CFTC Finalizes Rule on Swaps with Special Entity Utilities

The CFTC approved a final rule on the exclusion of utility-operations-related swaps with utility special entities from the de minimis threshold for swaps with special entities ("Final Rule for Utility Swaps").

The CFTC unanimously approved the Final Rule for Utility Swaps, which is aimed at preserving the ability of natural gas and electricity utilities to enter into swaps transactions to hedge their risks. The CFTC explained that the rule responds to concerns raised by utilities that the number of counterparties willing to enter into swaps with them has been reduced because some of those counterparties do not want to exceed the CFTC's de minimis threshold for swaps with municipal utilities, federal agencies and other governmental "special entities," which would require the counterparties to register as swap dealers. That threshold currently is $25 million, which is a truly de minimis threshold in comparison to the $8 billion threshold for counterparties that are not special entities. The final rule permits a firm to exclude trades with "utility special entities" in calculating whether its trading exceeds the $25 million special entity de minimis threshold.

See: Fact Sheet on Final Rule for Utility Swaps; Q&A on Final Rule for Utility Swaps; Fact Sheet on Uncleared Margin Proposed Rule; Q&A on Uncleared Margin Proposed Rule; CFTC Press Release. See also: Chair Massad's Opening Statement at Open Meeting; Commissioner Wetjen's Statement; Commissioner Giancarlo's Statement; Commissioner Bowen's Statement. Related news: Banking Agencies Re-Propose Margin and Capital Requirements for Covered Swap Entities (with Robins Comment and Cadwalader Summary) (September 3, 2014); CFTC-Proposed Rule Amendment Regarding De Minimis Threshold for Entities Entering into Swaps with Utility Special Entities Published (Fed. Reg.) (June 2, 2014); CFTC Announces Three Actions to Clean up Problems with Swaps Regulations (with Lofchie Comment) (CFTC Letter 14-72) (May 22, 2014);CFTC No-Action Letter (14-34) Raises De Minimis Threshold for Swaps with Utility Special Entities (with Lofchie Comment) (March 21, 2014).