On June 27, 2019, the Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission issued a no-action relief (No Action Letter) for registered floor traders from compliance with certain conditions of a CFTC regulation related to the de minimis exception to the swap dealer definition.

Under paragraph (6)(iv) of the swap dealer definition in CFTC regulation 1.3, a registered floor trader does not need to consider cleared swaps executed on or subject to the rules of a designated contract market (DCM) or swap execution facility (SEF Cleared Swaps) when determining whether it is a swap dealer, provided certain conditions are satisfied. The No Action Letter clarifies that the exemption is available even if the registered floor trader: (1) enters into swaps other than DCM and SEF Cleared Swaps; and (2) directly, or through an affiliated person, negotiates the terms of those other swaps. The No Action Letter also removes the condition that a registered floor trader must submit periodic risk reports as required by CFTC regulation 23.600(c)(2).

In an unusual dissenting statement, CFTC Commissioner Brian Quintenz agrees with the relief but argues that this no action relief is a poor substitute for an actual revision of the swap dealer definition that allows all market participants — not just proprietary trading firms — to exclude cleared swaps from calculations to determine if they have passed the de minimis swap dealer registration threshold. In a separate statement, Commissioner Dan M. Berkovitz agrees that the CFTC should amend the swap dealer definition and notes that Chairman Giancarlo has agreed to direct the CFTC staff to draft a proposed amendment to the floor trader provision that is consistent with the no action relief granted.

The No Action letter is conditioned upon the registered floor trader complying with CFTC regulations 23.201, 23.202, 23.203 and 23.600 (other than 23.600(c)(2)) with respect to each of its swaps (including swaps that are not DCM and SEF Cleared Swaps) as if it was a swap dealer.

A complete copy of the No Action Letter and Statements is available here.