CFTC Approves Swap Definition

Vote on definition will trigger close to 20 Dodd-Frank measures on reporting, clearing, trading and record-keeping.

The U.S. Commodity Futures Trading Commission voted today to define when trades are considered swaps under the Dodd-Frank Act, a step that triggers more than a dozen rules under the 2010 financial-regulation overhaul.

The agency’s commissioners voted 4-1 to approve a 600-page measure governing when interest-rate, credit, commodity and other trades involving companies including JPMorgan Chase & Co., Barclays Plc and Cargill Inc. should face rules to limit risk in the $648 trillion global market. The Securities and Exchange Commission unanimously approved the rule in a private vote on July 6, the agency said in a statement yesterday.

Embedding Options

Bart Chilton, a Democratic commissioner who opposed the measure, said he is concerned that the financial industry will create forwards that embed options that transform the traditional use of the contracts in a way that would skirt Dodd-Frank oversight.

Exemptions Vote

The CFTC also voted 5-0 to exempt some companies from the law’s requirement to guarantee swaps at central clearinghouses. Commercial and manufacturing companies that use swaps to hedge or mitigate their business risks lobbied for the the so-called end-user exception. The CFTC estimated that about 30,000 entities might take advantage of the exception.

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