Regulators approved a rule on Wednesday that spells out the type of derivatives dealers that will soon face federal oversight, a crucial piece of the broader regulation for the market that played a major role in the financial crisis.
The rule, which defines the universe of so-called swaps dealers, has been one of the more contentious rules stemming from the Dodd-Frank regulatory overhaul law. Dodd-Frank, passed in response to the crisis, sought to create new oversight and capital requirements on the firms that arrange swaps.
The Securities and Exchange Commission’s five members approved the rule unanimously, while the Commodity Futures Trading Commission voted 4 to 1 in favor of it.
In passing the rule, the agencies rejected criticism that the plan was too lax on the derivatives industry. The rule will exempt energy firms, banks and other companies that arrange less than $8 billion worth a year of swaps, the derivative contracts tied to interest rates and commodities like oil and gas. After five years, the threshold would be lowered to $3 billion. But when regulators first proposed the rules in late 2010, they set the de minimis exemption at $100 million.
As DealBook reported on Tuesday, one limited set of regulatory data suggests that 85 percent of companies would not be subject to oversight under the $8 billion exemption.
But some regulators say that the number of exempt firms is largely irrelevant. Of greater importance, they say, is that their rule still would capture the vast majority of swaps contracts because it applies to the big banks like Goldman Sachs that arrange most of the deals.
“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,” Gary Gensler, chairman of the C.F.T.C., said at a public meeting in Washington on Wednesday.
He then directed a statement at critics of the rule. “For those who question the level of the de minimis, we considered the threshold in the context of an overall $300 trillion notional swaps market,” he said, noting that $8 billion was hardly significant amid this huge market.
The $8 billion threshold, he said, represented $32 million in notional value of derivatives trading per day. “Putting this in perspective, the interest rate swap market, transacts, on average, over $500 billion notional per day,” Mr. Gensler said. “As further reference, this year the futures markets for crude oil traded, on average, $65 billion of notional per day.”
Under the rule, the C.F.T.C and S.E.C. must study whether the $8 billion figure is appropriate. The agencies could change the figure if it proved too high or low.
Bart Chilton, a Democratic member of the C.F.T.C. who supported the rule but sounded a note of caution that the $8 billion threshold “erred on the high side,” welcomed the study as a way to add clarity to the debate.
“We’ll have the study,” he said, and “we can do the right thing and we can come up with a more appropriate, fine-tuned” rule down the road.