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News Release: CFTC’s Derivatives Rule Opens A New Gap In Market Regulation

Submitted by on March 25, 2019 – 3:52 pm

FOR IMMEDIATE RELEASE

Mar. 25, 2019

CONTACT:

Carter Dougherty, carter@ourfinancialsecurity.org, (202) 251-6700

CFTC’s Derivatives Rule Opens A New Gap In Market Regulation

Statement from Marcus Stanley, policy director at Americans for Financial Reform:

Today’s decision by the CFTC to expand exemptions to swap dealer designation opens a major new gap in the framework of derivatives market regulation required by the Dodd-Frank Act.  The requirement in the Dodd-Frank Act that major dealers in financial derivatives be regulated as such, and meet risk management and business conduct standards, is a direct response to derivatives market abuses that contributed to the 2008 financial crisis. The loophole created by today’s Final Rule could permit large-scale evasion of this requirement.

Dealers with less than $8 billion in derivatives transactions, and all banks with under $10 billion in assets, are already exempted from dealer regulation. Yet the CFTC now proposes an open-ended exemption for bank dealers that would exclude derivatives with a customer from being counted toward designation if they are in any way related to the financial terms of a loan made to that customer. There is no limit to the size of a bank that could benefit from this exemption and no limit to the number or size of derivatives transactions that could be excluded from counting toward dealer designation under the new rule.  This represents a major expansion of current, much narrower allowances for loan-related swaps, and could permit wholesale evasion of dealer registration requirements.

This change is unjustifiable on the merits and harms the stability and fairness of financial markets. We urge the CFTC to reconsider the change, and hope that it will be reversed under future CFTC leadership.

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