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By Douwe Miedema
WASHINGTON, March 27 (Reuters) - Oil companies are largelyescaping the close scrutiny of derivatives trading they oncewarned would harm their business and are seeking further delaysfrom U.S. regulators.
Beginning in January this year, the top U.S. derivativesregulator has required that companies register as dealers ifthey trade more than $8 billion in swaps a year, unless they doso to hedge price swings in their day-to-day business.
But no large energy companies have yet joined the ranks ofthe 70 or so investment banks that have registered as swapdealers and are subject to the toughest level of oversight, twopeople briefed on the matter said.
BP Plc has told the Commodity Futures TradingCommission (CFTC) it would register, one of the two people said,but probably not for several more months. BP declined tocomment.
Royal Dutch Shell Plc was the other oil majorconsidering becoming a dealer, both people said. A spokeswomanfor Shell said it would do so if and when it exceeds thethreshold.
"The lack of swap dealer registration by the energycompanies has been interesting. They ... have kept that close totheir vest as to when they will register," said a third person,speaking on the condition of anonymity.
All the sources declined to be named because they wereeither not authorized to speak publicly or were protectingcommercial interests.
A successful lobby campaign has ensured that the majority oflarge energy companies sidestepped the regulatory crackdown onthe $650 trillion overall swap market following the financialcrisis that occurred late in the last decade.
However, this might pose an unexpected problem for companiessuch as utilities that use swaps. That is because the smallercompanies have to go through the administrative headache ofreporting their own swaps if they do not trade with a registeredswap dealer.
During the commodity boom in the mid-2000s, large oilcompanies started offering swaps products to smaller players,speculating on derivative markets in much the same way asinvestment banks.
Because of their head-on battle with Wall Street, oiltraders feared being swept up by a deluge of new rules whenwatchdogs clamped down on derivatives trading to prevent arepetition of the 2007-09 financial collapse.
However, while most large banks are now listed as swapdealers, there is not a single oil company in the registry thatis kept by the National Futures Association, and only onecommodity firm, trading group Cargill Inc.
Energy trading companies such as Total SA,Glencore Inter national Plc, Vitol SA andTrafigura AG initially seen as candidates to becomeswap dealers are now considered unlikely to do so.
And there was still some lack of clarity about whethercertain exotic swap products would count toward the CFTC'sthreshold, the second of the two people said. If that was thecase, more companies might have to sign up.
UNEXPECTED SETBACK
The CFTC's $8 billion annual threshold looks comfortablyhigher than the trading volume of most energy companies and iswell above the agency's initial much lower cap, which was raisedseveral times after lobbying by energy companies.
Another reason for the lower-than-expected registrations isthat market participants have stopped using swaps and areinstead using similar derivatives called futures, which do notcount toward the threshold.
"Many of the (companies) have made a lot of changes, so thatthey are ... below the $8 billion swap dealer threshold," saidthe third person, who works in the derivatives industry.
That is a problem for smaller firms hoping that oil majorswould take on the data reporting. If an end-user enters into aswap with a swap dealer, the latter has the reportingobligation. But if two end-users engage in a swap, they need todecide between themselves who reports the trade to one of threedata warehouses.
"We feel we're not seeing ... as ... many come forward aswe'd expect," said a fourth person about the number of companiesthat had started reporting data.
"We think that is more to do with the lack of recognition ofthe rules ... some of that will be because they don't reallydeal with the CFTC as a regulator at all."
Shedding more light on the opaque swaps market throughbetter data reporting is a key part of the Dodd-Frank overhaulof Wall Street and the CFTC now demands that any swap positionis sent to one of the data warehouses from April 10. But twogroups representing end-users have asked to push that back sixmonths because many of their members are struggling to meet thedeadline.
The Commercial Energy Working Group requested a delay in aletter to the CFTC on March 1. It says its members are oilcompanies, energy utilities and others.
PAYING THE PIPER
End-users hope more oil companies will be registered as swapdealers in half a year's time and that the delay, if granted,would free them from having to report the often complex data.
The Coalition for Derivatives End-Users, a much biggerlobby, has also asked for a six-month delay, albeit fordifferent reasons involving other derivatives such as interestrate and credit default swaps.
The CFTC - which has often granted temporary relief as itrushed to finish dozens of new rules mandated under theDodd-Frank law - said it could not comment on the requestbecause it was still deliberating the matter.
The agency admitted to problems with the data whenCommissioner Scott O'Malia said it could not upload the vastfiles it already gets without crashing its computers.
The data are collected by three Swap Data Repositories runby the CME Group Inc, the world's largest futuresexchange; the IntercontinentalExchange Inc and theDepository Trust and Clearing Corp.
"It's quite a big ask to understand the rules and send allthe data," the fourth person added. "Everybody that we've dealtwith has struggled to try and compile that data set and probablyend-users will do more so."
