Order Establishing De Minimis Threshold Phase-In Termination Date, 71605-71610 [2016-25143]
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Federal Register / Vol. 81, No. 201 / Tuesday, October 18, 2016 / Rules and Regulations
except airplanes on which Airbus
Modification 35869 has been embodied in
production.
(1) Airbus Model A318–111, –112, –121,
and –122 airplanes.
(2) Airbus Model A319–111, –112, –113,
–114, –115, –131, –132, and –133 airplanes.
(3) Airbus Model A320–211, –212, –214,
–231, –232, and –233 airplanes.
(4) Airbus Model A321–111, –112, –131,
–211, –212, –213, –231, and –232 airplanes.
(d) Subject
Air Transport Association (ATA) of
America Code 25, Equipment/Furnishings.
(e) Reason
This AD was prompted by a report of
cracks found during maintenance inspections
on certain lugs of the 10VU rack side fittings
in the cockpit. We are issuing this AD to
prevent reading difficulties of flight-critical
information displayed to the flightcrew
during a critical phase of flight, such as an
approach or takeoff, which could result in
loss of airplane control at an altitude
insufficient for recovery.
(f) Compliance
Comply with this AD within the
compliance times specified, unless already
done.
(g) Repetitive Inspections and Repair
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At the later of the times specified in
paragraphs (g)(1) and (g)(2) of this AD: Do a
detailed inspection for cracking of the lugs
on the 10VU rack side fittings in the cockpit,
in accordance with the Accomplishment
Instructions of Airbus Service Bulletin A320–
92–1087, Revision 02, dated November 25,
2014. If any crack is found, before further
flight, repair in accordance with the
Accomplishment Instructions of Airbus
Service Bulletin A320–92–1087, Revision 02,
dated November 25, 2014. Repeat the
inspection thereafter at intervals not to
exceed 20,000 flight cycles or 40,000 flight
hours, whichever occurs first. Repair of the
10VU rack lugs does not terminate the
repetitive inspections required by this
paragraph.
(1) Before the accumulation of 30,000 total
flight cycles or 60,000 total flight hours,
whichever occurs first since the airplane’s
first flight.
(2) Within 24 months after the effective
date of this AD.
(h) Reporting Requirement
Submit a report of any findings (positive
and negative) of any inspection required by
paragraph (g) of this AD to Airbus Service
Bulletin Reporting Online Application on
Airbus World (https://w3.airbus.com/), at the
applicable time specified in paragraph (h)(1)
or (h)(2) of this AD. Where Figure A–
FRAAA—Sheet 02, titled ‘‘Inspection
Report,’’ of Airbus Service Bulletin A320–
92–1087, Revision 02, dated November 25,
2014, specifies sending removed lugs to
Airbus for investigation, this AD does not
include that requirement. The form
contained in Figure A–FRAAA—Sheet 02,
titled ‘‘Inspection Report,’’ of Airbus Service
Bulletin A320–92–1087, Revision 02, dated
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November 25, 2014, may be used to meet this
reporting requirement.
(1) If the inspection was done on or after
the effective date of this AD: Submit the
report within 90 days after the inspection.
(2) If the inspection was done before the
effective date of this AD: Submit the report
within 90 days after the effective date of this
AD.
(i) Other FAA AD Provisions
The following provisions also apply to this
AD:
(1) Alternative Methods of Compliance
(AMOCs): The Manager, International
Branch, ANM–116, Transport Airplane
Directorate, FAA, has the authority to
approve AMOCs for this AD, if requested
using the procedures found in 14 CFR 39.19.
In accordance with 14 CFR 39.19, send your
request to your principal inspector or local
Flight Standards District Office, as
appropriate. If sending information directly
to the International Branch, send it to ATTN:
Sanjay Ralhan, Aerospace Engineer,
International Branch, ANM–116, Transport
Airplane Directorate, FAA, 1601 Lind
Avenue SW., Renton, WA 98057–3356;
telephone 425–227–1405; fax 425–227–1149.
Information may be emailed to: 9-ANM-116AMOC-REQUESTS@faa.gov. Before using
any approved AMOC, notify your appropriate
principal inspector, or lacking a principal
inspector, the manager of the local flight
standards district office/certificate holding
district office.
(2) Contacting the Manufacturer: For any
requirement in this AD to obtain corrective
actions from a manufacturer, the action must
be accomplished using a method approved
by the Manager, International Branch, ANM–
116, Transport Airplane Directorate, FAA; or
the European Aviation Safety Agency
(EASA); or Airbus’s EASA Design
Organization Approval (DOA). If approved by
the DOA, the approval must include the
DOA-authorized signature.
(3) Reporting Requirements: A federal
agency may not conduct or sponsor, and a
person is not required to respond to, nor
shall a person be subject to a penalty for
failure to comply with a collection of
information subject to the requirements of
the Paperwork Reduction Act unless that
collection of information displays a current
valid OMB Control Number. The OMB
Control Number for this information
collection is 2120–0056. Public reporting for
this collection of information is estimated to
be approximately 5 minutes per response,
including the time for reviewing instructions,
completing and reviewing the collection of
information. All responses to this collection
of information are mandatory. Comments
concerning the accuracy of this burden and
suggestions for reducing the burden should
be directed to the FAA at: 800 Independence
Ave. SW., Washington, DC 20591, Attn:
Information Collection Clearance Officer,
AES–200.
(4) Required for Compliance (RC): If any
service information contains procedures or
tests that are identified as RC, those
procedures and tests must be done to comply
with this AD; any procedures or tests that are
not identified as RC are recommended. Those
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71605
procedures and tests that are not identified
as RC may be deviated from using accepted
methods in accordance with the operator’s
maintenance or inspection program without
obtaining approval of an AMOC, provided
the procedures and tests identified as RC can
be done and the airplane can be put back in
an airworthy condition. Any substitutions or
changes to procedures or tests identified as
RC require approval of an AMOC.
(j) Related Information
Refer to Mandatory Continuing
Airworthiness Information (MCAI) European
Aviation Safety Agency (EASA)
Airworthiness Directive 2015–0170, dated
August 18, 2015, for related information.
This MCAI may be found in the AD docket
on the Internet at https://www.regulations.gov
by searching for and locating Docket No.
FAA–2015–8132.
(k) Material Incorporated by Reference
(1) The Director of the Federal Register
approved the incorporation by reference
(IBR) of the service information listed in this
paragraph under 5 U.S.C. 552(a) and 1 CFR
part 51.
(2) You must use this service information
as applicable to do the actions required by
this AD, unless this AD specifies otherwise.
(i) Airbus Service Bulletin A320–92–1087,
Revision 02, dated November 25, 2014.
(ii) Reserved.
(3) For service information identified in
this AD, contact Airbus, Airworthiness
Office—EIAS, 1 Rond Point Maurice
Bellonte, 31707 Blagnac Cedex, France;
telephone +33 5 61 93 36 96; fax +33 5 61
93 44 51; email account.airworth-eas@
airbus.com; Internet https://www.airbus.com.
(4) You may view this service information
at the FAA, Transport Airplane Directorate,
1601 Lind Avenue SW., Renton, WA. For
information on the availability of this
material at the FAA, call 425–227–1221.
(5) You may view this service information
that is incorporated by reference at the
National Archives and Records
Administration (NARA). For information on
the availability of this material at NARA, call
202–741–6030, or go to: https://
www.archives.gov/federal-register/cfr/ibrlocations.html.
Issued in Renton, Washington, on
September 14, 2016.
Michael Kaszycki,
Acting Manager, Transport Airplane
Directorate, Aircraft Certification Service.
[FR Doc. 2016–22837 Filed 10–17–16; 8:45 am]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 1
Order Establishing De Minimis
Threshold Phase-In Termination Date
Commodity Futures Trading
Commission.
ACTION: Order.
AGENCY:
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Federal Register / Vol. 81, No. 201 / Tuesday, October 18, 2016 / Rules and Regulations
With respect to the de
minimis exception to the swap dealer
definition, the Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is issuing an order (‘‘Order’’),
pursuant to the applicable Commission
regulation, to establish December 31,
2018 as the de minimis threshold phasein termination date.
DATES: Issued October 13, 2016.
FOR FURTHER INFORMATION CONTACT:
Eileen T. Flaherty, Director, 202–418–
5326, eflaherty@cftc.gov; Erik Remmler,
Deputy Director, 202–418–7630,
eremmler@cftc.gov; Lauren Bennett,
Special Counsel, 202–418–5290,
lbennett@cftc.gov; Margo Dey, Special
Counsel, 202–418–5276, mdey@cftc.gov;
or Rajal Patel, Special Counsel, 202–
418–5261, rpatel@cftc.gov, Division of
Swap Dealer and Intermediary
Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street NW., Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
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A. Statutory and Regulatory Background
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’) 1 directed the CFTC and the
U.S. Securities and Exchange
Commission (‘‘SEC’’ and together with
the CFTC, ‘‘Commissions’’) to jointly
further define the term ‘‘swap dealer’’
and to include therein a de minimis
exception.2 The CFTC’s further
definition of swap dealer is provided in
Regulation 1.3(ggg). The de minimis
exception therein provides that a person
shall not be deemed to be a swap dealer
unless its swap dealing activity exceeds
an aggregate gross notional amount
threshold of $3 billion (measured over
the prior 12-month period), subject to a
phase-in period during which the gross
notional amount threshold is set at $8
billion.3 Absent further action by the
Commission, the phase-in period would
1 Public Law 111–203, 124 Stat. 1376 (2010). The
text of the Dodd-Frank Act can be accessed on the
Commission’s Web site, at www.cftc.gov.
2 See Dodd-Frank Act sections 712(d) and 721.
The definition of ‘‘swap dealer’’ can be found in
section 1a(49) of the Commodity Exchange Act and
as further defined in Regulation 1.3(ggg). 7 U.S.C.
1a(49) and 17 CFR 1.3(ggg). The Commodity
Exchange Act is at 7 U.S.C. 1, et seq. (2014), and
is accessible on the Commission’s Web site, at
www.cftc.gov.
3 See 17 CFR 1.3(ggg)(4). See also Further
Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap
Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major
Security-Based Swap Participant’’ and ‘‘Eligible
Contract Participant,’’ 77 FR 30596 (May 23, 2012).
This Order does not impact the de minimis
threshold for swaps with ‘‘special entities’’ as
defined in the Commodity Exchange Act, section
4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C).
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terminate on December 31, 2017, at
which time the de minimis threshold
would decrease to $3 billion.4 This
would require firms to start tracking
their swap activity beginning January 1,
2017 to determine whether their dealing
activity over the course of that year
would require them to register as swap
dealers.
When the $3 billion de minimis
exception was established, the
Commissions explained that the
information then available regarding
certain portions of the swap market was
limited in certain respects, and that they
expected that the implementation of
swap data reporting may enable
reassessment of the de minimis
exception.5 Accordingly, the
Commission adopted Regulation
1.3(ggg)(4), which directed CFTC staff to
issue a report, after a specified period of
time, on topics relating to the de
minimis exception ‘‘as appropriate,
based on the availability of data and
information.’’ 6 Regulation 1.3(ggg)(4)
further provides that after giving due
consideration to the report and any
associated public comment, the
Commission may issue an order to
establish a termination date for the
phase-in period or propose through
rulemaking modifications to the de
minimis exception.
B. Staff Reports
Staff issued for public comment a
preliminary report concerning the de
minimis exception on November 18,
2015 (‘‘Preliminary Report’’).7 After
consideration of the public comments
received, and further data analysis, staff
issued the Swap Dealer De Minimis
Exception Final Staff Report 8 on August
15, 2016 (‘‘Final Report,’’ and together
with the Preliminary Report, ‘‘Staff
Reports’’). The Staff Reports analyzed
the available swap data 9 in conjunction
with relevant policy considerations to
assess alternative de minimis threshold
4 See
17 CFR 1.3(ggg)(4)(ii)(D).
77 FR at 30634, 30640.
6 SEC Regulation 240.3a71–2A similarly directs
SEC staff to prepare a report on the security-based
swap dealer de minimis exception. 17 CFR
240.3a71–2A.
7 Swap Dealer De Minimis Exception Preliminary
Report (Nov. 18, 2015), available at https://
www.cftc.gov/idc/groups/public/@swaps/
documents/file/dfreport_sddeminis_1115.pdf.
8 Swap Dealer De Minimis Exception Final Staff
Report (August 15, 2016), available at https://
www.cftc.gov/idc/groups/public/@swaps/
documents/file/dfreport_sddeminis081516.pdf.
9 The data analysis broke down the data into the
following asset classes: Interest rate swaps (‘‘IRS’’);
credit default swaps (‘‘CDS’’); non-financial
commodity (‘‘Non-Financial Commodity’’) swaps;
equity (‘‘Equity’’) swaps; and foreign exchange
derivatives (‘‘FX Derivatives’’).
5 See
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levels and other potential changes to the
de minimis exception.
C. Swap Data Analysis
As discussed in the Staff Reports, the
lack of certain metrics needed for
evaluating different de minimis
thresholds, as well as data validity
issues, limited the analysis of the
potential impact of changes to the
current de minimis exception.10 The
Final Report further noted that,
notwithstanding these data issues, the
quality of the swap data that is reported
to the Commission appears to be
continually improving, and that the
Commission is taking additional steps to
enhance swap data quality.11
The data analysis in the Staff Reports
provided some insights into the
effectiveness of the de minimis
exception as currently implemented.
Staff analyzed the number of swap
transactions involving at least one
registered swap dealer, which is
indicative of the extent to which swaps
are subject to swap dealer regulation at
the current $8 billion threshold. Data
reviewed for the Final Report indicated
that approximately 96% of all reported
swap transactions involved at least one
registered swap dealer. When
considering individual swap asset
classes, approximately 98% or more of
swaps in each asset class, other than the
Non-Financial Commodity asset class,
involved at least one registered swap
dealer. Approximately 89% of NonFinancial Commodity swaps involved a
registered swap dealer.12
However, as discussed above, the data
available was not sufficient to assess
whether, and to what extent, specific
changes to the de minimis threshold
levels would increase or decrease the
coverage of swaps by swap dealer
regulation. In particular, the Staff
Reports noted that reliable notional
amount data was not available for NonFinancial Commodity, Equity, and FX
Derivative swaps.
The Commission also notes that it has
not yet adopted a regulation on capital
requirements for swap dealers, which is
a significant component of swap dealer
registration. The Commission believes it
10 See Preliminary Report at 12–21; Final Report
at 4–6, 19–20. For example, the data reported does
not indicate whether either counterparty to a swap
is acting as a dealer, and there are difficulties in
calculating the notional amounts for certain types
of swaps in a uniform manner useful for data
analysis.
11 See Final Report at 18–19. For example, in June
2016, the Commission finalized amendments
related to the reporting of cleared swaps. See
Amendments to Swap Data Recordkeeping and
Reporting Requirements for Cleared Swaps, 81 FR
41736 (June 27, 2016).
12 See Final Report at 22.
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is prudent to finalize the capital rule
before addressing the de minimis
threshold. In addition, the swap dealer
requirements regarding margin for
uncleared swaps, another important
component of swap dealer registration,
are currently being implemented. The
Commission believes that a year’s delay
would allow it to finalize the swap
dealer capital rule and assess the
implementation of margin requirements
for uncleared swaps. Having
information on these aspects associated
with swap dealer registration would be
helpful in further assessing the impact
of changing the de minimis threshold.
Accordingly, the Commission believes
that it is prudent to extend the phasein period by one year, which may
provide additional time for more
information to become available to
reassess the de minimis exception.
Adopting this Order at this time also
provides clarity to market participants
regarding when they would need to
begin preparing for a change to the de
minimis exception.
II. Conclusion and Order
For the reasons discussed above, and
pursuant to its authority under
Regulation 1.3(ggg)(4)(ii)(C)(1), the
Commission is establishing December
31, 2018 as the termination date for the
de minimis threshold phase-in period.
The Commission notes that prior to the
termination of the phase-in period, the
Commission may take further action
regarding the de minimis threshold by
rule amendment, order, or other
appropriate action.13
III. Related Matters
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A. Paperwork Reduction Act
The Paperwork Reduction Act
(‘‘PRA’’) 14 imposes certain
requirements on Federal agencies in
connection with their conducting or
sponsoring any collection of
information as defined by the PRA. This
Order does not impose any new
recordkeeping or information collection
requirements, or other collections of
information that require approval of the
Office of Management and Budget under
the PRA.
B. Cost-Benefit Considerations
Section 15(a) of the Commodity
Exchange Act (‘‘CEA’’) requires the
Commission to consider the costs and
benefits of its actions before
promulgating a regulation under the
CEA or issuing certain orders.15 Section
15(a) further specifies that the costs and
13 See
17 CFR 1.3(ggg)(4)(v).
U.S.C. 3501 et seq.
15 7 U.S.C. 19(a).
14 44
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benefits shall be evaluated in light of
five broad areas of market and public
concern: (i) Protection of market
participants and the public; (ii)
efficiency, competitiveness, and
financial integrity of futures markets;
(iii) price discovery; (iv) sound risk
management practices; and (v) other
public interest considerations. In this
section, the Commission considers the
costs and benefits resulting from its
determinations with respect to the
section 15(a) factors.
1. Background
As discussed above, Regulation
1.3(ggg)(4)(i) provides an exception from
the swap dealer definition for persons
who engage in a de minimis amount of
swap dealing activity. Currently, under
Regulation 1.3(ggg)(4)(i), a person shall
not be deemed to be a swap dealer
unless its swap dealing activity exceeds
an aggregate gross notional amount
threshold of $3 billion (measured over
the prior 12-month period), subject to a
phase-in period during which the gross
notional amount threshold is set at $8
billion.16 The phase-in period would
have terminated on December 31, 2017,
and the de minimis threshold would
have decreased to $3 billion, absent this
Order.17 This would have required firms
to start tracking their swap activity
beginning January 1, 2017 to determine
whether their dealing activity over the
course of that year would require them
to register as swap dealers.
The $3 billion threshold, which,
absent this Order, would be effective on
December 31, 2017, sets the baseline for
the Commission’s consideration of the
costs and benefits of this Order.18
Accordingly, the Commission considers
the costs and benefits that will result
from an extended phase-in period.
2. General Cost and Benefit
Considerations
There are several policy objectives
underlying swap dealer regulation and
the de minimis exception to swap dealer
registration. The primary policy
objectives of swap dealer regulation
include the reduction of systemic risk,
increased counterparty protections, and
market efficiency, orderliness, and
transparency.19 Registered swap dealers
are subject to a broad range of
requirements, including, inter alia,
registration, internal and external
business conduct standards, reporting,
16 17 CFR 1.3(ggg)(4)(i). See generally 77 FR at
30626–35. See also note 3, supra.
17 17 CFR 1.3(ggg)(4).
18 See 77 FR at 30702–14 (discussing the costbenefit considerations with regard to the final swap
dealer definition).
19 Id. at 30628–30, 30707–08.
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recordkeeping, risk management,
posting and collecting margin, and chief
compliance officer designation and
responsibilities. As noted in the
Regulation 1.3(ggg) adopting release,
generally, the lower the de minimis
threshold, the greater the number of
entities that are subject to these
requirements, which could decrease
systemic risk, increase counterparty
protections, and promote swap market
efficiency, orderliness, and
transparency.20
The Commission also considers
policy objectives furthered by a de
minimis exception, which include
regulatory certainty, allowing limited
ancillary dealing, encouraging new
participants to enter the swap dealing
market, and regulatory efficiency.21
Generally, the higher the de minimis
threshold, the greater the number of
entities that are able to engage in
dealing activity without being required
to register, which could increase
competition and liquidity in the swap
market.22 In addition, because
competitive markets may be more
efficient, a higher de minimis threshold
might improve swap market efficiency.
Further, the Commission notes that it
has been suggested that a higher
threshold could allow the Commission
to expend its resources on entities with
larger swap dealing activities warranting
more oversight. An alternative view is
that the de minimis threshold should be
set based on policy independent of
consideration of the Commission’s
resources.
Extending the phase-in period by one
year will delay realization of the policy
benefits associated with the $3 billion
de minimis threshold, but will also
extend the policy benefits associated
with a higher de minimis threshold. The
additional time to adjust to the $3
billion de minimis threshold also would
potentially increase regulatory certainty
for some market participants. Given that
the de minimis exception is subject to
a 12-month look-back, extending the
phase-in period to December 31, 2018
would allow entities that would
potentially have to register as swap
dealers additional time to adjust their
activities and prepare for the
compliance obligations related to swap
dealer registration.
3. Section 15(a)
Section 15(a) of the CEA requires the
Commission to consider the effects of its
20 Id.
at 30628–30, 30703, 30707–08.
at 30628–30, 30707–08.
22 Alternatively, the Commission notes that a
lower de minimis threshold may lead to potential
changes in market behavior, including, for example,
product innovation.
21 Id.
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actions in light of the following five
factors. This Order will delay the
potential costs and benefits discussed
below by one year.
costs for potential counterparties and
end-users.
(i) Protection of Market Participants and
the Public
The Commission preliminarily
believes that a $3 billion de minimis
threshold may discourage participation
of new swap dealers and ancillary
dealing. If there are fewer entities
engaged in dealing, there may be a
negative effect on price discovery.
(iii) Price Discovery
Providing regulatory protections for
swap counterparties who may be less
experienced or knowledgeable about the
swap products offered by swap dealers
(particularly end-users who use swaps
for hedging or investment purposes) is
a fundamental policy goal advanced by
the regulation of swap dealers. The
Commission recognizes that the $3
billion de minimis threshold may result
in more entities being required to
register as swap dealers compared to an
$8 billion threshold, thereby extending
counterparty protections to a greater
number of market participants. Further,
swap dealer regulation is intended to
reduce systemic risk in the swap
market. Pursuant to the Dodd-Frank Act,
the Commission has proposed or
adopted regulations for swap dealers—
including margin and risk management
requirements—designed to mitigate the
potential systemic risk inherent in the
swap market. Therefore, the
Commission recognizes that a lower de
minimis threshold may result in more
entities being required to register as
swap dealers, thereby potentially further
reducing systemic risk.
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(ii) Efficiency, Competitiveness, and
Financial Integrity of Markets
Other goals of swap dealer regulation
are swap market transparency,
orderliness, and efficiency. These
benefits are achieved through
regulations requiring, for example, swap
dealers to keep trading records and
report trades, provide counterparty
disclosures about swap risks and
pricing, and undertake portfolio
reconciliation and compression
exercises. Accordingly, the Commission
notes that a lower de minimis threshold
may have a positive effect on the
efficiency and integrity of the markets.
However, the Commission also
recognizes that the efficiency and
competitiveness of the swap market may
be negatively impacted if the de
minimis threshold is set too low by
potentially increasing barriers to entry
that may stifle competition and reduce
swap market efficiency. For example, if
entities choose to reduce or cease their
swap dealing activities so that they
would not need to register if the de
minimis threshold decreases to $3
billion, the number or availability of
market makers for swaps may be
reduced, which could lead to increased
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(iv) Sound Risk Management
The Commission notes that a $3
billion de minimis threshold could lead
to better risk management practices
because a greater number of entities
would be required by regulation to: (i)
Develop and implement detailed risk
management programs; (ii) adhere to
business conduct standards that reduce
operational and other risks; and (iii)
satisfy margin requirements for
uncleared swaps.
(v) Other Public Interest Considerations
The Commission has not identified
any other public purpose considerations
for this Order.
C. Antitrust Considerations
Section 15(b) of the CEA requires the
Commission to take into consideration
the public interest to be protected by the
antitrust laws and endeavor to take the
least anticompetitive means of
achieving the objectives of the CEA, in
issuing any order or adopting any
Commission rule or regulation. The
Commission does not anticipate that the
Order discussed herein will result in
anti-competitive behavior.
IV. Order
In light of the foregoing, it is ordered,
pursuant to the Commission’s authority
under Regulation 1.3(ggg)(4)(ii)(C)(1),
that the de minimis threshold phase-in
termination date shall be December 31,
2018. Absent further action by the
Commission, the phase-in period would
terminate on December 31, 2018, at
which time the de minimis threshold
will be $3 billion.
The Commission retains the authority
to condition further, modify, suspend,
terminate, or otherwise restrict any of
the terms of the Order provided herein,
in its discretion.
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Issued in Washington, DC, on October 13,
2016, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Appendices To Order Establishing De
Minimis Threshold Phase-In
Termination Date Pursuant to
Commission Regulation
1.3(ggg)(4)(ii)(C)(1)—Commission
Voting Summary, Chairman’s
Statement, and Commissioner’s
Statement
Appendix 1—Commission Voting
Summary
On this matter, Chairman Massad and
Commissioners Bowen and Giancarlo voted
in the affirmative. No Commissioner voted in
the negative.
Appendix 2—Statement of Chairman
Timothy G. Massad
I thank my fellow Commissioners for
unanimously supporting this order, which
extends the phase-in of the de minimis
threshold for swap dealing by one year.
The de minimis threshold determines
when an entity’s swap dealing activity
requires registration with the CFTC.
Registration triggers capital and margin
requirements as well as other
responsibilities, such as disclosure,
recordkeeping, and documentation
requirements. In 2012, the CFTC set the
threshold initially at $8 billion in notional
amount of swap dealing activity over the
course of a year, and provided that it would
fall to $3 billion at the end of 2017.
This registration requirement is a pillar of
the framework for swap regulation mandated
by the Dodd-Frank Act. Congress required
this framework because excessive risk related
to over-the-counter derivatives contributed to
the intensity of the worst financial crisis
since the Great Depression, one which
resulted in millions of American families
losing their jobs, their homes and their
savings. At the same time, Congress
recognized that derivatives play an important
role in enabling businesses to hedge risk.
Therefore, getting this framework right is
very important.
There are now more than 100 swap dealers
provisionally registered with the CFTC,
which include most of the largest global
banking entities. Absent our action today, the
threshold would have dropped from $8
billion to $3 billion at the end of 2017. That
means firms would have been required to
start determining whether their activity
exceeds that lower threshold just a few
months from now—in January of next year.
Pushing back this date is a sensible and
responsible step for several reasons.
First, our staff has completed the study
required by the rule on the threshold. They
estimated that lowering the threshold would
not increase significantly the percentage of
interest rate swaps (IRS) and credit default
swaps (CDS) covered by swap dealer
regulation, but it would require many
additional firms to register. This might
include some smaller banks whose swap
activity is related to their commercial lending
E:\FR\FM\18OCR1.SGM
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Federal Register / Vol. 81, No. 201 / Tuesday, October 18, 2016 / Rules and Regulations
business. At the same time, the study notes
that the data has certain shortcomings,
particularly when it comes to nonfinancial
commodity swaps. This market is very
different than the IRS and CDS markets, and
I know there is much concern about the
threshold with respect to it. This delay will
allow us to consider all these issues further.
In addition, I believe it makes sense to
adopt a rule setting capital requirements for
swap dealers before addressing the threshold.
This rule, which is required by Dodd-Frank,
is one of the most important in our regulation
of swap dealers, and I am hoping the
Commission can act on a reproposal of it
soon. This one-year delay will also allow us
to more fully assess how the new margin
requirements are working.
These are just some of the reasons we have
taken this action. I thank the CFTC staff for
their hard work on this order and on this
issue generally. And I again thank my fellow
Commissioners for their support.
Appendix 3—Concurring Statement of
Commissioner Sharon Y. Bowen
Lhorne on DSK30JT082PROD with RULES
While we might disagree on the details of
today’s order, I think we can all agree on one
thing: Today’s action is very important to
how the swaps industry operates and our
system of financial regulation functions. If
we do not accurately and appropriately set
the mandatory level of trading for swap
dealer registration, our entire regulatory
regime for the swaps market will be
weakened.
I know that a great deal has been said about
the subject of the de minimis threshold, and
I expect that just about everyone reviewing
today’s decision to extend the current phasein of the $3 billion threshold by one year is
all-too familiar with its substance. Yet, given
the amount of prior actions that the
Commission has taken on this topic, I think
we cannot fully consider how to view today’s
action without first reviewing how we got
here. Following the 2008 financial crisis,
which was exacerbated by the absence of
regulation of the swaps market, Congress
passed the Dodd-Frank Wall Street Reform
and Consumer Protection Act. Among the
many things in that Act were a raft of robust
regulatory requirements on the swaps market,
including mandatory clearing, a system of
data reporting, and a mandate to trade many
products on Swap Execution Facilities
(SEFs).
Some of the most significant new
regulatory requirements were crafted for
what we now call swap dealers, those entities
which had significant involvement in the
swaps market.1 For instance, along with
1 See Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank), section
721(49)(A), available at: https://www.cftc.gov/idc/
groups/public/@swaps/documents/file/hr4173_
enrolledbill.pdf. That provision states that the term
‘‘swap dealer’’ means any person who holds itself
out as a dealer in swaps; makes a market in swaps;
regularly enters into swaps with counterparties as
an ordinary course of business for its own account;
or engages in any activity causing the person to be
commonly known in the trade as a dealer or market
maker in swaps, with the proviso that, in no event
shall an insured depository institution be
considered to be a swap dealer to the extent it offers
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major swap participants, swap dealers were
at the heart of our new regulation regarding
margin for uncleared swaps and the related
cross-border rulemaking. Swap dealers will
similarly be substantially impacted by our
upcoming rule proposal on capital.
Who has to register as a swap dealer is
therefore one of the linchpins of the entire
swaps regulatory regime. If the level of swap
dealing activity is not sufficient to capture
entities that should be registered as swap
dealers, then many of our other rules,
including margin and capital, will not apply
to these entities, and the markets may not be
adequately protected. On the other hand, if
the level of swap dealing activity is too low,
many entities, that do not pose a meaningful
risk to the financial system, will be required
to register as swap dealers, thereby
unnecessarily burdening markets.
It was with this concern in mind that
Congress required that we create a threshold
for swap dealer registration. Dodd-Frank
requires that the Commission shall exempt
from designation as a swap dealer an entity
that engages in a de minimis quantity of swap
dealing in connection with transactions with
or on behalf of its customers. The
Commission shall promulgate regulations to
establish factors with respect to the making
of this determination to exempt.2 We are thus
required to give entities an exemption from
swap dealer registration if the quantity of
their swap transactions falls below a certain
level.
As required, the Commission set that level
in 2012. As part of a rulemaking released in
May 2012, the Commission set the level of
the de minimis exemption at $3 billion, with
a temporary phase-in level of $8 billion
during the first few years.3 The Commission
also agreed to release a report within the next
few years as more data from the various
industry participants involved in the swaps
market was reported to the CFTC.4 The
Commission further committed, once nine
months had passed after the report was
published ‘‘and after giving due
consideration to the report and any
associated public comment,’’ to give itself
three options for how to deal with the
threshold.5 First, we could terminate the
phase-in period and have the threshold
immediately drop to $3 billion. Second, if we
decided it was ‘‘necessary or appropriate in
the public interest’’ to propose a new
threshold limit, we could do so via our
typical rulemaking authority.6 Third, if we
failed to pursue either the first or second
options before a date certain—December 31,
2017, the phase-in period would
automatically and immediately end, and the
threshold would simply be $3 billion.7
to enter into a swap with a customer in connection
with originating a loan with that customer.
2 Dodd-Frank section 721(49)(D).
3 See Further Definition of ‘‘Swap Dealer,’’
‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap
Participant,’’ ‘‘Major Security-Based Swap
Participant,’’ and ‘‘Eligible Contract Participant,’’ 77
FR 30596 (May 23, 2012), available at: https://
www.cftc.gov/idc/groups/public/@lrfederalregister/
documents/file/2012-10562a.pdf.
4 Id. at 30756.
5 Id.
6 Id.
7 Id.
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Sfmt 4700
71609
We have now published our final staff
report on the de minimis threshold and the
nine month period of considering whether to
change the threshold has formally begun. I
am grateful for the staff for all their hard
work and appreciate that it has not been an
easy undertaking. I am also grateful to market
participants and the public for the comments
and opinions that they have provided on the
first and final drafts of the report. That said,
it is clear from the report that our staff does
not have sufficient data to make a fully
informed decision.
Today, the Commission is augmenting our
efforts to get better data on this issue by
extending the phase-in period of the
threshold by one year. Because of the
Commission’s action, the threshold will
continue to be at $8 billion until December
31, 2018. At that point, absent additional
action by the Commission, the phase-in
period will end and the threshold will be $3
billion.
I support this initiative to get additional
data on this subject, and I do not support
changing the threshold at this time. But I
wish to make something clear: We need to
see hard data backing up the opinions we
will receive during this delay about why we
should not just allow the threshold to be $3
billion as established in the rule. I know that
there is a great deal of disagreement about
this issue, and I do not think we will be able
to reach a consensus unless we have real
economic analysis and evidence to back up
people’s comments. If you believe the
threshold should be changed to $8 billion, or
some other amount, because of market
conditions, please, provide us with
supporting data. Or, if you believe that the
threshold should be even lower, as low as the
$150 million threshold that was once
contemplated, please provide us with
supporting data. If we stay focused on hard,
economic analysis and an objective view
about the state of the market, the final
determination of the threshold will be more
understandable and transparent. Given the
years of existing discussion and analysis and
the established process the Commission has
created, we would do both a disservice to the
industry and to the public to change the
threshold now absent strong evidence for
doing so.
I am sympathetic to the concerns that there
may be onerous impacts on the market just
because of this threshold. We know that
cleared swaps are safer than uncleared
swaps, which is why we have tried to
encourage increased clearing of swaps. As
such, I think there is some merit to modifying
the threshold in the future by exempting
cleared swaps from being counted in
calculations of whether a firm is above it. If
market participants or observers have strong
thoughts on this idea or other ways that we
might help make the $3 billion threshold less
arduous, I encourage you to reach out to my
office and my staff.
I believe we should receive empirical data
that can justify where the threshold number
needs to be. I therefore expect that, near the
start of 2017, we will start to collect
additional data from market participants
regarding those portions of the swaps market
for which we still lack full and detailed
E:\FR\FM\18OCR1.SGM
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71610
Federal Register / Vol. 81, No. 201 / Tuesday, October 18, 2016 / Rules and Regulations
information. Absent that, I will have no basis
from which to change the phase-in or move
the threshold to something other than $3
billion.
[FR Doc. 2016–25143 Filed 10–17–16; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 890
[Docket No. FDA–2016–N–2829]
Medical Devices; Physical Medicine
Devices; Classification of the Upper
Extremity Prosthesis Including a
Simultaneously Powered Elbow and/or
Shoulder With Greater Than Two
Simultaneous Powered Degrees of
Freedom and Controlled by NonImplanted Electrical Components
AGENCY:
Food and Drug Administration,
HHS.
ACTION:
Final order.
The Food and Drug
Administration (FDA) is classifying the
Upper Extremity Prosthesis Including a
Simultaneously Powered Elbow and/or
Shoulder with Greater Than Two
Simultaneous Powered Degrees of
Freedom and Controlled by NonImplanted Electrical Components into
class II (special controls). The special
controls that will apply to the device are
identified in this order and will be part
of the codified language for the upper
extremity prosthesis including a
simultaneously powered elbow and/or
shoulder with greater than two
simultaneous powered degrees of
freedom and controlled by nonimplanted electrical components’
classification. The Agency is classifying
the device into class II (special controls)
in order to provide a reasonable
assurance of safety and effectiveness of
the device.
DATES: This order is effective October
18, 2016. The classification was
applicable on May 9, 2014.
FOR FURTHER INFORMATION CONTACT:
Michael Hoffmann, Center for Devices
and Radiological Health, Food and Drug
Administration, 10903 New Hampshire
Ave., Bldg. 66, Rm. 2640, Silver Spring,
MD, 20993–0002, 301–796–6476,
Michael.Hoffmann@fda.hhs.gov.
SUPPLEMENTARY INFORMATION:
Lhorne on DSK30JT082PROD with RULES
SUMMARY:
I. Background
In accordance with section 513(f)(1) of
the Federal Food, Drug, and Cosmetic
Act (the FD&C Act) (21 U.S.C.
360c(f)(1)), devices that were not in
VerDate Sep<11>2014
12:31 Oct 17, 2016
Jkt 241001
commercial distribution before May 28,
1976 (the date of enactment of the
Medical Device Amendments of 1976),
generally referred to as postamendments
devices, are classified automatically by
statute into class III without any FDA
rulemaking process. These devices
remain in class III and require
premarket approval, unless and until
the device is classified or reclassified
into class I or II, or FDA issues an order
finding the device to be substantially
equivalent, in accordance with section
513(i), to a predicate device that does
not require premarket approval. The
Agency determines whether new
devices are substantially equivalent to
predicate devices by means of
premarket notification procedures in
section 510(k) of the FD&C Act (21
U.S.C. 360(k)) and part 807 (21 CFR part
807) of the regulations.
Section 513(f)(2) of the FD&C Act, as
amended by section 607 of the Food and
Drug Administration Safety and
Innovation Act (Pub. L. 112–144),
provides two procedures by which a
person may request FDA to classify a
device under the criteria set forth in
section 513(a)(1). Under the first
procedure, the person submits a
premarket notification under section
510(k) of the FD&C Act for a device that
has not previously been classified and,
within 30 days of receiving an order
classifying the device into class III
under section 513(f)(1), the person
requests a classification under section
513(f)(2) of the FD&C Act. Under the
second procedure, rather than first
submitting a premarket notification
under section 510(k) and then a request
for classification under the first
procedure, the person determines that
there is no legally marketed device upon
which to base a determination of
substantial equivalence and requests a
classification under section 513(f)(2) of
the FD&C Act. If the person submits a
request to classify the device under this
second procedure, FDA may decline to
undertake the classification request if
FDA identifies a legally marketed device
that could provide a reasonable basis for
review of substantial equivalence with
the device or if FDA determines that the
device submitted is not of ‘‘lowmoderate risk’’ or that general controls
would be inadequate to control the risks
and special controls to mitigate the risks
cannot be developed.
In response to a request to classify a
device under either procedure provided
by section 513(f)(2) of the FD&C Act,
FDA shall classify the device by written
order within 120 days. This
classification will be the initial
classification of the device. In
accordance with section 513(f)(1) of the
PO 00000
Frm 00032
Fmt 4700
Sfmt 4700
FD&C Act, FDA issued an order on May
18, 2012, classifying the DEKA Arm
System into class III, because it was not
substantially equivalent to a device that
was introduced or delivered for
introduction into interstate commerce
for commercial distribution before May
28, 1976, or a device which was
subsequently reclassified into class I or
class II.
On June 15, 2012, DEKA Integrated
Solutions Corporation submitted a
request for classification of the DEKA
Arm System under section 513(f)(2) of
the FD&C Act. In accordance with
section 513(f)(2) of the FD&C Act, FDA
reviewed the request in order to classify
the device under the criteria for
classification set forth in section
513(a)(1). FDA classifies devices into
class II if general controls by themselves
are insufficient to provide reasonable
assurance of safety and effectiveness,
but there is sufficient information to
establish special controls to provide
reasonable assurance of the safety and
effectiveness of the device for its
intended use. After review of the
information submitted in the request,
FDA determined that the device can be
classified into class II with the
establishment of special controls. FDA
believes these special controls, in
addition to general controls, will
provide reasonable assurance of the
safety and effectiveness of the device.
Therefore, on May 9, 2014, FDA
issued an order to the requestor
classifying the device into class II. FDA
is codifying the classification of the
device by adding 21 CFR 890.3450.
Following the effective date of this
final classification order, any firm
submitting a premarket notification
(510(k)) for an upper extremity
prosthesis including a simultaneously
powered elbow and/or shoulder with
greater than two simultaneous powered
degrees of freedom and controlled by
non-implanted electrical components
will need to comply with the special
controls named in this final order. The
device is assigned the generic name
upper extremity prosthesis including a
simultaneously powered elbow and/or
shoulder with greater than two
simultaneous powered degrees of
freedom and controlled by nonimplanted electrical components, and it
is identified as a prescription device
intended for medical purposes, and
intended to replace a partially or fully
amputated or congenitally absent upper
extremity. It uses electronic inputs
(other than simple, manually controlled
electrical components such as switches)
to provide greater than two independent
and simultaneously powered degrees of
freedom and includes a simultaneously
E:\FR\FM\18OCR1.SGM
18OCR1
]]>Agencies
[Federal Register Volume 81, Number 201 (Tuesday, October 18, 2016)]
[Rules and Regulations]
[Pages 71605-71610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25143]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
Order Establishing De Minimis Threshold Phase-In Termination Date
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
-----------------------------------------------------------------------
[[Page 71606]]
SUMMARY: With respect to the de minimis exception to the swap dealer
definition, the Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is issuing an order (``Order''), pursuant to the applicable
Commission regulation, to establish December 31, 2018 as the de minimis
threshold phase-in termination date.
DATES: Issued October 13, 2016.
FOR FURTHER INFORMATION CONTACT: Eileen T. Flaherty, Director, 202-418-
5326, eflaherty@cftc.gov; Erik Remmler, Deputy Director, 202-418-7630,
eremmler@cftc.gov; Lauren Bennett, Special Counsel, 202-418-5290,
lbennett@cftc.gov; Margo Dey, Special Counsel, 202-418-5276,
mdey@cftc.gov; or Rajal Patel, Special Counsel, 202-418-5261,
rpatel@cftc.gov, Division of Swap Dealer and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory and Regulatory Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') \1\ directed the CFTC and the U.S. Securities and
Exchange Commission (``SEC'' and together with the CFTC,
``Commissions'') to jointly further define the term ``swap dealer'' and
to include therein a de minimis exception.\2\ The CFTC's further
definition of swap dealer is provided in Regulation 1.3(ggg). The de
minimis exception therein provides that a person shall not be deemed to
be a swap dealer unless its swap dealing activity exceeds an aggregate
gross notional amount threshold of $3 billion (measured over the prior
12-month period), subject to a phase-in period during which the gross
notional amount threshold is set at $8 billion.\3\ Absent further
action by the Commission, the phase-in period would terminate on
December 31, 2017, at which time the de minimis threshold would
decrease to $3 billion.\4\ This would require firms to start tracking
their swap activity beginning January 1, 2017 to determine whether
their dealing activity over the course of that year would require them
to register as swap dealers.
---------------------------------------------------------------------------
\1\ Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act can be accessed on the Commission's Web site, at
www.cftc.gov.
\2\ See Dodd-Frank Act sections 712(d) and 721. The definition
of ``swap dealer'' can be found in section 1a(49) of the Commodity
Exchange Act and as further defined in Regulation 1.3(ggg). 7 U.S.C.
1a(49) and 17 CFR 1.3(ggg). The Commodity Exchange Act is at 7
U.S.C. 1, et seq. (2014), and is accessible on the Commission's Web
site, at www.cftc.gov.
\3\ See 17 CFR 1.3(ggg)(4). See also Further Definition of
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant,'' 77 FR 30596 (May 23, 2012).
This Order does not impact the de minimis threshold for swaps
with ``special entities'' as defined in the Commodity Exchange Act,
section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C).
\4\ See 17 CFR 1.3(ggg)(4)(ii)(D).
---------------------------------------------------------------------------
When the $3 billion de minimis exception was established, the
Commissions explained that the information then available regarding
certain portions of the swap market was limited in certain respects,
and that they expected that the implementation of swap data reporting
may enable reassessment of the de minimis exception.\5\ Accordingly,
the Commission adopted Regulation 1.3(ggg)(4), which directed CFTC
staff to issue a report, after a specified period of time, on topics
relating to the de minimis exception ``as appropriate, based on the
availability of data and information.'' \6\ Regulation 1.3(ggg)(4)
further provides that after giving due consideration to the report and
any associated public comment, the Commission may issue an order to
establish a termination date for the phase-in period or propose through
rulemaking modifications to the de minimis exception.
---------------------------------------------------------------------------
\5\ See 77 FR at 30634, 30640.
\6\ SEC Regulation 240.3a71-2A similarly directs SEC staff to
prepare a report on the security-based swap dealer de minimis
exception. 17 CFR 240.3a71-2A.
---------------------------------------------------------------------------
B. Staff Reports
Staff issued for public comment a preliminary report concerning the
de minimis exception on November 18, 2015 (``Preliminary Report'').\7\
After consideration of the public comments received, and further data
analysis, staff issued the Swap Dealer De Minimis Exception Final Staff
Report \8\ on August 15, 2016 (``Final Report,'' and together with the
Preliminary Report, ``Staff Reports''). The Staff Reports analyzed the
available swap data \9\ in conjunction with relevant policy
considerations to assess alternative de minimis threshold levels and
other potential changes to the de minimis exception.
---------------------------------------------------------------------------
\7\ Swap Dealer De Minimis Exception Preliminary Report (Nov.
18, 2015), available at https://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf.
\8\ Swap Dealer De Minimis Exception Final Staff Report (August
15, 2016), available at https://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf.
\9\ The data analysis broke down the data into the following
asset classes: Interest rate swaps (``IRS''); credit default swaps
(``CDS''); non-financial commodity (``Non-Financial Commodity'')
swaps; equity (``Equity'') swaps; and foreign exchange derivatives
(``FX Derivatives'').
---------------------------------------------------------------------------
C. Swap Data Analysis
As discussed in the Staff Reports, the lack of certain metrics
needed for evaluating different de minimis thresholds, as well as data
validity issues, limited the analysis of the potential impact of
changes to the current de minimis exception.\10\ The Final Report
further noted that, notwithstanding these data issues, the quality of
the swap data that is reported to the Commission appears to be
continually improving, and that the Commission is taking additional
steps to enhance swap data quality.\11\
---------------------------------------------------------------------------
\10\ See Preliminary Report at 12-21; Final Report at 4-6, 19-
20. For example, the data reported does not indicate whether either
counterparty to a swap is acting as a dealer, and there are
difficulties in calculating the notional amounts for certain types
of swaps in a uniform manner useful for data analysis.
\11\ See Final Report at 18-19. For example, in June 2016, the
Commission finalized amendments related to the reporting of cleared
swaps. See Amendments to Swap Data Recordkeeping and Reporting
Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016).
---------------------------------------------------------------------------
The data analysis in the Staff Reports provided some insights into
the effectiveness of the de minimis exception as currently implemented.
Staff analyzed the number of swap transactions involving at least one
registered swap dealer, which is indicative of the extent to which
swaps are subject to swap dealer regulation at the current $8 billion
threshold. Data reviewed for the Final Report indicated that
approximately 96% of all reported swap transactions involved at least
one registered swap dealer. When considering individual swap asset
classes, approximately 98% or more of swaps in each asset class, other
than the Non-Financial Commodity asset class, involved at least one
registered swap dealer. Approximately 89% of Non-Financial Commodity
swaps involved a registered swap dealer.\12\
---------------------------------------------------------------------------
\12\ See Final Report at 22.
---------------------------------------------------------------------------
However, as discussed above, the data available was not sufficient
to assess whether, and to what extent, specific changes to the de
minimis threshold levels would increase or decrease the coverage of
swaps by swap dealer regulation. In particular, the Staff Reports noted
that reliable notional amount data was not available for Non-Financial
Commodity, Equity, and FX Derivative swaps.
The Commission also notes that it has not yet adopted a regulation
on capital requirements for swap dealers, which is a significant
component of swap dealer registration. The Commission believes it
[[Page 71607]]
is prudent to finalize the capital rule before addressing the de
minimis threshold. In addition, the swap dealer requirements regarding
margin for uncleared swaps, another important component of swap dealer
registration, are currently being implemented. The Commission believes
that a year's delay would allow it to finalize the swap dealer capital
rule and assess the implementation of margin requirements for uncleared
swaps. Having information on these aspects associated with swap dealer
registration would be helpful in further assessing the impact of
changing the de minimis threshold.
Accordingly, the Commission believes that it is prudent to extend
the phase-in period by one year, which may provide additional time for
more information to become available to reassess the de minimis
exception. Adopting this Order at this time also provides clarity to
market participants regarding when they would need to begin preparing
for a change to the de minimis exception.
II. Conclusion and Order
For the reasons discussed above, and pursuant to its authority
under Regulation 1.3(ggg)(4)(ii)(C)(1), the Commission is establishing
December 31, 2018 as the termination date for the de minimis threshold
phase-in period. The Commission notes that prior to the termination of
the phase-in period, the Commission may take further action regarding
the de minimis threshold by rule amendment, order, or other appropriate
action.\13\
---------------------------------------------------------------------------
\13\ See 17 CFR 1.3(ggg)(4)(v).
---------------------------------------------------------------------------
III. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') \14\ imposes certain
requirements on Federal agencies in connection with their conducting or
sponsoring any collection of information as defined by the PRA. This
Order does not impose any new recordkeeping or information collection
requirements, or other collections of information that require approval
of the Office of Management and Budget under the PRA.
---------------------------------------------------------------------------
\14\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
B. Cost-Benefit Considerations
Section 15(a) of the Commodity Exchange Act (``CEA'') requires the
Commission to consider the costs and benefits of its actions before
promulgating a regulation under the CEA or issuing certain orders.\15\
Section 15(a) further specifies that the costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
(i) Protection of market participants and the public; (ii) efficiency,
competitiveness, and financial integrity of futures markets; (iii)
price discovery; (iv) sound risk management practices; and (v) other
public interest considerations. In this section, the Commission
considers the costs and benefits resulting from its determinations with
respect to the section 15(a) factors.
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\15\ 7 U.S.C. 19(a).
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1. Background
As discussed above, Regulation 1.3(ggg)(4)(i) provides an exception
from the swap dealer definition for persons who engage in a de minimis
amount of swap dealing activity. Currently, under Regulation
1.3(ggg)(4)(i), a person shall not be deemed to be a swap dealer unless
its swap dealing activity exceeds an aggregate gross notional amount
threshold of $3 billion (measured over the prior 12-month period),
subject to a phase-in period during which the gross notional amount
threshold is set at $8 billion.\16\ The phase-in period would have
terminated on December 31, 2017, and the de minimis threshold would
have decreased to $3 billion, absent this Order.\17\ This would have
required firms to start tracking their swap activity beginning January
1, 2017 to determine whether their dealing activity over the course of
that year would require them to register as swap dealers.
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\16\ 17 CFR 1.3(ggg)(4)(i). See generally 77 FR at 30626-35. See
also note 3, supra.
\17\ 17 CFR 1.3(ggg)(4).
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The $3 billion threshold, which, absent this Order, would be
effective on December 31, 2017, sets the baseline for the Commission's
consideration of the costs and benefits of this Order.\18\ Accordingly,
the Commission considers the costs and benefits that will result from
an extended phase-in period.
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\18\ See 77 FR at 30702-14 (discussing the cost-benefit
considerations with regard to the final swap dealer definition).
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2. General Cost and Benefit Considerations
There are several policy objectives underlying swap dealer
regulation and the de minimis exception to swap dealer registration.
The primary policy objectives of swap dealer regulation include the
reduction of systemic risk, increased counterparty protections, and
market efficiency, orderliness, and transparency.\19\ Registered swap
dealers are subject to a broad range of requirements, including, inter
alia, registration, internal and external business conduct standards,
reporting, recordkeeping, risk management, posting and collecting
margin, and chief compliance officer designation and responsibilities.
As noted in the Regulation 1.3(ggg) adopting release, generally, the
lower the de minimis threshold, the greater the number of entities that
are subject to these requirements, which could decrease systemic risk,
increase counterparty protections, and promote swap market efficiency,
orderliness, and transparency.\20\
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\19\ Id. at 30628-30, 30707-08.
\20\ Id. at 30628-30, 30703, 30707-08.
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The Commission also considers policy objectives furthered by a de
minimis exception, which include regulatory certainty, allowing limited
ancillary dealing, encouraging new participants to enter the swap
dealing market, and regulatory efficiency.\21\ Generally, the higher
the de minimis threshold, the greater the number of entities that are
able to engage in dealing activity without being required to register,
which could increase competition and liquidity in the swap market.\22\
In addition, because competitive markets may be more efficient, a
higher de minimis threshold might improve swap market efficiency.
Further, the Commission notes that it has been suggested that a higher
threshold could allow the Commission to expend its resources on
entities with larger swap dealing activities warranting more oversight.
An alternative view is that the de minimis threshold should be set
based on policy independent of consideration of the Commission's
resources.
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\21\ Id. at 30628-30, 30707-08.
\22\ Alternatively, the Commission notes that a lower de minimis
threshold may lead to potential changes in market behavior,
including, for example, product innovation.
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Extending the phase-in period by one year will delay realization of
the policy benefits associated with the $3 billion de minimis
threshold, but will also extend the policy benefits associated with a
higher de minimis threshold. The additional time to adjust to the $3
billion de minimis threshold also would potentially increase regulatory
certainty for some market participants. Given that the de minimis
exception is subject to a 12-month look-back, extending the phase-in
period to December 31, 2018 would allow entities that would potentially
have to register as swap dealers additional time to adjust their
activities and prepare for the compliance obligations related to swap
dealer registration.
3. Section 15(a)
Section 15(a) of the CEA requires the Commission to consider the
effects of its
[[Page 71608]]
actions in light of the following five factors. This Order will delay
the potential costs and benefits discussed below by one year.
(i) Protection of Market Participants and the Public
Providing regulatory protections for swap counterparties who may be
less experienced or knowledgeable about the swap products offered by
swap dealers (particularly end-users who use swaps for hedging or
investment purposes) is a fundamental policy goal advanced by the
regulation of swap dealers. The Commission recognizes that the $3
billion de minimis threshold may result in more entities being required
to register as swap dealers compared to an $8 billion threshold,
thereby extending counterparty protections to a greater number of
market participants. Further, swap dealer regulation is intended to
reduce systemic risk in the swap market. Pursuant to the Dodd-Frank
Act, the Commission has proposed or adopted regulations for swap
dealers--including margin and risk management requirements--designed to
mitigate the potential systemic risk inherent in the swap market.
Therefore, the Commission recognizes that a lower de minimis threshold
may result in more entities being required to register as swap dealers,
thereby potentially further reducing systemic risk.
(ii) Efficiency, Competitiveness, and Financial Integrity of Markets
Other goals of swap dealer regulation are swap market transparency,
orderliness, and efficiency. These benefits are achieved through
regulations requiring, for example, swap dealers to keep trading
records and report trades, provide counterparty disclosures about swap
risks and pricing, and undertake portfolio reconciliation and
compression exercises. Accordingly, the Commission notes that a lower
de minimis threshold may have a positive effect on the efficiency and
integrity of the markets.
However, the Commission also recognizes that the efficiency and
competitiveness of the swap market may be negatively impacted if the de
minimis threshold is set too low by potentially increasing barriers to
entry that may stifle competition and reduce swap market efficiency.
For example, if entities choose to reduce or cease their swap dealing
activities so that they would not need to register if the de minimis
threshold decreases to $3 billion, the number or availability of market
makers for swaps may be reduced, which could lead to increased costs
for potential counterparties and end-users.
(iii) Price Discovery
The Commission preliminarily believes that a $3 billion de minimis
threshold may discourage participation of new swap dealers and
ancillary dealing. If there are fewer entities engaged in dealing,
there may be a negative effect on price discovery.
(iv) Sound Risk Management
The Commission notes that a $3 billion de minimis threshold could
lead to better risk management practices because a greater number of
entities would be required by regulation to: (i) Develop and implement
detailed risk management programs; (ii) adhere to business conduct
standards that reduce operational and other risks; and (iii) satisfy
margin requirements for uncleared swaps.
(v) Other Public Interest Considerations
The Commission has not identified any other public purpose
considerations for this Order.
C. Antitrust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA, in issuing any order or adopting any Commission
rule or regulation. The Commission does not anticipate that the Order
discussed herein will result in anti-competitive behavior.
IV. Order
In light of the foregoing, it is ordered, pursuant to the
Commission's authority under Regulation 1.3(ggg)(4)(ii)(C)(1), that the
de minimis threshold phase-in termination date shall be December 31,
2018. Absent further action by the Commission, the phase-in period
would terminate on December 31, 2018, at which time the de minimis
threshold will be $3 billion.
The Commission retains the authority to condition further, modify,
suspend, terminate, or otherwise restrict any of the terms of the Order
provided herein, in its discretion.
Issued in Washington, DC, on October 13, 2016, by the
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Appendices To Order Establishing De Minimis Threshold Phase-In
Termination Date Pursuant to Commission Regulation
1.3(ggg)(4)(ii)(C)(1)--Commission Voting Summary, Chairman's Statement,
and Commissioner's Statement
Appendix 1--Commission Voting Summary
On this matter, Chairman Massad and Commissioners Bowen and
Giancarlo voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2--Statement of Chairman Timothy G. Massad
I thank my fellow Commissioners for unanimously supporting this
order, which extends the phase-in of the de minimis threshold for
swap dealing by one year.
The de minimis threshold determines when an entity's swap
dealing activity requires registration with the CFTC. Registration
triggers capital and margin requirements as well as other
responsibilities, such as disclosure, recordkeeping, and
documentation requirements. In 2012, the CFTC set the threshold
initially at $8 billion in notional amount of swap dealing activity
over the course of a year, and provided that it would fall to $3
billion at the end of 2017.
This registration requirement is a pillar of the framework for
swap regulation mandated by the Dodd-Frank Act. Congress required
this framework because excessive risk related to over-the-counter
derivatives contributed to the intensity of the worst financial
crisis since the Great Depression, one which resulted in millions of
American families losing their jobs, their homes and their savings.
At the same time, Congress recognized that derivatives play an
important role in enabling businesses to hedge risk. Therefore,
getting this framework right is very important.
There are now more than 100 swap dealers provisionally
registered with the CFTC, which include most of the largest global
banking entities. Absent our action today, the threshold would have
dropped from $8 billion to $3 billion at the end of 2017. That means
firms would have been required to start determining whether their
activity exceeds that lower threshold just a few months from now--in
January of next year. Pushing back this date is a sensible and
responsible step for several reasons.
First, our staff has completed the study required by the rule on
the threshold. They estimated that lowering the threshold would not
increase significantly the percentage of interest rate swaps (IRS)
and credit default swaps (CDS) covered by swap dealer regulation,
but it would require many additional firms to register. This might
include some smaller banks whose swap activity is related to their
commercial lending
[[Page 71609]]
business. At the same time, the study notes that the data has
certain shortcomings, particularly when it comes to nonfinancial
commodity swaps. This market is very different than the IRS and CDS
markets, and I know there is much concern about the threshold with
respect to it. This delay will allow us to consider all these issues
further.
In addition, I believe it makes sense to adopt a rule setting
capital requirements for swap dealers before addressing the
threshold. This rule, which is required by Dodd-Frank, is one of the
most important in our regulation of swap dealers, and I am hoping
the Commission can act on a reproposal of it soon. This one-year
delay will also allow us to more fully assess how the new margin
requirements are working.
These are just some of the reasons we have taken this action. I
thank the CFTC staff for their hard work on this order and on this
issue generally. And I again thank my fellow Commissioners for their
support.
Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen
While we might disagree on the details of today's order, I think
we can all agree on one thing: Today's action is very important to
how the swaps industry operates and our system of financial
regulation functions. If we do not accurately and appropriately set
the mandatory level of trading for swap dealer registration, our
entire regulatory regime for the swaps market will be weakened.
I know that a great deal has been said about the subject of the
de minimis threshold, and I expect that just about everyone
reviewing today's decision to extend the current phase-in of the $3
billion threshold by one year is all-too familiar with its
substance. Yet, given the amount of prior actions that the
Commission has taken on this topic, I think we cannot fully consider
how to view today's action without first reviewing how we got here.
Following the 2008 financial crisis, which was exacerbated by the
absence of regulation of the swaps market, Congress passed the Dodd-
Frank Wall Street Reform and Consumer Protection Act. Among the many
things in that Act were a raft of robust regulatory requirements on
the swaps market, including mandatory clearing, a system of data
reporting, and a mandate to trade many products on Swap Execution
Facilities (SEFs).
Some of the most significant new regulatory requirements were
crafted for what we now call swap dealers, those entities which had
significant involvement in the swaps market.\1\ For instance, along
with major swap participants, swap dealers were at the heart of our
new regulation regarding margin for uncleared swaps and the related
cross-border rulemaking. Swap dealers will similarly be
substantially impacted by our upcoming rule proposal on capital.
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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank), section 721(49)(A), available at: https://www.cftc.gov/idc/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf. That provision states that the term ``swap
dealer'' means any person who holds itself out as a dealer in swaps;
makes a market in swaps; regularly enters into swaps with
counterparties as an ordinary course of business for its own
account; or engages in any activity causing the person to be
commonly known in the trade as a dealer or market maker in swaps,
with the proviso that, in no event shall an insured depository
institution be considered to be a swap dealer to the extent it
offers to enter into a swap with a customer in connection with
originating a loan with that customer.
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Who has to register as a swap dealer is therefore one of the
linchpins of the entire swaps regulatory regime. If the level of
swap dealing activity is not sufficient to capture entities that
should be registered as swap dealers, then many of our other rules,
including margin and capital, will not apply to these entities, and
the markets may not be adequately protected. On the other hand, if
the level of swap dealing activity is too low, many entities, that
do not pose a meaningful risk to the financial system, will be
required to register as swap dealers, thereby unnecessarily
burdening markets.
It was with this concern in mind that Congress required that we
create a threshold for swap dealer registration. Dodd-Frank requires
that the Commission shall exempt from designation as a swap dealer
an entity that engages in a de minimis quantity of swap dealing in
connection with transactions with or on behalf of its customers. The
Commission shall promulgate regulations to establish factors with
respect to the making of this determination to exempt.\2\ We are
thus required to give entities an exemption from swap dealer
registration if the quantity of their swap transactions falls below
a certain level.
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\2\ Dodd-Frank section 721(49)(D).
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As required, the Commission set that level in 2012. As part of a
rulemaking released in May 2012, the Commission set the level of the
de minimis exemption at $3 billion, with a temporary phase-in level
of $8 billion during the first few years.\3\ The Commission also
agreed to release a report within the next few years as more data
from the various industry participants involved in the swaps market
was reported to the CFTC.\4\ The Commission further committed, once
nine months had passed after the report was published ``and after
giving due consideration to the report and any associated public
comment,'' to give itself three options for how to deal with the
threshold.\5\ First, we could terminate the phase-in period and have
the threshold immediately drop to $3 billion. Second, if we decided
it was ``necessary or appropriate in the public interest'' to
propose a new threshold limit, we could do so via our typical
rulemaking authority.\6\ Third, if we failed to pursue either the
first or second options before a date certain--December 31, 2017,
the phase-in period would automatically and immediately end, and the
threshold would simply be $3 billion.\7\
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\3\ See Further Definition of ``Swap Dealer,'' ``Security-Based
Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based
Swap Participant,'' and ``Eligible Contract Participant,'' 77 FR
30596 (May 23, 2012), available at: https://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2012-10562a.pdf.
\4\ Id. at 30756.
\5\ Id.
\6\ Id.
\7\ Id.
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We have now published our final staff report on the de minimis
threshold and the nine month period of considering whether to change
the threshold has formally begun. I am grateful for the staff for
all their hard work and appreciate that it has not been an easy
undertaking. I am also grateful to market participants and the
public for the comments and opinions that they have provided on the
first and final drafts of the report. That said, it is clear from
the report that our staff does not have sufficient data to make a
fully informed decision.
Today, the Commission is augmenting our efforts to get better
data on this issue by extending the phase-in period of the threshold
by one year. Because of the Commission's action, the threshold will
continue to be at $8 billion until December 31, 2018. At that point,
absent additional action by the Commission, the phase-in period will
end and the threshold will be $3 billion.
I support this initiative to get additional data on this
subject, and I do not support changing the threshold at this time.
But I wish to make something clear: We need to see hard data backing
up the opinions we will receive during this delay about why we
should not just allow the threshold to be $3 billion as established
in the rule. I know that there is a great deal of disagreement about
this issue, and I do not think we will be able to reach a consensus
unless we have real economic analysis and evidence to back up
people's comments. If you believe the threshold should be changed to
$8 billion, or some other amount, because of market conditions,
please, provide us with supporting data. Or, if you believe that the
threshold should be even lower, as low as the $150 million threshold
that was once contemplated, please provide us with supporting data.
If we stay focused on hard, economic analysis and an objective view
about the state of the market, the final determination of the
threshold will be more understandable and transparent. Given the
years of existing discussion and analysis and the established
process the Commission has created, we would do both a disservice to
the industry and to the public to change the threshold now absent
strong evidence for doing so.
I am sympathetic to the concerns that there may be onerous
impacts on the market just because of this threshold. We know that
cleared swaps are safer than uncleared swaps, which is why we have
tried to encourage increased clearing of swaps. As such, I think
there is some merit to modifying the threshold in the future by
exempting cleared swaps from being counted in calculations of
whether a firm is above it. If market participants or observers have
strong thoughts on this idea or other ways that we might help make
the $3 billion threshold less arduous, I encourage you to reach out
to my office and my staff.
I believe we should receive empirical data that can justify
where the threshold number needs to be. I therefore expect that,
near the start of 2017, we will start to collect additional data
from market participants regarding those portions of the swaps
market for which we still lack full and detailed
[[Page 71610]]
information. Absent that, I will have no basis from which to change
the phase-in or move the threshold to something other than $3
billion.
[FR Doc. 2016-25143 Filed 10-17-16; 8:45 am]
BILLING CODE 6351-01-P
