Cadwalader, Wickersham & Taft LLP’s Lofchie says swap definition too broad

Steven Lofchie

Steven Lofchie, the co-chairman of financial services at Cadwalader, Wickersham & Taft LLP, recently said that the current swaps definitions are extremely overbroad, citing a kitchen sink as one example of an everyday swaps contract.

“While [a swap] does not include the kitchen sink, it does include the contract to purchase and install the kitchen sink — if that contract has a price contingency relating to the timing of delivery and installation, the quality of work or allowing the buyer to back out of the deal for a fee,” Lofchie said, according to The Sacramento Bee.

Lofchie is not the only one with concerns about the broad definition. Lawrence Goodman, the president of the Center for Financial Stability, also agreed that the swap definition under the 2010 Dodd-Frank Act should be refined.

“Failure to more precisely define the concept of a ‘swap’ could adversely reshape a large part of our real economy,” Goodman said, The Sacramento Bee reports.

Lofchie said that almost two years after the enactment of Dodd-Frank, regulators have still not addressed key issues regarding the swaps market, including the definitions of “swap” and “dealer” or how far the legislation will extend.

Lofchie added that, unless regulators provide exemptions based on interpretation, which is outside of their authority, many everyday and routine consumer, commercial and insurance contracts could be considered as swaps and would be subject to increased regulation and non-compliance penalties.

“However the regulators elect to define a swap, I do believe it is their responsibility to the commercial, financial, insurance and consumer markets to define the word in a way that we can all understand what is intended,” Lofchie said, The Sacramento Bee reports. “If the regulators do not believe that they can provide more definitive advice in light of the expansiveness of Dodd-Frank, then it is incumbent on the regulators to go back to Congress and ask for a narrower definition and for exemptive authority.”

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