The CFTC and the SEC, inconsultation with the Board of Governors of the Federal Reserve System adopted a Joint final rule, a joint interim final rule, and interpretations - and all it took was 644 pages.  The releases serve to further define the terms:  (i) "Swap Dealer," (ii) Security-Based Swap Dealer," (iii) "Major Swap Participant," (iv) "Majority Security-Based Swap Participant," and (v) "Eligible Contract Participant." The effective date for the final rule and the interim final rule will be 60 days after the date of publication in the Federal Register. Title VII of the Dodd-Frank Reform Act established a statutory framework to reduce risk, increase transparency, and promote market integrity within the financial system by, among other things: (i) providing for the registration and regulation of swap dealers and major swap participants; (ii) imposing clearing and trade execution requirements on standardized derivative products; (iii) creating recordkeeping and real-time reporting regimes; and (iv) enhancing the Commissions’ rulemaking and enforcement authorities with respect to all registered entities and intermediaries subject to the Commissions’ oversight. Section 712(d)(1) of Dodd-Frank further directs the CFTC and the SEC, in consultation with the Board, jointly to further define those terms, among others. In December 2010, the Commissions jointly proposed rules and interpretations to further define the meaning of the terms "swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant," and "eligible contract participant."  The Commissions received approximately 968 written comments in response to the Proposing Release.  In addition, the Staffs of the Commissions participated in approximately 114 meetings with market participants and other members of the public about the Proposing Release, held a Joint Public Roundtable on the proposed dealer and major participant definitions. Definitions of "Swap Dealer" and "Security-Based Swap Dealer." After considering the comments received, the Commissions are adopting final rules and interpretations to further define these terms.  Dodd-Frank definitions of the terms "swap dealer" and "security-based swap dealer" focus on whether a person engages in particular types of activities involving swaps or security-based swaps.  Persons that meet either of those definitions are subject to statutory requirements related to, among other things, registration, margin, capital and business conduct. The CEA and Exchange Act definitions in general encompass persons that engage in any of the following types of activity:

• holding oneself out as a dealer in swaps or security-based swaps,
• making a market in swaps or security-based swaps,
• regularly entering into swaps or security-based swaps with counterparties as an ordinary course of business for one’s own account, or
• engaging in any activity causing oneself to be commonly known in the trade as a dealer or market maker in swaps or security-based swaps.

These dealer activities are enumerated in the CEA and Exchange Act in the disjunctive, in that a person that engages in any one of these activities is a swap dealer under the CEA or security-based swap dealer under the Exchange Act, even if such person does not engage in one or more of the other identified activities. At the same time, the statutory dealer definitions provide exceptions for a person that enters into swaps or security-based swaps for the person’s own account, either individually or in a fiduciary capacity, but not as a part of a "regular business."  The Dodd-Frank Act also instructs the Commissions to exempt from designation as a dealer a person that "engages in a de minimis quantity of [swap or security-based swap] dealing in connection with transactions with or on behalf of its customers."  Moreover, the definition of "swap dealer" (but not the definition of "security-based swap dealer") provides that an insured depository institution is not to be considered a swap dealer "to the extent it offers to enter into a swap with a customer in connection with originating a loan with that customer." 13 The statutory definitions further provide that a person may be designated as a dealer for one or more types, classes or categories of swaps or security-based swaps, or activities without being designated a dealer for other types, classes or categories or activities.14 In the Proposing Release, the Commissions proposed rules to identify the activity that would cause a person to be a dealer, to implement the exception for de minimis dealing activity,16 to implement the exception from the swap dealer definition in connection with the origination of loans by insured depository institutions, and to provide for the limited purpose designation of dealers.  The release also set forth proposed interpretive guidance related to the definitions. After considering the comments received, the Commissions are adopting final rules and interpretations to further define the terms "swap dealer" and "security-based swap dealer."  In this Adopting Release, we particularly address: (i) the general analysis for identifying dealing activity involving swaps and security-based swaps; (ii) the exclusion from the “swap dealer” definition in connection with the origination of loans by insured depository institutions; (iii) the application of the dealer analysis to inter-affiliate swaps and security-based swaps; (iv) the application of the de minimis exception from the dealer definitions; and (v) the limited designation of swap dealers and security-based swap dealers. To continue reading, to click the link and begin reading on page 14 of the Final Rule Release:  [SEC/CFTC Joint Final Rule Release 34-66868, 4/27/12].