April 19, 2012

Regulators on Wednesday finalized rules defining a "swap dealer", giving long-awaited guidance on which firms will be subject to tough new oversight of their derivatives trades.

The Commodity Futures Trading Commission and the Securities and Exchange Commission jointly issued the rules that dramatically raised the threshold of annual trading activity that would trigger a swap dealer designation, compared to a proposal issued in late 2010.

The following are quotes from regulators and stakeholders on swap dealer rules:

REPUBLICAN COMMISSIONER SCOTT O'MALIA:

"I am unable to support this rule not because it fails to make positive policy choices, but because it undertakes several unnecessary and astonishing contortions to achieve those results. These contortions may lead to potentially adverse inconsistencies and instabilities in the years that follow."

REPUBLICAN CFTC COMMISSIONER JILL SOMMERS:

"Are these the rules I would have drafted if I held the pen from the beginning of this process? No. Nonetheless, I recognize that the final rules are much better than the proposed rules."

DEMOCRATIC CFTC COMMISSIONER BART CHILTON

"We developed this entities rule so that the structure would give us the financial oversight and enforcement responsibilities we need to define and identify the most important players in the previously dark, unregulated over-the-counter swaps market, and allow us to have appropriate regulatory handholds on them."

DEMOCRATIC CFTC COMMISSIONER MARK WETJEN

"It is not possible to come up with a bright-line test that easily addresses all circumstances and is not susceptible to abuse or evasion. But the line we draw must be bright enough. The businesses that do not come anywhere near that line must be assured they are not swap dealers."

CFTC CHAIRMAN GARY GENSLER

"True to congressional intent, end-users other than those genuinely making markets in swaps won't be required to register as swap dealers."

"As the swap dealing market is dominated by large entities, though, I believe that the final swap dealer definition will encompass the vast majority of swap dealing activity, as Congress had intended."

SEC CHAIRMAN MARY SCHAPIRO:

"In establishing who is a security based swap dealer, Congress gave us the task of identifying those entities that specifically engage in dealing activity in this market."

"In doing so, Congress did not intend for all, or even most market participants who merely engage in securities-based swap transactions such as mutual funds and pension funds to be regulated as security-based swap dealers."

DENNIS KELLEHER, PRESIDENT OF BETTER MARKETS:

"This rule is an indefensible retreat from financial reform. It is also a poster child for the pernicious effect of industry's army of lobbyists and the influence that the financial industry has at the regulatory agencies.."

"Given that the rule allows every swap dealer to decide for itself what is or is not a hedge or a 'business' risk, there can be no doubt that abuse and evasion of this provision could be rampant."

ANDREA KRAMER, PARTNER AT MCDERMOTT WILL & EMERY LLP:

"The intention of Dodd-Frank was not to cause problems for end-users. This is a major improvement on what was initially proposed."

"The very, very large corporate entities that also have trading operations - even if they use swaps to hedge their commercial end-user risks - might still be swept in, but that is just a few."

DE'ANA DOW, SENIOR VICE PRESIDENT AT OGILVY GOVERNMENT RELATIONS:

"A broader hedge definition and a narrower swap dealer definition is what the commercial companies wanted to see. I'm not sure if it goes as far as they would like, but based on the dialogue at the meeting today, it seems that it is an improvement over the proposed rules."

SAM HENRY, PRESIDENT AND CEO OF INTERNATIONAL POWER-GDF SUEZ ENERGY MARKETING NORTH AMERICA:

"We were close to the $3 billion range. At $8 billion, we should not be classified as a swap dealer."

"We do business with a lot of banks and with the major oil companies and I would expect they would be covered either by the swap dealer or the major swap participant definitions. So their cost will go up and they likely will pass on those costs and we will have to pass that onto our customers."

HOUSE AGRICULTURE COMMITTEE CHAIRMAN FRANK LUCAS:

"From what I can tell today, there were improvements made to the final rule that will reduce the negative impact on end-users out in the countryside."

(Reporting By Alexandra Alper, David Sheppard, Sarah Lynch, and Scott DiSavino; Editing by Tim Dobbyn)

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