CFTC and SEC Issue Proposed Rule on Definitions

CFTC and SEC Issue Proposed Rule on Definitions

 

The Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) have issued a joint proposed rule to further define: (i) the commodity-related terms “swap dealer,” “major swap participant” (“MSP”), and “eligible contract participant” (“ECP”); and (ii) the securities-related terms “security-based swap dealer” and “major security-based swap participant.”[1] The proposed rule does not further define the term “swap.”[2] A person that meets either the “swap dealer” or MSP definition will be subject to regulations related to, among other things, registration, margin, capital and business conduct.[3] Those requirements will likely lead to compliance costs, capital holding costs, and margin posting costs.

 

Parties can submit comments on any portion of the proposed rule.  It is clear from the proposed rule that the CFTC and SEC are eager for public input.  The comment due date is February 22, 2011.

 

For more information or a copy of the full summary, please contact Joe Fina at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 202-296-1500.


[2] The proposed rule notes that the term “swap” is the subject of a separate rulemaking.  (n. 4)  The Dodd-Frank Act requires both the CFTC and SEC to jointly further define this term.  Our understanding is that both the CFTC and SEC staffs are still working on a proposed rule.  There is no indication on when the CFTC and SEC will issue the proposed rule.

[3] The CFTC has issued separate rulemakings on registration, margin, capital and business conduct requirements.