Remarks of Commissioner Scott D. O’Malia, Reval Annual Client Conference

CFTC Speeches

May 11, 2011

"NOT ALL END-USERS ARE CREATED EQUAL"

Commissioner Scott O'Malia expresses concerns regarding the margin and capital rules as they interact with the definition of swap dealer. He observes that many of the comments related to the proposed definition echo "a recurring theme: the definition is too broad and the exceptions are too narrow. Unfortunately, our proposal captures legitimate commercial end-users as swap dealers."

On capital and margin requirements for end-users, O'Malia states that "there is no doubt that the cost for end-users in all categories to hedge their risk will increase. I continue to believe that the capital and margin rule proposals are contrary to the intent of Congress."

To remedy this, O'Malia recommends that "the Commission should go back to the language of the statute, which states that '[t]o offset the greater risk to swap dealer and the financial system' margin and capital requirements shall 'be appropriate for the risk associated with the non-cleared swaps held as a swap dealer or major swap participant.' It specifically focuses on the risk of the product. Unfortunately, the Commission has yet to undertake a comprehensive review to determine what the risk associated with different types of non-cleared swaps is. Instead, we treat all uncleared swaps the same, regardless of asset class."

Cross References

Dodd-Frank Act, Title VII, Secs. 723 and 736.