BRIEF-Smartbank to buy Tuscaloosa, Alabama-based Capstone Bank
* Smartbank to acquire tuscaloosa, alabama-based capstone bank
By Scott DiSavino July 11 The U.S. power industry gave a cautious thumbs up to new rules defining what constitutes a "swap", a designation that some feared could raise costs or impose new limits on a large swathe of the nation's electricity markets. Power traders, utilities and other big players worried the Commodity Futures Trading Commission (CFTC) might count transactions intended for physical delivery -- such as commodity "forward" contracts typically held until delivery -- as swaps that must be reported and may require margin or clearing costs. But the CFTC on Tuesday appears to have excluded physically deliverable forward contracts from the swaps definition and included a seven-part test for determining the distinction between a physical "forward" and a purely financial "swap". "We think that the CFTC did a good job of coming up with rules that seem to be well balanced and in line with the direction of congress," Richard McMahon, VP of finance at Edison Electric Institute (EEI), the trade group representing U.S. investor owned power companies. Contracts involving environmental commodities such as emissions allowance offsets and renewable energy credits may also qualify for the forward exclusion, the CFTC said. The CFTC approved of the swaps definition on Tuesday but full details of the rule may not be published for several days. The commission also approved regulations governing end-user exemptions to the clearing of swaps. "The power industry is satisfied with how the rule came out. It will not draw in a lot of transactions that the industry did not consider swaps," William Hederman, director at Deloitte & Touche's Enterprise Risk Services practice told Reuters. "There are some remaining uncertainties but most firms can work with the swap rules and move forward," Hederman said. Power companies enter into long- and short-term physical transactions to buy and sell electricity, natural gas and other fuels to serve customer needs, and sometimes use financial hedges to manage volatile prices. DODD-FRANK REFORMS The CFTC drafted the swaps rules pursuant to the Dodd-Frank financial reform act of 2010 to lower risk and promote transparency in commodities and other markets, seeking more standardized derivatives that could be traded on open platforms and guaranteed through clearinghouses. But the power industry uses several derivative contracts that can't be standardized or easily traded on an exchange because they need to be flexible in the timing and volume that can vary with changes in weather related demand. Some of these transactions include customized deals in remote hubs that are only traded by a couple of local entities with too little volume for an exchange to be possible. Power companies are also concerned about so-called bookouts where parties commit to a physical delivery but end up closing the contract in a financial or paper transaction. CFTC Chairman Gary Gensler however said the commission was still seeking additional comments on forwards with embedded volumetric options. "Transactions with embedded optionality may satisfy this test and therefore qualify for the forward exclusion if the predominate feature of the transaction is actual delivery," CFTC Commissioner Scott O'Malia said in a statement Tuesday. Not everyone however was happy about the power exclusions. "This rule falls short with energy markets," Tyson Slocum, director of the Energy Program at Public Citizen, a consumer rights advocacy group, said in a release. "With progressive Commissioner Bart Chilton dissenting, the CFTC opened a big loophole to certain types of energy forward contracts, exempting them from reporting requirements entirely. The CFTC should deploy its full authority to police this crucial market," Slocum said. COMPLIANCE COSTS Now that the CFTC has defined what a swap is, the so-called swap dealers, mostly banks with more than $8 billion in swap trades annually, will have 60 days to register after the final rule is published. The CFTC has estimated about 125 companies will have to register as swap dealers or major swap participants, including about 25 to 50 energy companies, Deloitte's Hederman said. The issuance of the swap definition will likely result in a period of significantly reduced activity in energy commodity markets as companies determine whether they need to restructure their businesses, processes and compliance procedures, Diane Moody, Director of Statistical Analysis at American Public Power Association (APPA) said. APPA is a trade group representing more than 2,000 community-owned electric companies. Even if a power company is not a "swap dealer" under the CFTC definition, they still need to report and monitor transactions and may need to post margin or clear their swaps, Evan Koster, a partner at the Hogan Lovells US LLP law firm in New York, told Reuters. "If the transaction is a swap, it will be subject to some requirements. The extent depends on who the entities are. The key for the companies is to make sure they meet their obligations under the new rules," Koster said. One thing power companies sought and received to reduce their exposure to the swaps rules was the end-user exception. Under the end-user exception, swaps do not have to go through a clearinghouse if at least one party in the trade is a "non-financial" entity and is using the swap to hedge against "commercial risk." DECISIONS STILL TO COME Even though the clock is ticking to comply with the swap rules, the CFTC still has some important decisions to make. Power grid operators, like PJM, were still waiting for the CFTC to decide whether grid traded products like financial transmission rights (FTRs) and ancillary services that are already regulated by the U.S. Federal Energy Regulatory Commission (FERC) were swaps. PJM, the biggest power grid in the nation serving more than 60 million people in all or parts of 13 Mid-Atlantic and Midwest states, said they expect to hear from the CFTC on their exemption request for FTRs later in July. In addition, a couple CFTC commissioners said municipal utilities needed some relief from the commission's earlier swap dealer rule that classified the munis as "special entities." Under that rule, which was designed to protect the municipalities, any party doing more than $25 million of swaps with a "special entity" would be deemed a "swap dealer" and subject to strict regulation. "Given the size of their operations, the $25 million de minimis threshold is an unworkable level that will drive many nonbank firms away from dealing with municipal utilities to avoid the swap dealer designation," Commissioner O'Malia said. "Commercial end-users in general and municipal utilities in particular, did not cause or advance the financial crisis of 2008 ... it is difficult to justify imposing increased operational costs on them without adding any significant protection to the broader financial markets," O'Malia said. (Additional reporting by Edward McAllister;editing by Sofina Mirza-Reid)
* Smartbank to acquire tuscaloosa, alabama-based capstone bank
LONDON, May 22 Alistair Cross was flying high after showing in a pilot project how blockchain - the technology first developed for the crypto-currency bitcoin - could transform the old-fashioned and secretive world of commodity trading.