The CFTC on Tuesday voted to define when trades are considered swaps under the Dodd-Frank Act, a step that triggers more than a dozen rules under the 2010 financial regulation overhaul.
The Commodity Futures Trading Commission voted 4-1 to approve a 600-page measure governing when interest-rate, credit, commodity and other trades should face rules to limit risk in the $648 trillion global market. The SEC unanimously approved the measure in a private vote on July 6, the agency said in a statement Monday.
The two agencies, working under a Dodd-Frank mandate that they craft oversight to prevent a repeat of the 2008 credit crisis, missed the July 2011 deadline to complete rules. The swap definition will trigger almost 20 Dodd-Frank measures for reporting, clearing, trading and record-keeping that may take effect as early as September.
The swap definition contains a series of exemptions for insurance and retail transactions. Life insurance, and property and casualty insurance are exempt. Interest-rate caps on consumer mortgages and home heating oil agreements also are left out.
The CFTC will also allow exemption of forwards tied to non-financial commodities. The agency is seeking comment on exempting energy contracts with so-called volumetric optionality.
The swap definition includes non-deliverable foreign exchange forwards and currency swaps, while Dodd-Frank allowed the Treasury Department to exempt foreign exchange swaps and forwards from clearing and trading requirements. Treasury proposed an exemption for those two products last year and has yet to complete the exception.
Within two months of the definition’s publication, swap dealers and so-called major swap participants must register; the CFTC estimates that 125 companies will be required to do so. Data on interest rate and credit swaps must be reported to the public starting within two months of the swap definition.
Limits mandated by Dodd-Frank on speculation in oil, natural gas, wheat and other commodities will also begin to take effect two months after publication of the swap definition. The so-called position limits, facing a court challenge by Wall Street trade associations, will start to take effect on contracts in the current, or spot, month.
