CFTC approves rule defining SDs, MSPs, ECPs

On April 18 the CFTC finalized the definition of swap dealer (SD), major swap participant (MSP), and eligible contract participant (ECP) in a joint rule making with the SEC. The CFTC approved the rule by a 4-1 vote, with Commissioner Scott O’Malia dissenting. The SEC approved the rule 5-0.

The rule defines swap dealer as any person who:

  • Holds itself out as a dealer in swaps (meaning that they stand prepared to enter swap deals);
  • Makes a market in swaps;
  • Regularly enters into swaps with counterparties; or
  • Engages in any activity causing the person to be commonly known as a dealer or market maker in swaps.

Those who enter into swaps for a personal account, in an individual or fiduciary capacity, but not as a part of regular business, is not included in the definition. The rule provides a de minimis threshold of $8 billion.

MSPs are defined as any person that satisfies any one of the following qualifications:

  • If they maintain a “substantial position” in any Major Swap Category, including positions held for hedging or mitigating risk, or positions maintained by certain employee benefit plans for hedging or mitigating risk.
  • If the swaps create “substantial counterparty exposure” that could threaten the U.S. banking system or financial market stability.
  • If the entity is highly leveraged based on the amount of capital that the entity holds, and that is not subject to capital requirements established by a Federal banking agency.

The definition of ECP includes swap dealers, securities-based swap dealers, MSPs, and securities-based MSPs. An ECP cannot enter into a swap except on or subject to the rules of a designated contract market. A commodity pool is not included in the definition of ECP if any participant in the pool is not an ECP.

Read more about the final rule.

Photo credit: Daquella Manera


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