(Bloomberg News) U.S. derivatives regulators are considering setting a threshold above $3 billion for determining which banks, hedge funds and energy firms are swap dealers under the Dodd-Frank Act, according to two people briefed on the rule.
The Securities and Exchange Commission and Commodity Futures Trading Commission are debating when the aggregate gross notional value of a company's dealing business requires registration as a swap-dealer, according to the people who spoke on condition of anonymity because the rulemaking process isn't public. The agencies first proposed a $100-million threshold in 2010, then considered this year setting a $3 billion rule and are debating a threshold as high as $8 billion, the people said.
The CFTC and SEC are required by Dodd-Frank, the 2010 regulatory overhaul, to determine when companies are dealers and should face the highest capital and collateral requirements. The law was intended to reduce risk and increase transparency in the $708 trillion global swaps market after largely unregulated trades helped fuel the 2008 credit crisis.
Judith Burns, an SEC spokeswoman, declined to comment. Steve Adamske, a spokesman for the CFTC, didn't immediately respond to a telephone call seeking comment.
Swap-dealer regulation is among the most contentious measures required by Dodd-Frank, prompting hundreds of meetings and comment letters to the CFTC. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. control 95 percent of cash and derivatives trading for U.S. bank holding companies as of Dec. 31, according to the Office of the Comptroller of the Currency.
Shell Energy North America LP and Vitol Inc. are among energy companies that have told the CFTC the dealer rule is too broad and limits their ability to use derivatives to hedge risks tied to oil, natural gas and other underlying assets.
"The intent of the legislation was to reduce the risk posed by the largest financial companies and not to complicate and retard well-functioning markets that pose little risk to the economy," Sam C. Henry, president and chief of executive officer of IPR-GDF Suez Energy Marketing North America Inc., said in a Feb. 7 letter to the CFTC. "We think that a swap dealer should be defined as a company with ten billion dollars or more in gross notional swaps."