May 19, 2011

Staff Overview of the 

Proposed Rulemaking

Further Defining “Swap Dealer”
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 2

Status of Rulemaking

• The Commission (jointly with the SEC) approved a 

Notice of Proposed Rulemaking Further Defining 

“Swap Dealer” (along with MSP and ECP) in 

December 2010.

• The initial comment period closed February 22, 

2011. The comment period has been extended 

to June 3, 2011.

• We have met with numerous market participants 

and received nearly 200 comments. 
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 3

Definition of “Swap Dealer”

The proposed rules closely follow the text of the 

Dodd-Frank Act in defining the term “swap dealer” 

as any person who:

• holds itself out as a dealer in swaps,

• makes a market in swaps,

• regularly enters into swaps with counterparties as 

an ordinary course of business for its own 

account, or

• engages in activity causing itself to be commonly 

known in the trade as a dealer or market maker 

in swaps.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 4

Distinguishing Characteristics of 

Swap Dealers

The Commission’s rule proposal states that swap dealers:

• tend to accommodate demand for swaps from other 

parties;

• are generally available to enter into swaps to facilitate 

other parties’ interest in entering into swaps;

• tend not to request that other parties propose the 

terms of swaps; rather, they tend to enter into swaps 

on their own standard terms or on terms they arrange 

in response to other parties’ interest; and

• tend to be able to arrange customized terms for swaps 

upon request, or to create new types of swaps at their 

own initiative.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 5

De Minimis Exemption from the 

Definition of Swap Dealer

The Dodd-Frank Act provides an exemption for a person who 

“engages in a de minimis quantity of swap dealing in connection 

with transactions with or on behalf of its customers.” 

The proposed rule exempts a person that meets all of the 

following conditions over the prior 12 months:

• Aggregate effective notional amount, measured on a gross 

basis, of swaps that the person enters into in connection with 

dealing activities must not exceed $100 million.

• Aggregate effective notional amount of such swaps with 

“special entities” must not exceed $25 million.

• Swaps as a dealer with no more than 15 counterparties, other 

than security based swap dealers.

• No more than 20 swaps as a dealer.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 6

Exclusion for Swaps 

in Connection with Originating a Loan

• The Dodd-Frank Act provides an exclusion for 

an insured depository institution “to the 

extent it offers to enter into a swap with a 

customer in connection with originating a loan 

with that customer.” 

• The exclusion in the proposed rule would 

apply only to swaps that are connected to the 

financial terms of the loan itself.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 7

Identification of Swap Dealers 

by Functional Role

• The Commission’s rule proposal states that 

swap dealers may be identified by the 

functional role they fulfill in the swap markets. 

• Swap dealers tend to accommodate demand 

and to be available to enter into swaps to 

facilitate other parties’ interest in swaps. 

• The rule proposal also states that persons that 

fulfill the function of swap dealers exist in 

most parts of the swap markets.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 8

Proposed Indicators of Being Commonly 

Known in the Trade as a Swap Dealer

The Commission’s rule proposal states that indicators that a person is 

holding itself out as a swap dealer or is commonly known in the trade 

as a swap dealer include:

• contacting potential counterparties to solicit interest in swaps,

• developing new types of swaps and informing potential 

counterparties of their availability,

• membership in a swap association in a category reserved for 

dealers,

• providing marketing materials (such as a web site) that describe the 

types of swaps one is willing to enter into with other parties, and

• generally expressing a willingness to offer or provide a range of 

financial products that would include swaps.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 9

Process of Designation 

as a Swap Dealer

• The proposed rule provides that a person that 

meets the definition must register as a swap 

dealer. 

• The proposed rule is intended to allow each 

market participant to assess its activities to 

determine whether it functions as a swap dealer. 

• The proposed rule also permits persons to make 

an application to be designated as a swap dealer 

with respect to only specified categories of swaps 

or activities without being considered a swap 

dealer for other categories of swaps or activities.
Overview of Proposed Definition of “Swap Dealer” May 19, 2011 10

Interaction with Agricultural Swaps

• The Commission’s rule proposal states that it may 

consider particular terms and conditions for the 

interpretation of the swap dealer definition when 

applied to dealing in swaps in agricultural 

commodities. 

• The Commission requested and has received 

comments on the application of the swap dealer 

definition to dealers, including potentially 

agricultural cooperatives, that limit their dealing 

activity primarily to swaps in agricultural 

commodities.