A definition of swap dealer that the US Commodity Futures Trading Commission is expected to announce on Feb. 23 could hinder oil and gas producers and others using over-the-counter risk management tools, the Natural Gas Supply Association and National Corn Grows Association jointly said.
“A broad swap dealer definition appears imminent, given recent CFTC draft orders that progressively expand CFTC purview into physical commodity contracts used by commodity producers to hedge business risk inherent in the production of commodities,” the two associations said in a Feb. 9 letter to White House Chief of Staff Jacob Lew and National Economic Council Director Gene B. Sperling.
The groups questioned the definition’s breadth because entities designated as swap dealers cannot use the Dodd-Frank Law’s enduser protections and will be subject to increased levels of margin and other collateral requirements and significant administrative burdens.
“If firms that are predominantly hedgers and traders are treated as dealers, $600 billion in capital currently at work in the economy as job creating investments by businesses with strong balance sheets and assets in the ground will be needlessly sidelined as collateral,” NGSA and NCGA said in their letter.
Jenny Fordham, NGSA’s vice president for markets, said that as current envisioned, the CFTC’s swap dealer definition would sweep producers and other businesses that use the OTC market to hedge into an unwieldy regulatory process that limits their access to risk management tools.
“Ultimately these costs will find their way to consumers or come at the expense of business investment and growth,” she suggested.
NGSA Pres. R. Skip Horvath said he was dismayed “that the CFTC is considering an action that is the exact opposite of what Congress intended when it created the Dodd-Frank Act.
“Rather than protecting consumers and reducing market risk, the CFTC will be raising market risk and raising consumer costs without any significant benefit to the U.S. financial system.”
Contact Nick Snow at email@example.com