By Simon Miller

Dodd-Frank still contains too many uncertainties as rules are finalised over the coming year according to Fitch Ratings.

Despite the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) finalising their cohesive definition of "swap dealer," Fitch warned that many uncertainties remained, as other critical parts of the Dodd-Frank rules on derivatives are finalised over the coming year.

The angency said regulators had yet to define swap products, the next step before the rule can be implemented. Once defined and the rule is in effect, swap dealers will have 60 days to register.

In a note, the agency commented: "The latest rule implements an $8bn (£4.94bn) notional swap business value threshold over the prior 12 months, a far cry from the original $100m limit proposed by regulators in 2010, which allowed small companies and firms like asset managers and other non-financial firms to get swept into the dealer-based category."

It added that the smaller limit could have imposed higher compliance costs and onerous registration requirements on many smaller firms.

"Regulators have now framed more defining components of swap dealers, including but not limited to the $8bn threshold, thereby subjecting them to a broader array of rules and regulations," Fitch wrote.

As a result asset managers and sovereign wealth funds that buy swaps are likely to be excluded, as swap dealers could be classified as major swap participants, a category intended to capture a small set of nondealers who hold large derivative positions unless the swaps are specifically used for hedging commercial risk.

Fitch also warned that another critical area of rule-making still being debated was the extraterritorial application of Dodd-Frank. The final outcome of this would determine the extent to which foreign subsidiaries of US Banks and US operations of foreign banks fall under the proposed rules.

It commented: "This is a sensitive rule that could have could have a negative effect on liquidity, should foreign companies that have US operations be forced to comply. This and many other uncertainties make it very difficult to assess the overall impact of the proposed rules."

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