New rules exclude all but biggest market players from the scrutiny of US regulators

City A.M. Reporter
US REGULATORS yesterday limited the number of market players that will be slapped with a pricey “swap dealer” tag.

The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission last night finalised joint rules that will determine which firms do so much swaps business that they must register with regulators and back up their trades with more capital and collateral. The Dodd-Frank financial reform law called on regulators to more closely police the swaps market after widespread ignorance about the swaps market damaged the financial system during the 2007-2009 crisis.

The CFTC originally said in December 2010 that firms would be counted as swap dealers if they traded more than $100m in swaps over a 12-month period.

The final version released yesterday bumps the threshold up to $8bn for most asset classes as an initial phase-in. Eventually, that threshold drops to $3bn, unless regulators decide a different threshold is appropriate.

It also added a more explicit exemption for swaps that are used to hedge market risks, such as reducing exposure to interest-rate fluctuations or oil price moves. Those trades will not count toward the threshold that triggers the swap dealer designation.