On April 18, 2012, the Commodity Futures Trading Commission (the “CFTC”) and the Securities Exchange Commission (the “SEC,” and together with the CFTC, the “Commissions”) adopted the much-anticipated joint final rules further defining “swap dealer,” “major swap participant,” “security-based swap dealer,” and “major security-based swap participant” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).
The final rules are largely consistent with the Commissions’ proposed rules, which were published in the Federal Register on December 21, 2010, with a few significant differences. For example, the final rules raised the de minimis exemption threshold for the swap dealer and security-based swap dealer definition considerably and also removed from the de minimis exemption the limits on the number of swaps or security-based swaps that a person can enter into during a 12-month period and the number of counterparties with which the person can enter into such swaps or security-based swaps during a 12-month period. The final rules also provided the ratio for the “highly leveraged” definition used in the third alternative test for determining whether a person is a major swap participant (“MSP”) or major security-based swap participant (“MSSP”). Another significant change from the proposed rules is the addition to the final rules of a safe harbor from the MSP/MSSP definition and the related tests. These changes and more are discussed in further detail below. [click to continue…]