CFTC Grants No-Action Relief Relating to Counting Toward the Swap Dealer Registration De Minimis Threshold
Friday, August 31, 2018

On August 28, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (Division) issued time-limited, no-action relief, permitting certain insured depository institutions (IDIs) from counting certain swaps toward the swap dealer de minimis threshold. Relief was requested after certain IDIs experienced a spike in the demand for interest rate swaps from existing loan clients seeking to hedge interest rate risk by entering into floating to fixed interest rate swaps that would otherwise cause the IDIs to exceed the swap dealer de minimis threshold.

Under CFTC regulations, a person is not deemed to be a swap dealer if the swap dealing activity of the person and any entity controlling, controlled by, or under common control with such person does not exceed the aggregate gross notional amount threshold, currently $8 billion, over the preceding 12-month period. In calculating whether an IDI has exceeded the de minimis threshold, a person may exclude certain swaps entered into with a customer in connection with originating a loan with that customer (IDI Exclusion). Among other conditions, the IDI Exclusion requires that a swap must be entered into no later than 180 days after the date of execution of the applicable loan agreement or the transfer of principal to the customer (180-Day Requirement).

Relief from the 180-Day Requirement was requested to accommodate what is expected to be a temporary, heightened demand for swaps that would otherwise disqualify IDIs from the IDI Exclusion. The Division granted relief provided that the swaps in question meet the following conditions:

  1. The swaps are with existing loan clients of the IDI;
  2. Each such client is a small- or medium-sized commercial entity (meaning annual revenues are under $750 million); and
  3. The swaps would qualify for the IDI Exclusion, but for the 180-Day Requirement.

In addition, the aggregate notional amount of the swaps that are not counted toward the de minimis threshold satisfying the criteria above may not exceed $1.5 billion at any time during the relief period. The relief period began on August 28, and expires on December 31.

CFTC Letter 18-20 is available here.

 

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