On October 13, 2016, the CFTC approved an order establishing December 31, 2018 as the de minimis swap dealer (SD) threshold phase-in termination date. On this date, absent further CFTC action, the annual gross notional threshold of swap dealing activity that would cause a party to be required to register as a swap dealer under CFTC Dodd-Frank rules would decrease from its current level of $8 billion to $3 billion.

The de minimis exception provides that market participants that exceed $8 billion in swap activity, measured over a 12-month period, must register as an SD with the CFTC. Below that amount, SD registration is not required. The de minimis threshold was set to automatically decrease from $8 billion in gross notional swap dealing activity to $3 billion at the end of 2017 (see Legal Update, CFTC Sends Mixed Signals on Lowering Swap Dealer Threshold).

Registration as an SD requires compliance with the CFTC's regulatory regime for SDs (see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist). Lowering the threshold would subject additional market participants to these regulations. The extension was approved to provide additional time to analyze the potential impact of changes to the de minimis exception.

The delay essentially constitutes a one-year "punt" by the CFTC on whether to:

Lowering the de minimis threshold from $8 billion to $3 billion would subject approximately 100 additional institutions to SD registration and subsequent CFTC regulation. However, the $3 billion threshold would only add an additional 2% of the market. The current $8 billion threshold level captures 98% of the market.

The CFTC staff issued a preliminary report regarding the de minimis exception on November 18, 2015, and a final report on August 15, 2016 (see Legal Updates, CFTC Seeks Public Comment on Lowering Swap Dealer Threshold and CFTC Sends Mixed Signals on Lowering Swap Dealer Threshold). The reports analyzed market impact of the de minimis threshold and potential alternative threshold levels. The final report recommended that the CFTC consider one of the three options listed above for the de minimis threshold.

In addition, the CFTC has not yet adopted a regulation on capital requirements for SDs, and noted that it would be prudent to finalize the capital rule before addressing the de minimis threshold.

For more information on the de minimis SD exception, see Practice Note, US Derivatives Regulation: Swap Dealer and MSP Threshold Calculations: De minimis Exemptions from Designation as a Swap Dealer (SD) and Security-based Swap Dealer (SBSD).