End-Users Gear Up for Dodd-Frank Compliance as Commissions Issue Rules and ISDA Announces Dodd-Frank Documentation Protocol

Executive Summary

The definition of swap includes standard derivative transactions such as interest rate swaps, currency swaps, total return swaps, foreign exchange swaps, credit default swaps, energy swaps and commodity swaps. Certain transactions are outside the definition, including certain insurance contracts, certain types of consumer and commercial transactions and forward contracts. The SEC has also enacted provisions for security-based swaps.

Swap participants, including in some instances commercial end users, will need to comply with various recordkeeping and reporting requirements. Some swaps that were entered into prior to the enactment of the DFA will also need to be reported. Furthermore, the CFTC has exempted certain types of swaps from the clearing requirement, including those swaps where one of the counterparties is a non-financial entity that is using the swap to hedge or mitigate commercial risk and swaps between affiliates.

The CFTC has issued proposed guidance as to the cross-border effect of the DFA, indicating that the DFA would apply to transactions involving U.S. persons even if the swaps are executed overseas with foreign swap dealers. However, the CFTC is considering allowing certain transactions to be subject to a foreign regime instead of the DFA under limited circumstances.

To the extent parties have existing agreements that do not comply with the DFA, ISDA has issued a protocol that will provide a streamlined approach to amending documentation.

To read the memorandum, please click on the link above.


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