# De Minimis Exception to the Swap Dealer Definition > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2018-24579 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** November 13, 2018 - **Citation:** 83 FR 56666 ## Text COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 1 RIN 3038-AE68 De Minimis Exception to the Swap Dealer Definition AGENCY: Commodity Futures Trading Commission. ACTION: Final rule. SUMMARY: The Commodity Futures Trading Commission (“Commission” or “CFTC”) is amending the de minimis exception within the “swap dealer” definition in the Commission's regulations by setting the aggregate gross notional amount threshold for the de minimis exception at $8 billion in swap dealing activity entered into by a person over the preceding 12 months. DATES: This rule is effective November 13, 2018. FOR FURTHER INFORMATION CONTACT: Matthew Kulkin, Director, 202-418-5213, mkulkin@cftc.gov, Rajal Patel, Associate Director, 202-418-5261, rpatel@cftc.gov, or Jeffrey Hasterok, Data and Risk Analyst, 646-746-9736, jhasterok@cftc.gov, Division of Swap Dealer and Intermediary Oversight; Bruce Tuckman, Chief Economist, 202-418-5624, btuckman@cftc.gov or Scott Mixon, Associate Director, 202-418-5771, smixon@cftc.gov, Office of the Chief Economist; or Mark Fajfar, Assistant General Counsel, 202-418-6636, mfajfar@cftc.gov, Office of General Counsel, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: Table of Contents I. Background A. Statutory and Regulatory Background 1. Statutory Authority 2. Regulatory History 3. Policy Considerations 4. De Minimis Calculation B. The Proposal II. Final Rule—$8 Billion Threshold A. Proposal B. Summary of Comments 1. Set Threshold at $8 Billion 2. Increase Threshold 3. Allow Threshold to Decrease 4. Other Comments C. Final Rule and Commission Response 1. Rationale for Not Reducing AGNA Threshold to $3 Billion 2. Rationale for Not Increasing AGNA Threshold 3. Response to Other Comments III. Proposed Rule Amendments Not Adopted A. Swaps Entered into by Insured Depository Institutions in Connection With Loans to Customers 1. Proposal 2. Summary of Comments 3. Commission Response B. Swaps Entered Into to Hedge Financial or Physical Positions 1. Proposal 2. Summary of Comments 3. Commission Response C. Swaps Resulting From Multilateral Portfolio Compression Exercises 1. Proposal 2. Summary of Comments 3. Commission Response D. Methodology for Calculating Notional Amounts 1. Proposal 2. Summary of Comments 3. Commission Response IV. Other Matters Discussed in NPRM A. Dealing Counterparty Count and Dealing Transaction Count Thresholds B. Exception for Exchange-Traded and/or Cleared Swaps C. Exception for Non-Deliverable Forwards V. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act C. Cost-Benefit Considerations 1. General Costs and Benefits 2. Direct Cost and Benefits 3. Section 15(a) D. Antitrust Considerations I. Background A. Statutory and Regulatory Background 1. Statutory Authority Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) 1 established a statutory framework to reduce risk, increase transparency, and promote market integrity within the financial system by regulating the swap market. Among other things, the Dodd-Frank Act amended the Commodity Exchange Act (“CEA”) 2 to provide for the registration and regulation of swap dealers (“SDs”). 3 The Dodd-Frank Act directed the CFTC and the U.S. Securities and Exchange Commission (“SEC” and together with the CFTC, “Commissions”) to jointly further define, among other things, the term “swap dealer,” 4 and to exempt from designation as an SD a person that engages in a de minimis quantity of swap dealing. 5 1 Public Law 111-203, 124 Stat. 1376 (2010), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf. 2 The CEA is found at 7 U.S.C. 1, et seq. 3 See generally 7 U.S.C. 6s. 4 Dodd-Frank Act section 712(d)(1). See the definitions of “swap dealer” in CEA section 1a(49) and § 1.3 of Commission regulations. 7 U.S.C. 1a(49); 17 CFR 1.3. 5 See Dodd-Frank Act section 721. CEA section 1a(49) defines the term “swap dealer” to include any person who: (1) Holds itself out as a dealer in swaps; (2) makes a market in swaps; (3) regularly enters into swaps with counterparties as an ordinary course of business for its own account; or (4) engages in any activity causing the person to be commonly known in the trade as a dealer or market maker in swaps (collectively referred to as “swap dealing,” “swap dealing activity,” or “dealing activity”). 6 The statute also requires the Commission to promulgate regulations to establish factors with respect to the making of a determination to exempt from designation as an SD an entity engaged in a de minimis quantity of swap dealing. 7 CEA section 1a(49) further provides that in no event shall an insured depository institution (“IDI”) be considered to be an SD to the extent it offers to enter into a swap with a customer in connection with originating a loan with that customer. 8 6 7 U.S.C. 1a(49)(A). In general, a person that satisfies any one of these prongs is deemed to be engaged in swap dealing activity. See also the definitions of “swap” in CEA section 1a(47) and § 1.3 of Commission regulations. 7 U.S.C. 1a(47); 17 CFR 1.3. 7 7 U.S.C. 1a(49)(D). 8 7 U.S.C. 1a(49)(A). 2. Regulatory History Pursuant to the statutory requirements, in December 2010, the Commissions issued a proposing release (“SD Definition Proposing Release”) 9 further defining, among other things, the term “swap dealer.” Subsequently, in May 2012, the Commissions issued an adopting release (“SD Definition Adopting Release”) 10 further defining, among other things, the term “swap dealer” in § 1.3 of the CFTC's regulations (“SD Definition”) and providing for a de minimis exception in paragraph (4) therein (“De Minimis Exception”). 11 The De Minimis Exception states that a person shall not be deemed to be an SD unless its swaps connected with swap dealing activities exceed an aggregate gross notional amount (“AGNA”) threshold of $3 billion (measured over the prior 12-month period), subject to a phase-in period during which the AGNA threshold is set at $8 billion. 12 The phase-in period was originally scheduled to terminate on December 31, 2017, and the AGNA threshold was scheduled to decrease to $3 billion at that time. However, as discussed below, pursuant to paragraph (4)(ii)(C)( 1 ) of the De Minimis Exception, the Commission issued two successive orders to set new termination dates, and the phase-in period is currently scheduled to terminate on December 31, 2019. 13 9 Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” 75 FR 80174 (proposed Dec. 21, 2010). 10 Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” 77 FR 30596 (May 23, 2012). 11 See 17 CFR 1.3, Swap dealer. As discussed in more detail in section II, the Commission notes that a joint rulemaking with the SEC is not required to amend the De Minimis Exception, pursuant to paragraph (4)(v) of the De Minimis Exception. See 17 CFR 1.3, Swap dealer, paragraph (4)(v); 77 FR at 30634 n.464. 12 17 CFR 1.3, Swap dealer, paragraph (4)(i)(A). Paragraph (4)(i)(A) also provides for a de minimis threshold of $25 million with regard to swaps in which the counterparty is a “special entity” (excluding “utility special entities” as provided in paragraph (4)(i)(B) of the De Minimis Exception) as defined in CEA section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C). This final rule would not change the AGNA threshold for swaps with special entities. 13 See Order Establishing De Minimis Threshold Phase-In Termination Date, 81 FR 71605 (Oct. 18, 2016); Order Establishing a New De Minimis Threshold Phase-In Termination Date, 82 FR 50309 (Oct. 31, 2017). When the $3 billion AGNA threshold was established, the Commissions explained that the information then available regarding certain portions of the swap market was limited, and that they expected more information to be available in the future (following the implementation of swap data reporting), which would enable the Commissions to make a more informed assessment of the De Minimis Exception and to revise it as appropriate. 14 In recognition of these limitations and in anticipation of additional swap market data becoming available to the CFTC through the reporting of transactions to swap data repositories (“SDRs”), paragraph (4)(ii)(B) of the De Minimis Exception was adopted, which directed CFTC staff to complete and publish for public comment a report on topics relating to the definition of the term “swap dealer” and the de minimis threshold as appropriate, based on the availability of data and information. 15 Paragraph (4)(ii)(C) of the De Minimis Exception provided that after giving due consideration to the staff report and any associated public comment, the CFTC may either set a termination date for the phase-in period or issue a notice of proposed rulemaking to modify the De Minimis Exception. 16 14 See SD Definition Adopting Release, 77 FR 30632-34. In making their determination, the Commissions considered the limited and incomplete swap market data that was available at that time and concluded that the $3 billion level appropriately considers the relevant regulatory goals. Id. at 30632. The Commissions found merit in determining the threshold by multiplying the estimated size of the domestic swap market by a 0.001 percent ratio suggested by several commenters. Id. at 30633. 15 17 CFR 1.3, Swap dealer, paragraph (4)(ii)(B). 16 17 CFR 1.3, Swap dealer, paragraph (4)(ii)(C). In November 2015, staff issued a preliminary report concerning the De Minimis Exception (“Preliminary Staff Report”). 17 After consideration of the public comments received in response to the Preliminary Staff Report, 18 and further data analysis, in August 2016 staff issued a final staff report 19 concerning the De Minimis Exception (“Final Staff Report,” and together with the Preliminary Staff Report, “Staff Reports”). The data analysis in the Staff Reports provided some insights into the effectiveness of the De Minimis Exception as currently implemented. For example, staff analyzed the number of swap transactions involving at least one registered SD, 20 which is indicative of the extent to which swaps are subject to SD regulation at the current $8 billion AGNA threshold. Data reviewed for the Final Staff Report indicated that approximately 96 percent of swap transactions analyzed involved at least one registered SD. 17 See Swap Dealer De Minimis Exception Preliminary Report (Nov. 18, 2015), available at http://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf. For the Preliminary Staff Report, staff analyzed data from April 1, 2014 through March 31, 2015. 18 The comment letters are available on the Commission website at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1634. 19 See Swap Dealer De Minimis Exception Final Staff Report (Aug. 15, 2016), available at http://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf. For the Final Staff Report, staff analyzed data from April 1, 2015 through March 31, 2016. 20 Given that all of the CEA section 4s requirements have not yet been implemented by regulation, the term “registered SD” refers to an entity that is a provisionally registered SD. See 17 CFR 3.2(c)(3)(iii). To provide additional time for more information to become available to study the De Minimis Exception, in October 2016 the Commission issued an order, pursuant to paragraph (4)(ii)(C)( 1 ) of the De Minimis Exception, establishing December 31, 2018, as the new termination date for the $8 billion phase-in period. 21 To enable staff to conduct additional analysis, in October 2017 the Commission further extended the phase-in period to December 31, 2019. 22 Generally, the extensions provided additional time for Commission staff to conduct further data analysis regarding the De Minimis Exception, and gave market participants additional time to begin preparing for a change, if any, to the AGNA threshold. 21 81 FR 71605. 22 82 FR 50309. 3. Policy Considerations (i) Swap Dealer Registration Policy Considerations The policy goals underlying SD registration and regulation generally include reducing systemic risk, increasing counterparty protections, and increasing market efficiency, orderliness, and transparency. Reducing systemic risk: The Dodd-Frank Act was enacted in the wake of the financial crisis of 2008, in significant part, to reduce systemic risk, including the risk to the broader U.S. financial system created by interconnections in the swap market. 23 Pursuant to the Dodd-Frank Act, the Commission has adopted regulations designed to mitigate the potential systemic risk inherent in the previously unregulated swap market. 24 23 Dodd-Frank Act, Preamble (indicating that the purpose of the Dodd-Frank Act was to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes). See also De Minimis Exception to the Swap Dealer Definition, 83 FR 27444, 27446 (proposed June 12, 2018). 24 For example, registered SDs have specific requirements for risk management programs and margin. See, e.g., 17 CFR 23.600; 17 CFR 23.150-23.161. Increasing counterparty protections: Providing regulatory protections for swap counterparties who may be less experienced or knowledgeable about the swap products offered by SDs (particularly end-users who use swaps for hedging or investment purposes) is a fundamental policy goal advanced by the regulation of SDs. 25 The Commissions recognized that a narrower or smaller de minimis exception would increase the number of counterparties that could potentially benefit from those regulatory protections. 26 25 For example, registered SDs are subject to external business conduct standard regulations designed to provide counterparty protections. See, e.g., 17 CFR 23.400-23.451. 26 SD Definition Adopting Release, 77 FR 30628 (“On the one hand, a de minimis exception, by its nature, will eliminate key counterparty protections provided by Title VII for particular users of swaps and security-based swaps.”). See also 83 FR 27446. Increasing market efficiency, orderliness, and transparency: Increasing swap market efficiency, orderliness, and transparency is another goal of SD regulation. 27 Regulations requiring SDs, for example, to keep detailed daily trading records, report trade information, and engage in portfolio reconciliation and compression exercises help achieve these market benefits. 28 27 77 FR 30629 (“The statutory requirements that apply to swap dealers . . . include requirements . . . aimed at helping to promote effective operation and transparency of the swap . . . markets.”). See id. at 30703 (“Those who engage in swaps with entities that elude swap dealer or major swap participant status and the attendant regulations could be exposed to increased counterparty risk; customer protection and market orderliness benefits that the regulations are intended to provide could be muted or sacrificed, resulting in increased costs through reduced market integrity and efficiency. . . .”). See also 83 FR 27446. 28 See, e.g., 17 CFR 23.200-23.205; 17 CFR parts 43 and 45; 17 CFR 23.502-23.503. (ii) De Minimis Exception Policy Considerations Consistent with Congressional intent, “an appropriately calibrated de minimis exception has the potential to advance other interests.” 29 These interests include increasing efficiency, allowing limited swap dealing in connection with other client services, encouraging new participants to enter the market, and focusing regulatory resources. 30 The policy objectives underlying the de minimis exception are designed to encourage participation and competition by allowing persons to engage in a de minimis amount of dealing without incurring the costs of registration and regulation. 31 29 See 77 FR 30628. See also 83 FR 27446. 30 See 77 FR 30628-30, 30707-08. See also 83 FR 27446-47. 31 In considering the appropriate de minimis threshold, “exclud[ing] entities whose dealing activity is sufficiently modest in light of the total size, concentration and other attributes of the applicable markets can be useful in avoiding the imposition of regulatory burdens on those entities for which dealer regulation would not be expected to contribute significantly to advancing the customer protection, market efficiency and transparency objectives of dealer regulation.” 77 FR 30629-30. See also 83 FR 27446-47. Increasing efficiency: A de minimis exception based on an objective test with a limited degree of complexity enables entities to engage in a lower level of swap dealing with limited concerns about whether their activities would require registration. 32 The de minimis exception thereby fosters efficient application of the SD Definition. Additionally, the Commission is of the view that the potential for regular or periodic changes to the de minimis threshold may reduce its efficacy by making it challenging for persons to calibrate their swap dealing activity as appropriate for their business models. Further, the Commission is mindful that objective, predictable standards in the de minimis exception increase efficiency by establishing a simple test for whether a person's swaps connected with swap dealing activity must be included in the de minimis calculation. On the other hand, more complexity in the de minimis calculation potentially results in less efficiency. 33 32 77 FR 30628-29 (“[T]he de minimis exception may further the interest of regulatory efficiency when the amount of a person's dealing activity is, in the context of the relevant market, limited to an amount that does not warrant registration. . . . In addition, the exception can provide an objective test . . . .”). See also 83 FR 27446-47. 33 77 FR 30707-08 (“On the other hand, requiring market participants to consider more variables in evaluating application of the de minimis exception would likely increase their costs to make this determination.”). See also 83 FR 27446-47. Allowing limited ancillary dealing: A de minimis exception allows persons to accommodate existing clients that have a need for swaps (on a limited basis) along with other services. 34 This enables end-users to continue transacting within existing business relationships, for example to hedge interest rate or currency risk. 34 77 FR 30629, 30707-08. See also 83 FR 27447. Encouraging new participants: A de minimis exception also promotes competition by allowing a person to engage in some swap dealing activities without immediately incurring the regulatory costs associated with SD registration and regulation. 35 Without a de minimis exception, SD regulation could become a barrier to entry that may stifle competition. An appropriately calibrated de minimis exception could lower the barrier to entry of becoming an SD by allowing smaller participants to gradually expand their business until the scope and scale of their activity warrants regulation (and the costs involved with compliance). 35 77 FR 30629. See also 83 FR 27447. Focusing regulatory resources: Finally, the de minimis exception also increases regulatory efficiency by enabling the Commission to focus its limited resources on entities whose swap dealing activity is sufficient in size and scope to warrant oversight. 36 36 77 FR 30628-29. See also 83 FR 27447. As noted in the SD Definition Adopting Release, “implementing the de minimis exception requires a careful balancing that considers the regulatory interests that could be undermined by an unduly broad exception as well as those regulatory interests that may be promoted by an appropriately limited exception.” 37 A narrower de minimis exception would likely mean that a greater number of entities would be required to register as SDs and become subject to the regulatory framework applicable to registered SDs. However, a de minimis exception that is too narrow could, for example, discourage persons from engaging in limited swap dealing activity in order to avoid the burdens associated with SD regulation. 37 77 FR 30628. See SD Definition Proposing Release, 75 FR 80179 (The de minimis exception “should apply only when an entity's dealing activity is so minimal that applying dealer regulations to the entity would not be warranted.”). See also 83 FR 27447. 4. De Minimis Calculation Generally, a person must count towards its AGNA threshold all swaps it enters into for dealing purposes over the preceding 12-month period. In addition, each person whose own swaps do not exceed the AGNA threshold must also include in its de minimis calculation the AGNA of swaps of any other unregistered affiliate controlling, controlled by, or under common control with that person (referred to as “aggregation”). 38 38 17 CFR 1.3, Swap dealer, paragraph (4)(i)(A); Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations, 78 FR 45292, 45323 (July 26, 2013). See also 83 FR 27447. Pursuant to various CFTC regulations, certain swaps, subject to specific conditions, need not be considered in determining whether a person is an SD, including: (1) Swaps entered into by an IDI with a customer in connection with originating a loan to that customer; 39 (2) swaps between affiliates; 40 (3) swaps entered into by a cooperative with its members; 41 (4) swaps hedging physical positions; 42 (5) swaps entered into by floor traders; 43 (6) certain foreign exchange (“FX”) swaps and FX forwards; 44 and (7) commodity trade options. 45 In addition, the Commission understands that persons have applied CFTC interpretive guidance and staff letters so as not to count towards the AGNA threshold, subject to certain conditions, certain cross-border swaps 46 and swaps resulting from multilateral portfolio compression exercises. 47 Further, certain inter-governmental or quasi-governmental international financial institutions are not included within the term “swap dealer.” 48 39 See 17 CFR 1.3, Swap dealer, paragraph (5); 77 FR at 30620-24. See also 83 FR 27447. 40 See 17 CFR 1.3, Swap dealer, paragraph (6)(i); 77 FR at 30624-25. See also 83 FR 27447. 41 See 17 CFR 1.3, Swap dealer, paragraph (6)(ii); 77 FR at 30625-26. See also 83 FR 27447. 42 See 17 CFR 1.3, Swap dealer, paragraph (6)(iii); 77 FR at 30611-14. See also 83 FR 27447. 43 See 17 CFR 1.3, Swap dealer, paragraph (6)(iv); 77 FR at 30614. See also 83 FR at 27447. The floor trader exclusion was also addressed in no-action relief. See CFTC Staff Letter No. 13-80, No-Action Relief from Certain Conditions of the Swap Dealer Exclusion for Registered Floor Traders (Dec. 23, 2013), available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/13-80.pdf. 44 See Determination of Foreign Exchange Swaps and Foreign Exchange Forwards Under the Commodity Exchange Act, 77 FR 69694, 69704-05 (Nov. 20, 2012); Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48208, 48253 (Aug. 13, 2012). 45 See 17 CFR 32.3; Commodity Options, 77 FR 25320, 25326 n.39 (Apr. 27, 2012). 46 See 78 FR 45292; CFTC Letter No. 18-13, No-Action Position: Relief for Certain Non-U.S. Persons from Including Swaps with International Financial Institutions in Determining Swap Dealer and Major Swap Participant Status (May 16, 2018), available at https://www.cftc.gov/sites/default/files/idc/groups/public/%40lrlettergeneral/documents/letter/2018-05/18-13.pdf; CFTC Staff Letter No. 12-71, No-Action Relief: U.S. Bank Wholly Owned by Foreign Entity May Calculate De Minimis Threshold Without Including Activity From Its Foreign Affiliates (Dec. 31, 2012), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/12-71.pdf; CFTC Staff Letter No. 12-61, No-Action Relief: U.S. Bank Wholly Owned by Foreign Entity May Calculate De Minimis Threshold Without Including Activity From Its Foreign Affiliates (Dec. 20, 2012), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/12-61.pdf. 47 CFTC Staff Letter No. 12-62, No-Action Relief: Request that Certain Swaps Not Be Considered in Calculating Aggregate Gross Notional Amount for Purposes of the Swap Dealer De Minimis Exception for Persons Engaging in Multilateral Portfolio Compression Activities (Dec. 21, 2012), available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/12-62.pdf. 48 See SD Definition Adopting Release, 77 FR 30693. B. The Proposal On June 12, 2018, the Commission published for public comment a Notice of Proposed Rulemaking (“NPRM”) to amend the De Minimis Exception by: (1) Setting the AGNA threshold for the De Minimis Exception at $8 billion in swap dealing activity entered into by a person over the preceding 12 months; (2) adding new factors to the De Minimis Exception that would lead to excepting from the AGNA calculation: (a) Certain swaps entered into with a customer by an IDI in connection with originating a loan to that customer, (b) certain swaps entered into to hedge financial or physical positions, and (c) certain swaps resulting from multilateral portfolio compression exercises; and (3) providing that the Commission may determine the methodology to be used to calculate the notional amount for any group, category, type, or class of swaps, and delegating to the Director of the Division of Swap Dealer and Intermediary Oversight (“DSIO”) the authority to make such determinations (collectively, the “Proposal”). 49 49 83 FR 27444. In addition, the Commission sought comment on the following additional potential changes to the De Minimis Exception: (1) Adding as a factor a minimum dealing counterparty count threshold and/or a minimum dealing transaction count threshold; (2) adding as a factor whether a swap is exchange-traded and/or cleared; and (3) adding as a factor whether a swap is categorized as a non-deliverable forward transaction. The various aspects of the NPRM are discussed in further detail below. The Commission received 43 letters and Commission staff participated in four ex parte meetings 50 concerning the NPRM. 51 50 Comments were submitted by the following entities: 360 Trading Networks Inc. (“360 Trading”); American Bankers Association (“ABA”) (ABA also attached a report prepared by NERA Economic Consulting); American Gas Association (“AGA”); Americans for Financial Reform (“AFR”); Associated Foreign Exchange, Inc. and GPS Capital Markets, Inc. (“AFEX/GPS”); Association of Global Custodians (“AGC”); Better Markets, Inc. (“Better Markets”); Bond Dealers of America (“BDA”); Capital One Financial Corporation (“Capital One”); Cboe SEF, LLC (“Cboe SEF”); Citizens Financial Group, Inc. (“Citizens”); CME Group Inc. and Intercontinental Exchange, Inc. (“CME/ICE”); Coalition for Derivatives End-Users (“CDEU”); Coalition of Physical Energy Companies (“COPE”); Commercial Energy Working Group (“CEWG”); Commodity Markets Council (“CMC”) (CMC also expressed support for the CEWG comment letter); Covington & Burling LLP (“Covington”); Daiwa Securities Co. Ltd. (“Daiwa”); Edison Electric Institute and Electric Power Supply Association (“EEI/EPSA”); Foreign Exchange Professionals Association (“FXPA”); Frost Bank; Futures Industry Association and FIA Principal Traders Group (“FIA”); Institute for Agriculture and Trade Policy (“IATP”); Institute of International Bankers (“IIB”); International Energy Credit Association (“IECA”) (IECA also expressed support for the EEI/EPSA comment letter); International Swaps and Derivatives Association and Securities Industry and Financial Markets Association (“ISDA/SIFMA”); Japanese Bankers Association (“JBA”); M&T Bank (“M&T”); Managed Funds Association (“MFA”); National Council of Farmer Cooperatives (“NCFC”); National Rural Electric Cooperative Association and American Public Power Association (“NRECA/APPA”); Natural Gas Supply Association (“NGSA”); NEX Group plc (“NEX”); Northern Trust; Optiver US LLC (“Optiver”) (Optiver also expressed support for the FIA comment letter); Regions Financial Corp. (“Regions”); State Street; SVB Financial Group (“SVB”); Thomson Reuters (SEF) LLC (“TR SEF”); six U.S. Senators (“Senators”); Virtu Financial Inc. (“Virtu”); Western Union Business Solutions (USA), LLC and Custom House USA, LLC (“Western Union”); and XTX Markets Limited (“XTX”). Additionally, there were three meetings with Delta Strategy Group, DRW, Jump Trading, and Optiver, and one meeting with Better Markets. The comment letters and notice of the ex parte meetings are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=2885. 51 Additionally, in March 2017, Chairman Giancarlo initiated an agency-wide internal review of CFTC regulations and practices to identify those areas that could be simplified to make them less burdensome and costly (“Project KISS”). See Remarks of then-Acting Chairman J. Christopher Giancarlo before the 42nd Annual International Futures Industry Conference in Boca Raton, FL (Mar. 15, 2017), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-20. The Commission subsequently published in the Federal Register a Request for Information soliciting suggestions from the public regarding how the Commission's existing rules, regulations, or practices could be applied in a simpler, less burdensome, and less costly manner. A number of responses submitted pursuant to the Project KISS Request for Information supported modifications to the De Minimis Exception. Project KISS, 82 FR 21494 (May 9, 2017), amended by 82 FR 23765 (May 24, 2017). The suggestion letters filed by the public are available at https://comments.cftc.gov/KISS/KissInitiative.aspx. II. Final Rule—$8 Billion Threshold Given the more complete information now available regarding certain portions of the swap market, the data analytical capabilities developed since the SD regulations were adopted, five years of implementation experience, and comments received in response to the NPRM, in this adopting release the Commission is amending the De Minimis Exception by setting the AGNA threshold at $8 billion in swap dealing activity. The CFTC may in the future separately propose or adopt rules addressing any aspect of the NPRM that is not finalized in this release. 52 52 See ICI v. CFTC, 720 F.3d 370, 379 (D.C. Cir. 2013) (“[A]s the Supreme Court has emphasized, `[n]othing prohibits federal agencies from moving in an incremental manner.' ”) (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 522 (2009)). This change to the De Minimis Exception is being adopted pursuant to the Commission's authority under CEA section 1a(49)(D), which requires the Commission to exempt from designation as an SD an entity that engages in a de minimis quantity of swap dealing in connection with transactions with or on behalf of its customers, and to promulgate regulations to establish factors with respect to the making of this determination to exempt. 53 The Commissions issued the SD Definition Adopting Release pursuant to section 712(d)(1) of the Dodd-Frank Act, which requires the CFTC and SEC to jointly adopt rules regarding the definition of, among other things, the term “swap dealer.” The CFTC continues to coordinate with the SEC on SD and security-based swap dealer regulations. However, as discussed in the SD Definition Adopting Release, a joint rulemaking is not required with respect to the De Minimis Exception. 54 The Commission notes that it has consulted with the SEC and prudential regulators regarding the change to the De Minimis Exception adopted herein. 55 53 7 U.S.C. 1a(49)(D). See also 17 CFR 1.3, Swap dealer, paragraph (4)(v). 54 77 FR 30634 n.464 (“We do not interpret the joint rulemaking provisions of section 712(d) of the Dodd-Frank Act to require joint rulemaking here, because such an interpretation would read the term “Commission” out of CEA section 1a(49)(D) (and Exchange Act section 3(a)(71)(D)), which themselves were added by the Dodd-Frank Act.”). 55 As required by § 712(a)(1) of the Dodd-Frank Act. A. Proposal The Commission proposed to amend paragraph (4)(i)(A) of the De Minimis Exception by setting the AGNA threshold at $8 billion. For added clarity, the Commission also proposed to change the term “swap positions” to “swaps” in paragraph (4)(i)(A). Additionally, the Commission proposed to delete a parenthetical clause in paragraph (4)(i)(A) referring to the period after adoption of the rule further defining the term “swap,” and to remove and reserve paragraph (4)(ii) of the De Minimis Exception, which addresses the phase-in procedure and staff report requirements of the De Minimis Exception (discussed above in section I.A.2), since both of those provisions would no longer be applicable. The Commission proposed to maintain the AGNA threshold at $8 billion, and also solicited comment on whether to reduce the threshold to $3 billion, or increase the threshold. The Commission cited as relevant an analysis of SDR data from January 1, 2017, through December 31, 2017 (the “review period”). 56 Given improvements in the quality of data being reported to SDRs since the Staff Reports were issued, Commission staff analyzed the AGNA of swaps activity for interest rate swaps (“IRS”), credit default swaps (“CDS”), FX swaps, 57 and equity swaps (whereas the analysis of AGNA data in the Staff Reports was limited to IRS and CDS). 58 However, given certain limitations discussed below, AGNA data was not available for non-financial commodity (“NFC”) swaps. In addition to now-available AGNA information for FX swaps and equity swaps, there were also continued improvements in the consistency of legal entity identifier (“LEI”) and unique swap identifier reporting. 59 56 See 83 FR 27448-58. The data was sourced from data reported to the four registered SDRs: BSDR LLC, Chicago Mercantile Exchange Inc., DTCC Data Repository, and ICE Trade Vault. The analysis excluded inter-affiliate and non-U.S. transactions. The total size of the swap market that was analyzed, after excluding inter-affiliate and non-U.S. transactions, was approximately $221.1 trillion in AGNA of swaps activity (excluding non-financial commodity swaps), approximately 4.4 million transactions, and 39,107 counterparties. The Proposal includes additional discussion regarding the methodology utilized to conduct the analysis. 83 FR 27449-50. 57 The term “FX swaps” is used in this release to only describe those FX transactions that are counted towards a person's de minimis calculation. The term “FX swaps” does not refer to swaps and forwards that are not counted towards the de minimis threshold pursuant to the exemption granted by the Secretary of the Treasury. See 77 FR at 69704-05; 77 FR 48253. 58 See 83 FR 27449-50; Preliminary Staff Report, supra note 19, at 21-22; Final Staff Report, supra note 17, at 19. 59 As discussed in the Proposal, certain data restrictions limited the usefulness of the SDR data to identify which swaps should be counted towards a person's de minimis threshold, and the ability to precisely assess the current de minimis threshold or the impact of potential changes to the current exclusions. See 83 FR 27449-50. Generally employing methodologies similar to those used for purposes of the Staff Reports, staff attempted to calculate persons' swaps activity in terms of AGNA to assess how the swap market might be impacted by potential changes to the current De Minimis Exception. The reason an entity enters into a swap ( e.g., dealing, hedging, investing, proprietary trading) is not collected under the reporting requirements in part 45 of the Commission's regulations. 60 Accordingly, staff applied filters to the data to exclude from the analysis certain transactions and entities that were less likely to be connected to potential swap dealing activity. Entities such as funds, insurance companies, cooperatives, government-sponsored entities, most commercial end-users, and international financial institutions were excluded as potential SDs for the purpose of the analysis because these entities generally use swaps for investing, hedging, or proprietary trading, or otherwise enter into swaps that would not be included in determining whether the entity is an SD. 61 Further, additional filters allowed for the exclusion of inter-affiliate 62 and non-U.S. to non-U.S. swap transactions. 63 60 See 17 CFR part 45 app.1. 61 See supra section I.A.4 (discussing the de minimis threshold calculation). The Commission notes that the entity-based exclusions and transaction filters are not a determinative means of assessing whether any particular entity is engaged in swap dealing. See also 83 FR 27449 n.73. 62 See 17 CFR 1.3, Swap dealer, paragraph (6)(i). 63 See generally 78 FR 45292. With the benefits of improved data quality and analytical tools, staff conducted a more granular analysis (as compared to the Staff Reports) to more accurately identify those entities that, based on their observable business activities, were potentially engaging in swap dealing activity (“In-Scope Entities”) 64 versus those likely to be engaging in other kinds of transactions ( e.g., entering into swaps for investment purposes). Further, for the purposes of the Proposal, a minimum unique counterparty count of 10 counterparties was utilized to better identify the entities that are likely to be engaged in transactions that have to be considered for the SD Definition. Adding this filter to the analysis reduced the likelihood of false positives— i.e., reduced the potential that entities likely engaged in hedging or other non-dealing activity would be identified as potential SDs. 65 64 The majority of In-Scope Entities are banks, broker-dealers, non-bank financial entities, and affiliates thereof. 65 See 83 FR 27449. With respect to NFC swaps, Commission staff encountered a number of challenges in calculating notional amounts, including: (1) The vast array of underlying commodities with differing characteristics; (2) the multiple types of swaps ( e.g., fixed-float, basis, options, multi-leg, exotic); (3) the variety of data points required to calculate notional amounts ( e.g., price, quantity, quantity units, location, grades, exchange rate); (4) locality-specific terms; and (5) lack of industry standards for notional amount-equivalent calculations. 66 Given the limitations in the AGNA data, counterparty counts and transaction counts were used as proxies to analyze likely swap dealing activity for participants in the NFC swap market. 66 See 83 FR 27449-50. The analysis conducted for the Proposal largely confirmed the analysis conducted for the Staff Reports; 67 however, there is greater confidence in the results given the improved data and refined methodology. Nonetheless, given the lack of a swap dealing indicator for individual swaps, and the lack of an indicator to identify whether a specific swap need not be considered in determining whether a person is an SD or counted towards the person's AGNA threshold, staff's analysis was based on a person's AGNA of swaps activity, as opposed to AGNA of swap dealing activity. 67 See generally 83 FR 27449-58; Final Staff Report, supra note 19; Preliminary Staff Report, supra note 17. To assess the relative impact on the swap market of potential changes to the De Minimis Exception, CFTC staff analyzed the extent to which the swap market was subject to SD regulation during the review period because at least one counterparty to a swap was a registered SD (“2017 Regulatory Coverage”). Specifically, with regard to 2017 Regulatory Coverage, staff identified the extent to which: (1) Swaps activity, measured in terms of AGNA or transaction count, was subject to SD regulation during the review period because at least one counterparty to a swap was a registered SD (“2017 AGNA Coverage” or “2017 Transaction Coverage,” as applicable); and (2) counterparties in the swap market transacted with at least one registered SD during the review period (“2017 Counterparty Coverage”). Additionally, staff estimated regulatory coverage by assessing the extent to which the swap market would have been subject to SD regulation at different AGNA thresholds because at least one counterparty to a swap was identified as a “Likely SD” (“Estimated Regulatory Coverage”). For purposes of this analysis, the term “Likely SD” refers to an In-Scope Entity that exceeded a specified AGNA threshold level, and traded with at least 10 unique counterparties. With regard to Estimated Regulatory Coverage, staff identified the extent to which: (1) Swaps activity, measured in terms of AGNA or transaction count, would have been subject to SD regulation during the review period, at a specified AGNA threshold, because at least one counterparty to a swap was identified as a Likely SD at that AGNA threshold (“Estimated AGNA Coverage” or “Estimated Transaction Coverage,” as applicable); and (2) counterparties in the swap market would have transacted with at least one Likely SD during the review period, at a specified AGNA threshold (“Estimated Counterparty Coverage”). B. Summary of Comments 1. Set Threshold at $8 Billion Most commenters that addressed this aspect of the Proposal stated that the AGNA threshold should not decrease to $3 billion, and/or supported setting the threshold at $8 billion. 68 Some of those commenters also stated that the Commission could or should consider a higher threshold, as discussed in more detail in section II.B.2 below. 69 Commenters generally stated that the policy goals for SD registration—reducing systemic risk, increasing counterparty protections, and/or increasing market efficiency, orderliness, and transparency—and the policy goals for a de minimis exception—increasing efficiency, allowing limited ancillary dealing, encouraging new participants, and/or focusing regulatory resources—would be better advanced if the threshold did not decrease to $3 billion. 70 68 See ABA, AGA, AFEX/GPS, BDA, Capital One, Cboe SEF, Citizens, CDEU, COPE, CEWG, CMC, EEI/EPSA, FXPA, Frost Bank, FIA, IIB, IECA, ISDA/SIFMA, JBA, M&T, NCFC, NRECA/APPA, NGSA, Regions, SVB, Virtu, Western Union, and XTX comment letters. 69 See ABA, AFEX/GPS, BDA, Capital One, Citizens, FIA, IIB, IECA, JBA, Regions, and SVB comment letters. 70 Additionally, CDEU and CEWG referenced the Congressional Directive stating that the Commission should establish a threshold of $8 billion or greater within 60 days of enactment of the Appropriations Act ( i.e., by February 16, 2016), while CEWG also cited to the recent recommendation from the U.S. Department of the Treasury to set the threshold at $8 billion. See CDEU and CEWG comment letters; Accompanying Statement to the Consolidated Appropriations Act of 2016, Explanatory Statement Division A at 32 (Dec. 2015), available at http://docs.house.gov/meetings/RU/RU00/20151216/104298/HMTG-114-RU00-20151216-SD002.pdf; H. Rpt. 114-205 at 76 (July 14, 2015), available at https://www.congress.gov/114/crpt/hrpt205/CRPT-114hrpt205.pdf; U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities—Capital Markets (available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf ). Specifically, commenters stated that a reduced AGNA threshold could lead to some entities reducing or ceasing swaps activity to avoid registration and its related costs, which could lead to negative impacts for swap market participants. For example, fewer de minimis dealers could mean that small and mid-sized end-users and commercial entities who utilize swaps for hedging purposes, as well as NFC swap market participants, would have fewer dealers available to them. 71 The potential negative impacts could include: (1) Increased concentration in the swap dealing market; (2) reduced availability of potential swap counterparties; (3) reduced liquidity; (4) increased volatility; (5) increased systemic risk; and/or (6) higher fees or reduced competitive pricing. 72 71 See ABA, AGA, AFEX/GPS, BDA, Capital One, Citizens, CDEU, COPE, CEWG, CMC, EEI/EPSA, Frost Bank, IIB, IECA, ISDA/SIFMA, JBA, M&T, NCFC, NRECA/APPA, NGSA, SVB, Virtu, and Western Union comment letters. 72 See id. Several commenters also noted that the current $8 billion threshold already subjects the vast majority of transactions to SD regulation, or that a reduced threshold would not capture significant additional dealing activity. 73 73 See AGA, BDA, Capital One, CDEU, CMC, Frost Bank, IECA, M&T, SVB, and Western Union comment letters. Some commenters stated that the nature of the swaps activity entered into by certain entities poses less systemic risk— e.g., commercial banks that have swap dealing activity below $8 billion and may be subject to prudential banking rules, and entities that primarily enter into NFC swaps. 74 More specifically, Citizens noted that prudential regulators examine the safety and soundness of middle-market banks' swap businesses, and the swaps offered by these banks are structured conservatively to assist customers with hedging activities. Further, with respect to counterparty protections, Citizens stated that many middle-market banks that would potentially have to register at a lower threshold likely already perform, under applicable prudential banking rules, know-your-counterparty and suitability analyses of their counterparties prior to entering into swaps with them. 75 74 See Citizens, IECA, NRECA/APPA, NGSA, and SVB comment letters. 75 See Citizens comment letter. Several commenters stated that maintaining the $8 billion threshold provides regulatory stability or alleviates the uncertainty currently experienced by market participants with an AGNA of swap dealing activity between $3 billion and $8 billion. 76 76 See AFEX/GPS, Capital One, COPE, EEI/EPSA, FXPA, FIA, IECA, ISDA/SIFMA, JBA, M&T, NGSA, and Regions comment letters. Some commenters suggested that maintaining the $8 billion threshold would enable the Commission to focus its limited resources on entities whose swap dealing is sufficient in size and scope to warrant oversight. 77 Two commenters also noted that Commission regulations not related to SD registration ( e.g., part 43 and 45 reporting requirements, and mandatory clearing and swap execution facility (“SEF”) trading requirements) already apply to unregistered entities, and therefore, many of the policy goals of SD registration are already being advanced with respect to swaps entered into by these unregistered entities. 78 77 See Citizens, Virtu, and Western Union comment letters. 78 See Citizens and Virtu comment letters. With respect to NFC swaps, EEI/EPSA and NGSA expressed concern that a lower AGNA threshold would provide less accommodation for increasing NFC prices, which could lead to market participants reducing their swap dealing activity to remain below the threshold. 79 To address concerns regarding volatility in NFC prices, EEI/EPSA also suggested that the AGNA threshold be adjusted annually, consistent with the consumer price index. 80 NGSA also stated that the lower regulatory coverage for NFC swaps is appropriate given the characteristics of that market. 81 79 See EEI/EPSA and NGSA comment letters. As stated by EEI/EPSA, if NFC prices increase, the same level of swaps activity will potentially have a higher notional amount. 80 See EEI/EPSA comment letter. 81 See NGSA comment letter. A few commenters addressed the compliance costs associated with SD registration, 82 stating that: (1) Establishing an $8 billion threshold results in aggregate recurring compliance costs over a 10-year period, on a net present value basis, of approximately $373 million; 83 and (2) the cost of SD registration ( e.g., systems build-out, external advisors, National Futures Association membership dues, compliance with margin rules) is underestimated, 84 with one commenter estimating that the initial cost would be approximately $8 to $10 million per entity, with ongoing costs to meet regulatory requirements of $2 million per year thereafter. 85 82 See ABA, IECA, and SVB comment letters. Although addressed by ABA and SVB, the costs associated with SD regulatory requirements ( e.g., margin, reporting, technology, etc.) are not considered in the cost-benefit analysis below. See infra notes 249 and 286. 83 See ABA comment letter. 84 See IECA and SVB comment letters. Although outside of the scope of this rulemaking, IECA also asserted that the Commission underestimates the negative impact on market development due to its failure to provide a workable capital rule for non-bank SDs. 85 See SVB comment letter. BDA stated that the CFTC should clarify whether changes to the De Minimis Exception would be applicable to activity that occurred in the preceding 12 months. 86 86 See BDA comment letter. 2. Increase Threshold Some commenters stated that the Commission should also consider a higher AGNA threshold, maintaining generally that the policy goals for SD registration and a de minimis exception would be better advanced if the threshold was higher than $8 billion. 87 87 See ABA, AFEX/GPS, BDA, Capital One, Citizens, FIA, IIB, IECA, JBA, Regions, and SVB comment letters. Specifically, several commenters stated that an increased threshold would not lead to a significant decrease in regulatory coverage of swap dealing activity. 88 ABA and AFEX/GPS asserted that a $20 billion threshold would result in a trivial or non-consequential reduction in Estimated Regulatory Coverage, 89 and JBA stated that at a $100 billion threshold, Estimated AGNA Coverage would be almost the same. 90 AFEX/GPS also asserted that the cumulative swaps activity conducted by SDs between $8 billion and $20 billion does not pose systemic risk, and entities would still be subject to reporting rules and recordkeeping requirements. 91 Additionally, AFEX/GPS and Citizens asserted that a decrease in the number of registered SDs would focus the Commission's resources on SDs whose dealing activity is sufficient in size and scope to warrant greater oversight. 92 88 See ABA, AFEX/GPS, BDA, Citizens, IIB, and SVB comment letters. 89 See ABA and AFEX/GPS comment letters. 90 See JBA comment letter. 91 See AFEX/GPS comment letter. 92 See AFEX/GPS and Citizens comment letters. Further, a few commenters stated that given the costs of SD registration, a higher threshold would encourage new participants to engage in swap dealing activity, which SVB noted as important given the highly concentrated nature of the SD market, where the nation's largest banks control the vast majority of swap market share. 93 93 See AFEX/GPS, BDA, Citizens, and SVB comment letters. Additionally, ABA indicated that an increased threshold would result in aggregate compliance cost savings for market participants. For example, AGNA thresholds of $15 billion and $50 billion would result in potential aggregate savings of $81 million and $170 million, respectively, on a net present value basis, as compared to an $8 billion threshold. 94 94 See ABA comment letter. 3. Allow Threshold to Decrease Better Markets and the Senators stated that the Commission should permit the AGNA threshold to decrease to $3 billion, contending generally that the data insufficiently or misleadingly justifies maintaining the threshold at $8 billion, 95 and arguing that the Proposal did not follow necessary administrative procedures or exceeded statutory authority. 96 95 See Better Markets and Senators comment letters. 96 See Better Markets comment letter. The Senators stated that though notional amount data for NFC swaps was not used in considering the Proposal, the data that was available for NFC swaps shows significantly less regulatory coverage under an $8 billion threshold than in other asset classes. The Senators commented that though the Proposal notes the “unique characteristics” of NFC swaps, the analysis provided to justify the $8 billion threshold indicates a series of assumptions and possibilities rather than concrete data. The Senators also questioned why, given the lack of relevant notional amount data for NFC swaps, it is necessary to maintain the $8 billion threshold for SDs involved with energy-related swaps. 97 97 See Senators comment letter. Better Markets claimed that the regulatory coverage statistics are incomplete, misleading, and irrelevant to the Dodd-Frank Act's activities-based standard for SD registration, stating that the high AGNA and transaction coverage percentages are not indicative of the absolute level of swap dealing activities relevant to SD registration under CEA section 1a(49)(A). Further, in connection with the 680 additional counterparties that would potentially benefit from SD regulations under a lower $3 billion threshold, Better Markets asserted that expanding counterparty protections to hundreds of market participants would have more than a “limited” effect on counterparty protection once relative statistics are abandoned. 98 98 See Better Markets comment letter. Better Markets also asserted that the data filtering methodology was flawed and inadequately explained. Better Markets explained that, with respect to the 10 counterparty count filter, if a commodities affiliate of a large firm held itself out as an SD or stood ready to accommodate the demand of nine counterparties, that affiliate should have been treated, for purposes of the analysis, as an SD on account of its swap dealing activities, unless those activities did not exceed the AGNA threshold or otherwise were excluded from the SD registration analysis. Further, Better Markets argued that: (1) The CFTC should have provided an opportunity for public comment on the assumptions that were made in the CFTC's analysis; (2) there was some ambiguity in the terms used in the CFTC's analysis; (3) the CFTC's reliance upon a 10 unique counterparty filter was based on fatally flawed logic; (4) the data limitations demonstrate the benefits of better field-level and affiliate reporting of swaps, which would give the CFTC an informed basis to consider changes to the $3 billion threshold; and (5) the CFTC must first amend its swap data and chief compliance officer reporting regulations to ensure it has sufficient data to provide an informed basis for administrative action. 99 99 See id. Further, Better Markets commented that the de minimis threshold framework should be revised to focus on strict, observable measures like total notional amount or transactional activities, rather than a subset of such activities that potential registrants are able to interpret for themselves, and are not presently required by regulation to monitor, report, or internally track across the firm. 100 100 See id. Better Markets also asserted that the statutory provision regarding the de minimis exception authorizes the CFTC to issue exemptive orders for individual or similarly-situated legal entities based upon generally applicable factors for determining whether such entities may be involved in a de minimis amount of swap dealing activities. Better Markets noted that it is unreasonable to conclude that Congress intended a wholesale exemption from registration that is divorced from the particular circumstances of any one petitioner. Further, Better Markets argued that the language in the exemptive mandate must be construed in a manner that is faithful to Congress' intent that the quantity of exempted swap dealing activities be minimal, a concept that has boundaries that can be drawn far short of billions of dollars and thousands of transactions by unregulated entities. 101 101 See id. AFR stated that, though the improved data adds weight to the claim that an $8 billion threshold is appropriate for some financial swaps, arguments against the $8 billion threshold are particularly strong in the case of NFC markets. Specifically, AFR asserted that the Commission should be willing to vary the de minimis threshold based on market characteristics, and in particular should reduce the $8 billion threshold in NFC markets where $8 billion in notional amount represents a different level of economic significance than in some other markets. AFR elaborated that the Commission continues to lack data on the notional amount for NFC swaps, making it difficult to draw definitive conclusions on the economic significance of the activity that is not subject to SD regulation, and stated that significant dealing activity in the NFC market is not subject to SD regulation since roughly half of all the entities with 10 or more NFC swap counterparties are not registered as SDs. 102 102 See AFR comment letter. AFR also stated that the AGNA threshold analysis does not account for the numerous other exceptions proposed, which could exclude very large amounts of swaps activity from being considered in the de minimis calculation. 103 103 See id. IATP stated that the data analysis does not support the idea that more ancillary dealing would promote greater competition, and thus more efficient and transparent price discovery. IATP asserted that the Commission's true motivation for maintaining an $8 billion threshold is the regulatory compliance cost and burden reduction objective of Project KISS, rather than promoting improved price discovery. Further, IATP claimed that the AGNA of activity in the swap market has shrunk due to the clearing of swaps on centralized platforms and the migration of swaps to the futures markets, not because of constraints of the de minimis threshold or because of the lack of exemptions to the calculation of that threshold. IATP also stated that though it did not have a data-based argument for changing the $8 billion threshold, it believed that maintaining the $8 billion threshold because of potential administrative burdens involved in lowering the threshold is a poor, Project KISS-based, rationale that does not consider the benefits of SD registration for the financial integrity and price discovery of the swap market. 104 104 See IATP comment letter. 4. Other Comments (i) Testing Frequency for Threshold Some commenters addressed the testing frequency for the threshold. Commenters stated that the AGNA threshold calculation should continue to be based primarily on a rolling 12-month test of the AGNA of swap dealing activity. 105 Specifically, commenters indicated that: (1) Resources have been spent and systems have been built to comply with the current approach, and additional changes would add costs with no tangible benefit; 106 and (2) the current test is relatively simple to administer, and the 12-month testing period helps to smooth out any short-term aberrations in activity and allows for moderation of future swap dealing activity to avoid inadvertently triggering an SD registration requirement. 107 However, BDA stated that the CFTC should allow entities to test only at the end of every month, which would significantly reduce the compliance testing burdens for small and mid-sized firms. 108 105 See ABA, CMC, Frost Bank, and IECA comment letters. 106 See ABA, CMC, and IECA comment letters. 107 See Frost Bank comment letter. 108 See BDA comment letter. (ii) Alternatives to Single AGNA Threshold A number of commenters addressed whether the Commission should consider an alternative to a threshold based on the AGNA of swap dealing activity. AFR and IECA noted that using AGNA as the relevant criterion for SD registration, as compared to other options, is beneficial because: (1) Resources have been expended to comply with the current approach, and changing that approach would add costs for no perceived benefit; 109 and (2) AGNA provides a stable metric of the gross size of swaps commitments that is not reliant on either current market valuations, model forecasts, or institutional arrangements such as bankruptcy procedures. 110 109 See IECA comment letter. 110 See AFR comment letter. AFR stated that controlling operational risk, not simply market risk, is a major reason for SD designation, and AGNA remains a good measure of the total operational risks incurred by an entity, 111 and Better Markets maintained that the de minimis exception must require consideration of the quantity of swap dealing, not net exposures or other risk-based measures. 112 111 See id. 112 See Better Markets comment letter. However, IECA indicated that although using an alternative netting option ( e.g., entity-netted notional amounts) is a reasonable idea and could be incorporated into existing analysis, in the NFC markets, netting would need to be done as a measure of credit exposure with physical and bilateral swaps being able to be offset against each other in connection with perceived “risk exposure” to a third party. 113 Additionally, ABA and Citizens stated that the Commission should consider a risk-based de minimis exception. 114 ABA asserted that a notional amount-based threshold is not the appropriate metric for the De Minimis Exception because it is not based on risk, and suggested that the Commission consider initial margin as the relevant metric. 115 113 See IECA comment letter. 114 See ABA and Citizens comment letters. 115 See ABA comment letter. ABA also suggested that the Commission could consider other market risk metrics, such as value at risk and sensitivities, as well as credit risk metrics, such as total swaps current exposure net of collateral received and largest fifteen swap counterparty current exposures net of collateral received. Commenters also stated that a tiered SD registration structure should not be considered, noting that a tiered structure could: (1) Create more uncertainty for situations where legal and regulatory certainty is important; 116 and (2) subject entities to instability and inefficiency relative to a permanent, single AGNA de minimis threshold. 117 On the other hand, IATP asserted that the Commission should propose, after further analytic work, a tiered SD registration for SDs with a certain threshold of NFC swaps activity ( e.g., via commodity indexes). 118 116 See IECA comment letter. 117 See JBA comment letter. 118 See IATP comment letter. Several commenters also addressed whether the Commission should consider counterparty count and transaction count as additional metrics to be included in the de minimis threshold, as discussed in section IV.A below. (iii) Additional Calculation Changes Commenters addressed other calculation changes the Commission should consider for the de minimis threshold. Virtu stated that the CFTC should exempt swap transactions where one party is a registered SD or one party holds their account with a registered SD since these transactions are already subject to the existing reporting requirements and, as such, Commission oversight. 119 119 See Virtu comment letter. JBA stated that the CFTC should specify that the termination and modification of terms and conditions of existing transactions do not count towards the threshold, noting that termination of transactions mitigates counterparty credit risk and reduces the outstanding AGNA of swaps. 120 120 See JBA comment letter. BDA argued that the CFTC should consider increasing the “special entity” threshold to $100 million in order to provide special entities with more access to the marketplace. BDA maintained that the $25 million threshold results in many mid-sized firms deciding not to enter into swaps with special entities, while an increase in that threshold could provide better market access for special entities while having no material impact on the overall regulation of SDs. 121 121 See BDA comment letter. Virtu asserted that transactions by market makers maintaining net open positions not exceeding $1 billion (over a 12-month period) should be exempted from the de minimis threshold calculation. 122 Virtu explained that certain market makers do not hold positions or carry risk for long periods of time, but rather seek to facilitate efficient risk transference to earn a spread and, in doing so, lower costs for investors through increased price competition and more transparency in the market. 122 See Virtu comment letter. Virtu noted that, while in aggregate the number of transactions engaged in by market makers might exceed the $8 billion threshold, the net risk of these trades would not have the same potential impact to overall systemic risk because exempt market makers' open net positions in otherwise non-exempt transactions would be capped at $1 billion over a rolling 12-month period. Additionally, certain market makers access the market through prime brokers—who are registered SDs—and, as such, these transactions would be included in the prime brokers' regulatory reports and subject to CFTC oversight. IIB stated that entities that have discontinued new swap dealing activity should not have to count towards their AGNA threshold certain transactions that modify legacy swaps entered into by those entities, including: (1) Partial or full terminations; (2) modifications that shorten the duration of an outstanding swap; (3) partial or full novations of legacy swap transactions; or (4) swaps submitted for clearing. 123 123 See IIB comment letter. (iv) Cross-Border Issues With respect to cross-border issues, JBA stated that the market has been divided into two groups because non-SD entities outside of the U.S. avoid transactions with U.S. persons, thereby undermining the diversity of U.S. markets. 124 Additionally, Western Union suggested that the Commission should also address the foreign consolidated subsidiary rules in the context of the De Minimis Exception rulemaking. 125 Further, IIB stated that the Commission should clarify that a swap between a non-U.S. person and a non-U.S. asset manager that is subject to post-trade allocation and submitted for clearing, or given up to a non-U.S. prime broker prior to being allocated, should not count towards the AGNA threshold in certain circumstances. 126 124 See JBA comment letter. 125 See Western Union comment letter (referring to Cross-Border Application of the Registration Thresholds and External Business Conduct Standards Applicable to Swap Dealers and Major Swap Participants, 81 FR 71946 (proposed Oct. 18, 2016)). Western Union also stated that the proposed application of the foreign consolidated subsidiary definition to SD registration is inconsistent with principles of international comity and would create an unfair competitive disadvantage for certain market participants. 126 See IIB comment letter. C. Final Rule and Commission Response Upon consideration of the comments, 127 the Commission is adopting an amendment to paragraph (4)(i)(A) of the De Minimis Exception to set the AGNA swap dealing threshold at $8 billion over the immediately preceding 12 months, as proposed. The Commission is also adopting the other conforming and clarifying changes as proposed. 127 The Commission also notes that the data analysis discussed in this adopting release and the Proposal confirmed the analysis conducted for the Staff Reports. See generally 83 FR 27449-58; Final Staff Report, supra note 19; Preliminary Staff Report, supra note 17. 1. Rationale for Not Reducing AGNA Threshold to $3 Billion As discussed in the Proposal, 128 as well as by most commenters that addressed this aspect of the Proposal, 129 the policy objectives underlying SD regulation—reducing systemic risk, increasing counterparty protections, and increasing market efficiency, orderliness, and transparency—would not be significantly advanced if the threshold decreased to $3 billion. Additionally, the policy objectives furthered by a de minimis exception—increasing efficiency, allowing limited ancillary dealing, encouraging new participants, and focusing regulatory resources—would not be significantly advanced, and may be impaired to some extent, if the threshold decreased. Generally, as discussed in the Proposal and as agreed with by most commenters, analysis of the data indicated that: (1) The current $8 billion threshold subjects almost all swap transactions (as measured by AGNA or transaction count) to SD regulations; (2) at a lower threshold of $3 billion, there would only be a small amount of additional AGNA and swap transactions subject to SD regulation, and there would potentially be reduced liquidity in the swap market, as compared to the $8 billion threshold; and (3) a lower threshold could lead to reduced liquidity for NFC swaps, negatively impacting end-users who utilize NFC swaps for hedging purposes. 130 128 See generally 83 FR 27450-58. 129 See supra section II.B.1. 130 See generally supra section II.B.1; 83 FR 27450-58. See also Final Staff Report, supra note 19; Preliminary Staff Report, supra note 17. (i) High Regulatory Coverage at $8 Billion Threshold During the review period, almost all swap transactions involved at least one registered SD as a counterparty—greater than 99 percent for IRS, CDS, FX swaps, and equity swaps. For NFC swaps, approximately 86 percent of transactions involved at least one registered SD as a counterparty. Overall, approximately 98 percent of transactions involved at least one registered SD. Further, almost all AGNA of swaps activity included at least one registered SD—greater than 99 percent for IRS, CDS, FX swaps, and equity swaps. The Commission notes that the 2017 Counterparty Coverage was approximately 83.5 percent— i.e., approximately 16.5 percent of the counterparties in the swap market did not transact with at least one registered SD on at least one swap (6,440 counterparties out of a total of 39,107), and therefore potentially did not benefit from the counterparty protection aspects of SD regulations. 131 However, given the 2017 AGNA Coverage and 2017 Transaction Coverage statistics, these 6,440 entities had limited overall swaps activity. Accordingly, to the extent these 6,440 entities were engaged in swap dealing activities, such activity was likely ancillary and in connection with other client services, potentially advancing the policy rationales behind a de minimis exception. This data signifies that nearly all swaps already benefited from the policy considerations discussed above ( e.g., reducing systemic risk, increasing counterparty protections, and increasing market efficiency, orderliness, and transparency) at the existing $8 billion threshold. 132 131 The actual number of entities without a single transaction with a registered SD was likely lower than 6,440. Of the 6,440 entities, 1,780 had invalid identifiers that staff was unable to manually replace with a valid LEI. It is possible that these 1,780 invalid identifiers actually represented fewer than 1,780 distinct counterparties because one counterparty may be associated with multiple invalid identifiers. See 83 FR 27451. 132 This analysis is discussed in greater detail in the Proposal, and was also addressed by commenters. See supra section II.B.1; 83 FR 27450-52. (ii) Minimal Additional Regulatory Coverage at Lower Threshold Given the high percentage of swaps that were subject to SD regulation at the existing $8 billion threshold during the review period, a lower threshold of $3 billion would result in only a small amount of additional activity being directly subjected to SD regulation. Specifically, the Estimated AGNA Coverage would have increased from approximately $221,020 billion (99.95 percent) to $221,039 billion (99.96 percent)—an increase of $19 billion (a 0.01 percentage point increase). The Estimated Transaction Coverage would have increased from 3,795,330 trades (99.77 percent) to 3,797,734 trades (99.83 percent)—an increase of 2,404 trades (a 0.06 percentage point increase). The Estimated Counterparty Coverage would have increased from 30,879 counterparties (88.80 percent) to 31,559 counterparties (90.75 percent)—an increase of 680 counterparties (a 1.96 percentage point increase). These small increases in Estimated Regulatory Coverage indicate that the systemic risk mitigation, counterparty protection, and market efficiency benefits of SD regulation would be enhanced in only a very limited manner if the threshold decreased from $8 billion to $3 billion. Additionally, the limited regulatory and market benefits of a $3 billion threshold should be considered in conjunction with the costs associated with a lower threshold ( e.g., costs of implementing policies and procedures, technology systems, and training programs to address requirements imposed by SD regulations). 133 133 This analysis is discussed in greater detail in the Proposal, and was also addressed by commenters. See supra section II.B.1; 83 FR 27452-54. Additionally, as discussed by the Commission and most commenters, a $3 billion AGNA threshold could lead certain entities to reduce or cease swap dealing activity to avoid registration and its related costs. 134 Generally, the costs associated with registering as an SD may exceed the profits from dealing swaps for entities with limited dealing activities. This could lead to negative impacts for swap market participants, including, but not limited to, small and mid-sized end-users who use swaps for hedging purposes. Reduced swap dealing activity could lead to increased concentration in the swap dealing market, reduced availability of potential swap counterparties, reduced liquidity, increased volatility, increased systemic risk, and/or higher fees or reduced competitive pricing. The end-user counterparties of these smaller swap dealing entities may be adversely impacted by the above consequences and could face a reduced ability to use swaps to manage their business risks. 135 Additionally, as noted by some commenters, the nature of the swaps activity entered into by certain entities poses less systemic risk— e.g., commercial banks that have swap dealing activity below $8 billion and entities that primarily enter into NFC swaps. 136 134 See supra section II.B.1; 83 FR 27452-54. See also Final Staff Report, supra note 19. 135 See supra section II.B.1; 83 FR 27452-54. 136 See supra section II.B.1; Citizens, IECA, NRECA/APPA, NGSA, and SVB comment letters. Further, although approximately 86 percent of NFC swaps involved at least one registered SD compared to approximately 99 percent for other asset classes, as discussed in the Proposal, the Commission is of the view that lower SD regulatory coverage is acceptable given the special characteristics of the NFC swap market. A reduced threshold likely would have negative impacts on NFC swap liquidity as some entities ( e.g., small and mid-sized banks and/or non-financial entities) reduce dealing to avoid registration and its related costs. This would be detrimental to the end-users who do not have trading relationships with larger, financial-entity SDs, and who rely on small to mid-sized banks and/or non-financial entities to access liquidity in the wider swap market. Additionally, even if the threshold decreased, the available data leaves it unclear if or to what extent the 2017 Counterparty Coverage statistic of 86 percent would increase for NFC swaps since several of those entities may already have less than $3 billion in AGNA of swap dealing activity. Further, many of the entities engaged in limited swap dealing activity for NFC swaps appear to have a specialized role in the market, in that their primary business is generally non-financial in nature and the swap dealing activity is ancillary to their primary role in the market. 137 Finally, entities that are active in the NFC swap market may utilize the existing physical position hedging exemption, which is more directly applicable to the NFC asset class than to other swaps. 138 137 This analysis is discussed in greater detail in the Proposal, and was also addressed by commenters. See supra section II.B.1; 83 FR 27452-57. See also CMC, IECA, and NGSA comment letters. 138 See 17 CFR 1.3, Swap dealer, paragraph (6)(iii); 83 FR 27456-57. (iii) Response to Commenters Advocating Lower Threshold The Commission disagrees with the few commenters that stated that the AGNA threshold should decrease to $3 billion. 139 139 See supra section II.B.3. Better Markets stated that the high regulatory coverage ratios are not indicative of the absolute level of swap dealing activities relevant to SD registration, and asserted that maintaining an $8 billion threshold would have more than a limited detrimental effect on counterparty protections. 140 The Commission notes that the statutory requirements do not dictate a specific methodology for assessing the de minimis exception, such as the focus on the absolute level of swap dealing suggested by Better Markets. Rather, the CEA requires the Commission to promulgate regulations to establish factors with respect to the making of a determination to exempt from designation as an SD an entity engaged in a de minimis quantity of swap dealing, without stating additional requirements. 141 140 See supra section II.B.3; Better Markets comment letter. 141 7 U.S.C. 1a(49)(D). Additionally, as stated in the SD Definition Proposing Release and the SD Definition Adopting Release, the de minimis exception “should be interpreted to address amounts of dealing activity that are sufficiently small that they do not warrant registration to address concerns implicated by the regulations governing swap dealers and security-based swap dealers. In other words, the exception should apply only when an entity's dealing activity is so minimal that applying dealer regulations to the entity would not be warranted.” 142 This decision inherently requires judgment, and for that reason the Commission has considered whether entities that have less than $8 billion in swap dealing activity meet this standard. Given the nature of the swap market and the Commission's analysis of the data, requiring an entity that has less than $8 billion in swap dealing activity to register as an SD is not warranted because it would not appreciably impact the systemic risk, counterparty protection, and market efficiency considerations of SD regulation, but would negatively impact the policy considerations underlying the de minimis exception by reducing the amount of swap dealing allowed under the exception. 143 Thus, the Commission concludes that the $8 billion threshold is consistent with a key rationale behind the de minimis exception because it would permit “amounts of dealing activity that are sufficiently small that they do not warrant registration.” 144 No individual policy factor was dispositive in the Commission's analysis. Rather, the Commission considered all of the policy factors when assessing the regulatory coverage ratios. 145 142 SD Definition Adopting Release, 77 FR 30626; SD Definition Proposing Release, 75 FR 80179. 143 As discussed, the analysis conducted in connection with the Proposal was consistent with the analysis conducted in connection with the Staff Reports. See generally 83 FR 27449-58; Final Staff Report, supra note 19; Preliminary Staff Report, supra note 17. 144 77 FR 30626. See also 75 FR 80179. 145 As noted in the SD Definition Adopting Release, “implementing the de minimis exception requires a careful balancing that considers the regulatory interests that could be undermined by an unduly broad exception as well as those regulatory interests that may be promoted by an appropriately limited exception.” 77 FR 30628. As noted above in section II.B.3, Better Markets also asserted that the statutory provision regarding the de minimis exception authorizes the CFTC to issue exemptive orders for individual or similarly-situated legal entities based upon generally applicable factors for determining whether such entities may be involved in de minimis swap dealing activities. Better Markets contends that it is unreasonable to conclude that Congress intended a wholesale exemption from registration that is divorced from the particular circumstances of any one petitioner. 146 As noted, however, the CEA states that the Commission shall promulgate factors, through regulation, regarding the De Minimis Exception determination. Nothing in the statutory language prohibits the Commission from establishing a de minimis exception that is self-effectuating. The Commission believes that the $8 billion threshold appropriately excludes entities “whose dealing activity is sufficiently modest in light of the total size, concentration and other attributes” of the swap market and for which SD regulation “would not be expected to contribute significantly to advancing the customer protection, market efficiency and transparency objectives of dealer regulation.” 147 The Commission sees no basis in the record or requirement in the statute to treat entities differently when they are similarly situated in this respect. 146 See Better Markets comment letter. 147 77 FR 30629-30. Also as noted above, with respect to the data analysis methodology, Better Markets and the Senators stated that the data insufficiently or misleadingly justifies maintaining the threshold at $8 billion. 148 Better Markets also asserted that: (1) The CFTC should have provided an opportunity for public comment on alternative assumptions; (2) there is some ambiguity in the terms used in the CFTC's analysis; (3) the CFTC's reliance upon a 10 unique counterparty filter is based on fatally flawed logic; (4) the data limitations argue for better field-level and affiliate reporting of swaps, which would give the CFTC an informed basis to consider changes to a $3 billion threshold; and (5) the CFTC must first amend its swap data and chief compliance officer reporting regulations to ensure it has sufficient data to provide an informed basis for administrative action. 149 Each of these comments will be addressed in turn. 148 See supra section II.B.3; Better Markets and Senators comment letters. 149 See supra section II.B.3; Better Markets comment letter. First, with respect to Better Markets' comment that the Commission should have provided an opportunity for public comment on alternative assumptions for the data analysis, the Commission notes that the methodology used by Commission staff to analyze data in relation to the de minimis threshold was first laid out in the Preliminary Staff Report, on which the public had the opportunity to comment. The Final Staff Report updated that analysis, and then the Proposal explained how the data related specifically to the proposal to maintain the $8 billion threshold. As discussed in the Proposal, the updated analysis largely confirmed the analysis conducted for the Staff Reports. However, there is greater confidence in the results given the improved data and refined methodology. The Commission believes that the public has had an appropriate opportunity to comment on the data, the methodology, the assumptions about the data, and how the data relates to the maintenance of the $8 billion threshold. Second, the Commission cannot assess Better Markets' comment that the analysis discussed in the Proposal contained ambiguous terms because Better Markets does not state which terms were ambiguous. Third, the Commission disagrees with Better Markets' comment that “the fact that CFTC-registered swap dealers, including every major Wall Street bank, tend to have more than 10 counterparties is irrelevant.” 150 The Commission notes that staff used the minimum 10 counterparty count only for analytical purposes, as a heuristic to help isolate those entities that appeared to be dealing. Lacking a dealing field in the data, for the reasons set forth above, staff selected a minimum of 10 counterparties as a conservative estimate to improve the analysis and better identify entities likely engaged in swap dealing. 151 150 See Better Markets comment letter. 151 See supra section II.A; 83 FR 27449-50. The Commission also believes that the 10 counterparty filter is appropriate for purposes of this analysis based on its observations of registered SDs and unregistered entities active in the swap market. As noted in the Proposal, data analysis showed that 83 percent of registered SDs had 10 or more counterparties, without weighting the results. 152 In other words, since the analysis was performed using a non-weighted ranking, SDs with thousands of counterparties did not bias the results. 152 See 83 FR 27449. Fourth, the Commission does not believe that the data limitations warrant a delay in setting the threshold at $8 billion. As discussed, the data has improved since the analysis in the Staff Reports. Further, the Commission believes its analysis was appropriately conservative, particularly given that the volume of activity it analyzed was over-inclusive (since hedging and other non-dealing activity could not be excluded), and given that its entity-level exclusions were based on an informed assessment of the likely activity of swap market participants. In the SD Definition Adopting Release, the Commission noted that “comprehensive information regarding the total size of the domestic swap market is incomplete, with more information available with respect to certain asset classes than others.” 153 In 2012, the Commission evaluated the appropriateness of the initial $3 billion AGNA threshold using three primary sources of data: (1) Index CDS; (2) the Quarterly Report on Bank Trading and Derivatives Activities issued by the Office of the Comptroller of the Currency (“OCC”); and (3) public comments to the 2010 SD Definition Proposing Release. 154 At the time, granular, transaction-level swaps data across all swap asset classes was not yet available for review by the Commission. The data now available is significantly more detailed than what was available to the Commission when the $3 billion threshold was originally established. The data now includes details such as counterparty pairs, product identifiers, transaction-level data for those market participants active in more asset classes than only index CDS, and transaction-level data (not just quarterly position data) involving market participants beyond banks subject to OCC reporting. In light of the additional, more detailed data, the Commission believes that the $8 billion threshold continues to be appropriately calibrated to the policy goals of SD registration and the de minimis exception. 155 153 77 FR 30632. 154 Id. at 30632-33. 155 Additionally, Commission staff attempted to accurately identify those entities that, based on their observable business activities, are potentially engaged in swap dealing activity versus those likely engaged in other kinds of transactions. See supra section II.A; 83 FR 27449. Fifth, for similar reasons, the Commission does not believe it should wait to amend its swap data and chief compliance officer reporting regulations before setting the threshold at $8 billion. As noted above, the Commission believes that it does have sufficient data to support this action, so it is not necessary to wait for future changes to the data reporting regime. 156 156 The Commission also notes that it recently adopted amendments to its chief compliance officer requirements. See Chief Compliance Officer Duties and Annual Report Requirements for Futures Commission Merchants, Swap Dealers, and Major Swap Participants, 83 FR 43519 (Aug. 27, 2018). As noted above, Better Markets also commented that the de minimis threshold framework should be revised to focus on strict, observable measures like total notional amount or transactional activities, rather than a subset of such activities that potential registrants are able to interpret for themselves, and are not presently required by regulation to monitor, report, or internally track across the firm. 157 However, the Commission notes that the statutory definition of “swap dealer” itself limits the scope to swap dealing activity, and therefore, using total notional amount would not be appropriate. 157 See supra section II.B.3; Better Markets comment letter. As noted, the Senators stated that the data that was available for NFC swaps shows significantly less coverage for that asset class under an $8 billion threshold compared to other asset classes. 158 In justifying the $8 billion proposal, the Senators commented that though the Proposal noted the “unique characteristics” of NFC swaps, the analysis provided indicated a series of assumptions and possibilities rather than concrete data. The Senators also questioned whether, given the lack of relevant data for NFC swaps, it is necessary to reduce the threshold for SDs involved with energy-related swaps. However, as discussed in section II.C.1.ii, the Commission believes that a reduced threshold would have a negative impact on NFC swap market liquidity as some entities may reduce dealing to avoid registration and its related costs. Additionally, as noted, entities active in the NFC swap market may utilize the existing physical position hedging exemption, which is more directly applicable to the NFC asset class than other swaps. 159 158 See supra section II.B.3; Senators comment letter. As noted above, for NFC swaps, approximately 86 percent of transactions involved at least one registered SD as a counterparty, compared to greater than 99 percent for IRS, CDS, FX swaps, and equity swaps. See supra section II.C.1.i. 159 See 17 CFR 1.3, Swap dealer, paragraph (6)(iii); supra section II.C.1.ii; 83 FR 27456-57. Further, AFR stated that, though the improved data adds weight to the claim that an $8 billion threshold is appropriate for some financial swaps, arguments against the $8 billion threshold are particularly strong in the case of NFC swaps. 160 The Commission does not believe a lower threshold for NFC swaps would advance the policy goals of SD registration or the de minimis exception. As noted by the Commission and several commenters, the nature of the NFC swap market poses less systemic risk than financial swaps. 161 Additionally, the Commission notes the concerns of reduced liquidity if the threshold is reduced for NFC swaps, including an increased concentration in the market, which could adversely affect end-users who rely on small and mid-sized SDs that do not have to register at an $8 billion threshold. 160 See supra section II.B.3; AFR comment letter. 161 See supra section II.B.1. See, e.g., IECA and NGSA comment letters. See also 83 FR 27456-57; Final Staff Report, supra note 19, at 12 (citing comment letters submitted in response to Preliminary Staff Report, supra note 17). Lastly, the Commission disagrees with IATP's assertion that promoting improved price discovery is not the true rationale for maintaining an $8 billion threshold, and that rather, the motivation is the regulatory compliance cost and burden reduction objective of Project KISS. 162 The Commission has laid out above the various policy-related considerations that justify maintaining an $8 billion threshold; these relate to the regulatory goals of both SD registration in general and of the de minimis exception in particular. Additionally, these goals were discussed in the Staff Reports, well in advance of any comments submitted in response to Project KISS. 163 162 See supra section II.B.3; IATP comment letter. 163 See Final Staff Report, supra note 19; Preliminary Staff Report, supra note 17. 2. Rationale for Not Increasing AGNA Threshold Although several commenters suggested a higher threshold, the Commission is declining to increase the AGNA threshold from the current $8 billion level. As discussed in the Proposal, 164 at a $100 billion threshold: (1) The Estimated AGNA Coverage would have decreased from approximately $221,020 billion (99.95 percent) to $220,877 billion (99.88 percent)—a decrease of $143 billion (a 0.06 percentage point decrease); 165 (2) the Estimated Transaction Coverage would have decreased from 3,795,330 trades (99.77 percent) to 3,773,440 trades (99.20 percent)—a decrease of 21,890 trades (a 0.58 percentage point decrease); 166 and (3) the Estimated Counterparty Coverage would have decreased from 30,879 counterparties (88.80 percent) to 28,234 counterparties (81.19 percent)—a decrease of 2,645 counterparties (a 7.61 percentage point decrease). 167 164 See 83 FR 27454-56. 165 The decrease would be lower at thresholds of $20 billion and $50 billion, at 0.01 percentage points and 0.04 percentage points, respectively. 166 The decrease would be lower at thresholds of $20 billion and $50 billion, at 0.05 percentage points and 0.42 percentage points, respectively. 167 The decrease would be lower at thresholds of $20 billion and $50 billion, at 2.80 percentage points and 5.71 percentage points, respectively. As the Commission and commenters have stated, the small decrease in Estimated AGNA Coverage and Estimated Transaction Coverage at higher thresholds potentially indicates that increasing the threshold to up to $100 billion may have a limited adverse effect on the systemic risk and market efficiency policy considerations of SD regulation. 168 Additionally, a higher threshold could enhance the benefits associated with a de minimis exception, for example by allowing entities to increase ancillary dealing activity. However, the Commission is of the view that the decrease in Estimated Counterparty Coverage indicates that fewer entities would be transacting with registered SDs, reducing the counterparty protection benefits of SD regulation if the AGNA threshold increased from $8 billion to $20 billion, $50 billion, or $100 billion. 169 The Commission also notes that increasing the threshold could result in changes in market behavior that could lead to the regulatory coverage decreasing more than the analysis indicated. 168 See supra section II.B.2; 83 FR 27455. 169 As noted, the decrease in Estimated Counterparty Coverage would be 2.80 percentage points, 5.71 percentage points, 7.61 percentage points, at thresholds of $20 billion, $50 billion, and $100 billion, respectively. Further, maintaining the status quo signals long-term stability of the de minimis threshold, and should provide for the efficient application of the SD Definition, as it allows for long-term planning based on the current AGNA threshold. 170 170 See 83 FR 27456-57. 3. Response to Other Comments With respect to BDA's comment regarding permitting month-end only testing for the de minimis threshold, the Commission notes that several commenters indicated that the market has adapted to the current requirements and that changes would not be beneficial. 171 In particular, the Commission agrees with commenters that the current test is relatively simple to administer, and the 12-month testing period helps to smooth out any short-term variations in activity. The Commission does not believe that allowing month-end only testing would reduce burdens since persons should already have systems in place to regularly track the level of their swap dealing activity. Therefore, the Commission is not adopting this alternative. Additionally, in response to BDA, the Commission notes that for purposes of the $8 billion threshold calculation, an entity must count activity that took place in the immediately preceding 12 months. 171 See supra section II.B.4.i. Potentially, month-end only testing could marginally encourage competition because newly-established swap dealing businesses (as contrasted to the existing businesses that have adapted to current requirements) could set up only month-end testing as opposed to regular testing. However, the Commission believes that maintaining the current requirements is appropriate even in view of any marginal encouragement of competition that could result from the suggested change. Similarly, in response to the commenters that recommended alternatives to the single AGNA threshold or other calculation changes, 172 the Commission points out that systems and processes have been established for the current requirements, 173 and therefore the Commission is not adopting the proposed adjustments at this time. The Commission may take subsequent action or conduct further study with respect to alternative approaches to the single AGNA threshold, including moving toward a risk-based SD registration metric in the future. The Commission would expect that a change could entail costs as market participants adjust their de minimis threshold calculation processes. 172 See supra sections II.B.4.ii and II.B.4.iii. 173 See, e.g., supra sections II.B.4.i and II.B.4.ii. Additionally, any modification to the special entity threshold is outside of the scope of the Proposal, 174 but as with other suggestions, the Commission may consider this in the future. Lastly, with respect to comments asking that the Commission address cross-border issues, 175 this issue is also outside of the scope of this rulemaking. 174 See supra section II.B.4.iii; supra note 12; 83 FR 27445 n.14. 175 See supra section II.B.4.iv. III. Proposed Rule Amendments Not Adopted A. Swaps Entered Into by Insured Depository Institutions in Connection With Loans to Customers 1. Proposal The Commission proposed adding an IDI loan-related factor in the De Minimis Exception (the “IDI De Minimis Provision”) to address concerns that there are circumstances where swaps not covered by the IDI loan-related swap exclusion in paragraph (5) of the SD Definition (the “IDI Swap Dealing Exclusion”) should be excluded from the de minimis calculation. Specifically, the Commission proposed to add specific characteristics that an IDI can consider when assessing whether swaps entered into with customers in connection with loans to those customers must be counted towards the IDI's de minimis calculation. The proposed IDI De Minimis Provision would have encompassed a broader scope of loan-related swaps than the IDI Swap Dealing Exclusion. The proposed IDI De Minimis Provision included: (1) A lengthier timing requirement for when the swap must be entered into; (2) an expansion of the types of swaps that are eligible; (3) a reduced syndication percentage requirement; and (4) an elimination of the notional amount cap. The IDI could exclude qualifying swaps from the de minimis calculation pursuant to the IDI De Minimis Provision regardless of whether the swaps would qualify for the IDI Swap Dealing Exclusion. 2. Summary of Comments Almost all commenters that addressed the IDI De Minimis Provision expressed general support for the proposed amendment. 176 Commenters often compared the IDI De Minimis Provision to the IDI Swap Dealing Exclusion. In that regard, commenters generally stated that the IDI De Minimis Provision better aligns the regulatory framework with the risk mitigation demands of bank customers. 177 176 See ABA, BDA, Capital One, CDEU, Citizens, Frost Bank, IIB, ISDA/SIFMA, JBA, M&T, and Regions comment letters. 177 See Capital One, Frost Bank, M&T, Regions comment letters. Commenters generally supported proposed new paragraph (4)(i)(C)( 1 ), 178 which provided that a swap must be entered into no earlier than 90 days before execution of the loan agreement, or before transfer of principal to the customer, unless an executed commitment or forward agreement for the applicable loan exists. In that event, the 90-day restriction does not apply. In comparison, the IDI Swap Dealing Exclusion in paragraph (5) of the SD Definition requires that a swap must be entered into no more than 90 days before or 180 days after the date of execution of the loan agreement (or date of transfer of principal to the customer). 179 On the other hand, three commenters recommended removing the 90-day restriction because it would be detrimental to the IDIs and/or borrowers. 180 Additionally, two commenters suggested revisions to the “executed commitment” or “forward agreement” exception to the 90-day restriction. 181 178 See Capital One, Citizens, Frost Bank, M&T, and Regions comment letters. 179 17 CFR 1.3, Swap dealer, paragraph (5)(i)(A). 180 See BDA, CDEU, and ISDA/SFIMA comment letters. 181 See Capital One and Frost Bank comment letters. Proposed new paragraph (4)(i)(C)( 2 ) stated that for purposes of the IDI De Minimis Provision, a swap is “in connection with” a loan if: (1) The rate, asset, liability or other term underlying such swap is, or is related to, a financial term of such loan; or (2) if such swap is required as a condition of the loan, either under the IDI's loan underwriting criteria or as is commercially appropriate, in order to hedge risks incidental to the borrower's business (other than for risks associated with an excluded commodity) that may affect the borrower's ability to repay the loan. Two commenters requested clarification regarding the proposed “condition of the loan” language. 182 182 See ABA and Regions comment letters. Proposed new paragraph (4)(i)(C)( 3 ) stated that the termination date of the swap cannot extend beyond termination of the loan. A few commenters stated that circumstances can be anticipated at the time of loan origination that would support permitting the termination date of the swap to extend beyond termination of the loan. 183 Additionally, in response to a question in the Proposal, a few commenters stated that in order to qualify for the IDI De Minimis Provision, IDIs should not be required to terminate loan-related swaps if a loan is called, put, accelerated, or goes into default before scheduled termination. 184 183 See ABA, BDA, CDEU, Citizens, and M&T comment letters. 184 See ABA, BDA, Capital One, CDEU, IIB, and ISDA/SIFMA comment letters. Proposed new paragraph (4)(i)(C)( 4 )( i ) required an IDI to be, under the terms of the agreements related to the loan, the source of at least five percent of the maximum principal amount under the loan for a related swap not to be counted towards its de minimis calculation, and proposed new paragraph (4)(i)(C)( 4 )( ii ) stated that if an IDI is a source of less than a five percent of the maximum principal amount of the loan, the notional amount of all swaps the IDI enters into in connection with the financial terms of the loan cannot exceed the principal amount of the IDI's loan in order to qualify for the IDI De Minimis Provision. A few commenters stated that the five percent participation requirement should be eliminated from the IDI De Minimis Provision, 185 while two commenters generally supported the five percent requirement. 186 185 See ABA, BDA, Citizens, and ISDA/SIFMA comment letters. 186 See Capital One and M&T comment letters. The proposed IDI De Minimis Provision did not include the requirement in the IDI Swap Dealing Exclusion that the AGNA of swaps entered into in connection with the loan not exceed the principal amount outstanding, 187 and two commenters agreed that there are circumstances where the AGNA of loan-related swaps can exceed the outstanding principal amount of the loan. 188 187 17 CFR 1.3, Swap dealer, paragraph (5)(i)(E). However, as discussed, pursuant to proposed paragraph (4)(i)(C)( 4 )( ii ), if an IDI is a source of less than a five percent of the maximum principal amount of the loan, the notional amount of all swaps the IDI enters into in connection with the financial terms of the loan cannot exceed the principal amount of the IDI's loan. See also 83 FR 27461. 188 See Capital One and M&T comment letters. In response to a question in the Proposal, three commenters stated that the CFTC should not impose any prior notice requirement or other conditions on the ability of IDIs to rely on the proposed IDI De Minimis Provision. 189 In response to another question in the Proposal, three commenters stated that there should not be a requirement that swap confirmations reference a specific loan because doing so would add operational complexity for little or no benefit. 190 189 See ABA, Capital One, and M&T comment letters. 190 See ABA, BDA, and Capital One comment letters. Two commenters discussed whether the IDI De Minimis Provision could be promulgated without a joint rulemaking. 191 ABA stated that the Commission is not required to promulgate the IDI De Minimis Provision through joint rulemaking with the SEC. 192 However, Better Markets asserted that the CFTC's position that a “joint rulemaking is not required with respect to changes to the de minimis exception-related factors” is invalid and “would impermissibly enable the CFTC to conduct an end-run around the statutory joint rulemaking requirement.” In particular, Better Markets stated that language potentially permitting unilateral action on the de minimis threshold itself does not permit unilateral regulatory actions affecting core definitional issues that must be accomplished through joint rulemaking. 193 191 See ABA and Better Markets comment letter. 192 See ABA comment letter. 193 See Better Markets comment letter. 3. Commission Response The Commission has determined not to adopt the IDI De Minimis Provision at this time. The Commission continues to consider the issues raised by commenters. For example, the various contexts in which IDIs enter into swaps with their loan customers, and the relation between those swaps and the larger swap market, may merit further consideration. B. Swaps Entered Into to Hedge Financial or Physical Positions 1. Proposal The Commission proposed adding a provision in new paragraph (4)(i)(D) of the De Minimis Exception, to include as a factor whether a swap was entered into primarily for the purpose of hedging and met certain related conditions (the “Hedging De Minimis Provision”). 194 As proposed, to qualify for the Hedging De Minimis Provision, the primary purpose for the swap would need to be to reduce or otherwise mitigate one or more specific risks to which the person is subject. Proposed paragraph (4)(i)(D)( 2 ) provided that the person entering into the hedging swap could not be the price maker of the hedging swap and receive or collect a bid/ask spread, fee, or other commission for entering into the hedging swap (the “price maker condition”). In addition, the proposed Hedging De Minimis Provision included in paragraphs (D)( 3 ) through (D)( 5 ) the following conditions that are similar to conditions in the physical hedging exclusion in paragraph (6)(iii) of the SD Definition: (1) The swap must be economically appropriate to the reduction of risks that may arise in the conduct and management of an enterprise engaged in the type of business in which the person is engaged; (2) the swap must be entered into in accordance with sound business practices; and (3) the swap must not be entered into in connection with activity structured to evade designation as an SD. 194 See 83 FR 27462-63. 2. Summary of Comments Most commenters supported including an express hedging exception that would clarify which physical and financial hedging swaps do not need to be included in the AGNA threshold calculation. 195 These commenters agreed with the Commission that there is currently some uncertainty and confusion among market participants regarding this determination. However, many of these commenters raised issues with the particular conditions identified in the proposed Hedging De Minimis Provision, and two other commenters objected to inclusion of the Hedging De Minimis Provision. 196 Among other issues, the two commenters viewed the Hedging De Minimis Provision as a major expansion of the De Minimis Exception. 195 See ABA, AGA, AFEX/GPS, BDA, Capital One, CDEU, COPE, CMC, EEI/EPSA, Frost Bank, FIA, IIB, IECA, ISDA/SIFMA, JBA, NRECA/APPA, NGSA, Virtu, and Western Union comment letters. 196 See AFR and Better Markets comment letters. Generally, commenters supported adding the Hedging De Minimis Provision to the De Minimis Exception to provide more certainty and/or clarity regarding the treatment of hedging activity. 197 On the other hand, AFR and Better Markets stated that excepting hedges of swap dealing positions from the de minimis threshold could exclude swaps that appear to be hedges, but are actually dealing swaps. 198 Furthermore, Better Markets asserted that a hedge of client facing swap is “inextricably” tied to accommodating customer demands. 199 197 See ABA, AGA, BDA, Capital One, Citizens, CDEU, EEI/EPSA, Frost Bank, FIA, NGSA, NRECA/APPA, Virtu, and Western Union comment letters. 198 See AFR and Better Markets comment letters. 199 See Better Markets comment letter. Several commenters noted that the price maker condition included in the proposed Hedging De Minimis Provision could be viewed as more limiting than the existing physical swap hedging exclusion. 200 Many commenters expressed concern that the proposed condition would be overly prescriptive, ambiguous, and/or could inadvertently require certain hedging activity to be treated as swap dealing activity. 201 In particular, commenters asked that the bid/ask spread limitation be deleted or clarified. 202 Conversely, two commenters expressed some support for this condition as proposed. 203 200 See CEWG, CMC, FIA, and IECA comment letters. 201 See CDEU, EEI/EPSA, IECA, and Western Union comment letters. 202 See ABA, BDA, EEI/EPSA, IECA, IIB, NRECA/APPA, and Western Union comment letters. 203 See COPE and NRECA/APPA comment letters. ISDA/SIFMA was of the view that the requirement that the primary purpose for entering into the swap must be to reduce or otherwise mitigate one or more “specific” risks is unreasonably restrictive. 204 ISDA/SIFMA suggested that the Commission should remove the term “specific” from the regulatory text to better achieve the Commission's policy objective of encouraging greater use of swaps to hedge risks. On the other hand, NRECA/APPA noted that the specific, but non-exclusive, risks identified in paragraph (4)(i)(D)( 1 ) are consistent with the types of commercial risks that an end-user would hedge. 205 204 See ISDA/SIFMA comment letter. 205 See NRECA/APPA comment letter. AFR and Better Markets objected to the Hedging De Minimis Provision, stating that it could allow even large dealers to escape registration, and that the exclusion of anticipatory hedges allows too much discretion to institutional judgment. 206 206 See AFR and Better Markets comment letters. Better Markets expressed concern that the Hedging De Minimis Provision promotes unregulated swap dealing and is therefore “not a valid statutory objective.” Furthermore, Better Markets stated that the Commission does not need to provide clarity for the existing hedging exemption because the existing standard of using facts and circumstances to distinguish dealing swaps is a “well-settled framework.” 207 Better Markets also asserted that the Commission misinterpreted its prior statements about the use of swaps to hedge dealing positions. However, in doing so, Better Markets cited to language in the joint SD Definition Adopting Release that addressed the definition of “security-based swap dealer,” not “swap dealer.” 208 207 See Better Markets comment letter. Better Markets noted that, in October 2012, DSIO addressed whether hedging activity is included in calculating the de minimis amount when it stated that “a person must consider the swap in light of all other relevant facts and circumstances to determine whether such hedging activity is swap dealing activity. . . .” See Frequently Asked Questions (FAQ)—[DSIO] Responds to FAQs About Swap Entities (Oct. 12, 2012) (“DSIO FAQ Guidance”), available at https://www.cftc.gov/idc/groups/public/@newsroom/documents/file/swapentities_faq_final.pdf. 208 77 FR 30619 n.280 (stating that security-based swaps activity for hedging purposes “unrelated to activities that constitute dealing” would not be expected to lead the person to be a security-based swap dealer). AFR and Better Markets also asserted that the Hedging De Minimis Provision should not be included in the De Minimis Exception because enforcement of the conditions would be impractical. 209 209 See AFR and Better Markets comment letters. AFR described the potential need for a swap-by-swap analysis and the potential for disputes regarding the proposed anti-evasion provision. 3. Commission Response The comments generally confirmed that nuanced facts and circumstances may be relevant to determining whether a swap that hedges financial risk, but also has dealing characteristics or is connected to dealing activities, should be counted toward the AGNA threshold. However, the comments also raised specific implementation and compliance issues. For these reasons, the Commission has determined not to adopt the Hedging De Minimis Provision at this time. The Commission confirms that the “relevant facts and circumstances” test established in the SD Definition Adopting Release and further discussed in the DSIO FAQ Guidance 210 continues to be in effect. In doing so, the Commission emphasizes that market participants should continue to evaluate such swaps without consideration of the proposed Hedging De Minimis Provision. 210 See supra note 207. C. Swaps Resulting From Multilateral Portfolio Compression Exercises 1. Proposal The Commission proposed new paragraph (4)(i)(E) of the De Minimis Exception, which would add as a factor in the de minimis calculation whether a swap results from multilateral portfolio compression exercises (“MPCE De Minimis Provision”). Specifically, the Proposal stated that for purposes of determining whether a person has exceeded the AGNA threshold set forth in paragraph (4)(i)(A), the person may exclude swaps that result from multilateral portfolio compression exercises, as defined in § 23.500 of Commission regulations, to the extent the person does not enter into the multilateral portfolio compression exercise in connection with activity structured to evade designation as an SD. The Proposal was consistent with DSIO no-action relief issued on December 21, 2012 (“Staff Letter 12-62”). 211 211 CFTC Staff Letter No. 12-62, supra note 47. 2. Summary of Comments Most commenters addressing this aspect of the Proposal supported excepting from the de minimis threshold swaps that result from multilateral portfolio compression exercises, 212 stating that multilateral portfolio compression: (1) Advances the Commission's policy goals of reducing counterparty credit risks by allowing swap market participants with large portfolios to net down the size and number of swaps among them, thus lowering the AGNA of outstanding swaps; 213 and (2) does not involve dealing activity, but rather allows market participants to reduce their risk without implicating any of the other considerations related to SD regulation. 214 212 See ABA, IIB, ISDA/SIFMA, JBA, and NEX comment letters. 213 See ABA, ISDA/SIFMA, and NEX comment letters. 214 See IIB comment letter. Several commenters also stated that, given the policy-related similarities between bilateral and multilateral portfolio compression, the Commission should also exclude from counting towards the De Minimis Exception swaps that result from bilateral portfolio compression exercises. 215 One commenter asserted that reliance on the “multilateral portfolio compression exercise” definition in § 23.500(h) of Commission regulations may be too limiting. 216 215 See ABA, IIB, ISDA/SIFMA, and JBA comment letters. 216 See IIB comment letter. On the other hand, AFR and IATP expressed concerns with the MPCE De Minimis Provision. 217 AFR stated that the definition of portfolio compression appears overbroad since it goes beyond the termination of fully offsetting swaps to include any exercise which would result in the reduction of current market risks for a set of swaps, even if the exercise might actually increase credit exposure or market risk under stressed market conditions. 218 IATP noted that entities should be required to document and report the results of multilateral compression exercises to qualify for the exception. Additionally, IATP stated that any de minimis exception-related exemption must be in the public interest, and asked questions regarding the legal authority for the Commission to propose the amendments included in the NPRM. 219 217 See AFR and IATP comment letters. 218 See AFR comment letter. 219 See IATP comment letter. 3. Commission Response The Commission has determined not to adopt the MPCE De Minimis Provision at this time. The Commission believes that further action on this provision may require additional consideration of the various relevant issues. 220 220 The Commission notes that Staff Letter 12-62 is not affected by the Commission's determination not to adopt the MPCE De Minimis Provision at this time. D. Methodology for Calculating Notional Amounts 1. Proposal Given the variety of potential methods that could be used to calculate the notional amount for certain swaps, particularly for swaps where notional amount is not a contractual term of the transaction ( e.g., certain NFC swaps), the Commission proposed new paragraph (4)(vii) of the De Minimis Exception, which sets out a mechanism for the Commission, on its own or upon written request by a person, to determine the methodology to be used to calculate the notional amount for any group, category, type, or class of swaps for purposes of whether a person exceeds the AGNA threshold. The proposed rule required that such methodology be economically reasonable and analytically supported, and that any such determination be posted on the CFTC website. Further, to ensure timely clarity to market participants, the Commission proposed to delegate to the Director of DSIO the authority to make such determinations. 2. Summary of Comments Several commenters generally supported Commission efforts to provide certainty and clarity regarding calculation of notional amounts. 221 Some of these commenters supported providing the Commission with the explicit authority to approve or establish methodologies for calculating notional amount. 222 Citizens specifically noted that the lack of clarity regarding notional amount interpretations has persisted for too long, and what little guidance that exists does not provide the certainty that market participants need in order to run their businesses efficiently. 223 Further, FIA stated that the DSIO FAQ left open a multitude of questions for market participants attempting to calculate notional amount. 224 Additionally, NGSA requested that the CFTC provide a safe harbor for reliance on a notional amount calculation methodology that is based on standard industry practice unless and until CFTC publishes notice that invalidates such a methodology or prescribes a different methodology. 225 221 See ABA, Citizens, CEWG, CMC, EEI/EPSA, FIA, Frost Bank, IIB, NGSA, and Western Union comment letters. 222 See Citizens, EEI/EPSA, FIA, Frost Bank, and Western Union comment letters. 223 See Citizens comment letter. 224 See FIA comment letter. 225 See NGSA comment letter. NRECA/APPA suggested that the Commission should not determine the methodology for calculating notional amounts, stating that [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2018-24579. Public record. Not legal advice.