Yesterday, July 21, 2010, President Obama signed into law the most sweeping set of financial regulations since the 1930s. As an indication of the scope of the Dodd-Frank Wall Street Reform and Consumer Protection Act, one need only consider its page count in comparison to other notable pieces of financial regulatory legislation. Glass-Steagall, Sarbanes Oxley and Gramm-Leach Bliley were each less than 150 pages, but the Dodd-Frank bill tips the scales at more than 2,300 pages, with the derivatives title alone amounting to more than 400 pages.




Despite the comprehensive scope of the bill, many questions remain unanswered. For OTC derivatives, many of these ambiguities will be addressed over the next year – the period allotted before most of the provisions in the derivatives title becomes effective, on July 16, 2011.




Yesterday the Commodity Futures Trading Commission (CFTC) – the regulator with oversight authority for IR, FX and commodity derivatives – released a listing of 30 topic areas around which they will write new rules. The CFTC has created teams to write preliminary drafts of each rule, and will then open many for public review and comment. Among those of greatest interest to derivatives users will be:




   1. Definitions, such as swap dealer, major swap participant, security-based swap dealer and major security-based swap participant, to be written jointly with SEC.


   2. Business conduct standards with counterparties


   3. Internal business conduct standards


   4. Capital & margin for non-banks


   5. Segregation & bankruptcy for both cleared and uncleared Swaps


   6. Process for review of swaps for mandatory clearing


   7. End-use exception


   8. Joint Rules with SEC, such as “swap” and “security-based swap”




Additionally, many firms will need to begin preparations long before regulations become effective. Derivatives market participants will need to understand key classifications and their corresponding requirements, analyze regulatory risks, evaluate the various clearing & trading platforms, and draft policies and procedures, among other things.




In particular, the complexities around clearing and trading platforms will require a good bit of attention from corporate treasury teams. The bill has spawned, and will continue to spawn, a host of new ventures seeking to capitalize on regulatory mandates that force a large portion of the market onto trading (“swap execution facilities”) and clearing platforms. These intermediaries will join the existing dealer banks and exchanges, each clamoring to lay claim to the best new way of doing things. Corporate treasury teams will need to begin analyzing the relative merits of swap execution facilities, clearing platforms, and exchanges to ensure that their approach to risk management remains optimized in a world that is changing rapidly in response to regulatory mandates.




Chatham stands ready to assist you as you navigate through the complexities of the new OTC derivatives landscape. Through our Derivatives Regulatory Advisory Services, we assist companies – including swap dealers, major swap participants, financial entities, and corporate end users – with adapting to new regulatory requirements and evaluating new opportunities for improving derivatives treasury operations. Please contact Luke Zubrod (610-925-3136) or Sam Peterson (484-731-0276) to discuss ways we can assist you.

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