The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) cite insurer comments several times in a draft that would implement part of the swaps provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Commissioners at the SEC and the CFTC last week agreed to seek comments on a swaps definitions proposed rule, which would help define terms such as “swap dealer,” “security-based swap dealer,” and “major swap participant.”
In the Dodd-Frank Act, Congress has defined a swap as any agreement 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 one 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 exact definition of terms such as “major swap participant” could determine what new swaps rules apply to life insurers; whether life insurers or their affiliates must conduct some, or any, swaps transactions through clearinghouses or exchanges; and whether life insurers will find themselves interacting more with the CFTC.
The SEC and the CFTC put out a joint notice about the swaps definitions rulemaking effort in August, and they received about 80 comments. The new proposed rule is set to appear in the Federal Register soon.
Under Dodd-Frank, a swaps market participant with a “substantial position” is supposed to get extra attention from regulators.
Some commenters told the SEC and the CFTC that regulators should define “substantial position” by using a test based on the current, uncollateralized mark-to-market swaps exposure, officials at the commissions say in a preamble to the proposed rule.
Some commenters suggested setting specific dollar amountas as the threshold.
Jennifer Kalb of MetLife Inc., New York (NYSE:MET), wrote
to suggest that swaps positions subject oversight by a central clearinghouse should be excluded from any substantial position test.
“After considering these alternatives, the Commissions are proposing two tests to define ‘substantial position.’” officials say. “One test would focus exclusively on an entity’s current uncollateralized exposure; the other would supplement a current uncollateralized exposure measure with an additional measure that estimates potential future exposure. A position that satisfies either test would be a ‘substantial position.’”