Statement of Commissioner Brian Quintenz Regarding DSIO Staff Report on the Swap Dealer De Minimis Exception


July 8, 2019


In connection with the Commission’s adoption of a permanent $8 billion gross notional de minimis threshold in November 2018, the Chairman directed staff within the Division of Swap Dealer and Intermediary Oversight (DSIO) to continue their analysis of possible alternatives for the de minimis exception, including the impact of removing cleared swaps. The staff report issued today elucidates two fundamental facts about the de minimis exception. First, the report shows that the removal of exchange-traded[1] and cleared swaps from the de minimis calculation would result in no reduction of regulatory coverage. Second, the report highlights once again the glaring deficiencies of using notional value as the registration threshold triggering swap dealer registration.


With respect to the first point, the report measures the estimated “regulatory coverage” of the market – that is, the percentage of the market subject to swap dealer regulation – under various “exclusion scenarios.”[2] Under the existing $8 billion de minimis threshold, staff estimates that 99.95% of the baseline $221 trillion swaps market is subject to swap dealer regulation.[3] The report shows that when exchange-traded and cleared swaps are excluded from the de minimis analysis, that percentage remains unchanged – 99.95% of the market continues to be covered by swap dealer regulation.[4] The regulatory coverage of the market remains the same because, although exchange-traded and cleared swaps represent a significant amount of activity, applying the $8 billion de minimis threshold to uncleared activity captures the same universe of swap dealers.


The report clearly demonstrates that exchange-traded and cleared swaps can be removed from an entity’s swap dealer analysis without sacrificing the regulatory protections that are at the core of the Commission’s swap dealer regime. The Commission has already opened up the door to excluding this type of activity from the de minimis calculation through its recent floor trader no-action letter, which allows proprietary trading firms to exclude exchange-traded and cleared swaps from their de minimis calculations if they register as floor traders and comply with minimal swap dealer regulatory requirements.[5] The Commission should revise its regulations to make this policy applicable to all market participants, not just a select few.


With respect to the second point, the staff report clearly demonstrates that notional value is a poor measure of activity in the swaps market. This is evidenced by the comparison of the impact that removing exchange-traded and cleared swaps has on notional coverage, relative to the impact that removing those swaps has on transaction and counterparty coverages.[6] If exchange-traded and cleared swaps are excluded, notional coverage decreases from $221trillion to $127.8 trillion (57.80% of the baseline market).[7] However, when you apply the same exclusions to transaction coverage, the number of covered transactions only declines from 3.8 million to 3.22 million (84.70% of the baseline market).[8] Similarly, when excluding exchange-traded and cleared swaps, counterparty coverage only decreases from 30,879 to 30,631 (88.09% of the baseline market).[9]


The impact of these exclusions on notional coverage is dramatically more severe than on transaction and counterparty coverages. The disparate impact demonstrates that notional value is a poor measure of a firm’s activity in the market and that relying solely on notional amounts as the basis for triggering swap dealer registration may result in instances of “false positives,” whereby firms with a relatively small footprint in the marketplace are nonetheless required to register. In my view, the Commission should move away from using notional value in its registration thresholds and move toward adopting metrics more representative of an entity’s actual size and risk in the market.


Today’s report is a step in the right direction. I would like to thank DSIO staff for their commitment to providing the Commission with the information and analysis it needs to make data-driven policy decisions. I believe DSIO’s staff report will help further inform and guide the Commission’s consideration of the de minimis exception.                      



[1] The report uses the term “on-venue” when referencing exchange-traded swaps.

[2] The report determines regulatory coverage by examining the activity of “Likely SDs” under the various scenarios.   

[3] See Table 1, Final Row, Column 1.

[4] See Table 1, Final Row, Column 2. Similarly, when this concept of regulatory coverage is measured by number of trades or counterparties subject to swap dealer regulation (see Tables 2 and 3), staff estimates that under the current threshold, a baseline of 99.77% of all trades and 88.80% of counterparties are covered (see Tables 2 and 3, Final Rows, Column 1). Again, when exchange-traded and cleared swaps are excluded, the report shows regulatory coverage for trades and counterparties remains unchanged, with 99.77% of trades and 88.80% of counterparties still covered (see Tables 2 and 3, Final Rows, Column 2).

[5] CFTC Letter No. 19-14, No-Action Relief for Certain Conditions of the Floor Trader Provision (June 27, 2019), https://www.cftc.gov/csl/19-14/download.

[6] This discussion only considers the swap activity of swap dealers that is not exchange-traded and cleared.  As noted above, once swap dealers’ excluded activity is included in the analysis, regulatory coverage remains the same as the baseline.

[7] See Table 1, Column 2.

[8] See Table 2, Column 2.

[9] See Table 3, Column 2.