normalizes notional 

amounts to five-year risk equivalents 

and nets long and short positions within 

counterparty pairs in the same 

currency.189

The preliminary analysis indicates 

that IRS ENNs are generally not overly 

sensitive to the de minimis threshold 

levels between $3 billion and $50 

billion, providing additional support for 

staff’s preliminary consideration of the 

policy-related costs and benefits 

discussed above. Table 15 shows the 

results of an analysis of the de minimis 

threshold in terms of ENNs for the IRS 

market. 

TABLE 15—ENNS FOR IRS LIKELY SDS

[Minimum 10 counterparties] 

Notional threshold 

($Bn) 

Number of 

likely SDs 

IRS ENNs totals 

($Bn) 

Change in ENNs totals vs. $8 Bn 

(%) 

Long Short Net Long Short Net 

3 ................................... 121 9,812 8,307 1,505 0.6 1.1 (1.8) 

8 ................................... 108 9,750 8,219 1,532 ........................ ........................ ........................

20 ................................. 93 9,707 8,191 1,516 (0.4) (0.3) (1.0) 

50 ................................. 81 9,617 8,105 1,512 (1.4) (1.4) (1.3) 

100 ............................... 72 9,464 8,026 1,439 (2.9) (2.3) (6.1) 

The 108 Likely SDs at $8 billion 

identified by the AGNA analysis in 

section II.A.2.ii above represented 

approximately $9.8 trillion of long 

ENNs and $8.2 trillion of short ENNs on 

December 15, 2017. A reduction in the 

de minimis threshold from $8 billion to 

$3 billion would have only a modest 

effect on the coverage of risk transfer as 

measured by IRS ENNs, adding only 0.6 

percent of additional long ENNs and 1.1 

percent of additional short ENNs. 

Similarly, an increase in the de minimis 

threshold from $8 billion to $50 billion 

would modestly decrease long ENNs by 

1.4 percent and short ENNs by 1.4 

percent. The decrease would be more 

limited at a threshold of $20 billion.190

(ii) Direct Cost and Benefits of Setting 

an $8 Billion Threshold 

It is likely that for any de minimis 

threshold, some firms will have AGNA 

of swap dealing activity sufficiently 

close to the threshold so as to require 

analysis to determine whether their 

AGNA qualifies as de minimis. Hence, 

with a $3 billion threshold, some set of 

entities will likely have to incur the 

direct costs of analyzing whether they 


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191Commission staff analyzed the swaps activity 

of market participants over a one-year period to 

develop this estimate. The estimate includes 22 InScope Entities that had 10 or more counterparties 

and between $1 billion and $5 billion in AGNA of 

swaps activity in IRS, CDS, FX swaps, and equity 

swaps. Entities that were already registered SDs 

were excluded. The estimate does not account for 

entities that primarily are entering into NFC swaps 

because notional amount information was not 

available for that asset class. 

192This estimate is based on the following staff 

requirements for this determination: 25 hours for an 

OTC principal trader at $695/hour, 40 hours for a 

compliance attorney at $335/hour, 35 hours for a 

chief compliance officer at $556/hour, 80 hours for 

an operations manager at $290/hour, and 20 hours 

for a business analyst at $273/hour. These 

individuals would be responsible for identifying, 

analyzing, and aggregating the swap dealing activity 

of a firm and its affiliates. The estimates of the 

number of personnel hours required have been 

updated from the SD Definition Adopting Release 

in light of the Commission’s experience in 

implementing the SD Definition. 

The estimates of the hourly costs for these 

personnel are from SIFMA’s Management & 

Professional Earnings in the Securities Industry 

2013 survey, modified to account for an 1,800-hour 

work-year and multiplied by 5.35 to account for 

firm size, employee benefits, and overhead, which 

is the same multiplier that was used when the SD 

Definition was adopted. See 77 FR at 30712 n.1347. 

The Commission recognizes that particular 

entities may, based on their circumstances, incur 

costs substantially greater or less than the estimated 

averages. 

193The estimate of 11 entities is approximately 50 

percent of the 22 entities that would need to 

undertake an initial analysis. This estimate assumes 

that many entities would, following the initial 

analysis, determine that they would either need to 

register or choose not to engage in enough dealing 

activity to require ongoing monitoring. 

194The Commission estimates that the ongoing 

analysis would be streamlined as a result of the 

initial analysis, and therefore would be less costly. 

For purposes of this calculation, the Commission 

preliminarily estimates that the cost of the ongoing 

analysis would be approximately 50 percent of the 

cost of the initial analysis. 

195Commission staff analyzed the swaps activity 

of market participants over a one-year period to 

develop this estimate. The estimate includes 29 InScope Entities that had between $3 billion and $15 

billion, and 4 In-Scope Entities that had between 

$15 billion and $25 billion, in AGNA of swaps 

activity in IRS, CDS, FX swaps, and equity swaps, 

and at least 10 counterparties. The estimate does 

not account for entities that primarily are entering 

into NFC swaps because notional amount 

information was not available for that asset class. 

196The Commission estimates that the ongoing 

analysis would be streamlined as a result of the 

initial analysis, and therefore would be less costly. 

For purposes of this calculation, the Commission 

preliminarily estimates that the cost of the ongoing 

analysis would be approximately 50 percent of the 

cost of the initial analysis. 

197As discussed in section II.A.2.i, the 2017 

Transaction Coverage was approximately 98 

percent. 

would exceed the de minimis threshold, 

and with an $8 billion threshold, a 

(mostly) different set of entities would 

have to continue to incur costs of 

analyzing their activity. 

Based on the available data, the 

Commission estimates that if the de 

minimis threshold were set at $3 billion, 

approximately 22 currently unregistered 

entities would need to conduct an 

initial analysis of whether they would 

be above the threshold.191 The 

Commission estimates that the potential 

total direct cost of conducting the initial 

analysis for the 22 entities would 

average approximately $79,000 per 

entity, or approximately $1.7 million in 

the aggregate.192 Certain of those entities 

with ongoing swap dealing activity that 

is near a $3 billion threshold may also 

need to conduct periodic de minimis 

calculation analyses to assess whether 

they qualify for the exception. The 

Commission estimates that 

approximately 11 entities may need to 

conduct such analyses.193 Further, the 

Commission estimates that the potential 

annual direct cost of conducting these 

ongoing analyses for those 11 entities 

would be approximately $40,000 per 

entity, or $440,000 in the aggregate.194

Conversely, the Commission assumes 

that a higher threshold would permit 

certain entities to no longer incur 

ongoing costs of assessing whether they 

are above the threshold. The 

Commission estimated the savings that 

would result from a higher de minimis 

threshold of $20 billion. Based on the 

available data, the Commission 

estimates that if the de minimis 

threshold were set at $20 billion, 

approximately 29 entities would no 

longer need to conduct an ongoing 

analysis of whether they would be 

above the new threshold, while 4 

entities may begin conducting such an 

analysis.195 The Commission estimates 

that the ongoing cost savings for the net 

25 entities that would no longer be 

conducting periodic de minimis 

threshold analyses would average 

approximately $40,000 per entity, or $1 

million in the aggregate per year.196

(iii) Section 15(a) 

Section 15(a) of the CEA requires the 

Commission to consider the effects of its 

actions in light of the following five 

factors: 

(a) Protection of Market Participants and 

the Public 

Providing regulatory protections for 

swap counterparties who may be less 

experienced or knowledgeable about the 

swap products offered by SDs 

(particularly end-users who use swaps 

for hedging or investment purposes) is 

a fundamental policy goal advanced by 

the regulation of SDs. 

The Commission is proposing to 

maintain the current de minimis phasein threshold of $8 billion in AGNA of 

swap dealing activity. As discussed 

above, the Commission recognizes that 

a $3 billion de minimis threshold may 

result in more entities being required to 

register as SDs compared to the 

proposed (and currently in-effect) $8 

billion threshold, thereby extending 

counterparty protections to a greater 

number of market participants. 

However, this benefit is relatively small 

because, at the current $8 billion phasein threshold, the substantial majority of 

transactions are already covered by SD 

regulation—and related counterparty 

protection requirements—since they 

include at least one registered SD as a 

counterparty.197

On the other hand, as noted above, a 

threshold above $8 billion may result in 

fewer entities being required to register 

as SDs, thus extending counterparty 

protections to a fewer number of market 

participants. Although the Estimated 

Transaction Coverage and Estimated 

AGNA Coverage would not decrease 

much at higher thresholds of up to $100 

billion, the decrease in Estimated 

Counterparty Coverage is more 

pronounced at higher de minimis 

thresholds, potentially indicating that 

the benefit of SD counterparty 

protections requirements could be 

reduced at higher thresholds. 

SD regulation is also intended to 

reduce systemic risk in the swap 

market. Pursuant to the Dodd-Frank Act, 

the Commission has proposed or 

adopted regulations for SDs, including 

margin and risk management 

requirements, designed to mitigate the 

potential systemic risk inherent in the 

swap market. Therefore, the 

Commission recognizes that a lower de 

minimis threshold may result in more 

entities being required to register as 

SDs, thereby potentially further 

reducing systemic risk. Conversely, a 

higher de minimis threshold may result 

in fewer entities being required to 

register an SD and, thus, possibly 

increase systematic risk. 

However, the Commission’s data 

appears to indicate that the additional 

entities that would need to register at 

the $3 billion de minimis threshold are 

engaged in a comparatively smaller 

amount of swap dealing activity. Many 

of these entities might be expected to 

have fewer counterparties and smaller 

overall risk exposures as compared to 

the SDs that engage in swap dealing in 

excess of the $8 billion level. 

Accordingly, the Commission believes 

that that the incremental reduction in 

systemic risk that may be achieved by 

registering dealers that engage in 

dealing between the $3 billion and $8 

billion thresholds is limited. 

The data also indicates that at higher 

thresholds of $20 billion, $50 billion, or 

$100 billion, fewer entities would be 


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required to register as SDs, though the 

change in regulatory coverage as 

measured by Estimated AGNA Coverage 

and Estimated Transaction Coverage 

would be small. Thus, the Commission 

preliminarily believes that the increase 

in systemic risk that may occur due to 

a higher threshold would not be 

significant. However, depending on how 

the market adapts to a higher threshold, 

the level of regulatory coverage could 

potentially decrease more than the data 

indicates. 

Additionally, as discussed above, the 

ENNs analysis suggests that the change 

in the extent to which market risk is 

held by persons identified as Likely SDs 

is not very sensitive to the changes in 

the thresholds considered here. 

The Commission preliminarily 

believes that setting the de minimis 

threshold at $8 billion will not 

substantially diminish the protection of 

market participants and the public as 

compared to a $3 billion threshold. 

Further, as discussed, the Commission 

does not expect that an increase in the 

threshold would increase the protection 

of market participants and the public. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

Another goal of SD regulation is swap 

market efficiency, orderliness, and 

transparency. These market benefits are 

achieved through regulations requiring, 

for example, SDs to keep detailed daily 

trading records, report trade 

information, provide counterparty 

disclosures about swap risks and 

pricing, and engage in portfolio 

reconciliation and compression 

exercises. 

As compared to a $3 billion de 

minimis threshold, an $8 billion 

threshold may have a negative effect on 

the efficiency and integrity of the 

markets as fewer entities are required to 

register as SDs and fewer transactions 

become subject to SD-related 

regulations. However, the Commission 

also recognizes that the efficiency and 

competitiveness of the swap market may 

be negatively impacted if the de 

minimis threshold is set too low, by 

potentially increasing barriers to entry 

that may stifle competition and reduce 

swap market efficiency. For example, if 

entities choose to reduce or cease their 

swap dealing activities in response to 

the $3 billion de minimis threshold, the 

number or availability of market makers 

for swaps may be reduced, which could 

lead to increased costs for potential 

counterparties and end-users. 

Conversely, a higher threshold may 

increase market liquidity, efficiency, 

and competition as more entities engage 

in swap dealing without SD registration 

as a barrier to entry. However, a higher 

threshold may also result in fewer 

swaps being subject to SD-related 

regulations requiring, for example, 

disclosures, portfolio reconciliation, 

portfolio, compression, potentially 

reducing the financial integrity of 

markets. 

Considering these countervailing 

factors, the Commission believes that 

setting the de minimis threshold at $8 

billion will not significantly diminish 

the efficiency, competitiveness, and 

financial integrity of markets as 

compared to a $3 billion threshold. 

Further, as discussed, an increase in the 

threshold would potentially have both 

positive and negative effects to the 

efficiency, competitiveness, and 

financial integrity of the markets. 

(c) Price Discovery 

All else being equal, the Commission 

preliminarily believes that price 

discovery will not be harmed and might 

be improved if there are more entities 

engaging in ancillary dealing due to 

increased competitiveness among swap 

counterparties. The Commission is 

preliminarily of the view that, as 

compared to a $3 billion threshold, an 

$8 billion de minimis threshold would 

encourage participation of new SDs and 

promote ancillary dealing because those 

entities engaged in swap dealing 

activities below the threshold would not 

need to incur the direct costs of 

registration until they exceeded a higher 

threshold. 

Similarly, raising the threshold above 

$8 billion could lead to even more 

entities engaging in ancillary dealing. 

(d) Sound Risk Management 

The Commission notes that a higher 

de minimis threshold could lead to 

impaired risk management practices 

because a lower number of entities 

would be required by regulation to: (1) 

Develop and implement detailed risk 

management programs; (2) adhere to 

business conduct standards that reduce 

operational and other risks; and (3) 

satisfy margin requirements for 

uncleared swaps. For the same reason, 

a lower threshold could positively 

impact risk management since more 

entities would be required to comply 

with the above mentioned risk-related 

SD regulations. 

(e) Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

with respect to setting the de minimis 

threshold at $8 billion in AGNA of swap 

dealing activity. 

2. Swaps Entered Into by Insured 

Depository Institutions in Connection 

With Loans to Customers 

The proposed IDI De Minimis 

Provision would require that the loans 

and related swaps generally meet 

requirements that, as compared to the 

requirements of the IDI Swap Dealing 

Exclusion in paragraph (5) of the SD 

Definition, reflect: (1) A revised timing 

requirement for when the swap must be 

entered into; (2) an expansion of the 

types of swaps that are eligible; (3) a 

reduced syndication percentage 

requirement; (4) an elimination of the 

notional amount cap; and (5) a refined 

explanation of the types of loans that 

would qualify. Any swap that meets the 

requirements of the IDI Swap Dealing 

Exclusion in paragraph (5) of the SD 

Definition would also meet the 

requirements of this new IDI De 

Minimis Provision. 

(i) Policy-Related Costs and Benefits 

Similar to the IDI Swap Dealing 

Exclusion in paragraph (5) of the SD 

Definition, the IDI De Minimis Provision 

allows IDIs to tailor the risks of a loan 

to the loan customer’s and the lender’s 

needs and promotes the risk-mitigating 

effects of swaps. The IDI De Minimis 

Provision, however, allows more 

flexibility, which should expand the 

universe of swaps that do not have to be 

counted towards the de minimis 

threshold, as well as decrease 

concentration in the markets for swaps 

and loans. For example, the different 

requirements for both timing and the 

relationship of the swap to the loan will 

increase the ability of IDIs to enter into 

certain swaps and not be concerned that 

they would have to be counted towards 

the de minimis threshold. This should 

enhance market liquidity, which is 

helpful for customers of IDIs that may 

not have access to larger SDs. 

Conversely, expanding the universe of 

swaps not required to be counted 

towards the de minimis threshold also 

expands the number of swaps 

potentially not subject to SD regulation 

and consequently, could decrease 

customer protections. As mentioned in 

section II.B.1, however, the proposed 

IDI De Minimis Provision will likely 

benefit mostly small and mid-sized IDIs, 

which mitigates the concern that 

systemic risk will increase as a result of 

the proposed change. 

As indicated by Table 14 in section 

II.B.1, the level of activity between 

unregistered IDIs and other unregistered 

persons is between only approximately 

0.003 percent and 0.007 percent of the 

total AGNA of swaps activity, 

depending on the range of AGNA of 


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swaps activity being examined (at 

AGNAs of between $1 billion and $50 

billion). Given those low percentages, 

the Commission is of the view that the 

policy benefits of SD regulation likely 

would not be significantly diminished if 

the proposed IDI De Minimis Provision 

is adopted and some unregistered IDIs 

marginally expand the number and 

AGNA of swaps they enter into with 

customers in connection with loans to 

those customers. Further, though these 

entities are active in the swap market, 

the Commission is of the view that their 

activity poses less systemic risk as 

compared to larger IDIs because of their 

limited AGNA of swaps activity as 

compared to the overall size of the 

market. 

The Commission believes that the 

benefits of added market liquidity may 

be more significant than the costs of 

potentially reduced customer 

protections. The cost of reduced 

customer protections is mitigated 

because such swaps would still be 

required to be reported to the CFTC and 

IDIs would still be subject to prudential 

regulatory requirements, thereby 

providing oversight with respect to such 

swaps. 

(ii) Section 15(a) 

Section 15(a) of the CEA requires the 

Commission to consider the effects of its 

actions in light of the following five 

factors: 

(a) Protection of Market Participants and 

the Public 

The IDI De Minimis Provision 

proposed amendment may expand the 

universe of swaps that fall outside the 

scope of SD regulations, potentially 

increasing systemic risk and reducing 

counterparty protections. However, the 

IDIs would still be subject to prudential 

regulatory requirements, potentially 

mitigating this concern. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

The efficiency, competitiveness, and 

financial integrity of the markets may 

also be affected by the addition of the 

IDI De Minimis Provision since it 

provides IDIs more flexibility to enter 

into swaps in connection with loans 

without registering as SDs. With the 

added flexibility, the number of IDIs 

offering swaps in connection with loans 

may increase, which might have a 

positive impact on the efficiency and 

competiveness of the market for swaps 

and loans. However, the added 

flexibility may also result in fewer 

swaps being subject to SD-related 

regulations. 

(c) Price Discovery 

The IDI De Minimis Provision could 

lead to better price discovery as small 

and mid-sized banks increase their level 

of ancillary dealing activity, which 

might increase the frequency of swap 

transaction pricing. 

(d) Sound Risk Management 

The proposed IDI De Minimis 

Provision should increase the usage of 

swaps for risk mitigation, which might 

reduce the risk resulting from the 

defaulting of loan customers. 

Additionally, having more IDIs offering 

swaps in connection with loans might 

decrease concentration in the market for 

loan-related swaps and thereby decrease 

risk as well. 

(e) Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

with respect to the proposed IDI De 

Minimis Provision. 

3. Swaps Entered Into To Hedge 

Financial or Physical Positions 

The Commission is proposing new 

paragraph (4)(D), which provides a 

general exception from the SD de 

minimis threshold calculation for 

certain hedging swaps. To meet the 

requirements of the Hedging De 

Minimis Provision, a swap must be 

entered into by a person for the primary 

purpose of reducing or otherwise 

mitigating one or more of its specific 

risks, including, but not limited to, 

market risk, commodity price risk, rate 

risk, basis risk, credit risk, volatility 

risk, correlation risk, foreign exchange 

risk, or similar risks arising in 

connection with existing or anticipated 

identifiable assets, liabilities, positions, 

contracts, or other holdings of the 

person or any affiliate. Additionally, the 

entity entering into the hedging swap 

must not: (1) Be the price maker of the 

hedging swap; (2) receive or collect a 

bid/ask spread, fee, or commission for 

entering into the hedging swap; and (3) 

receive other compensation separate 

from the contractual terms of the 

hedging swap in exchange for entering 

into the hedging swap. 

(i) Policy-Related Costs and Benefits 

Generally, the proposed Hedging De 

Minimis Provision is not expected to 

impact how such swaps are treated for 

purposes of the de minimis threshold 

calculation, but rather provides 

additional clarity to market participants, 

which allows them to determine more 

easily whether swaps entered into for 

purposes of hedging financial or 

physical positions are counted towards 

the de minimis threshold. The 

Commission believes that the clarity 

will benefit certain entities by 

encouraging economically-appropriate 

risk mitigation, potentially reducing 

systemic risk broadly. The proposed 

exception should reduce costs that 

persons engaging in such swaps would 

incur in determining if they are SDs. 

Such added clarity may also improve 

market liquidity as entities feel more 

comfortable entering into a swap for the 

purpose of hedging, knowing that the 

swap would not necessarily constitute 

swap dealing. In addition to increased 

market liquidity, the additional clarity 

should encourage economically 

appropriate risk mitigation. 

Conversely, it is possible that 

improper application of the Hedging De 

Minimis Provision could lead to certain 

swap dealing activity being treated as 

hedging activity that does not need to be 

counted towards the de minimis 

threshold. This may reduce the level of 

the Commission’s regulatory coverage of 

the swap market. However, the 

Commission believes that the 

requirements of the proposed Hedging 

De Minimis Provision limit the 

likelihood that dealing activity would 

be treated as hedging activity by market 

participants. 

(ii) Section 15(a) 

Section 15(a) of the CEA requires the 

Commission to consider the effects of its 

actions in light of the following five 

factors: 

(a) Protection of Market Participants and 

the Public 

The Commission notes that certain 

swaps that are now currently counted 

towards the de minimis threshold could 

now be hedging swaps that would not 

be counted, which could potentially 

mean less regulatory coverage and 

protection for market participants. 

However, as discussed, the Commission 

believes that the proposed exception for 

swaps entered into to hedge financial or 

physical positions has a number of 

requirements that greatly reduce the 

likelihood that swap dealing activity 

would improperly not be counted 

towards an entity’s de minimis 

threshold calculation, reducing the 

potential impact to systemic risk and 

counterparty protections. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

With respect to the Hedging De 

Minimis Provision, market liquidity 

may improve as entities would be able 

to execute hedging swaps knowing that 

the swaps would not necessarily 

constitute swap dealing that counts 

towards the de minimis threshold. 


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(c) Price Discovery 

The Hedging De Minimis Provision 

could lead to better price discovery as 

more entities gain certainty that hedging 

swaps are not considered dealing 

activity, and therefore increase their 

hedging-related activity because they 

are less likely to have to register as an 

SD. 

(d) Sound Risk Management 

The added clarity that certain hedging 

swaps need not be counted towards an 

entity’s de minimis calculation could 

lead to improved risk management as 

certain entities increase their hedging 

activities. 

(e) Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

with respect to the proposed Hedging 

De Minimis Provision. 

4. Swaps Resulting From Multilateral 

Portfolio Compression Exercises 

(i) Policy-Related Costs and Benefits 

The Commission believes that swaps 

which result from multilateral portfolio 

compression exercises and which meet 

the requirements of the existing Staff 

Letter No. 12–62 would also meet the 

requirements of the proposed rule 

amendment, and are already not 

considered swaps that have to count 

towards a person’s de minimis 

threshold. The Commission is of the 

preliminary belief that the existing noaction relief is being fully relied upon 

by market participants, and therefore, 

this proposed change could lead to 

increased certainty for market 

participants, without any significant 

policy-related costs for the swap market. 

(ii) Section 15(a) 

Section 15(a) of the CEA requires the 

Commission to consider the effects of its 

actions in light of the following five 

factors: 

(a) Protection of Market Participants and 

the Public 

Multilateral portfolio compression 

exercises help to better align initial 

margin between appropriate 

counterparties when, for example, a 

swap with a compression exercise 

participant has been backed-to-backed 

between two SD affiliates in the same 

holding company. In such cases, the 

original outward facing swap with the 

first affiliate and the back-to-back 

affiliate swap may be replaced with an 

outward facing swap with the second 

affiliate. Thus, having SDs engage in 

compression exercises may increase the 

protections that posting initial margin 

provides market participants and the 

public, namely, a counterparty has a 

senior claim to posted initial margin 

and may not have to become a general 

creditor in a bankruptcy. To the extent 

that a provision explicitly excepting 

multilateral portfolio compression 

exercise swaps from the de minimis 

calculation encourages more 

participation in compression exercises, 

market participants and the public may 

be better protected. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

The increased certainty that swaps 

resulting from multilateral portfolio 

compression exercises do not need to be 

counted towards a person’s de minimis 

threshold could encourage persons to 

enter into multilateral portfolio 

compression exercises on a more regular 

basis, potentially increasing the 

financial integrity of the markets. 

(c) Price Discovery 

Prices from swap compression 

exercises are not publicly reported 

because they are not price-forming 

trades. As such, the Commission has not 

identified any price discovery 

considerations with respect to the MPCE 

De Minimis Provision. 

(d) Sound Risk Management 

The increased certainty that swaps 

resulting from multilateral portfolio 

compression exercises do not need to be 

counted towards a person’s de minimis 

threshold could encourage persons to 

enter into multilateral portfolio 

compression exercises on a more regular 

basis, potentially reducing risk. 

(e) Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

with respect to the MPCE De Minimis 

Provision. 

5. Methodology for Calculating Notional 

Amounts 

(i) Policy-Related Costs and Benefits 

To allow for more timely clarity to 

market participants, the Commission is 

proposing new paragraph (4)(vii) of the 

SD Definition, which provides that the 

Commission may determine the 

methodology to be used to calculate the 

notional amount for any group, 

category, type, or class of swaps, and 

delegates to the Director of DSIO the 

authority to determine methodologies 

for calculating notional amounts. 

Additionally, any such methodology 

shall be economically reasonable and 

analytically supported, and be made 

publicly available on the CFTC website. 

The Commission believes that this 

proposed amendment would facilitate 

timely clarity regarding notional amount 

calculation methodologies for purposes 

of the de minimis threshold, and help 

ensure that persons are fully aware of 

whether their activities could lead to (or 

presently entail) SD registration 

requirements in the event of market or 

regulatory changes. As is the case with 

existing delegations to staff, the 

Commission would continue to reserve 

the right to exercise the delegated 

authority itself at any time. 

(ii) Section 15(a) 

(a) Protection of Market Participants and 

the Public 

The Commission has not identified 

any protection of market participants 

and the public considerations with 

respect to the proposed rule for 

determining the methodology for 

calculating notional amounts and the 

delegation of authority. 

(b) Efficiency, Competitiveness, and 

Financial Integrity of Markets 

The Commission has not identified 

any efficiency, competitiveness, and 

financial integrity of the markets 

considerations with respect to the 

proposed rule for determining the 

methodology for calculating notional 

amounts and the delegation of authority. 

(c) Price Discovery 

The Commission has not identified 

any price discovery considerations with 

respect to the proposed rule for 

determining the methodology for 

calculating notional amounts and the 

delegation of authority. 

(d) Sound Risk Management 

The Commission believes that most 

market participants understand the risks 

of the swaps they engage in. To the 

extent that the proposed amendment 

compels SDs to assess the deltas of 

embedded options in swaps, however, 

the proposed amendment could lead to 

an audit trail for SDs that might 

ultimately improve risk management (if 

estimated deltas did not exist already). 

(e) Other Public Interest Considerations 

The Commission believes that the 

proposed rule for determining the 

methodology for calculating notional 

amounts and the delegation of authority 

will ensure that persons are fully aware 

of whether their activities could lead to 

(or presently entail) SD registration 

requirements in the event of market or 

regulatory changes. 

6. Request for Comment 

The Commission invites comments 

from the public on all aspects of its 


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198 7 U.S.C. 19(b). 

preliminary consideration of costs and 

benefits associated with this Proposal. 

The questions below relate to areas that 

the Commission preliminarily believes 

may be relevant. In addressing these or 

any other aspect of the Commission’s 

preliminary assessment, commenters are 

encouraged to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the proposed alternatives. 

(1) What are the costs and benefits to 

market participants associated with 

each proposed change? Please explain 

and, to the extent possible, quantify 

these costs and benefits. 

(2) What are the direct costs 

associated with SD registration and 

compliance? What is the smallest 

notional amount of dealing swaps that 

an entity must enter into in order for the 

profitability of its swap dealing activity 

to exceed SD registration and 

compliance costs? 

(3) Are there indirect benefits to 

registering as an SD? For example, does 

being a registered SD make an entity a 

more desirable counterparty? Are many 

of the benefits of transacting with an SD 

not relevant because many requirements 

are part of standard ISDA agreements? 

(4) Besides the direct costs of 

registration and compliance, are there 

any indirect costs to becoming a 

registered SD? What are these costs? 

(5) Would the entities with dealing 

activity between $3 billion and $8 

billion incur similar registration and 

compliance costs as compared to 

entities with dealing activity above $8 

billion? Would those dealers be 

impacted differently by those costs? 

(6) What are the costs and benefits to 

the public associated with each 

proposed change? Please explain and, to 

the extent possible, quantify these costs 

and benefits. 

(7) How does each proposed change 

affect the efficiency, competitiveness, 

and financial integrity of markets? 

(8) How does each proposed change 

affect price discovery for the swap 

market? 

(9) How does each proposed change 

affect sound risk management for swap 

market participants? 

(10) How does each proposed change 

affect other public interests that the 

Commission may elect to consider? 

(11) Has the Commission identified 

all of the relevant categories of costs and 

benefits in its preliminary consideration 

of the costs and benefits? Please 

describe any additional categories of 

costs or benefits that the Commission 

should consider. 

(12) The Commission preliminarily 

believes that cross-border aspects of this 

rulemaking are similar to domestic 

applications. Do the costs and benefits 

of the proposed changes, as applied in 

cross-border contexts, differ from those 

costs and benefits resulting from their 

domestic application, and, if so, in what 

ways and to what extent? 

D. Antitrust Considerations 

Section 15(b) of the CEA requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of the CEA, in 

issuing any order or adopting any 

Commission rule or regulation 

(including any exemption under section 

4(c) or 4c(b)), or in requiring or 

approving any bylaw, rule, or regulation 

of a contract market or registered futures 

association established pursuant to 

section 17 of the CEA.198

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. The Commission requests 

comment on whether this Proposal 

implicates any other specific public 

interest to be protected by the antitrust 

laws. 

The Commission has considered this 

Proposal to determine whether it is 

anticompetitive and has preliminarily 

identified no anticompetitive effects. 

The Commission requests comment on 

whether this Proposal is anticompetitive 

and, if it is, what the anticompetitive 

effects are. 

Because the Commission has 

preliminarily determined that this 

Proposal is not anticompetitive and has 

no anticompetitive effects, the 

Commission has not identified any less 

anticompetitive means of achieving the 

purposes of the CEA. The Commission 

requests comment on whether there are 

less anticompetitive means of achieving 

the relevant purposes of the CEA that 

would otherwise be served by adopting 

this Proposal. 

List of Subjects in 17 CFR Part 1 

Commodity futures, Definitions, De 

minimis exception, Insured depository 

institutions, Swaps, Swap dealers. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR part 1 as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 

6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 

6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 

12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 

24 (2012). 

■ 2. In § 1.3, amend the definition of the 

term ‘‘Swap dealer’’ as follows: 

■ a. Revise paragraph (4)(i)(A); 

■ b. Add paragraphs (4)(i)(C), (D), and 

(E); 

■ c. Remove and reserve paragraph 

(4)(ii); and 

■ d. Add paragraph (4)(vii). 

The revisions and additions read as 

follows: 

§ 1.3 Definitions. 

* * * * * 

Swap Dealer. * * * 

(4) De minimis exception—(i)(A) In 

general. Except as provided in 

paragraph (4)(vi) of this definition, a 

person that is not currently registered as 

a swap dealer shall be deemed not to be 

a swap dealer as a result of its swap 

dealing activity involving 

counterparties, so long as the swaps 

connected with those dealing activities 

into which the person—or any other 

entity controlling, controlled by or 

under common control with the 

person—enters over the course of the 

immediately preceding 12 months have 

an aggregate gross notional amount of 

no more than $8 billion, and an 

aggregate gross notional amount of no 

more than $25 million with regard to 

swaps in which the counterparty is a 

‘‘special entity’’ (as that term is defined 

in section 4s(h)(2)(C) of the Act, 7 U.S.C. 

6s(h)(2)(C), and § 23.401(c) of this 

chapter), except as provided in 

paragraph (4)(i)(B) of this definition. For 

purposes of this definition, if the stated 

notional amount of a swap is leveraged 

or enhanced by the structure of the 

swap, the calculation shall be based on 

the effective notional amount of the 

swap rather than on the stated notional 

amount. 

* * * * * 

(C) Insured depository institution 

swaps in connection with originating 

loans to customers. Solely for purposes 

of determining whether an insured 

depository institution has exceeded the 

aggregate gross notional amount 

threshold set forth in paragraph (4)(i)(A) 

of this definition, an insured depository 

institution may exclude swaps entered 

into by the insured depository 

institution with a customer in 

connection with originating a loan to 

that customer, subject to the 

requirements of paragraphs (4)(i)(C)(1) 

through (4)(i)(C)(6) of this definition. 

(1) Timing of execution of swap. The 

insured depository institution enters 

into the swap with the customer no 


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earlier than 90 days before execution of 

the applicable loan agreement, or no 

earlier than 90 days before transfer of 

principal to the customer by the insured 

depository institution pursuant to the 

loan, unless an executed commitment or 

forward agreement for the applicable 

loan exists, in which event the 90 day 

restriction does not apply; 

(2) Relationship of swap to loan. (i) 

The rate, asset, liability or other term 

underlying such swap is, or is related to, 

a financial term of such loan, which 

includes, without limitation, the loan’s 

duration, rate of interest, the currency or 

currencies in which it is made and its 

principal amount; or 

(ii) Such swap is required as a 

condition of the loan, either under the 

insured depository institution’s loan 

underwriting criteria or as is 

commercially appropriate, in order to 

hedge risks incidental to the borrower’s 

business (other than for risks associated 

with an excluded commodity) that may 

affect the borrower’s ability to repay the 

loan; 

(3) Duration of swap. The duration of 

the swap does not extend beyond 

termination of the loan; 

(4) Level of funding of loan. (i) The 

insured depository institution is 

committed to be, under the terms of the 

agreements related to the loan, the 

source of at least 5 percent of the 

maximum principal amount under the 

loan; or 

(ii) If the insured depository 

institution is committed to be, under the 

terms of the agreements related to the 

loan, the source of less than 5 percent 

of the maximum principal amount 

under the loan, then the aggregate 

notional amount of all swaps entered by 

the insured depository institution with 

the customer in connection with the 

financial terms of the loan cannot 

exceed the principal amount of the 

insured depository institution’s loan; 

(5) The swap is considered to have 

been entered into in connection with 

originating a loan with a customer if the 

insured depository institution: 

(i) Directly transfers the loan amount 

to the customer; 

(ii) Is a part of a syndicate of lenders 

that is the source of the loan amount 

that is transferred to the customer; 

(iii) Purchases or receives a 

participation in the loan; or 

(iv) Under the terms of the agreements 

related to the loan, is, or is intended to 

be, the source of funds for the loan; 

(6) The loan to which the swap relates 

shall not include: 

(i) Any transaction that is a sham, 

whether or not intended to qualify for 

the exception from the de minimis 

threshold in this definition; or 

(ii) Any synthetic loan. 

(D) Swaps entered into for the 

purpose of hedging. Solely for purposes 

of determining whether a person has 

exceeded the aggregate gross notional 

amount threshold set forth in paragraph 

(4)(i)(A) of this definition, the person 

may exclude swaps that are entered into 

for the purpose of hedging, subject to 

the requirements of paragraphs 

(4)(i)(D)(1) through (4)(i)(D)(6) of this 

definition. 

(1) The person is entering into the 

swap for the primary purpose of 

reducing or otherwise mitigating one or 

more specific risks for the person, 

which includes, without limitation, 

market risk, price risk, rate risk, basis 

risk, credit risk, volatility risk, foreign 

exchange risk, liquidity risk, or similar 

risks arising in connection with existing 

or anticipated identifiable assets, 

liabilities, positions, contracts, or other 

holdings of the person or any affiliate of 

the person; 

(2) For that swap, the person is not 

the price maker and does not receive or 

earn a bid/ask spread, fee, commission, 

or other compensation for entering into 

the swap; 

(3) The swap is economically 

appropriate to the reduction of risks that 

may arise in the conduct and 

management of an enterprise engaged in 

the type of business in which the person 

is engaged; 

(4) The swap is entered into in 

accordance with sound business 

practices; and 

(5) The person does not enter into the 

swap in connection with activity 

structured to evade designation as a 

swap dealer. 

(E) Swaps resulting from multilateral 

portfolio compression exercises. Solely 

for purposes of determining whether a 

person has exceeded the aggregate gross 

notional amount threshold set forth in 

paragraph (4)(i)(A) of this definition, the 

person may exclude swaps that result 

from multilateral portfolio compression 

exercises, as defined in § 23.500 of this 

chapter, to the extent the person does 

not enter into the multilateral portfolio 

compression exercise in connection 

with activity structured to evade 

designation as a swap dealer. 

(ii) [Reserved] 

* * * * * 

(vii) Methodology for calculation of 

notional amounts. (A) For purposes of 

paragraph (4) of this definition, the 

Commission may on its own, or upon 

written request by a person, determine 

the methodology to be used to calculate 

the notional amount for any group, 

category, type, or class of swaps. Such 

methodology shall be economically 

reasonable and analytically supported. 

Each such determination shall be made 

publicly available and posted on the 

Commission website. 

(B) Delegation. (i) The Commission 

hereby delegates to the Director of the 

Division of Swap Dealer and 

Intermediary Oversight, or such other 

employee or employees as the Director 

may designate from time to time, the 

authority in paragraph (4)(vii)(A) of this 

definition to determine the methodology 

to be used to calculate the notional 

amount for any group, category, type, or 

class of swaps. 

(ii) The Director of the Division of 

Swap Dealer and Intermediary 

Oversight may submit any matter which 

has been delegated to him or her under 

paragraph (4)(vii)(B)(i) of this definition 

to the Commission for its consideration. 

(iii) Nothing in this paragraph 

(4)(vii)(B) may prohibit the Commission, 

at its election, from exercising the 

authority delegated to the Director of the 

Division of Swap Dealer and 

Intermediary Oversight under paragraph 

(4)(vii)(A) of this definition. 

* * * * * 

Issued in Washington, DC, on June 5, 2018, 

by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to De Minimis Exception to 

the Swap Dealer Definition— 

Commission Voting Summary, 

Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Giancarlo and 

Commissioner Quintenz voted in the 

affirmative. Commissioner Behnam voted in 

the negative. 

Appendix 2—Statement of Chairman J. 

Christopher Giancarlo 

Since becoming Chairman, I have 

committed to resolving this outstanding issue 

and giving market participants the regulatory 

certainty they need. Still, as you know, last 

year I requested that the Commission 

postpone a decision on the de minimis 

threshold for a year. That decision was 

understandably disappointing to some, 

including my fellow Commissioners, who 

said they were then ready to vote on it. 

Yet, as I told Congress at the time, I did 

not just want to address the de minimis 

threshold; I wanted to get it right. 

Today, I believe the staff has had adequate 

time to analyze the most current and 

comprehensive trading data and arrive at a 

recommendation for the best path forward in 

terms of managing risk to the financial 

system. The staff has provided 


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1See National Economic Research Associates, 

Cost-Benefit Analysis of the CFTC’s Proposed Swap 

Dealer Definition 1 (Dec. 20, 2011) (‘‘NERA 

Report’’), http://www.nera.com/content/dam/nera/

publications/archive2/PUB_SwapDealer_1211.pdf. 

It is difficult to estimate the initial and incremental, 

ongoing costs of swap dealer regulation. NERA’s 

report regarding the costs of registration for nonfinancial energy firms remains one of the only 

comprehensive analyses produced. 

2 Keynote Address of Commissioner Brian 

Quintenz before the Smart Financial Regulation 

Roundtable (Nov. 2017), https://www.cftc.gov/

PressRoom/SpeechesTestimony/opaquintenz3. 

3Transcript, ‘‘Hearing to Consider Pending CFTC 

Nominations,’’ Senate Agriculture, Nutrition, and 

Forestry Committee, September 15, 2016, 2016 WL 

4938280 p.12. 

4Transcript, ‘‘Hearing to Consider Pending CFTC 

Nominations,’’ Senate Agriculture, Nutrition, and 

Forestry Committee, July 27, 2017, 2017 WL 

3215667 p.14 (‘‘With regard to the de minimis 

threshold level, I think when this threshold was set 

originally it was really done without the benefit of 

a lot of data. I think if there is a scenario where this 

shortfall reduces from $8 billion to $3 billion [that] 

instead of increasing registration, it would drive 

participants out of the market or force them to 

reduce their activity because of the cost that would 

be imposed upon them.’’). 

5Bain, Benjamin, ‘‘CFTC Swaps Dealer Threshold 

Criticized by Its Newest Republican,’’ Bloomberg 

(Oct. 9, 2017); and DeFrancesco, Dan, ‘‘CFTC’s 

Quintenz: Dealer Threshold Could Exclude Cleared 

Swaps—Commissioner Suggests Risks should be 

Better Considered in De Minimis Reappraisal,’’ 

Risk.Net (Oct. 24, 2017). 

6 ‘‘Fireside Chat: CFTC Commissioners,’’ FIA 

Expo Chicago (Oct 19, 2017) available at: https://

expo2017.fia.org/articles/fireside-chat-cftccommissioners, at 9’30’’ through 10’25’’. 

7For further discussion, see comment letter to 

CFTC from Financial Services Roundtable dated 

January 19, 2016 (‘‘We do not see a benefit to 

requiring an entity that enters into a small number 

of swaps with a large notional amount but little 

exposure to choose between exiting the market or 

registering as a swap dealer, nor should entities that 

are taking on very large exposures without crossing 

a notional threshold, or a trade or counterparty 

count metric, be unregulated because they have 

concentrated risk in a small number of trades.’’). 

Commissioners with full access to the data 

they have used in their analysis. They have 

also conducted additional and specific data 

analyses requested by Commissioners. 

The data shows quite clearly that a drop in 

the de minimis definition from $8 billion to 

$3 billion would not have an appreciable 

impact on coverage of the marketplace. In 

fact, any impact would be less than one 

percent—an amount that is truly de minimis. 

On the other hand, the drop in the 

threshold would pose unnecessary burdens 

for non-financial companies that engage in 

relatively small levels of swap dealing to 

manage business risk for themselves and 

their customers. That would likely cause 

non-financial companies to curtail or 

terminate risk-hedging activities with their 

customers, limiting risk-management options 

for end-users and ultimately consolidating 

marketplace risk in only a few large, Wall 

Street swap dealers. 

In my travels around the country over the 

past four years on the Commission, I have 

met numerous small swaps trading firms that 

make markets in local markets or in select 

asset classes. These firms are often housed in 

small community banks, local energy utilities 

or commodity trading houses. They all trade 

below the $8 billion threshold. Almost all of 

them say that if the de minimis threshold 

were to drop to $3 billion, they would reduce 

their trading accordingly. They just cannot 

afford to be registered as swap dealers. 

Who are the winners if these small firms 

reduce their market making activities? Big 

Wall Street banks. Who are the losers if these 

small firms reduce their market making 

activities? Small regional lenders, energy 

hedgers and Ag producers, who become more 

dependent on Wall Street trading liquidity. 

Who is the really big loser? The U.S. 

economy, which becomes more financially 

concentrated and less economically diverse. 

That is why I think the proposed rule 

rightly balances the mandate to register swap 

dealers whose activity is large enough in size 

and scope to warrant oversight without 

detrimentally affecting community banks and 

agricultural co-ops that engage in limited 

swap dealing activity and do not pose 

systemic risk. Leaving the threshold at the $8 

billion level allows firms to avoid incurring 

new costs for overhauling their existing 

procedures for monitoring and maintaining 

compliance with the threshold. It fosters 

increased certainty and efficiency in 

determining swap dealer registration by 

utilizing a simple objective test with a 

limited degree of complexity. And it ensures 

that smaller market makers and the 

counterparties with which they trade can 

engage in limited swap dealing without the 

high costs of registration and compliance as 

intended by Congress when it established the 

de minimis dealing exception to begin with. 

The changes proposed today will also not 

count swaps of Insured Depository 

Institutions (IDIs) made in connection with 

loans. They would allow, for example, an 

insured depository institution swap dealer to 

write a swap with a customer 181 days after 

entering into a loan without counting it 

towards the $8 billion threshold. These types 

of changes will allow small and regional 

banks to further serve customers’ needs 

without the added burden of unnecessary 

regulation and associated compliance costs. 

This proposal incorporates feedback and 

input from my two fellow Commissioners 

and their fine staffs. We now look forward to 

feedback from the public and market 

participants. We ask numerous questions 

about whether any additional exceptions or 

calculations should be included in the final 

rule. Three years ago, I raised the question of 

whether there should be an exclusion from 

counting cleared swaps towards the 

registration threshold and that question is 

asked again. Your response to questions 

regarding adding other potential components 

will help the Commission assess whether 

further adjustments to the de minimis 

exception may be appropriate in the final 

rule. 

As discussed in the adopting release, staff 

continues to consult with the SEC and 

prudential regulators regarding the changes 

in the proposal in particular some of the 

questions regarding exclusions. I remain 

committed to working with Chair Jay Clayton 

and the SEC in areas where harmonization is 

necessary and appropriate. 

I also remain committed to finalizing this 

rule before the end of the year. I recognize 

that market participants need certainty. 

Today’s proposal is a major step forward in 

doing just that. I applaud staff for this 

proposal and look forward to feedback. 

Appendix 3—Supporting Statement of 

Commissioner Brian D. Quintenz 

I support this proposed rulemaking 

governing swap dealer registration, which is 

fundamental to the Commission’s effective 

oversight of the swaps market. 

Swap dealers are subject to extensive and 

costly regulatory requirements: Registration 

fees; minimum capital requirements; posting 

margin for uncleared swaps; IT costs for trade 

processing, reporting, confirmation, and 

reconciliation activities; costs to create and 

send clients daily valuation reports; costs for 

recordkeeping obligations; third party audit 

expenses; legal fees to develop and 

implement business conduct rules and many, 

many more. If that sounds like a big bill, it 

is. A prominent economic research firm 

estimated the present value of the cost for 

swap dealer registration compliance at $390 

million per firm.1

Those significant requirements and costs 

are imposed to advance equally significant 

policy objectives, such as the reduction of 

systemic risk, increased counterparty 

protections, and enhanced market efficiency 

and integrity. Therefore, the registration 

threshold, as the trigger mechanism for those 

costs and objectives, must be appropriately 

and specifically calibrated to ensure that the 

correct market group shoulders the burdens 

of swap dealer regulations because they are 

best situated to realize the corresponding 

policy goals of that registration. 

I have stated previously, in great detail and 

with considerable evidence, the importance 

of appropriately calibrating the de minimis 

threshold so that entities posing no systemic 

risk and with a relatively small market 

footprint are not regulated under a regime 

that is more appropriate for the world’s 

largest, most complex financial institutions.2

If we fail to calibrate this threshold 

appropriately, firms at the margin will likely 

reduce their activity to avoid registration as 

opposed to serving their clients’ interests and 

accepting the burdens of registration. A 

public policy choice which drives away 

market participants and reduces market 

activity is undeniably flawed. 

From my first confirmation hearing in 2016 

to the present day,3 including meetings with 

elected representatives, my second 

confirmation hearing,4 interviews with the 

press,5 discussions with market participants, 

and in public remarks at event forums, 6 I 

have been adamant that notional value is a 

poor measure of activity and a meaningless 

measure of risk, and therefore, by itself, is a 

deficient metric by which to impose large 

costs and achieve substantial policy 

objectives.7 Therefore, I have some 

reservations about this proposal’s continued 

reliance on a one-size-fits-all notional value 

test for swap dealer registration. 

I still, and will continue to, believe that the 

criteria for determining swap dealer 

registration should be more closely correlated 

to risk. However, if any final rule is going to 


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8 For further discussion, see letter from Institute 

of International Bankers dated January 19, 2016. 

9See Hearing to Review the 2016 Agenda of the 

Commodity Futures Trading Commission Before the 

H. Comm. on Agric., 114th Cong. 17 (2016) 

(response of Timothy Massad, former CFTC 

Chairman, to question posed by Congressman David 

Scott (D–GA)), https://agriculture.house.gov/

uploadedfiles/114-40_-_98680.pdf. 

1The Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 

section 712(d), 124 Stat. 1376, 1644 (2010) (the 

‘‘Dodd-Frank Act’’). Additionally, with respect to 

rulemakings and orders regarding swap dealers, 

among other things, section 712(a) requires the 

CFTC to consult and coordinate to the extent 

possible with the SEC and the prudential regulators 

to ensure consistency and comparability, to the 

extent possible. Such consultation must occur 

before the CFTC commences such rulemaking or 

order issuance. The Proposal indicates only that the 

Commission ‘‘is consulting with the SEC and 

prudential regulators regarding the changes to the 

SD Definition discussed in this Proposal,’’ 

indicating that the Commission may not have 

adhered to the letter or spirit of section 712(a) or 

(d) of the Dodd-Frank Act with respect to the 

Proposal. 

2Since the initial establishment of the AGNA at 

$3 billion in May 2012, and initial five year phasein period during which the AGNA threshold was 

set at $8 billion, the Commission issued two 

successive orders extending the phase-in, and 

issued preliminary and final staff reports 

concerning the de minimis threshold, as required 

by paragraph 4(ii)(B) of the swap dealer definition. 

Additionally, the Commission has more than five 

years of swap dealer oversight experience; given 

that the first swap dealers submitted applications 

for preliminarily registration in December 2017. See 

Further Definition of ‘‘Swap Dealer,’’ ‘‘SecurityBased Swap Dealer,’’ ‘‘Major Swap Participant,’’ 

‘‘Major Security-Based Swap Participant’’ and 

‘‘Eligible Contract Participant,’’ 77 FR 30596 (May 

23, 2012) (‘‘SD Definition Adopting Release’’); 

Order Establishing De Minimis Threshold Phase-In 

Termination Date, 81 FR 71605 (Oct. 18, 2016) 

Continued 

settle for an activity-based threshold, a 

notional value metric should at least be 

combined with additional measures (such as 

dealing counterparty count and dealing 

transaction count) to determine what 

constitutes a de minimis quantity of swap 

dealing activity. Including additional 

measures should mitigate instances of ‘‘false 

positives’’ that could result from the use and 

deficiencies of any one activity-based 

metric.8

While it would have been my preference 

that this concept appear in this proposal’s 

rule text as the operative standard, I am very 

grateful to the Chairman and the Division of 

Swap Dealer and Intermediary Oversight 

(DSIO) for including a robust discussion in 

the preamble on the merits of replacing the 

current notional value de minimis threshold 

with a three-prong test. Specifically, the 

preamble suggests an entity could qualify for 

the de minimis exception if its dealing 

activity is below any of the following three 

criteria: (i) A notional threshold, (ii) a 

proposed dealing counterparty count 

threshold, or (iii) a proposed dealing 

transaction count threshold. In other words, 

an entity would have to surpass all three 

hurdles collectively in order to lose the de 

minimis exception’s safe harbor. 

I have included several questions in the 

proposal that ask for feedback on this 

approach, particularly with respect to the 

dealing counterparty and transaction count 

thresholds which I believe would provide 

market participants with additional 

flexibility to serve their clients’ needs 

without triggering a very costly and 

burdensome registration process. I thank the 

staff of DSIO for including my questions in 

the proposal and welcome market 

participant’s feedback on this potential 

approach. 

I also welcome comments on the Proposed 

Rule’s preamble discussion on accounting for 

exchange-traded or cleared swaps in an 

entity’s de minimis calculation. Many of the 

policy goals of swap dealer regulation are 

accomplished when a swap is exchangetraded and cleared. For example, systemic 

risk concerns are diminished with respect to 

cleared swaps: The swaps are standardized, 

the executing counterparties do not incur 

counterparty credit risk because they face the 

clearinghouse and not each other, and each 

side is required to post margin that helps 

guarantee performance and prevent 

unfunded losses from accumulating. 

Removing such swaps from the de minimis 

calculation would better align the registration 

threshold with risk and would also, I believe, 

encourage additional liquidity on SEFs. I am 

hopeful that with the benefit of additional 

industry comment and further Commission 

analysis, the Commission will either adopt 

an exclusion for exchange-traded and cleared 

swaps or adjust their notional weighting in 

an entity’s de minimis calculation. 

We must remember, the Commission is not 

establishing the de minimis exception in a 

vacuum. Subsequent to the adoption of the 

swap dealer definition, other regulatory 

requirements have gone into effect which 

also advance the goals of swap dealer 

registration, such as mandatory clearing, SEF 

trading, reporting swap data to repositories, 

and margin requirements for uncleared 

swaps. For example, regardless of whether an 

entity is registered as a swap dealer, its swap 

activity is transparent to the Commission 

because of the swap data and real-time 

reporting requirements that apply to all 

market participants. 

When the Commission first established the 

$8 billion de minimis threshold in 2012, it 

did so without the benefit of swap data.9

Now almost six years later, staff has 

conducted a comprehensive analysis of the 

available swap data collected by 

Commission-registered SDRs and presented 

estimates about the impact that lower or 

higher notional amount thresholds would 

have on swap dealer registration. Although 

much work remains to be done to further 

refine the data, particularly with respect to 

the non-financial commodity asset class, I 

commend staff for their hard work, progress, 

and thoughtful analysis. I believe the data in 

the Proposed Rule clearly supports 

maintaining the de minimis threshold at $8 

billion or potentially increasing it. For 

example, at a $20 billion notional threshold, 

the estimated amount of notional swap 

activity that would no longer be covered by 

swap dealer regulation is approximately only 

1/100th of 1 percent of the $221 trillion 

market analyzed. I am interested to hear from 

commenters about the policy and market 

implications of maintaining or raising the de 

minimis threshold. 

Finally, I would like to commend the 

Chairman and DSIO for including many 

important improvements to the de minimis 

exception in this proposal which I fully 

support. For instance, I support an 

appropriate Insured Depository Institution 

exception that will allow for banks to serve 

their clients’ needs. By removing 

unnecessary timing restrictions and 

expanding the types of credit extensions that 

qualify for the exception, the proposal should 

improve the ability of IDIs to help their 

customers hedge loan-related risks as the 

statute intended. I also support the proposed 

rule’s clarification that swaps that hedge 

financial risks may be excluded from an 

entity’s de minimis count. Market 

participants should be able to use swaps to 

manage their financial and physical risks 

without concern that such activity may 

trigger swap dealer registration. 

I will vote in favor of issuing this proposal 

to the public for feedback and look forward 

to hearing from market participants about 

how these proposed amendments may be 

further refined or calibrated to increase the 

efficacy of the de minimis threshold to meet 

the goals of swap dealer registration. 

Appendix 4—Dissenting Statement of 

Commissioner Rostin Behnam 

Introduction 

I respectfully dissent from the Commodity 

Futures Trading Commission’s (the 

‘‘Commission’’ or ‘‘CFTC’’) notice of 

proposed rulemaking addressing the de 

minimis exception to the swap dealer 

definition (the ‘‘Proposal’’). I have a number 

of concerns with specific criteria of the 

various exceptions proposed and 

contemplated in the Proposal. However, my 

gravest concern is that the Commission is 

moving far beyond the task before it—setting 

the aggregate gross notional amount 

threshold for the de minimis exception—to 

redefine swap dealing activity absent 

meaningful collaboration with the Securities 

and Exchange Commission (‘‘SEC’’), as 

required by the Dodd-Frank Act,1 and to the 

detriment of market participants eager for 

regulatory certainty. Equally concerning, the 

Proposal’s various ancillary components not 

only detract from its core purpose, but may 

signify the Commission’s willingness to 

exploit the de minimis exception to 

undermine the swap dealer definition and 

circumvent Congressional intent. 

As discussed in the preamble to the 

Proposal, the regulatory history sets forth a 

clear path towards—and a deadline to 

complete—today’s determination to propose 

an amendment that would set the aggregate 

gross notional amount (‘‘AGNA’’) threshold 

for the de minimis exception at $8 billion in 

swap dealing activity entered into by a 

person over the preceding 12 months prior to 

the termination of the phase-in period on 

December 31, 2019.2 Since the Commission’s 


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(‘‘Initial Phase-In Termination Date Order’’); Order 

Establishing a New De Minimis Threshold PhaseIn Termination Date, 82 FR 50309 (Oct. 31, 2017) 

(‘‘Second Phase-In Termination Date Order’’); Swap 

Dealer De Minimis Exception Preliminary Report 

(Nov. 18, 2015), available at http://www.cftc.gov/

idc/groups/public/@swaps/documents/file/

dfreport_sddeminis_1115.pdf; Swap Dealer De 

Minimis Exception Final Staff Report (Aug. 15, 

2016), available at http://www.cftc.gov/idc/groups/

public/@swaps/documents/file/dfreport_

sddeminis081516.pdf. 

3 Initial Phase-In Termination Date Order, supra 

note 2. 

4Second Phase-In Termination Date Order, supra 

note 2; Rostin Behnam, Statement on De Minimis 

Threshold (Oct. 11, 2017), https://www.cftc.gov/

PressRoom/SpeechesTestimony/

behnamstatement101117a. 

5 Jason Webb Yackee and Susan Webb Yackee, 

Delay in Notice and Comment Rulemaking: 

Evidence of Systemic Regulatory Breakdown?, in 

Regulatory Breakdown: The Crisis of Confidence in 

U.S. Regulation 169 (Cary Coglianese ed., 2012). 

6See 17 CFR 1.3, Swap dealer, paragraph (4)(v), 

providing that the Commission may by rule or 

regulation change the requirements of the de 

minimis exception described in paragraphs (4)(i) 

through (iv). 

7 Id.; see also SD Definition Adopting Release, 77 

FR at 30634, n. 464. 

8SD Definition Adopting Release, 77 FR at 

30634–5. 

9See CEA section 1a(49)(D), 7 U.S.C. 1a(49)(D). 

10See SD Definition Adopting Release, 77 FR at 

30629, n. 413 (‘‘Congress incorporated a de minimis 

exception to the swap dealer definition to ensure 

that smaller institutions that are responsibly 

managing their commercial risk are not 

inadvertently pulled into addition regulations.’’) 

(quoting 156 Cong. Rec. S6192 (daily ed. July 22, 

2010) (letter from Senators Dodd and Lincoln to 

Representatives Frank and Paterson). 

11See CEA 1a(49)(A), 7 U.S.C. 1a(49)(A) 

(providing that ‘‘in no event shall an insured 

depository institution be considered to be a swap 

dealer to the extent it offers to enter into a swap 

with a customer in connection with originating a 

loan with that customer’’). 

12See, e.g. CFTC (@CFTC), @CFTC & @SEC_News 

teams are hard at work on Title VII harmonization, 

Twitter (Feb. 27, 2018, 4:53 p.m.), https://

twitter.com/CFTC/status/968605066889515009; 

Chris Giancarlo (@giancarloCFTC), Twitter (Feb. 27, 

2018, 9:18 p.m.) https://twitter.com/giancarloCFTC/ 

Status/968671749737992192. 

first Order Establishing a New De Minimis 

Threshold Phase-in Termination Date in 

2016,3 market participants have endured 

undue and prolonged uncertainty because 

the Commission has not acted decisively on 

the de minimis threshold. When the 

Commission punted again in October 2017, I 

urged the Commission to take further action 

now or let the current rule take effect.4

It is now June 2018. Given the twelve 

month lookback for calculating the AGNA, 

absent Commission action, market 

participants will need to start tracking their 

swap dealing activity on January 1, 2019 to 

determine whether their dealing activity 

would require registration when the phase-in 

period ends on December 31, 2019. The 

Commission has less than six months to 

either finalize the Proposal or kick it down 

the road again by issuing a third order 

establishing yet another phase-in termination 

date sometime in the future. 

Six months is an ambitious time frame for 

even a simple rule. While CFTC-specific data 

is not available, at least one study concluded 

that the average amount of time for federal 

regulatory agencies to finalize rules is 

generally between 14 and 20 months.5 The 

Part 49 amendments that we also voted on 

today, for example, took over 16 months 

between the Commission proposal and a final 

rule, and that rule only addressed a single 

industry comment letter that was nine pages 

long. However, given our extensive history 

with the AGNA for the de minimis exception, 

I believe that had the Commission observed 

the course it was on, and focused on the task 

at hand, it could have crafted the Proposal to 

address the issues most critical to market 

participants (the de minimis threshold, the 

exclusion for insured depository institution 

swaps in connection with originating loans to 

customers or ‘‘IDI Swap Dealing Exclusion,’’ 

and the hedging swap exclusion), consistent 

with requirements of the Commodity 

Exchange Act (the ‘‘CEA’’ or ‘‘Act’’) and 

Congressional intent and within the six 

month window we are now in. 

Instead, the Commission, having waited 

too long to address these critical issues 

jointly with the SEC, veered off course, and 

relies too heavily on an alternative means to 

reach its destination: The de minimis 

exception.6 Though this alternative path is 

within the Commission’s authority, I believe 

that in utilizing the de minimis exception to 

address longstanding concerns with the IDI 

and physical hedging exclusions, the 

Commission stopped respecting the 

difference between what is permissible and 

what is proper. As a consequence, the 

Proposal morphed into a loophole for the 

Commission to explore the extent to which 

it may unilaterally alter the swap dealer 

definition. Such overreach not only may call 

into question the integrity of this agency, but 

it could prolong the uncertainty currently 

plaguing market participants as they (and the 

general public) sort through the matters 

ancillary to the de minimis AGNA threshold, 

which alone raise over 50 individual 

questions in requests for comments. 

Commission Authority Under Regulation 

1.3, Swap Dealer, Paragraph (4)(v) 

Under paragraph 4(v) of the swap dealer 

definition, the Commission may change the 

requirements of the de minimis exception by 

rule or regulation, and may do so 

independent of the SEC (‘‘De Minimis 

Exception Authority’’).7 While this authority 

permits the Commission to revisit the de 

minimis threshold, in the SD Definition 

Adopting Release, the Commission stated 

that in determining whether to revisit the 

threshold, it intended to focus on whether 

the de minimis exception (1) results in a 

swap dealer definition that encompasses too 

many entities whose activities are not 

significant enough to warrant full Title VII 

regulation; (2) results in an undue amount of 

dealing activity to fall outside of the 

regulatory framework; or (3) leads to 

inappropriate reductions in counterparty 

protections.8

While the Commission’s authority with 

respect to the de minimis exception is broad, 

the Commission cannot lose sight of its 

purpose, as set forth in the CEA,9 and the 

underlying Congressional intent.10 As well, 

this authority is not intended to provide a de 

facto means to alter the swap dealer 

definition, by for example, excepting from 

consideration swaps that are exchange-traded 

and/or cleared when calculating the AGNA 

for purposes of the de minimis threshold, or 

excepting from such consideration entire 

categories of swaps. 

Exclusions vs. Exceptions 

IDI De Minimis Provision 

Turning to the Proposal, and the critical 

issues, I am concerned with the 

Commission’s use of its De Minimis 

Exception Authority to address longstanding 

concerns that the IDI Swap Dealing 

Exclusion, which was jointly adopted with 

the SEC as paragraph (5) to the swap dealer 

definition (‘‘SD Definition), is unnecessarily 

restrictive, lacks clarity, and limits the ability 

of IDIs to serve customers in connection with 

their lending activity—which is inconsistent 

with the CEA.11 As explained in the 

Proposal, ‘‘rather than proposing to revise the 

scope of activity that constitutes swap 

dealing,’’ which would require a joint 

rulemaking with the SEC, the Commission is 

proposing to amend paragraph (4) of the SD 

Definition, which addresses only the de 

minimis exception. Accordingly, the 

Proposal is to include both the IDI Swap 

Dealing Exclusion and a separate, slightly 

broader IDI De Minimis Provision in the SD 

Definition. 

Conducting a side-by-side comparison of 

the current text of paragraph (5) and 

proposed paragraph (4)(i)(C) of the SD 

Definition, it is difficult to understand what 

hurdles may have prevented the CFTC and 

SEC from engaging in a joint rulemaking to 

address these relatively modest differences, 

which are generally well supported by the 

record. It’s especially noteworthy given the 

close working relationship between the two 

agencies and ongoing harmonization 

efforts.12 The end result is that, if finalized, 

instead of simply disregarding or 

‘‘excluding’’ all swap activity that meets a 

single set of criteria, IDIs will have to 

develop an additional analysis to address 

swap activity that cannot be excluded from 

their determinations for purposes of the SD 

Definition, but might nevertheless be 

excepted from their AGNAs when calculating 

dealing activity for the purpose of the de 

minimis threshold. It is difficult to 

understand why the Commission would want 

to create additional regulatory burdens in the 

context of this Proposal, and the document 

provides no explanation other than that the 

Commission has discretion under its De 

Minimis Exception Authority. 

Hedging De Minimis Provision 

I am similarly concerned that the 

Commission’s use of its De Minimis 

Exception Authority to provide greater 

regulatory certainty with respect to swaps 

entered to hedge physical or financial 

exposures (the ‘‘Hedging De Minimis 

Provision’’) will—out of an abundance of 

caution—be utilized by market participants 


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13 17 CFR 1.3, Swap dealer, paragraph (6)(iii). 

14SD Definition Adopting Release, 77 FR at 

30611. 

15See, e.g., CFTC Fact Sheet: Final Rules 

Regarding Further Defining ‘‘Swap Dealer,’’ ‘‘Major 

Swap Participant and ‘‘Eligible Contract 

Participant’’ (Apr. 18, 2012), available at https://

www.cftc.gov/sites/default/files/idc/groups/public/

@newsroom/documents/file/msp_ecp_factsheet_

final.pdf. 

16See Frequently Asked Questions (FAQ)— 

[DSIO] Responds to FAQs About Swap Entities 

(Oct. 12, 2012), available at https://www.cftc.gov/

sites/default/files/idc/groups/public/@newsroom/

documents/file/swapentities_faq_final.pdf. 

17 Id. 

18See n.152 of the Proposal, Letter from CEWG; 

Letter from Natural Gas Supply Association (Jan. 

15, 2016), available at https://comments.cftc.gov/

PublicComments/

ViewComment.aspx?id=60595&SearchText=. 

19SD Definition Adopting Release, 77 FR at 

30630. 

20 Id. at 30634. 

as a limitation on the universe of hedging 

swaps they consider to be outside their swap 

dealing activity. In this instance, instead of 

amending the Physical Hedging Exclusion,13

which is in the nature of a safe harbor and 

provides that, subject to certain 

requirements, swaps entered into by a person 

for hedging physical positions are not 

considered for purposes of determining 

whether that person is a swap dealer, the 

Commission is proposing an exception with 

respect to a person’s AGNA for the de 

minimis threshold for swaps entered to 

hedge financial or physical positions. While 

this exception will, if finalized, exist in the 

Commission regulations alongside the 

Physical Hedging Exclusion, it is not truly a 

safe-harbor and could end up limiting the 

discretion inherent in the SD Definition. 

An exception, as proposed for the Hedging 

De Minimis Provision, ostensibly creates a 

precise rule, leaving compliance staff or even 

regulatory enforcement agencies with limited 

discretion when evaluating difficult 

scenarios. As the Commission has stated, ‘‘In 

general, entering into a swap for the purpose 

of hedging is inconsistent with swap 

dealing.’’ 14 The Commission also has 

emphasized that all relevant facts and 

circumstances about a swap ought to be 

considered when determining whether a 

person is a swap dealer.15 It seems that an 

exception limited solely to determining 

whether a person has exceeded the AGNA de 

minimis threshold may prove unduly 

limiting and inconsistent with the SD 

Definition.16

Premature Delegation 

The Proposal purports to create 

Commission authority to determine the 

methodology to be used to calculate the 

notional amount for any group, category, 

type, or class of swaps for purposes of the 

AGNA de minimis threshold calculation and 

immediately delegates that authority to the 

Director of the Division of Swap Dealer and 

Intermediary Oversight (‘‘DSIO’’). The 

Commission has, to my knowledge, not 

released public guidance on this issue since 

2012.17 The Proposal cites two letters, one 

responding to the Chairman’s recent Project 

KISS initiative, and the other responding to 

the request for comments on the Swap Dealer 

De Minimis Exception Preliminary Report,18

in support of the inherent need to empower 

the Director of DSIO to independently—and 

without limitation—provide clarity about the 

appropriate notional amount calculation 

methodologies for purposes of the de 

minimis threshold in a timely manner. As 

well, both the public guidance and requests 

cited in the Proposal address or respond to 

the need for clarity regarding commodity 

swaps, further calling into question the 

breadth of the proposed delegation. 

For most swaps, calculation of notional 

amount is a matter of standard industry 

practice. There is not any controversy as to 

how notional amount is calculated. Giving 

the Director of DSIO broad authority to 

determine how this calculation is made for 

all categories of swaps is a remedy that is not 

commensurate to the limited issue of how to 

determine the notional value of commodity 

swaps. It also provides an opportunity for 

mischief. This provision could subsume the 

entire de minimis threshold by giving the 

Director of DSIO broad authority to 

determine what swaps count toward the 

threshold—and perhaps more importantly, 

what swaps do not. 

I’m concerned that the Commission is 

proposing to both establish its authority and 

immediately delegate such authority without 

any internal discussion, without any public 

deliberation, and within this Proposal. The 

Commission has simply not articulated a 

sound rationale for moving abruptly forward 

on this rule proposal without fulsome 

consideration of its legal authority, potential 

risks, and possible alternatives. Indeed, upon 

review of the Proposal, it came to my 

attention that the Commission’s proposed 

delineation of authority to determine the 

methodology for calculating notion amounts 

in proposed paragraph (D)(vii)(A) of the SD 

Definition may contradict its De Minimis 

Exception Authority. 

The De Minimis Exception Authority 

provides that the Commission may by rule or 

regulation change the requirements of the de 

minimis exception. Given that the 

methodology for calculating notional 

amounts for purposes of the AGNA for the de 

minimis threshold would be a ‘‘requirement’’ 

of that exception, one could assume that the 

authority to alter it resides with the 

Commission, and that the Commission would 

need to engage in rulemaking to establish a 

methodology. Of course, the De Minimis 

Exception Authority includes a ‘‘may’’ versus 

a ‘‘shall,’’ and therefore the Commission has 

discretion to engage in rulemaking, but I 

believe the ‘‘may’’ applies more generally to 

suggest that the Commission may change the 

requirements of the de minimis exception, 

and if it chooses to do so, rulemaking is the 

vehicle. My point is that the Commission’s 

precise authority and attendant parameters 

are unclear, and it would therefore be more 

prudent to first, define the parameters of the 

notional amount calculation issue, conduct 

additional research and explore our options 

to address it, and then propose a more cogent 

solution in a separate rulemaking so as not 

to further detract from the more salient and 

critical issues before the Commission as part 

of this Proposal. 

Ancillary Matters 

Having become comfortable with using its 

De Minimis Exception Authority, the 

Commission appears to have determined to 

use this Proposal to seek comment on ‘‘other 

potential considerations for the de minimis 

threshold.’’ These considerations run the 

gamut from re-considering the merits of using 

AGNA by itself by seeking comment on 

adding alternative criteria in the form of a 

dealing counterparty or dealing transaction 

count threshold to excepting from 

consideration when calculating the AGNA 

for purposes of the de minimis threshold (1) 

swaps that are exchange-traded and/or 

cleared and (2) swaps that are categorized as 

non-deliverable forward transactions. These 

‘‘considerations’’ result in the combined 

inclusion of more than 50 individual requests 

for comment, detracting from any reasonable 

market participant’s (or the public’s) ability 

to provide comments on the more critical 

issues raised by this Proposal. Moreover, 

each ‘‘potential consideration’’ raises 

individual concerns as to whether the 

Commission is attempting to undermine the 

swap dealer definition and circumvent 

Congressional intent. 

Dealing Counterparty Count and Dealing 

Transaction Count Thresholds 

The Commission is seeking comment on 

whether an entity should be able to qualify 

for the de minimis exception if its level of 

swap dealing activity is below any one of 

three criteria: (1) An AGNA threshold; (2) a 

proposed dealing counterparty count 

threshold; or (3) a proposed dealing 

transaction count threshold. In support of its 

request for comment, already limited 

Commission staff resources were utilized to 

construct an alternative to the proposal 

aimed at suggesting that, despite its analysis 

in the Proposal in support of setting the 

AGNA threshold for the de minimis 

exception at $8 billion, a $20 billion AGNA 

‘‘backstop’’ threshold was appropriate. This 

analysis and attendant request for comment 

suddenly appeared in the Proposal after 

hours on May 31, 2018, providing my office 

less than 17 hours to respond before DSIO 

intended to submit a final voting copy to the 

Commission’s Office of the Secretariat. 

Not only is the inclusion of this request for 

comment in this Proposal overwhelmingly 

misplaced, but its inclusion at such a late 

hour in the process undermines the inherent 

fairness of the rulemaking process. Foremost, 

the Commission already rejected the use of 

counterparty and transaction count 

thresholds as determinative criteria for the de 

minimis threshold.19 Moreover, the 

Commission is required to take the Swap 

Dealer De Minimis Exception Final Staff 

Report (‘‘Final Staff Report’’) and comments 

into account when weighing further action 

on the de minimis exception at the end of the 

phase-in.20 According to the Final Staff 

Report, ‘‘many of the commenters stated that 

the Commission should not use the 

alternative factors of Counterparty and/or 

Transaction Count as part of a de minimis 

exception because they are misleading or 


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21Swap Dealer De Minimis Exception Final Staff 

Report, supra note 2 at 15. 

22 Id. at note 45. 

23 Id. at note 49. 

24See SD Definition Adopting Release, 77 FR at 

30610. 

25See, e.g., Id. at 30608. 

26 Id. 

27As noted in the Proposal, the Secretary of the 

Treasury, pursuant to authority in section 1a(47)(E) 

of the CEA, 7 U.S.C. 1a(47)(E), declined to exempt 

NDFs from the CEA’s definition of ‘‘swap.’’ 

arbitrary indicators of dealing activity.’’ 21

The footnote cites 11 comment letters 

representing at least 12 entities including 

major industry and trade organizations.22 In 

comparison, only two commenters supported 

the use of the alternative factors.23

While I believe it may be appropriate for 

the Commission to explore other factors or 

criteria in defining the scope of the de 

minimis threshold, inclusion of even a 

request for comments on dealing 

counterparty count and dealing transaction 

count thresholds should be out of scope— 

even as a request for comment—for this 

Proposal, which speaks directly to the end of 

the phase-in, and is proceeding on a 

constrained time schedule such that even 

providing Commissioners the courtesy of 

ample opportunity to evaluate the merits of 

including this line of questioning was 

dispensed with. 

Exchange-Traded and/or Cleared Swaps 

Similar to the dealing counterparty and 

transaction count threshold, the Commission 

has already rejected arguments that swaps 

executed on an exchange should not be 

considered in determining if a person is a 

swap dealer.24 However, beyond that, the 

breadth of the request for comment suggests 

that a discussion regarding how the 

utilization of exchange trading and/or 

clearing in the swap market may address the 

underlying policy goals of swap dealer 

registration is significant and raises issues 

that should be considered in the context of 

a joint discussion with the SEC and 

prudential regulators regarding the SD 

Definition. Even further, it may require 

Congressional action to amend the statutory 

swap dealer definition, which does not 

distinguish exchange traded and/or cleared 

swaps from over-the-counter swaps, and in 

fact, may suggest that there is no distinction 

given the focus on market making, which 

significantly occurs on exchanges.25 In 

responding to this request for comment, I 

hope that commenters address whether an 

exception for exchange-traded and/or cleared 

swaps—even if limited to consideration 

when calculating the AGNA for purposes of 

the de minimis threshold—would be 

consistent with the statutory definition of 

‘‘swap dealer’’ in CEA section 1a(49) and 

Congressional intent. 

Non-Deliverable Forwards 

Similarly, I believe that the issue of 

whether the Commission should consider an 

exception for NDFs from consideration when 

calculating the AGNA of swap dealing 

activity for purposes of the de minimis 

threshold is inappropriate. Such an 

exception ignores that the SD Definition is 

activities-based.26 The real issue that should 

be addressed is whether NDFs are swaps and, 

if so, whether they ought to be excluded from 

consideration in the SD Definition.27 Instead 

of attempting to begin a conversation through 

use of its De Minimis Exception Authority, 

the Commission should use its relationships 

with the Secretary of the Treasury, the SEC 

and prudential regulators and engage in a 

meaningful dialog regarding the appropriate 

categorization and consideration of NDFs 

outside of this Proposal. 

Conclusion 

I am disappointed with today’s Proposal 

and would have liked to been able to support 

the portions that were well supported by the 

data and analysis and could lead to a clear 

and legally sound resolution of the de 

minimis threshold, providing much needed 

regulatory certainty for a critical cohort of 

market participants. I am hopeful that market 

participants have sufficient time to evaluate 

and respond to the most critical aspects of 

this Proposal and do not get overwhelmed or 

overly optimistic with regard to lines of 

questioning that take us further afield from 

Congressional intent and therefore are less 

likely to come to fruition. I understand that 

messaging creates expectations; sometimes, 

we must focus on what’s right and not what 

seems easy. 

[FR Doc. 2018–12362 Filed 6–11–18; 8:45 am] 

BILLING CODE 6351–01–P 


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