WASHINGTON, March 27 Oil companies are largely escaping the close scrutiny of derivatives trading they once warned would harm their business and are seeking further delays from U.S. regulators.
Beginning in January this year, the top U.S. derivatives regulator has required that companies register as dealers if they trade more than $8 billion in swaps a year, unless they do so to hedge price swings in their day-to-day business.
But no large energy companies have yet joined the ranks of the 70 or so investment banks that have registered as swap dealers and are subject to the toughest level of oversight, two people briefed on the matter said.
BP Plc has told the Commodity Futures Trading Commission (CFTC) it would register, one of the two people said, but probably not for several more months. BP declined to comment.
Royal Dutch Shell Plc was the other oil major considering becoming a dealer, both people said. A spokeswoman for Shell said it would do so if and when it exceeds the threshold.
"The lack of swap dealer registration by the energy companies has been interesting. They ... have kept that close to their vest as to when they will register," said a third person, speaking on the condition of anonymity.
All the sources declined to be named because they were either not authorized to speak publicly or were protecting commercial interests.
A successful lobby campaign has ensured that the majority of large energy companies sidestepped the regulatory crackdown on the $650 trillion overall swap market following the financial crisis that occurred late in the last decade.
However, this might pose an unexpected problem for companies such as utilities that use swaps. That is because the smaller companies have to go through the administrative headache of reporting their own swaps if they do not trade with a registered swap dealer.
During the commodity boom in the mid-2000s, large oil companies started offering swaps products to smaller players, speculating on derivative markets in much the same way as investment banks.
Because of their head-on battle with Wall Street, oil traders feared being swept up by a deluge of new rules when watchdogs clamped down on derivatives trading to prevent a repetition of the 2007-09 financial collapse.
However, while most large banks are now listed as swap dealers, there is not a single oil company in the registry that is kept by the National Futures Association, and only one commodity firm, trading group Cargill Inc.
Energy trading companies such as Total SA, Glencore Inter national Plc, Vitol SA and Trafigura AG initially seen as candidates to become swap dealers are now considered unlikely to do so.
And there was still some lack of clarity about whether certain exotic swap products would count toward the CFTC's threshold, the second of the two people said. If that was the case, more companies might have to sign up.
The CFTC's $8 billion annual threshold looks comfortably higher than the trading volume of most energy companies and is well above the agency's initial much lower cap, which was raised several times after lobbying by energy companies.
Another reason for the lower-than-expected registrations is that market participants have stopped using swaps and are instead using similar derivatives called futures, which do not count toward the threshold.
"Many of the (companies) have made a lot of changes, so that they are ... below the $8 billion swap dealer threshold," said the third person, who works in the derivatives industry.
That is a problem for smaller firms hoping that oil majors would take on the data reporting. If an end-user enters into a swap with a swap dealer, the latter has the reporting obligation. But if two end-users engage in a swap, they need to decide between themselves who reports the trade to one of three data warehouses.
"We feel we're not seeing ... as ... many come forward as we'd expect," said a fourth person about the number of companies that had started reporting data.
"We think that is more to do with the lack of recognition of the rules ... some of that will be because they don't really deal with the CFTC as a regulator at all."
Shedding more light on the opaque swaps market through better data reporting is a key part of the Dodd-Frank overhaul of Wall Street and the CFTC now demands that any swap position is sent to one of the data warehouses from April 10. But two groups representing end-users have asked to push that back six months because many of their members are struggling to meet the deadline.
The Commercial Energy Working Group requested a delay in a letter to the CFTC on March 1. It says its members are oil companies, energy utilities and others.
PAYING THE PIPER
End-users hope more oil companies will be registered as swap dealers in half a year's time and that the delay, if granted, would free them from having to report the often complex data.
The Coalition for Derivatives End-Users, a much bigger lobby, has also asked for a six-month delay, albeit for different reasons involving other derivatives such as interest rate and credit default swaps.
The CFTC - which has often granted temporary relief as it rushed to finish dozens of new rules mandated under the Dodd-Frank law - said it could not comment on the request because it was still deliberating the matter.
The agency admitted to problems with the data when Commissioner Scott O'Malia said it could not upload the vast files it already gets without crashing its computers.
The data are collected by three Swap Data Repositories run by the CME Group Inc, the world's largest futures exchange; the IntercontinentalExchange Inc and the Depository Trust and Clearing Corp.
"It's quite a big ask to understand the rules and send all the data," the fourth person added. "Everybody that we've dealt with has struggled to try and compile that data set and probably end-users will do more so."