# CFTC Letter No. 12-18: Staff No-Action Relief: Temporary Relief from the De Minimis Threshold for Certain Swaps with Special Entities

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/CFTC_L12_18

## Section

- **Citation:** CFTC Letter No. 12-18
- **Heading:** Staff No-Action Relief: Temporary Relief from the De Minimis Threshold for Certain Swaps with Special Entities
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** CFTC Staff Letters (2008-present) / Staff No-Action Relief: Temporary Relief from the De Minimis Threshold for Certain Swaps with Special Entities.

## Text

Summary: Staff No-Action Relief: Temporary Relief from the De Minimis Threshold for Certain Swaps with Special Entities.

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5977
Facsimile: (202) 418-5407
www.cftc.gov
Division of
Swap Dealer and
Intermediary Oversight

CFTC Letter No. 12-18

No-Action

October 12, 2012

Division of Swap Dealer and Intermediary Oversight

Staff No-Action Relief: Temporary Relief from the De Minimis Threshold for
Certain Swaps with Special Entities

On May 23, 2012, the Commodity Futures Trading Commission (the “Commission”)
published a rule further defining certain terms, including the term “swap dealer” (the “Rule”).1
The Rule became effective on July 23, 2012, but registration as a swap dealer is not required
until on or after October 12, 2012 (i.e., the date that the further definition of “swap” as adopted
by the Commission and the Securities and Exchange Commission is effective).2
The Rule includes an exception for a person that has entered into swap positions
connected with its swap dealing activities that, in the aggregate, do not exceed either of two
gross notional amount thresholds.3 The two gross notional amount thresholds are (i) $3 billion,
subject to a phase in level of $8 billion (referred to herein as the “general de minimis threshold”),
and (ii) $25 million with regard to swaps in which the counterparty is a “special entity”4 (referred
to herein as the “special entity de minimis threshold”).
On July 12, 2012, the Commission received a petition seeking an amendment of the
Commission’s regulation at 17 C.F.R. 1.3(ggg)(4) (the “Petition”).5 The Petition requested that
the regulation be amended to exclude from the special entity de minimis threshold swaps to
which the Petitioners are counterparties and that relate to the Petitioners’ utility operations
entity de minimis threshold”).
On July 12, 2012, the Commission received a petition seeking an amendment of the
Commission’s regulation at 17 C.F.R. 1.3(ggg)(4) (the “Petition”).5 The Petition requested that
the regulation be amended to exclude from the special entity de minimis threshold swaps to
which the Petitioners are counterparties and that relate to the Petitioners’ utility operations. The
Petition stated that the “rule amendment is necessary in order to preserve uninterrupted and cost-

1 77 Fed. Reg. 30596 (May 23, 2012) (the “Swap Dealer Definitions Adopting Release”), codified at 17 C.F.R.
1.3(ggg).
2 17 C.F.R. 3.10(a)(1)(v)(C).
3 17 C.F.R. 1.3(ggg)(4)(i).
4 Id. The term “special entity” is defined in Section 4s(h)(2)(C) of the Commodity Exchange Act (“CEA”), 7 U.S.C.
6s(h)(2)(C), and 17 C.F.R. 23.401(c).
5 Petition for rulemaking dated July 12, 2012 from the American Public Power Association, the Large Public Power
Council, the American Public Gas Association, the Transmission Access Policy Study Group and the Bonneville
Power Administration (collectively, the “Petitioners”), available at
http://sirt.cftc.gov/sirt/sirt.aspx?Topic=PendingFilingsandActionsAD&Key=23845.

2
effective access to the customized, nonfinancial commodity swaps that Petitioners and other
Utility Special Entities use to hedge or mitigate commercial risks arising from their utility
facilities, operations and public service obligations.”6 The amendment requested in the Petition
would have the effect of allowing persons to deal in utility-related swaps with utility special
entities with an aggregate gross notional amount of up to $8 billion, but not register as swap
dealers
ther
Utility Special Entities use to hedge or mitigate commercial risks arising from their utility
facilities, operations and public service obligations.”6 The amendment requested in the Petition
would have the effect of allowing persons to deal in utility-related swaps with utility special
entities with an aggregate gross notional amount of up to $8 billion, but not register as swap
dealers. The Petition said that this is necessary in order to increase the number of counterparties
available to utility special entities to enter into swaps that are necessary for the efficient conduct
of the Petitioners’ businesses and operations.7
The Commission is considering the Petition and the comments received in relation to it.8
The Division of Swap Dealer and Intermediary Oversight (the “Division”) believes that the
issues discussed in the Petition and the requested amendment may impact a variety of policy
goals and interests that are related to the overall goals of the Commission’s swap regulations.
While the Commission is considering these issues, the Division believes that, in view of the
impending effectiveness of the swap dealer registration requirement, it is appropriate to provide
limited no-action relief with respect to the special entity de minimis threshold, as described
below.
The Division believes that no-action relief with regard to the special entity de minimis
threshold is appropriate for utility special entities for several reasons that are particular to these
circumstances
effectiveness of the swap dealer registration requirement, it is appropriate to provide
limited no-action relief with respect to the special entity de minimis threshold, as described
below.
The Division believes that no-action relief with regard to the special entity de minimis
threshold is appropriate for utility special entities for several reasons that are particular to these
circumstances.
First, for utility special entities (as opposed to other special entities that do not provide
public utility services), the Division understands from its discussions with market participants
that commodity and swap markets are likely to be local and particularized.9 Pricing and other
terms of electricity and natural gas transactions may vary significantly from region to region so
that only market participants active in the physical energy markets in a particular region are able
to enter into swaps with the utility special entities. Thus, the Division also understands that
currently, the counterparties to the utility special entities for hedging swaps are generally other
non-financial entities that are active in the physical markets for electricity and natural gas. As a
result, the number of counterparties available to the utility special entities is reduced.
Second, the Division also understands that the utility special entities have a unique
obligation to provide continuous service to the public; moreover, this continuous service is
crucial to public safety. This also may constrain the counterparties available to the utility special

6 Petition at 2
able to the utility special entities is reduced.
Second, the Division also understands that the utility special entities have a unique
obligation to provide continuous service to the public; moreover, this continuous service is
crucial to public safety. This also may constrain the counterparties available to the utility special

6 Petition at 2. The Petition defined utility special entity as a special entity that “owns or operates electric or natural
gas facilities or electric or natural gas operations (or anticipated facilities or operations), supplies natural gas and/or
electric energy to other utility special entities, has public service obligations (or anticipated public service
obligations) under Federal, State or local law or regulation to deliver electric energy and/or natural gas service to
utility customers, or is a Federal power marketing agency as defined in Section 3 of the Federal Power Act (16
U.S.C. 796(19)).” Id.
7 See Petition at 8-9 (“Utility Special Entities Need All Available Utility Operations-Related Swap Counterparties”).
8 On October 8, 2012, the Commission received from the Petitioners a letter requesting interim no-action relief along
the lines set forth in the Petition. The October 8 letter and comments received by the Commission on the Petition
are available at the web site in note 5, above.
9 See also Petition at 6-7.
pecial Entities Need All Available Utility Operations-Related Swap Counterparties”).
8 On October 8, 2012, the Commission received from the Petitioners a letter requesting interim no-action relief along
the lines set forth in the Petition. The October 8 letter and comments received by the Commission on the Petition
are available at the web site in note 5, above.
9 See also Petition at 6-7.

3
entities if, for example, the utility special entities must arrange hedges covering a continuous
period of time without interruption. While other special entities, such as municipal governments,
also serve the public interest, they do not have the same obligations to provide a continuous
supply of a commodity (e.g., electricity or natural gas). Thus, the need for utility special entities
to use physical commodity swaps is different from their need to use other types of swaps, and it
is different from the need for other special entities to use swaps. Finally, a significant reduction
in the number of swap counterparties available to the utility special entities could be especially
harmful to the public interest in view of the importance of the energy services provided by the
utility special entities
For these reasons, the Division believes that allowing utility special entities to enter into a
larger volume of swaps with persons that are not registered swap dealers is not likely to raise the
types of risks that the Commission’s swap dealer registration requirements are intended to
prevent, and it is appropriate to provide limited no-action relief as described below.
In view of the foregoing, the Division is issuing this notice of no-action relief. The
Division will not recommend that the Commission commence an enforcement action against a
person for failure to apply to be registered as a swap dealer, if:
mmission’s swap dealer registration requirements are intended to
prevent, and it is appropriate to provide limited no-action relief as described below.
In view of the foregoing, the Division is issuing this notice of no-action relief. The
Division will not recommend that the Commission commence an enforcement action against a
person for failure to apply to be registered as a swap dealer, if:
(1) the utility commodity swaps connected with the person’s swap dealing activities into
which the person – or any other entity controlling, controlled by or under common
control with the person – enters over the course of the immediately preceding 12
months (or following October 12, 2012, if that period is less than 12 months) have an
aggregate gross notional amount of no more than $800 million;
(2) the person is not otherwise within the definition of the term “swap dealer,” as
provided in 17 C.F.R. 1.3(ggg) (i.e., the person – or any other entity controlling,
controlled by or under common control with the person – has not entered into swaps
as a result of its swap dealing activities in excess of the general de minimis threshold
or (not counting utility commodity swaps) the special entity de minimis threshold);10
and
(3) the person is not a “financial entity,” as defined in section 2(h)(7)(C)(i) of the CEA.11

10 The Division emphasizes that a person’s utility commodity swaps connected with the person’s swap dealing
activities are not in addition to the person’s swaps subject to the general de minimis threshold. Rather, such swaps
effectively reduce the general de minimis threshold for that person
y,” as defined in section 2(h)(7)(C)(i) of the CEA.11

10 The Division emphasizes that a person’s utility commodity swaps connected with the person’s swap dealing
activities are not in addition to the person’s swaps subject to the general de minimis threshold. Rather, such swaps
effectively reduce the general de minimis threshold for that person. For example, if a person enters into utility
commodity swaps connected with the person’s swap dealing activities with an aggregate gross notional amount of
$200 million, then in order to remain below the general de minimis threshold the person could enter into other swaps
with an aggregate gross notional amount of only $7.8 billion (i.e., $8 billion minus $200 million).
11 7 USC 2(h)(7)(C)(i). As noted above, the Division understands from discussions with market participants that
financial entities are not typically the counterparties to the physical commodity swaps that are necessary for utility
special entities, and the relatively few financial entities that are counterparties to such swaps are likely to register as
swap dealers. Therefore, this no-action relief is available only to persons that are not financial entities.

4
As noted above, this no-action relief is available only to persons who enter into utility
commodity swaps connected with their swap dealing activities with an aggregate gross notional
amount of no more than $800 million
terparties to such swaps are likely to register as
swap dealers. Therefore, this no-action relief is available only to persons that are not financial entities.

4
As noted above, this no-action relief is available only to persons who enter into utility
commodity swaps connected with their swap dealing activities with an aggregate gross notional
amount of no more than $800 million. The Division believes this dollar amount is an appropriate
limit on the availability of this no-action relief because in their comment letter on the
Commission’s proposed definition of the term swap dealer, certain of the Petitioners suggested
that the de minimis threshold with respect to special entities should be one-tenth of the overall de
minimis threshold.12 Several other commenters on the proposed definition also expressed this
view.13
For purposes of this no-action relief, the term “utility commodity swap” means any swap
that meets all of the following conditions:
a) a party to the swap is a utility special entity;14
b) a party to the swap that is a utility special entity is using the swap in the manner
described in 17 C.F.R. 1.3(ggg)(6)(iii);15 and
c) the swap is related to an exempt commodity in which both parties to the swap transact
as part of the normal course of their physical energy businesses.16

12 See joint comment letter from the National Rural Electric Cooperative Association, the American Public Power
Association and the Large Public Power Council dated Feb. 22, 2011, at 18, incorporating by reference a joint
comment letter from the Edison Electric Institute and Electric Power Supply Association dated Feb. 22, 2011, which
at pages 10-11 recommended a de minimis threshold for swaps with special entities that would be one-tenth of the
overall de minimis threshold.
13 See Swap Dealer Definitions Adopting Release, 77 FR at 30627, fn. 390.
14 The term “utility special entity” is defined as stated in note 6, above
tter from the Edison Electric Institute and Electric Power Supply Association dated Feb. 22, 2011, which
at pages 10-11 recommended a de minimis threshold for swaps with special entities that would be one-tenth of the
overall de minimis threshold.
13 See Swap Dealer Definitions Adopting Release, 77 FR at 30627, fn. 390.
14 The term “utility special entity” is defined as stated in note 6, above. Both parties to the swap could be utility
special entities, and the swap could qualify for this no-action relief.
15 17 C.F.R. 1.3(ggg)(6)(iii) provides for the exclusion of certain types of swaps from the analysis of whether a
person is a swap dealer; thus, the regulation applies with respect to persons that are potential swap dealers. For
purposes of this no-action relief, the Division intends to apply the conditions of this regulation in the opposite
manner – to determine if the utility special entity (i.e., the counterparty to the potential swap dealer) is using the
swap to hedge a physical position as described in the regulation. Although the regulation is being used in the
opposite manner, the Division believes that it is efficient to apply the same standard for both purposes, and any
guidance regarding 17 C.F.R. 1.3(ggg)(6)(iii), including that in the Swap Dealer Definitions Adopting Release, 77
FR at 30611-14, also applies to this no-action relief.
16 The term “exempt commodity” is defined in CEA section 1a(14), 7 U.S.C. 1a(14) as a “commodity that is not an
excluded commodity or an agricultural commodity.” An “excluded commodity” is defined under CEA Section
1a(13), 7 U.S.C. § 1a(13), to encompass interest rates, exchange rates and other instruments, indexes and measures
of a generally financial nature. The Division believes that to avoid an over-expansive application of this no-action
relief, it is important to require that the swap relate to a exempt commodity in which both parties transact as part of
the normal course of their physical energy businesses
U.S.C. § 1a(13), to encompass interest rates, exchange rates and other instruments, indexes and measures
of a generally financial nature. The Division believes that to avoid an over-expansive application of this no-action
relief, it is important to require that the swap relate to a exempt commodity in which both parties transact as part of
the normal course of their physical energy businesses. That is, for example, the relief would not be available to a
person that does not enter into physical transactions in the exempt commodity to which the swap relates.

5
In addition, to take advantage of this no-action relief to avoid applying to be registered as
a swap dealer, a person must provide notice to the Division stating that it is applying this relief.
The notice must indicate the identity of the utility special entities with which the person has
entered into utility commodity swaps connected with the person’s swap dealing activities and,
with respect to each utility special entity, the total gross notional value of such utility commodity
swaps. The notice must be provided to the Division by December 31, 2012 and thereafter on a
quarterly basis using the email address dsionoaction@cftc.gov.17
This no-action position will remain in effect until the effective date of any Commission
action with respect to the Petition, including without limitation a rulemaking, an order, or a
determination not to take action with respect to the Petition.

This letter, and the positions taken herein, represent the view of the Division only, and do
not necessarily represent the position or view of the Commission or of any other office or
division of the Commission. The relief issued by this letter does not excuse the affected persons
from compliance with any other applicable requirements contained in the CEA or in the
Commission’s regulations issued thereunder. Further, this letter, and the relief contained herein,
is based upon the information made available to the Division
or view of the Commission or of any other office or
division of the Commission. The relief issued by this letter does not excuse the affected persons
from compliance with any other applicable requirements contained in the CEA or in the
Commission’s regulations issued thereunder. Further, this letter, and the relief contained herein,
is based upon the information made available to the Division. Any different or changed material
facts or circumstances might render this letter void.

If you have any questions, please do not hesitate to contact Frank Fisanich, Chief
Counsel, at 202-418-5949, or Ward Griffin, Associate Chief Counsel, at 202-418-5425.

Very truly yours

Gary Barnett

cc:
Regina Thoele, Compliance

National Futures Association, Chicago

17 The obligation to provide this notice is in addition to, and does not supersede, the person’s obligation to report the
swap pursuant to 17 C.F.R. Part 45.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/CFTC_L12_18. Check the current official text before relying on it. Not legal advice.