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By a 4-1 vote the commissioners of the Commodity Futures Trading Commission (CFTC) approved a recommendation that will define what constitutes a swap.
This vote in turn, triggers the adoption of nineteen new rules governing the over the counter derivatives markets, most by year end. And while the rules aim to make this opaque market more transparent, they will also eventually eat into the very healthy profit margins big banks make writing and trading these derivatives.
“The 'ayes' have it,” said Chairman Gary Gensler after an hour and forty five minutes hearing where the CFTC staff presented its recommendation and CFTC commissioners questioned them about their conclusions.
CFTC Commissioner Bart Chilton submitted the lone vote against the definition. Chilton repeatedly expressed concern about the exclusion of security forwards from the definition of a swap . Chilton said he feared the proper firewalls were not set up to prevent some firms from getting around new regulations by categorizing certain swaps as forward contracts, or contracts promising the physical delivery of a certain asset, which would not fall under the CFTC’s jurisdiction.
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