WASHINGTON Smaller swap-dealing firms may get a one-year reprieve from oversight as the chairman of the agency that regulates the U.S. derivatives market on Thursday urged delaying the planned expansion of a requirement determining which dealers must register with the federal government.
Since 2012, any dealer with more than $8 billion in swap activity has been required to register with the Commodity Futures Trading Commission, which subjects it to stricter federal oversight. That swap activity value in dollars, known as the "de minimis" threshold, is now poised to fall to $3 billion by the end of 2017.
CFTC Chairman Timothy Massad said the planned drop will force dealers to begin tracking their activity from Jan. 1 to determine if they would need to register.
The three commission members must vote to make the delay official.
"Today, I am announcing that I will recommend to my fellow commissioners a one-year extension of the date on which the swap dealer de minimis threshold is scheduled to drop," Massad said at a conference on derivatives.
"Given its importance, a delay is the sensible and responsible thing to do, and doing it now will provide much-needed certainty to market participants."
Massad said the commission already deals with millions of transaction records, and there was concern about data quality.
This is because the CFTC cannot always identify market participants, there are duplicate records, and it does not have reliable data for non-financial swaps such as those involving agricultural products.
He said lowering the threshold would only capture about 1 percent more in swap activity.
"I know that many smaller banks are concerned that they would be required to register if the threshold were to fall," he said. "Swap activity is not a large part of their overall banking activities. So we should look closely at who would be required to register if the threshold were lower, and the benefits of imposing registration versus the costs."
The commission should delay the threshold drop, he said, until it has set capital requirements for swap dealers and assessed the effectiveness of rules that were recently passed on collateral for uncleared swaps.
(Reporting by Lisa Lambert; Editing by Bernadette Baum)