A swap dealer is an entity that deals in swaps, and is defined in CEA Section 1a(47)(A) and the CFTC’s regulations. An entity that engages in a notional amount of “dealing” swaps of at least $8 billion in notional amount over a rolling 12-month period is required to register with the CFTC and the NFA. The de minimis threshold drops to a $25 million notional threshold for dealing swaps with “special entities,” which includes, for example, federal agencies, states, municipalities, etc. Note that dealing swaps with utility special entities apply toward the general $8 billion notional threshold.
The hallmarks of swap “dealing” activity include an entity that (1) holds itself out as a dealer in swaps; (2) makes a market in swaps; (3) regularly enters into swaps with counterparties as an ordinary course of business; or (4) engages in an activity causing the person to be commonly known in the trade as a dealer or market maker in swaps.
Swap dealers are subject to extensive CFTC and NFA regulations, including, for example:
- Capital requirements.
- Collecting and posting margin for uncleared swaps.
- Appointing a chief compliance officer (CCO) and submitting an annual CCO report to the NFA and the CFTC.
- Adopting a risk management program.
- Complying with business conduct standards with customers.
- Establishing swap trading relationship documentation.
- Reporting swaps to a swap data repository.
- Extensive recordkeeping requirements.