CFTC Swaps Dealer Threshold Criticized by Its Newest Republican

  • The metric is ‘meaningless and ambiguous,’ Brian Quintenz says
  • $8 billion limit will fall to $3 billion unless agency acts

The U.S. Commodity Futures Trading Commission’s newest Republican is jumping right into a contentious debate over a registration requirement for swaps dealers.

Brian Quintenz, who joined the CFTC as a commissioner in August, is calling for a rethink of the scheduled lowering of the annual trading threshold that determines which financial, energy and agricultural firms face stricter margin and capital rules. The current $8 billion level will fall to $3 billion at the end of 2018 if the agency doesn’t intervene.

The dollar amount is “a meaningless and ambiguous metric,” Quintenz said in an interview at CFTC headquarters in Washington last month. “It doesn’t tell you differences in what’s underlying a swap. It doesn’t tell you the difference in tenors in a swap.”

The swaps market is dominated by big banks that easily surpass the CFTC’s trigger point for tighter scrutiny. Energy and agricultural firms have sought to avoid registration requirements, arguing that they are end-users employing swaps to hedge business risk. Some have said they could be driven out of the market if the threshold falls to $3 billion.

Swap dealer registration was mandated by the Dodd-Frank Act of 2010 to govern clearing, trading, capital, collateral and internal compliance standards, as well as firms’ relationships with clients including pension funds and cities.

Quintenz said that if the agency is stuck using a notional value for the threshold, he’d prefer a higher level to a lower one. The number of counterparties a firm has and how many trades it executed should also be factored in, he said.

The Treasury Department’s proposal for overhauling capital markets regulation released last week urged the CFTC to keep the threshold at $8 billion and said it should only be changed through rulemaking. CFTC Chairman Chris Giancarlo, also a Republican, hasn’t said what the agency will do, but told lawmakers in June that he’d directed staff to use data to assess how changing the threshold would affect the agency’s attempt to oversee swap dealers.

— With assistance by Silla Brush

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