81 FR 71605 - Order Establishing De Minimis Threshold Phase-In Termination Date

COMMODITY FUTURES TRADING COMMISSION

Federal Register Volume 81, Issue 201 (October 18, 2016)

With respect to the de minimis exception to the swap dealer definition, the Commodity Futures Trading Commission (``Commission'' or ``CFTC'') is issuing an order (``Order''), pursuant to the applicable Commission regulation, to establish December 31, 2018 as the de minimis threshold phase-in termination date.

[Federal Register Volume 81, Number 201 (Tuesday, October 18, 2016)]
[Rules and Regulations]
[Pages 71605-71610]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-25143]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Order Establishing De Minimis Threshold Phase-In Termination Date

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

-----------------------------------------------------------------------

[[Page 71606]]

SUMMARY: With respect to the de minimis exception to the swap dealer 
definition, the Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is issuing an order (``Order''), pursuant to the applicable 
Commission regulation, to establish December 31, 2018 as the de minimis 
threshold phase-in termination date.

DATES: Issued October 13, 2016.

FOR FURTHER INFORMATION CONTACT: Eileen T. Flaherty, Director, 202-418-
5326, [email protected]; Erik Remmler, Deputy Director, 202-418-7630, 
[email protected]; Lauren Bennett, Special Counsel, 202-418-5290, 
[email protected]; Margo Dey, Special Counsel, 202-418-5276, 
[email protected]; or Rajal Patel, Special Counsel, 202-418-5261, 
[email protected], Division of Swap Dealer and Intermediary Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Statutory and Regulatory Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act'') \1\ directed the CFTC and the U.S. Securities and 
Exchange Commission (``SEC'' and together with the CFTC, 
``Commissions'') to jointly further define the term ``swap dealer'' and 
to include therein a de minimis exception.\2\ The CFTC's further 
definition of swap dealer is provided in Regulation 1.3(ggg). The de 
minimis exception therein provides that a person shall not be deemed to 
be a swap dealer unless its swap dealing activity exceeds an aggregate 
gross notional amount threshold of $3 billion (measured over the prior 
12-month period), subject to a phase-in period during which the gross 
notional amount threshold is set at $8 billion.\3\ Absent further 
action by the Commission, the phase-in period would terminate on 
December 31, 2017, at which time the de minimis threshold would 
decrease to $3 billion.\4\ This would require firms to start tracking 
their swap activity beginning January 1, 2017 to determine whether 
their dealing activity over the course of that year would require them 
to register as swap dealers.
---------------------------------------------------------------------------

    \1\ Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act can be accessed on the Commission's Web site, at 
www.cftc.gov.
    \2\ See Dodd-Frank Act sections 712(d) and 721. The definition 
of ``swap dealer'' can be found in section 1a(49) of the Commodity 
Exchange Act and as further defined in Regulation 1.3(ggg). 7 U.S.C. 
1a(49) and 17 CFR 1.3(ggg). The Commodity Exchange Act is at 7 
U.S.C. 1, et seq. (2014), and is accessible on the Commission's Web 
site, at www.cftc.gov.
    \3\ See 17 CFR 1.3(ggg)(4). See also Further 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).
    This Order does not impact the de minimis threshold for swaps 
with ``special entities'' as defined in the Commodity Exchange Act, 
section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C).
    \4\ See 17 CFR 1.3(ggg)(4)(ii)(D).
---------------------------------------------------------------------------

    When the $3 billion de minimis exception was established, the 
Commissions explained that the information then available regarding 
certain portions of the swap market was limited in certain respects, 
and that they expected that the implementation of swap data reporting 
may enable reassessment of the de minimis exception.\5\ Accordingly, 
the Commission adopted Regulation 1.3(ggg)(4), which directed CFTC 
staff to issue a report, after a specified period of time, on topics 
relating to the de minimis exception ``as appropriate, based on the 
availability of data and information.'' \6\ Regulation 1.3(ggg)(4) 
further provides that after giving due consideration to the report and 
any associated public comment, the Commission may issue an order to 
establish a termination date for the phase-in period or propose through 
rulemaking modifications to the de minimis exception.
---------------------------------------------------------------------------

    \5\ See 77 FR at 30634, 30640.
    \6\ SEC Regulation 240.3a71-2A similarly directs SEC staff to 
prepare a report on the security-based swap dealer de minimis 
exception. 17 CFR 240.3a71-2A.
---------------------------------------------------------------------------

B. Staff Reports

    Staff issued for public comment a preliminary report concerning the 
de minimis exception on November 18, 2015 (``Preliminary Report'').\7\ 
After consideration of the public comments received, and further data 
analysis, staff issued the Swap Dealer De Minimis Exception Final Staff 
Report \8\ on August 15, 2016 (``Final Report,'' and together with the 
Preliminary Report, ``Staff Reports''). The Staff Reports analyzed the 
available swap data \9\ in conjunction with relevant policy 
considerations to assess alternative de minimis threshold levels and 
other potential changes to the de minimis exception.
---------------------------------------------------------------------------

    \7\ 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.
    \8\ Swap Dealer De Minimis Exception Final Staff Report (August 
15, 2016), available at http://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf.
    \9\ The data analysis broke down the data into the following 
asset classes: Interest rate swaps (``IRS''); credit default swaps 
(``CDS''); non-financial commodity (``Non-Financial Commodity'') 
swaps; equity (``Equity'') swaps; and foreign exchange derivatives 
(``FX Derivatives'').
---------------------------------------------------------------------------

C. Swap Data Analysis

    As discussed in the Staff Reports, the lack of certain metrics 
needed for evaluating different de minimis thresholds, as well as data 
validity issues, limited the analysis of the potential impact of 
changes to the current de minimis exception.\10\ The Final Report 
further noted that, notwithstanding these data issues, the quality of 
the swap data that is reported to the Commission appears to be 
continually improving, and that the Commission is taking additional 
steps to enhance swap data quality.\11\
---------------------------------------------------------------------------

    \10\ See Preliminary Report at 12-21; Final Report at 4-6, 19-
20. For example, the data reported does not indicate whether either 
counterparty to a swap is acting as a dealer, and there are 
difficulties in calculating the notional amounts for certain types 
of swaps in a uniform manner useful for data analysis.
    \11\ See Final Report at 18-19. For example, in June 2016, the 
Commission finalized amendments related to the reporting of cleared 
swaps. See Amendments to Swap Data Recordkeeping and Reporting 
Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016).
---------------------------------------------------------------------------

    The data analysis in the Staff Reports provided some insights into 
the effectiveness of the de minimis exception as currently implemented. 
Staff analyzed the number of swap transactions involving at least one 
registered swap dealer, which is indicative of the extent to which 
swaps are subject to swap dealer regulation at the current $8 billion 
threshold. Data reviewed for the Final Report indicated that 
approximately 96% of all reported swap transactions involved at least 
one registered swap dealer. When considering individual swap asset 
classes, approximately 98% or more of swaps in each asset class, other 
than the Non-Financial Commodity asset class, involved at least one 
registered swap dealer. Approximately 89% of Non-Financial Commodity 
swaps involved a registered swap dealer.\12\
---------------------------------------------------------------------------

    \12\ See Final Report at 22.
---------------------------------------------------------------------------

    However, as discussed above, the data available was not sufficient 
to assess whether, and to what extent, specific changes to the de 
minimis threshold levels would increase or decrease the coverage of 
swaps by swap dealer regulation. In particular, the Staff Reports noted 
that reliable notional amount data was not available for Non-Financial 
Commodity, Equity, and FX Derivative swaps.
    The Commission also notes that it has not yet adopted a regulation 
on capital requirements for swap dealers, which is a significant 
component of swap dealer registration. The Commission believes it

[[Page 71607]]

is prudent to finalize the capital rule before addressing the de 
minimis threshold. In addition, the swap dealer requirements regarding 
margin for uncleared swaps, another important component of swap dealer 
registration, are currently being implemented. The Commission believes 
that a year's delay would allow it to finalize the swap dealer capital 
rule and assess the implementation of margin requirements for uncleared 
swaps. Having information on these aspects associated with swap dealer 
registration would be helpful in further assessing the impact of 
changing the de minimis threshold.
    Accordingly, the Commission believes that it is prudent to extend 
the phase-in period by one year, which may provide additional time for 
more information to become available to reassess the de minimis 
exception. Adopting this Order at this time also provides clarity to 
market participants regarding when they would need to begin preparing 
for a change to the de minimis exception.

II. Conclusion and Order

    For the reasons discussed above, and pursuant to its authority 
under Regulation 1.3(ggg)(4)(ii)(C)(1), the Commission is establishing 
December 31, 2018 as the termination date for the de minimis threshold 
phase-in period. The Commission notes that prior to the termination of 
the phase-in period, the Commission may take further action regarding 
the de minimis threshold by rule amendment, order, or other appropriate 
action.\13\
---------------------------------------------------------------------------

    \13\ See 17 CFR 1.3(ggg)(4)(v).
---------------------------------------------------------------------------

III. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \14\ imposes certain 
requirements on Federal agencies in connection with their conducting or 
sponsoring any collection of information as defined by the PRA. This 
Order does not impose any new recordkeeping or information collection 
requirements, or other collections of information that require approval 
of the Office of Management and Budget under the PRA.
---------------------------------------------------------------------------

    \14\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

B. Cost-Benefit Considerations

    Section 15(a) of the Commodity Exchange Act (``CEA'') requires the 
Commission to consider the costs and benefits of its actions before 
promulgating a regulation under the CEA or issuing certain orders.\15\ 
Section 15(a) further specifies that the costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
(i) Protection of market participants and the public; (ii) efficiency, 
competitiveness, and financial integrity of futures markets; (iii) 
price discovery; (iv) sound risk management practices; and (v) 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.
---------------------------------------------------------------------------

    \15\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

1. Background
    As discussed above, Regulation 1.3(ggg)(4)(i) provides an exception 
from the swap dealer definition for persons who engage in a de minimis 
amount of swap dealing activity. Currently, under Regulation 
1.3(ggg)(4)(i), a person shall not be deemed to be a swap dealer unless 
its swap dealing activity exceeds an aggregate gross notional amount 
threshold of $3 billion (measured over the prior 12-month period), 
subject to a phase-in period during which the gross notional amount 
threshold is set at $8 billion.\16\ The phase-in period would have 
terminated on December 31, 2017, and the de minimis threshold would 
have decreased to $3 billion, absent this Order.\17\ This would have 
required firms to start tracking their swap activity beginning January 
1, 2017 to determine whether their dealing activity over the course of 
that year would require them to register as swap dealers.
---------------------------------------------------------------------------

    \16\ 17 CFR 1.3(ggg)(4)(i). See generally 77 FR at 30626-35. See 
also note 3, supra.
    \17\ 17 CFR 1.3(ggg)(4).
---------------------------------------------------------------------------

    The $3 billion threshold, which, absent this Order, would be 
effective on December 31, 2017, sets the baseline for the Commission's 
consideration of the costs and benefits of this Order.\18\ Accordingly, 
the Commission considers the costs and benefits that will result from 
an extended phase-in period.
---------------------------------------------------------------------------

    \18\ See 77 FR at 30702-14 (discussing the cost-benefit 
considerations with regard to the final swap dealer definition).
---------------------------------------------------------------------------

2. General Cost and Benefit Considerations
    There are several policy objectives underlying swap dealer 
regulation and the de minimis exception to swap dealer registration. 
The primary policy objectives of swap dealer regulation include the 
reduction of systemic risk, increased counterparty protections, and 
market efficiency, orderliness, and transparency.\19\ Registered swap 
dealers are subject to a broad range of requirements, including, inter 
alia, registration, internal and external business conduct standards, 
reporting, recordkeeping, risk management, posting and collecting 
margin, and chief compliance officer designation and responsibilities. 
As noted in the Regulation 1.3(ggg) adopting release, generally, the 
lower the de minimis threshold, the greater the number of entities that 
are subject to these requirements, which could decrease systemic risk, 
increase counterparty protections, and promote swap market efficiency, 
orderliness, and transparency.\20\
---------------------------------------------------------------------------

    \19\ Id. at 30628-30, 30707-08.
    \20\ Id. at 30628-30, 30703, 30707-08.
---------------------------------------------------------------------------

    The Commission also considers policy objectives furthered by a de 
minimis exception, which include regulatory certainty, allowing limited 
ancillary dealing, encouraging new participants to enter the swap 
dealing market, and regulatory efficiency.\21\ Generally, 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.\22\ 
In addition, because competitive markets may be more efficient, a 
higher de minimis threshold might improve swap market efficiency. 
Further, the Commission notes that it has been suggested that a higher 
threshold could allow the Commission to expend its resources on 
entities with larger swap dealing activities warranting more oversight. 
An alternative view is that the de minimis threshold should be set 
based on policy independent of consideration of the Commission's 
resources.
---------------------------------------------------------------------------

    \21\ Id. at 30628-30, 30707-08.
    \22\ Alternatively, the Commission notes that a lower de minimis 
threshold may lead to potential changes in market behavior, 
including, for example, product innovation.
---------------------------------------------------------------------------

    Extending the phase-in period by one year will delay realization of 
the policy benefits associated with the $3 billion de minimis 
threshold, but will also extend the policy benefits associated with a 
higher de minimis threshold. The additional time to adjust to the $3 
billion de minimis threshold also would potentially increase regulatory 
certainty for some market participants. Given that the de minimis 
exception is subject to a 12-month look-back, extending the phase-in 
period to December 31, 2018 would allow entities that would potentially 
have to register as swap dealers additional time to adjust their 
activities and prepare for the compliance obligations related to swap 
dealer registration.
3. Section 15(a)
    Section 15(a) of the CEA requires the Commission to consider the 
effects of its

[[Page 71608]]

actions in light of the following five factors. This Order will delay 
the potential costs and benefits discussed below by one year.
(i) 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 
swap dealers (particularly end-users who use swaps for hedging or 
investment purposes) is a fundamental policy goal advanced by the 
regulation of swap dealers. The Commission recognizes that the $3 
billion de minimis threshold may result in more entities being required 
to register as swap dealers compared to an $8 billion threshold, 
thereby extending counterparty protections to a greater number of 
market participants. Further, swap dealer regulation is intended to 
reduce systemic risk in the swap market. Pursuant to the Dodd-Frank 
Act, the Commission has proposed or adopted regulations for swap 
dealers--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 swap dealers, 
thereby potentially further reducing systemic risk.
(ii) Efficiency, Competitiveness, and Financial Integrity of Markets
    Other goals of swap dealer regulation are swap market transparency, 
orderliness, and efficiency. These benefits are achieved through 
regulations requiring, for example, swap dealers to keep trading 
records and report trades, provide counterparty disclosures about swap 
risks and pricing, and undertake portfolio reconciliation and 
compression exercises. Accordingly, the Commission notes that a lower 
de minimis threshold may have a positive effect on the efficiency and 
integrity of the markets.
    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 so that they would not need to register if the de minimis 
threshold decreases to $3 billion, the number or availability of market 
makers for swaps may be reduced, which could lead to increased costs 
for potential counterparties and end-users.
(iii) Price Discovery
    The Commission preliminarily believes that a $3 billion de minimis 
threshold may discourage participation of new swap dealers and 
ancillary dealing. If there are fewer entities engaged in dealing, 
there may be a negative effect on price discovery.
(iv) Sound Risk Management
    The Commission notes that a $3 billion de minimis threshold could 
lead to better risk management practices because a greater number of 
entities would be required by regulation to: (i) Develop and implement 
detailed risk management programs; (ii) adhere to business conduct 
standards that reduce operational and other risks; and (iii) satisfy 
margin requirements for uncleared swaps.
(v) Other Public Interest Considerations
    The Commission has not identified any other public purpose 
considerations for this Order.

C. 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 
objectives of the CEA, in issuing any order or adopting any Commission 
rule or regulation. The Commission does not anticipate that the Order 
discussed herein will result in anti-competitive behavior.

IV. Order

    In light of the foregoing, it is ordered, pursuant to the 
Commission's authority under Regulation 1.3(ggg)(4)(ii)(C)(1), that the 
de minimis threshold phase-in termination date shall be December 31, 
2018. Absent further action by the Commission, the phase-in period 
would terminate on December 31, 2018, at which time the de minimis 
threshold will be $3 billion.
    The Commission retains the authority to condition further, modify, 
suspend, terminate, or otherwise restrict any of the terms of the Order 
provided herein, in its discretion.

    Issued in Washington, DC, on October 13, 2016, by the 
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

Appendices To Order Establishing De Minimis Threshold Phase-In 
Termination Date Pursuant to Commission Regulation 
1.3(ggg)(4)(ii)(C)(1)--Commission Voting Summary, Chairman's Statement, 
and Commissioner's Statement

Appendix 1--Commission Voting Summary

    On this matter, Chairman Massad and Commissioners Bowen and 
Giancarlo voted in the affirmative. No Commissioner voted in the 
negative.

Appendix 2--Statement of Chairman Timothy G. Massad

    I thank my fellow Commissioners for unanimously supporting this 
order, which extends the phase-in of the de minimis threshold for 
swap dealing by one year.
    The de minimis threshold determines when an entity's swap 
dealing activity requires registration with the CFTC. Registration 
triggers capital and margin requirements as well as other 
responsibilities, such as disclosure, recordkeeping, and 
documentation requirements. In 2012, the CFTC set the threshold 
initially at $8 billion in notional amount of swap dealing activity 
over the course of a year, and provided that it would fall to $3 
billion at the end of 2017.
    This registration requirement is a pillar of the framework for 
swap regulation mandated by the Dodd-Frank Act. Congress required 
this framework because excessive risk related to over-the-counter 
derivatives contributed to the intensity of the worst financial 
crisis since the Great Depression, one which resulted in millions of 
American families losing their jobs, their homes and their savings. 
At the same time, Congress recognized that derivatives play an 
important role in enabling businesses to hedge risk. Therefore, 
getting this framework right is very important.
    There are now more than 100 swap dealers provisionally 
registered with the CFTC, which include most of the largest global 
banking entities. Absent our action today, the threshold would have 
dropped from $8 billion to $3 billion at the end of 2017. That means 
firms would have been required to start determining whether their 
activity exceeds that lower threshold just a few months from now--in 
January of next year. Pushing back this date is a sensible and 
responsible step for several reasons.
    First, our staff has completed the study required by the rule on 
the threshold. They estimated that lowering the threshold would not 
increase significantly the percentage of interest rate swaps (IRS) 
and credit default swaps (CDS) covered by swap dealer regulation, 
but it would require many additional firms to register. This might 
include some smaller banks whose swap activity is related to their 
commercial lending

[[Page 71609]]

business. At the same time, the study notes that the data has 
certain shortcomings, particularly when it comes to nonfinancial 
commodity swaps. This market is very different than the IRS and CDS 
markets, and I know there is much concern about the threshold with 
respect to it. This delay will allow us to consider all these issues 
further.
    In addition, I believe it makes sense to adopt a rule setting 
capital requirements for swap dealers before addressing the 
threshold. This rule, which is required by Dodd-Frank, is one of the 
most important in our regulation of swap dealers, and I am hoping 
the Commission can act on a reproposal of it soon. This one-year 
delay will also allow us to more fully assess how the new margin 
requirements are working.
    These are just some of the reasons we have taken this action. I 
thank the CFTC staff for their hard work on this order and on this 
issue generally. And I again thank my fellow Commissioners for their 
support.

Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen

    While we might disagree on the details of today's order, I think 
we can all agree on one thing: Today's action is very important to 
how the swaps industry operates and our system of financial 
regulation functions. If we do not accurately and appropriately set 
the mandatory level of trading for swap dealer registration, our 
entire regulatory regime for the swaps market will be weakened.
    I know that a great deal has been said about the subject of the 
de minimis threshold, and I expect that just about everyone 
reviewing today's decision to extend the current phase-in of the $3 
billion threshold by one year is all-too familiar with its 
substance. Yet, given the amount of prior actions that the 
Commission has taken on this topic, I think we cannot fully consider 
how to view today's action without first reviewing how we got here. 
Following the 2008 financial crisis, which was exacerbated by the 
absence of regulation of the swaps market, Congress passed the Dodd-
Frank Wall Street Reform and Consumer Protection Act. Among the many 
things in that Act were a raft of robust regulatory requirements on 
the swaps market, including mandatory clearing, a system of data 
reporting, and a mandate to trade many products on Swap Execution 
Facilities (SEFs).
    Some of the most significant new regulatory requirements were 
crafted for what we now call swap dealers, those entities which had 
significant involvement in the swaps market.\1\ For instance, along 
with major swap participants, swap dealers were at the heart of our 
new regulation regarding margin for uncleared swaps and the related 
cross-border rulemaking. Swap dealers will similarly be 
substantially impacted by our upcoming rule proposal on capital.
---------------------------------------------------------------------------

    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank), section 721(49)(A), available at: http://www.cftc.gov/idc/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf. That provision states that the term ``swap 
dealer'' means 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 any activity causing the person to be 
commonly known in the trade as a dealer or market maker in swaps, 
with the proviso 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.
---------------------------------------------------------------------------

    Who has to register as a swap dealer is therefore one of the 
linchpins of the entire swaps regulatory regime. If the level of 
swap dealing activity is not sufficient to capture entities that 
should be registered as swap dealers, then many of our other rules, 
including margin and capital, will not apply to these entities, and 
the markets may not be adequately protected. On the other hand, if 
the level of swap dealing activity is too low, many entities, that 
do not pose a meaningful risk to the financial system, will be 
required to register as swap dealers, thereby unnecessarily 
burdening markets.
    It was with this concern in mind that Congress required that we 
create a threshold for swap dealer registration. Dodd-Frank requires 
that the Commission shall exempt from designation as a swap dealer 
an entity that engages in a de minimis quantity of swap dealing in 
connection with transactions with or on behalf of its customers. The 
Commission shall promulgate regulations to establish factors with 
respect to the making of this determination to exempt.\2\ We are 
thus required to give entities an exemption from swap dealer 
registration if the quantity of their swap transactions falls below 
a certain level.
---------------------------------------------------------------------------

    \2\ Dodd-Frank section 721(49)(D).
---------------------------------------------------------------------------

    As required, the Commission set that level in 2012. As part of a 
rulemaking released in May 2012, the Commission set the level of the 
de minimis exemption at $3 billion, with a temporary phase-in level 
of $8 billion during the first few years.\3\ The Commission also 
agreed to release a report within the next few years as more data 
from the various industry participants involved in the swaps market 
was reported to the CFTC.\4\ The Commission further committed, once 
nine months had passed after the report was published ``and after 
giving due consideration to the report and any associated public 
comment,'' to give itself three options for how to deal with the 
threshold.\5\ First, we could terminate the phase-in period and have 
the threshold immediately drop to $3 billion. Second, if we decided 
it was ``necessary or appropriate in the public interest'' to 
propose a new threshold limit, we could do so via our typical 
rulemaking authority.\6\ Third, if we failed to pursue either the 
first or second options before a date certain--December 31, 2017, 
the phase-in period would automatically and immediately end, and the 
threshold would simply be $3 billion.\7\
---------------------------------------------------------------------------

    \3\ See Further 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), available at: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2012-10562a.pdf.
    \4\ Id. at 30756.
    \5\ Id.
    \6\ Id.
    \7\ Id.
---------------------------------------------------------------------------

    We have now published our final staff report on the de minimis 
threshold and the nine month period of considering whether to change 
the threshold has formally begun. I am grateful for the staff for 
all their hard work and appreciate that it has not been an easy 
undertaking. I am also grateful to market participants and the 
public for the comments and opinions that they have provided on the 
first and final drafts of the report. That said, it is clear from 
the report that our staff does not have sufficient data to make a 
fully informed decision.
    Today, the Commission is augmenting our efforts to get better 
data on this issue by extending the phase-in period of the threshold 
by one year. Because of the Commission's action, the threshold will 
continue to be at $8 billion until December 31, 2018. At that point, 
absent additional action by the Commission, the phase-in period will 
end and the threshold will be $3 billion.
    I support this initiative to get additional data on this 
subject, and I do not support changing the threshold at this time. 
But I wish to make something clear: We need to see hard data backing 
up the opinions we will receive during this delay about why we 
should not just allow the threshold to be $3 billion as established 
in the rule. I know that there is a great deal of disagreement about 
this issue, and I do not think we will be able to reach a consensus 
unless we have real economic analysis and evidence to back up 
people's comments. If you believe the threshold should be changed to 
$8 billion, or some other amount, because of market conditions, 
please, provide us with supporting data. Or, if you believe that the 
threshold should be even lower, as low as the $150 million threshold 
that was once contemplated, please provide us with supporting data. 
If we stay focused on hard, economic analysis and an objective view 
about the state of the market, the final determination of the 
threshold will be more understandable and transparent. Given the 
years of existing discussion and analysis and the established 
process the Commission has created, we would do both a disservice to 
the industry and to the public to change the threshold now absent 
strong evidence for doing so.
    I am sympathetic to the concerns that there may be onerous 
impacts on the market just because of this threshold. We know that 
cleared swaps are safer than uncleared swaps, which is why we have 
tried to encourage increased clearing of swaps. As such, I think 
there is some merit to modifying the threshold in the future by 
exempting cleared swaps from being counted in calculations of 
whether a firm is above it. If market participants or observers have 
strong thoughts on this idea or other ways that we might help make 
the $3 billion threshold less arduous, I encourage you to reach out 
to my office and my staff.
    I believe we should receive empirical data that can justify 
where the threshold number needs to be. I therefore expect that, 
near the start of 2017, we will start to collect additional data 
from market participants regarding those portions of the swaps 
market for which we still lack full and detailed

[[Page 71610]]

information. Absent that, I will have no basis from which to change 
the phase-in or move the threshold to something other than $3 
billion.
[FR Doc. 2016-25143 Filed 10-17-16; 8:45 am]
 BILLING CODE 6351-01-P