Oil Industry Avoids Swaps Rules

Oil industry companies have largely managed to avoid the scrutiny of derivatives trading and registration as swap dealers, according to Reuters. In January of this year, the CFTC required that companies register as dealers if they trade more than $8 billion in swaps a year.

Reuters reports that currently, no large energy companies have have registered as swaps dealers, and these entities are subject to the toughest level of oversight. Major oil company BP told the CFTC it intends to register, but not for several more months. Likewise, Royal Dutch Shell said that the company would register as a dealer when Shell exceeds the threshold.

An anonymous source told Reuters that, “The lack of swap dealer registration by the energy companies has been interesting. They…have kept that close to their vest as to when they will register.”

A successful lobby campaign guaranteed that the majority of large energy companies were able to sidestep the regulatory crackdown on the $650 trillion overall swap market, following the 2008 financial crisis. Although, this campaign might pose an unexpected problem for utility companies that use swaps, since smaller companies have to go through an enormous administrative process to report their own swaps, given that they do not trade with a registered swap dealer. In the mid-2000s, large oil companies started offering swaps products to smaller entities, and would speculate on derivative markets in a similar fashion as investment banks. With the regulatory crackdown on derivatives trading brought on by the financial crisis, many oil traders feared the new rules would harm their business.

While most large banks are now listed as swap dealers, there is not a single oil company in the registry that is kept by the National Futures Association, and only one commodity firm, trading group Cargil Inc. Reuters reports that there remains a lack of clarity about whether certain exotic swap products would count toward the CFTC’s threshold.

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