CFTC Adopts Loan-Related Swap Exclusion from De Minimis Exception

On March 25, 2019, the Commodity Futures Trading Commission adopted an amendment to the de minimis exception to the definition of “swap dealer” under the Commodity Exchange Act and the CFTC’s regulations thereunder.

The De Minimis Exception provides that a person will not be deemed to be a swap dealer unless, over the prior 12 months, its swaps entered into in connection with swap dealing (together with those of its affiliates not registered as swap dealers) exceed either (a) $8 billion aggregate gross notional amount with all types of counterparties or (b) $25 million AGNA with counterparties that are “special entities.”  The Amendment excludes from the $8 billion calculation certain swaps entered into between an insured depository institution and its customer in connection with a loan.

The Amendment effectively expands the existing exclusion from the “swap dealer” definition for Loan-Related Swaps, including by providing greater flexibility in respect of the execution date and notional amount of the Loan-Related Swap.  All Loan-Related Swaps, however, remain subject to applicable CFTC swap requirements, including mandatory clearing, mandatory trading and reporting requirements.  Additionally, Loan-Related Swaps that fall within the scope of the Amendment, but outside the pre-existing IDI Exclusion, will continue to count toward the $25 million “special entity” threshold.

This Memorandum provides an overview of the Amendment.