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Update on Dodd-Frank requirements

Date:
October 6, 2021

Summary

The CFTC approved a final rule on the cross-border application of certain swap provisions under the Commodity Exchange Act, further narrowing the U.S. Person definition from the previous 2013 guidance.

On July 23, 2020, the Commodity Futures Trading Commission (CFTC) approved a final rule on the cross-border application of certain swap provisions under the Commodity Exchange Act (the 2020 Cross-Border Final Rule). The 2020 Cross-Border Final Rule supersedes the CFTC’s 2013 Cross-Border Guidance with respect to certain CFTC requirements.

Generally, the 2020 Cross-Border Final Rule narrowed the previous U.S. Person definition that was previously in existence under the 2013 Cross-Border Guidance. More particularly, the 2020 Cross-Border Final Rule eliminates the prong of the old U.S. Person definition for collective investment vehicles with greater than 50% U.S. investors as well as eliminates the conduit affiliate definition.

The 2020 Cross-Border Final Rule permits swap dealers to continue to classify counterparties based on representations made pursuant to the 2013 Cross-Border Guidance, until December 31, 2027, but only to the extent those representations were made prior to the final rule effective date of November 13, 2020. To the extent that an entity has made a U.S. Person representation under the 2013 Cross-Border Guidance more recently than November 13, 2020, you should expect to receive a communication from your counterparties asking you to update the representation.

To that end, ISDA has published a new self-disclosure letter that allows market participants to update the representations that they made under the 2013 Cross-Border Guidance as well as make representations to counterparties under the security-based swaps rules that are coming into effect through the SEC, to the extent that those rules are applicable to the market participant’s trading strategy. This development likely will not impact many end-users as they do not enter into over-the-counter derivatives subject to SEC regulation, I.e., derivatives with an equity as the underlying index. This self-disclosure letter also is available through Markit.

Have questions about how cross-border rules affect your portfolio?

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About the author

  • Christopher Bender

    Director
    Regulatory Advisory

    Private Equity | Kennett Square, PA

    Chris is a Director of Regulatory Advisory where he serves Chatham’s private equity, infrastructure, and real estate clients. He brings significant experience advising on global derivatives regulatory regimes and compliance with derivatives regulation.

Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.

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