Rules and interpretations issued by the Securities and Exchange Commission (SEC) earlier this week further define the terms “swap” and “security-based swap,” and whether a particular instrument is a “swap” regulated by the CFTC or a “security-based swap” regulated by the SEC. The SEC action also addresses “mixed swaps,” which are regulated by both agencies, and “security-based swap agreements,” which are regulated by the CFTC but over which the SEC has antifraud and other authority. (See “SEC Takes Another Step in Regulating OTC Derivatives.”)
According to The Wall Street Journal, the CFTC also passed an exemption for commercial companies that use derivatives to hedge risk, such as fluctuating commodity prices or interest rates. (See “Derivatives Users Fear Higher Hedging Costs.”) Commissioners also included an exemption for small banks with assets of $10 billion or less, which Congress told the commission to consider in the law.
The commission expects 30,000 banks and companies to qualify for the exemption, the Journal learned in a staff briefing for reporters on the rule.
The new regulatory regime would require most derivatives to be traded on open platforms and routed through a clearinghouse that secures the deal and collects margin from both sides.