Shipkevich Bitcoin and ICO Attorney
Felix Shipkevich April 19, 2012

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