The National Futures Assocation (NFA) announced yesterday that Cargill Inc is the first major non-financial entity to be registered as a swap dealer. Cargill operates in a range of commodity markets and is based out of Minneapolis.
NFA, CFTC and Swap Dealer Registration
The NFA is the futures industry’s self-regulator. Swap dealers must be members of the NFA, a process that involves an audit. According to CFTC rules, any firm that deals in more than $8 billion in swaps must be registered as a swap dealer.
The new rule mandating registration for crossing the threshold was instated earlier this year. According to Reuters:
Cargill said it had applied to be a swap dealer because services its Cargill Risk Management unit provided had brought it within the definitions of the law.
NFA and CFTC do allow some space for firms that employ swaps for hedging commodities or liabilities; these firms are exempt from rules mandating swap dealer registration.
Another effect of registration: now Cargill must clear its swaps transactions through clearing houses that were instated to curb risk of defaulting.
As it stands, most registered swaps dealers are enormous financial entities – JPMorgan, Bank of America, and Deutsche Bank, for example. Cargill is the first of its kind: a non-financial entity that has crossed the $8 billion dollar swaps threshold.