CFTC DSIO No-Action Letter Regarding the De Minimis Threshold for Swaps with Utility Special Entities (with Lofchie Comment)

The CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) issued the attached letter providing temporary no-action relief from certain requirements in the de minimis exception from the definition of the term "swap dealer". The no-action relief would allow non-financial entities that are active in the physical energy markets to deal in swaps with special utility entities in an aggregate gross notional amount of up to $800 million per year and not be required to register as swap dealers. There are a number of conditions to the relief, including that the utility entity be using the swap to hedge a physical position.

Lofchie Comment: It is becoming more obvious, even if not a surprise, that burdens directly imposed on swap dealers and the financial system indirectly impose burdens on customers and the economy generally. The CFTC's rule that any entity that engages in more than $25 million of swaps with special entities would be required to register as a swaps dealer would result in drastically shrinking the number of dealers that are willing to trade with special entities, as many small dealers would not be required to register with the CFTC, so long as they avoided trading with special entities. This no-action letter is one step in addressing what is in fact a larger problem: special entities will have a much smaller number of dealers willing to trade with them.

See: CFTC Letter 12-18 1.3(ggg)(4); No-Action See also: CFTC Press Release.