Swap Dealer (SD)

Section 1a(49) of the Commodity Exchange Act (Act) defines, in general, an SD as a person (which includes entities) that:

• Holds itself out as a dealer in swaps;
• Makes a market in swaps;
• Regularly enters into swaps with counterparties as an ordinary course of business for its own account; or
• Engages in any activity causing the entity to be commonly known in the trade as a dealer or market maker in swaps.

An insured depository institution that enters into a swap with a customer in connection with originating a loan with that customer is not considered to be an SD.

The CFTC's final rules further define a Swap Dealer.

SDs are required to be registered with the CFTC.  Provisional registration will be granted to an SD that has submitted a complete Form 7-R application; complete Form 8-R applications and fingerprint cards for all of its principals; and documentation required to demonstrate compliance with regulations implementing Sections 4s(e), 4s(f), 4s(g), 4s(h), 4s(i), 4s(j), 4s(k), or 4s(l) of the Commodity Exchange Act (Section 4s Implementing Regulations) as are applicable to the applicant.*

SDs may now apply for registration.  However, do not submit the documentation required to demonstrate compliance with the Section 4s Implementing Regulations prior to March 19, 2012. NFA will provide information before March 19, 2012, as to how to submit this documentation to NFA.

Once provisional registration is granted, NFA will review the documentation to determine whether it demonstrates compliance with the applicable Section 4s Implementing Regulations.  Provisional registration will be maintained as long as the SD continues to submit the documentation required to demonstrate compliance with additional Section 4s Implementing Regulations on or before the date compliance with those requirements is required and NFA determines that the documentation demonstrates compliance with them.  Failure to submit the required documentation with the Section 4s Implementing Regulations as they become applicable or if NFA determines that the submitted documentation does not demonstrate compliance with them may result in the withdrawal of the SD's application. A provisionally registered SD will be granted full registration when compliance with all of the Section 4s Implementing Regulations is required, the SD is in compliance with all such requirements and neither the SD nor any of its principals are statutorily disqualified from registration pursuant to Sections 8a(2) and (3) of the Act.

The CFTC has adopted a rule requiring registered SDs to be Members of NFA.

Specifically, an SD is required to file the following:

• A completed online Form 7-R (includes NFA membership sections)
• A non-refundable application fee of $15,000.00
• NFA Membership Dues (amount to be determined and assessed at a later date by NFA's Board of Directors)
• Documentation required to demonstrate compliance with the Section 4s Implementing Regulations applicable to it

SDs are required to file the following for its principals

• A completed online Form 8-R
• Fingerprint Cards
• A nonrefundable Principal application fee of $85.00**

Associated Persons of SDs

Section 1a(4) of the CEA and CFTC Regulation 1.3(aa)(6) define an Associated Person of an SD as a natural person who is associated with an SD in any capacity that involves the solicitation or acceptance of swaps or the supervision of any person so engaged. Section 4s(b)(6) of the CEA and CFTC Regulation 23.22(b) prohibit SDs from permitting an Associated Person of an SD who is subject to a statutory disqualification under Section 8a(2) or 8a(3) of the CEA to effect or be involved in effecting swaps on behalf of the SD, if the SD knows, or in the exercise of reasonable care should know, of the statutory disqualification.

Associated Persons of an SD do not need to be registered with the CFTC and none of NFA's current proficiency requirements apply to Associated Persons of an SD.

It is the SD's obligation to determine whether or not a statutory disqualification exists for one of its APs.  If a statutory disqualification exists, the SD may elect to file a Statutory Disqualification Form electronically via NFA's EasyFile system for a determination as to whether NFA would have granted the person registration as an AP despite the statutory disqualification.  NFA will assume that each matter being submitted to NFA is a statutory disqualification.  The SD should not submit information to NFA to determine whether or not the statutory disqualification exists.  Based solely on the information that the SD electronically reports on the Statutory Disqualification Form via NFA's EasyFile system, NFA will notify the SD whether or not NFA would have granted the person registration as an AP despite the statutory disqualification.

If the SD has already determined that a statutory disqualification exists for one of its APs, it can use these templates to assist in filing the form electronically in NFA's EasyFile system.  NFA will NOT accept a form submitted via fax, mail or email.  Please go to NFA's EasyFile system to complete these forms electronically for NFA's review.

• Template of Criminal Statutory Disqualification Form
• Template of Regulatory Statutory Disqualification Form

SDs should NOT submit supporting documentation in connection with Criminal or Regulatory Statutory Disqualification Form.  NFA will make its determination based solely on the information reported on the form.

For additional information see the CFTC No-Action Relief from Statutory Disqualification Prohibition http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-15.pdf

*The Commodity Exchange Act imposes substantive ongoing compliance requirements for SDs in a number of areas including capital and margin, reporting and recordkeeping, daily trading records, business conduct standards, documentation standards, monitoring of trading, risk management procedures, disclosure of information, ability to obtain information, conflicts of interest, segregation of collateral, and a requirement that each SD designate a chief compliance officer who is a principal of the firm. The CFTC has proposed or will propose the Section 4s Implementing Regulations pertaining to these ongoing compliance requirements.

**An application fee is not required if the individual is currently registered with the CFTC in any capacity or is listed as a principal of a current CFTC registrant.

Click here if you do not already have access to NFA's Online Registration System.