CFTC Final Rule: Registration of Swap Dealers and Major Swap Participants

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Gavel.png FINAL RULE: CFTC Final Rule: Registration of Swap Dealers and Major Swap Participants at CFTC Open Meeting, January 11, 2012
Dodd-Frank Timeline, Registration of Swap Dealers and Major Swap Participants
Final Rule Issue Effective Date Compliance Date - Swap Dealers Compliance Date - Major Swap Participants
January 19, 2012 March 19, 2012 January 1, 2013 October 12, 2012

Section 731 of the Dodd-Frank Act prohibits any person from acting as a swap dealer or major swap participant (SD/MSP), unless such person is registered with the Commodity Futures Trading Commission (CFTC. Additionally, section 731 prohibits any person associated with an SD/MSP to be involved with swaps if such person is subject to a statutory disqualification.

Section 716 of Dodd-Frank prohibits an insured depository institution (IDI) from receiving federal assistance if it is also a SD/MSP. Such an IDI could retain access to federal assistance if it transfers its swap business to an affiliated entity ("push-out affiliate"). The push-out affiliate would not be eligible for federal assistance.

On January 11, 2012, the CFTC approved its final set of rules regarding the registration of SD/MSPs. In conjunction with the rules, the commission approved a delegation of authority order to the National Futures Organization (NFA). Under the order, the NFA will perform the following functions with respect to SD/MSPs:

  • process and grant applications and withdrawals of application;
  • notify of provisional registration;
  • confirm initial compliance with requirements;
  • conduct proceedings to deny, suspend, restrict, or revoke registration;
  • maintain records; and
  • serve as official custodian of commission records.[1]

Background

At its November 10, 2010 open meeting, the commission approved its proposed rules on the registration of swap dealers and major swap participants. The proposed rule defined the registration framework for SD/MSPs, contingent on the finalization of swap entity definitions. Comment letters related to the proposed rulemaking can be viewed HERE.

The Final Rule

Under the final rule, registration will not be mandatory until after swap entity definitions have been finalized and become effective. Persons who believe themselves to be SD/MSPs may register prior to the effective date, but will not be required to register until the effective date. SD/MSPs will be required to file Form 7-R. Each principal of a SD/MSP firm must also file form 8-R and a fingerprint card. The registration process has been delegated to the NFA, as noted above.

Push-out affiliates of insured depository institutions (as defined above) will be subject to the registration requirements.

The final rule differs from the proposed rule in some respects. First, the final rule allows for provisional registration to be granted upon the filing of one's application, rather than upon NFA review and approval. Second, the final rule allows for phased implementation, per the implementation schedule agreed to at the September 8, 2011 open meeting. According to Commissioner Scott O'Malia, the final rule contains one shortcoming, in that it fails to address the treatment of an SD or MSP who may conduct swap activity for more than one firm, thus depriving such persons of customer protection and anti-fraud safeguards.[2] The final rule does, however, indicate that this issue will be resolved in a subsequent rulemaking.

Related Documents: Fact Sheet, Q&A, Delegation of Authority Order, and Final Rule as it Appeared in the Federal Register

References

  1. Performance of Registration Functions by National Futures Association With Respect to Swap Dealers and Ma jor Swap Participants. CFTC. Retrieved on January 12, 2012.
  2. Opening Statement of Commissioner Scott D. O’Malia, Open Meeting on Three Final Rules, One Proposed Rule, and One Delegation of Authority Order. CFTC. Retrieved on January 12, 2012.

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