Feds Tackle Swaps Rules

The U.S. Securities and Exchange Commission (SEC) is taking another step toward defining the terms that will be used in implementing the swaps provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The SEC commissioners have voted 5-0 to get comments on draft definitions for terms such as “major swap participant,” “financial entity” and “highly leveraged.”

In the Dodd-Frank Act, Congress has defined a swap as any agreement, contract or transaction that is a “put, call, cap, floor, collar, or similar option of any kind that is for the purchase or sale, or based on the value, of 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind.”

The SEC is supposed to share jurisdiction over swaps with the Commodity Futures Trading Commission, and the precise definitions could affect which agency, if any, regulates a transaction, and how strict the rules governing the parties involved in the swaps will be.

The SEC has not yet published the draft definitions in the Federal Register. A summary of the draft swaps definitions on the SEC website does not refer directly to insurers or insurance.

Officials do discuss the definition of a “financial entity,” other than a federally regulated bank, “that is ‘highly leveraged’ relative to the amount of capital it holds, and that maintains a substantial position in a major category of security-based swaps.”