The US Commodity Futures Trading Commission's latest definition of a swap dealer is an improvement on its original proposal because it recognizes the difference between a dealer and trader, officials from the Natural Gas Supply Association and the Independent Petroleum Association of America separately said. They also plan to wait and see before declaring their concerns fully addressed.
CFTC commissioners voted 4-1 on Apr. 18 to adopt an interim final rule in the matter. New reporting requirements took effect immediately, but comments are being accepted on proposed exemptions before the regulation becomes final as part of the Dodd-Frank financial reforms law.
"Our first impression is that the CFTC appeared to take a thoughtful and balanced approach," said Jenny Fordham, NGSA's vice-president for markets. "Yesterday's CFTC discussion indicated that regulators acknowledge the importance of a hedging exemption and the distinction between a commodity dealer and a trader, two key points that are critical to assuring end-user and economic protections."
Susan W. Ginsberg, IPAA's vice-president for crude oil and natural gas regulatory affairs, recognized the role of hedging by the energy industry as a means to manage risk, not as a reason to regulate independent producers as swap dealers. "The commission's intent appears to follow congressional intent to exclude commercial end-users from the registration and financial requirements that swap dealers will bear," she told OGJ.
Fordham and Ginsberg each noted that more time will be needed to determine if the changes are adequate. "It will be important to carefully review the final rule upon issuance, and to see how future final rules on the end-user exemption and the product definitions are crafted," Ginsberg said. "After all, the definition of a ‘swap' will be critical to the entity definitions approved yesterday."
Fordham said, "Many of the concerning issues appear to be adequately addressed—but without the level of precision that we urged in our February filing. This means that it will take some time to gain assurance that the definition will work well when it is applied. We need some time to kick the tires."
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