In a long-awaited move, the CFTC approved a rule on July 10 defining what constitutes a swap under Section 721 of the Dodd-Frank Act.
The CFTC’s definition includes products such as interest rate swaps, currency swaps, commodity swaps, broad-based index swaps, and options, as well as any transaction the CFTC deems as willfully structured to evade regulation of swaps.
Forwards and forwards with embedded options are excluded, as long as they are based on nonfinancial commodities and are intended for delivery.
While Dodd-Frank authorizes the Treasury Department to exempt foreign exchange swaps and forwards from clearing and trading requirements, the Treasury Department has yet to finalize the exemption.
The effective dates of other, previously finalized rules depend on the effective date of the swap definition rule. Within two months of the definition’s publication, swap dealers and major swap participants will be required to register as such, and data on interest rate and credit swaps will have to be reported to swap data repositories. In addition, position limits on speculation in oil, natural gas, wheat and other commodities will also become effective at that time.
It has been reported that the swap definition rule is expected to be published in August and become effective in October.