CFTC Approves Key Derivatives Rules

By Jamila Trindle


The Commodity Futures Trading Commission voted Tuesday to finalize definitions and exemptions that set in motion parts of the new regulatory regime for complex derivatives called "swaps."

The commission's vote triggers other rules, such as reporting requirements and swap-dealer rules, marking a major step in the regulatory overhaul of the derivatives market that Congress set in motion with the 2010 Dodd-Frank law.

The vote also triggers new limits on speculation in derivatives markets that were passed by the commission last fall and have been the target of a lawsuit filed by trade groups late last year.

The definition of "swap" that the commission passed makes it clear that certain insurance products won't be considered derivatives under the new rules.

The agency also passed an exemption for commercial companies that use derivatives to hedge risk, such as fluctuating commodity prices or interest rates, which Congress directed the commission to do in the Dodd-Frank law.

Commissioners also included an exemption for small banks with assets of $10 billion or less, which Congress told the commission to consider in the law.

The commission expects 30,000 banks and companies to qualify for the exemption, according to a staff briefing for reporters on the rule.

The commission also proposed to exempt cooperatives, such as farm credit associations and credit unions, from the new rules. That proposal is open for public comment for 30 days.

The CFTC, along with the Securities and Exchange Commission, has been writing rules to complete the new derivatives regulatory structure that Congress passed as part of the new financial regulatory law two years ago.

The new regulatory regime would require most derivatives to be traded on open platforms and routed through a clearinghouse that secures the deal and collects margin from both sides. Commercial companies and small banks will be excluded from the requirement to clear their trades after arguing that the new requirements would be too onerous and tie up money that could be used for investment and lending.