Summary of the Dodd-Frank Act: Swaps and Derivatives

This Note provides a comprehensive summary of the provisions of Title VII of the Dodd-Frank Act and related rulemaking in the area of swaps and derivatives covering both swaps (non-security-based swaps) and security-based swaps.

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Contents

On July 21, 2010 (the enactment date), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act, Dodd-Frank or the Act) was signed into law by President Obama (see Legal Update, President Obama Signs Dodd-Frank Financial Regulatory Reform Bill (www.practicallaw.com/3-502-8610)). The purpose of the Act was to restructure the financial regulatory system to restore public confidence following the financial crisis and to prevent another crisis from occurring.

A major component of this initiative is to address certain perceived flaws in the over-the-counter (www.practicallaw.com/2-386-2448) (OTC) derivatives markets that many hold responsible for exacerbating the crisis. Swaps and derivatives are generally covered under Title VII of the Act (Title VII). The primary goals of Title VII are to:

  • Minimize systemic risk of derivatives trading.

  • Create transparency in derivatives markets.

  • Prohibit entities holding customer deposits from engaging in speculative derivatives activity.

For details on the other components of the Dodd-Frank Act, see the following Practice Notes:

For a legislation tracker and links to PLC resources on proposed and final swaps and derivatives rules under the Dodd-Frank Act, see Practice Note, Road Map to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: Swaps and Derivatives (www.practicallaw.com/3-502-8479).

 

Statutory Construction: How Are Derivatives Regulated under the Dodd-Frank Act?

The regulation of OTC derivatives, commonly referred to as swaps, under Title VII of the Dodd-Frank Act is broken down by:

Certain Title VII requirements, such as clearing and exchange trading, are applicable on a swap-by-swap basis, while other requirements are applicable based on the type of party entering into the swap. Uncleared swaps are also subject to a variety of enhanced requirements under the Dodd-Frank Act. Swap data reporting requirements apply to all swaps.

 

Types of Swaps under Title VII

Though it is often stated that swaps were not regulated prior to Title VII, the swap markets have long been regulated because most swaps are entered into by large banks, which are extensively regulated by prudential bank regulators. These regulators have long regulated the derivatives-related activities of banks as part of their overall prudential bank-regulatory responsibilities. They have therefore historically engaged in regulation of derivatives margin rules, regulatory capital rules for derivatives exposures and more. US prudential bank regulators continue in this regulatory capacity in the Title VII era. As a result, prudential bank regulators have issued rules under Title VII covering these areas for banks. However, on top of that, Title VII has introduced and overlayed an outward swaps and derivatives market regulatory framework under the jurisdiction of the CFTC and SEC. CFTC and SEC regulations under Title VII apply based on the type of swap entered into. Under Title VII, these are:

In July 2012, the CFTC and the SEC issued joint final rules on the definitions of "swap" and "security-based swap," detailed below.

Non-security-based Swaps ("Swaps")

Non-security-based swaps are referred to in the Act simply as "swaps." The CFTC is generally charged with regulating non-security-based swaps with input from the SEC, where appropriate, as well as from applicable bank regulators for swaps entered into by banks (see Banks and BHCs). Because Title VII delegates many of the derivatives rulemaking and implementation responsibilities to the applicable regulators, many Dodd-Frank rules on non-security-based swaps are codified in the Commodity Exchange Act (www.practicallaw.com/7-386-4483) (CEA) and implemented through the CFTC's regulations.

Section 721(a) of the Dodd-Frank Act defines the term “swap” by adding Section 1a(47) to the Commodity Exchange Act (CEA) (7 U.S.C. § 1a(47)). This definition was finalized and enacted by regulators in August 2012 (see Legal Update, Regulators Define Key Dodd-Frank Terms "Swap" and "Security-based Swap" Triggering Title VII Compliance (www.practicallaw.com/2-520-3275)). The term "swap" is broadly defined under these final rules and includes:

Loan participations. After some uncertainty during the rulemaking process, the final rules clarify that loan participations, including so-called "LMA-style" and "LSTA-style" loan participations, are neither swaps nor security-based swaps. Loan participations are therefore not subject to Title VII swaps regulations.

For further detail on what constitutes a "swap" under final Dodd-Frank rules, including details of certain exceptions, see Legal Update, Regulators Define Key Dodd-Frank Terms "Swap" and "Security-based Swap" Triggering Title VII Compliance (www.practicallaw.com/2-520-3275).

Security-based Swaps

The SEC is generally charged with regulating security-based swaps (SBS), with input from the CFTC where appropriate, as well as from applicable bank regulators for SBS entered into by banks (see Banks and BHCs). Because Title VII delegates many of the derivatives rulemaking and implementation responsibilities to the applicable regulators, many Dodd-Frank rules on SBS are codified in the US securities laws.

SBS are swaps based on securities or loans. These include:

  • Swaps based on a single security or loan, any characteristic of a single security or loan, such as pricing information, or any interest in a single security or loan.

  • Narrow-based security indices, in most cases comprised of less than nine component securities (among other criteria related to weighting of the securities in the index).

  • Swaps based on the occurrence or non-occurrence of certain financial events relating to issuers of securities.

The final definition of "security-based swap" therefore captures most types of commonly traded "single-name" CDS (CDS based on a single issuer of debt securities, referred to as a reference entity (www.practicallaw.com/2-386-2896)), as well as most CDS on narrow-based indices. Most equity swaps including most single-name and narrow-based index total return swaps (www.practicallaw.com/5-386-5191) (TRS) are also SBS under Title VII of the Act.

Title VII expands the definition of "security" under both the Securities Act (www.practicallaw.com/1-382-3805) and the Exchange Act (www.practicallaw.com/5-382-3808) so that SBS are included in the definition of "security" under the US securities laws and are subject to most of the same regulations as the underlying securities on which they are based (see Application of Securities Laws to Security-based Swaps).

For further detail on what constitutes a "security-based swap" under final Dodd-Frank rules, including details of certain exceptions, see Legal Update, Regulators Define Key Dodd-Frank Terms "Swap" and "Security-based Swap" Triggering Title VII Compliance (www.practicallaw.com/2-520-3275).

Derivatives Excluded from Title VII Regulations

Excluded or exempted from the above definitions and therefore from most of Title VII's requirements, including mandatory clearing and exchange trading, are:

  • Options on securities or on certain indexes that are subject to the securities laws.

  • Exchange-traded commodity futures and options on exchange-traded commodity futures.

  • Most physically settled non-financial forward contracts (see "The Forward Contract Exclusion," p. 73 of the final definitional rules). The final definitions of the terms "swap" and "security-based swap" under Title VII exclude “any sale of a non-financial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled.” Non-deliverable forwards (NDFs) are not excluded from these definitions and are therefore subject to Title VII swaps rules.

For a further discussion of these and other exemptions from Title VII swaps regulations, see Legal Update, Regulators Define Key Dodd-Frank Terms "Swap" and "Security-based Swap" Triggering Title VII Compliance (www.practicallaw.com/2-520-3275).

 

Types of Swaps-trading Entities under Title VII

Certain regulations under Title VII apply based on the type of entity engaging in the derivatives trading activity. These primarily include:

Banks and BHCs

Bank regulators are granted oversight of certain aspects of derivatives market practice among banks and BHCs engaging in swap activities, regardless of whether they enter into swaps or SBS, including:

These entities are also subject to all other applicable Dodd-Frank regulations applicable to swaps and SBS (see Non-security-based Swaps and Security-based Swaps).

Banks and BHCs may also be designated as swap dealers, security-based swap dealers, major swap participants and major security-based swap participants, depending on whether their swap activity reaches certain thresholds designated under final Title VII rulemaking (see Swap Dealers and Security-based Swap Dealers and Major Swap Participants and Major Security-based Swap Participants). If so, they are also subject to rules for these "registered entities:" (see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist (www.practicallaw.com/5-522-2705)).

Banks and BHCs, and their swap activities, may also be subject to regulation by the Financial Stability Oversight Council (www.practicallaw.com/2-502-8309) (FSOC) as systemically significant financial institutions (www.practicallaw.com/4-502-8737) (SSFIs) under Dodd-Frank. For information on regulation of SSFIs under Dodd-Frank, see Practice Note, Summary of the Dodd-Frank Act: Regulation of Systemically Significant Financial Institutions (www.practicallaw.com/1-502-8437) and Legal Update, Federal Reserve Board Proposes Rule Related to Designation of Systemically Important Nonbank Financial Companies (www.practicallaw.com/6-504-7626).

Swap Dealers and Security-based Swap Dealers

On May 23, 2012, the CFTC and the SEC issued joint final rules defining the terms "swap dealer" and "security-based swap dealer." The final rules specify that a swap dealer (SD) is an entity that engages in $3 billion of non-exempt swap activity (swap dealing) annually, subject to an initial phase-in threshold of $8 billion. Though significantly higher than the originally proposed $100 million threshold, this definition still covers the major financial institutions engaging in swap activity in the US. The calculations are more complex for security-based swap dealers (SBSDs) dealing in various types of SBS. For detailed information on which parties qualify as SDs and which are SBSDs under final Dodd-Frank rulemaking, see Practice Note, Is Your Client a Swap Dealer or Major Swap Participant? (www.practicallaw.com/7-519-5126).

For information on regulation of swap dealers and SBSDs under Title VII, see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist (www.practicallaw.com/5-522-2705).

Major Swap Participants and Major Security-based Swap Participants

On May 23, 2012, the CFTC and the SEC issued joint final rules defining the terms "major swap participant" and "major security-based swap participant." A major swap participant (MSP) enters into non-security-based swaps (or swaps), regulated by the CFTC. A major security-based swap participant (MSBSP) engages in SBS activity, which is regulated by the SEC.

Under the final rules, a person who satisfies any of the following three criteria is an MSP or MSBSP), as applicable:

  • It maintains a "substantial position" in any of the (non-security-based) swap or SBS categories, excluding positions held for hedging or mitigating commercial risk. The four (non-security-based) swap categories are rate swaps, credit swaps, equity swaps and other commodity swaps. The two SBS categories are security-based CDS and security-based non-CDS. "Substantial position" is defined as either:

    • daily average uncollateralized exposure over the most recent calendar quarter of $1 billion in the applicable category of swaps ($3 billion for rate swaps) or $1 billion in security-based CDS or in non-security-based CDS; or

    • daily average uncollateralized exposure over the most recent calendar quarter plus potential future exposure of $2 billion in the applicable category of swaps ($6 billion for rate swaps), security-based CDS or non-security-based CDS.

  • Its outstanding swaps or SBS create substantial counterparty exposure that could have serious adverse effects on the financial stability of the US banking system or financial markets. "Substantial counterparty exposure" is defined:

    • for non-security-based swaps, as current uncollateralized notional (www.practicallaw.com/1-386-4136) exposure of $5 billion or more, or $8 billion or more in current uncollateralized notional exposure plus potential future notional exposure; and

    • for SBS, as current uncollateralized notional exposure of $2 billion or more, or $4 billion or more in current uncollateralized notional exposure plus potential future notional exposure.

  • It is a financial entity that is "highly leveraged relative to the amount of capital such entity holds" (defined by the rules as having a ratio of total liabilities to equity of 12:1), is not subject to capital requirements established by an appropriate federal banking agency and which maintains a "substantial position," as applicable, in any of the major swap categories, or in security-based CDS or non-CDS SBS.

For more detail on the final definitions of "major swap participant" and "major security-based swap participant" under the Dodd-Frank Act, see Practice Note, Is Your Client a Swap Dealer or Major Swap Participant? (www.practicallaw.com/7-519-5126).

For information on the classification of non-US entities as MSPs and MSBSPs, see Practice Note, Application of Dodd-Frank Swaps Regulations to Non-US Entities.

For information on the regulation of MSPs and MSBSPs under Title VII, see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist (www.practicallaw.com/5-522-2705).

Commercial End Users

The term "end user" is traditionally used to refer to any non-dealer counterparty to a swap, including businesses using swaps to hedge commercial risk and funds engaging in speculative investment activities. Title VII includes certain exemptions, primarily from mandatory Dodd-Frank swap clearing requirements, for swaps entered into by commercial end users for the purpose of hedging commercial risk. Swaps entered into as speculative investments, or for any other purpose, are not covered by the end-user exception. Parties that are swap dealers or MSPs are explicitly included in the term "financial entity" by Title VII, and therefore cannot make use of the end-user exception.

For details on final CFTC rules on the commercial end-user exemption from Title VII's mandatory swap clearing requirement, see Practice Note, The Commercial End-user Exception to the Dodd-Frank Mandatory Swap Clearing Requirement (www.practicallaw.com/0-521-5929).

For information on which Dodd-Frank rules are likely to apply to commercial end-user swaps entered into with banks, see Practice Note, End-user Swaps with Banks: Which Dodd-Frank Rules Apply? (www.practicallaw.com/7-522-6482).

For information on the proposed exemption under the Act for security-based end-user swaps, see Legal Update, SEC Proposes Corollary End-user Exemption from Mandatory Swap Clearing under Dodd-Frank (www.practicallaw.com/2-504-2027).

Note that while non-financial commercial end users of derivatives are exempt from many Dodd-Frank requirements, under proposed rules issued by regulators including the FDIC and the Federal Reserve Board, they would not be exempt from margin collateral posting requirements under swaps entered into with most banks and financial institutions. Non-financial end users would only be exempt from these requirements if their swap exposure falls below a certain threshold, depending on the type of entity they are classified as under the rules. For more information on this, see Practice Note, The Dodd-Frank Act: Swap Margin Collateral Rules: Proposed Margin Collateral Collection Requirements for Uncleared Swaps with Banks and BHCs (Covered Swap Entities (www.practicallaw.com/7-517-5388)). Data for swaps entered into by commercial end users taking advantage of the exemption from Title VII clearing and exchange trading must also be reported in accordance with final Dodd-Frank swap data reporting rules (see Practice Note, The Dodd-Frank Act: Practical Guide to Swap Data Reporting (www.practicallaw.com/5-522-2710)).

Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs)

CPO. A CPO is an individual or organization that operates and solicits funds for a commodity pool. A commodity pool is composed of funds contributed by a number of entities and/or individuals, which are combined for the purpose of:

  • Trading futures contracts, options on futures or retail off-exchange foreign exchange (forex) contracts.

  • Investing in another commodity pool.

CTA. A CTA is an individual or organization that advises others on the buying or selling of futures contracts, options on futures or retail off-exchange forex contracts.

Entities are designated and regulated as CPOs and CTAs under the CEA, but special Title VII rules apply to CPOs and CTAs that enter into swaps.

Dodd-Frank expanded the definition of "commodity pool" in the CEA, effective July 16, 2011, to include entities that operate pooled investment vehicles and manage commodity trading accounts that enter into swaps. This definition now encompasses pools that enter into a broad range of swaps. As a result of these changes, many funds and investment managers that enter into swaps will now be required to register as CPOs and adhere to an extensive framework of regulations, including reporting obligations.

For detailed information on the expanded "commodity pool" definition and its implications for funds and other vehicles, including certain securitization vehicles, that enter into swaps for investment purposes, as well as the CPO registration obligations of operators and managers of these vehicles and CPO registration exemptions, see Practice Note, The Dodd-Frank Act: Expanded "Commodity Pool" Definition and CPO/CTA Rules (www.practicallaw.com/2-523-3239).

 

Requirements for Swap Dealers and MSPs

Registered SDs and MSPs must adhere to a comprehensive framework of operational, business conduct and swap-related requirements under Title VII. For an overview of these rules, see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist (www.practicallaw.com/5-522-2705). Rules applicable to swap dealers and MSPs include:

To the extent they are clearing members of swap clearinghouses, SDs are also futures commission merchants (www.practicallaw.com/8-521-8349) (FCMs) under the CEA, subject to Dodd-Frank rules relating to clearing members and FCMs (see Practice Note, The Dodd-Frank Act: Swap Margin Collateral Rules: Segregation of Cleared Swap Customer Collateral (www.practicallaw.com/7-517-5388) and Segregation of Customer Funds (www.practicallaw.com/7-517-5388), also Investment of Customer Funds and Cleared Swaps Customer Collateral (www.practicallaw.com/7-517-5388)).

SDs that are major financial institutions may also be subject to comprehensive regulation under Dodd-Frank as SSFIs (see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist: Swap Dealers and Security-based Swap Dealers May Also Be SSFIs under Dodd-Frank (www.practicallaw.com/5-522-2705) and Practice Note, Summary of the Dodd-Frank Act: Regulation of Systemically Significant Financial Institutions (www.practicallaw.com/1-502-8437)).

Requirements for Security-based Swap Dealers and MSBSPs

The SEC has begun to propose a comprehensive regulatory framework under Title VII for SBSDs swap dealers and MSBSPs. For details, see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist: Requirements for Security-based Swap Dealers and MSBSPs (www.practicallaw.com/5-522-2705).

 

Swap Clearing and Exchange Trading under Title VII

All non-exempt swaps (see Swap Clearing and Exchange Trading Exemptions) that are capable of being cleared (that is, that are relatively standardized) are expected to be subject to Title VII's so-called "mandatory" clearing and exchange trading requirements in accordance with the G-20 (www.practicallaw.com/3-501-2553) commitment to clear all standard swaps globally. Like the G-20 commitment, Title VII specified that this was to be implemented no later than the close of 2012.

Swap Clearing under Title VII

Though slightly later than the G-20 time frame, mandatory Title VII clearing under Section 2(h) of the CEA (7 U.S.C. § 2) and Part 50 of the CFTC's Regulations, began for many common (non-security-based) CDS and interest rate swaps on:

Clearing determinations for other types of swaps will be issued by the CFTC on a rolling basis.

Title VII and Section 2(h) of the CEA provide that:

  • Non-security-based swaps are to be cleared through a "derivatives clearing organization" (DCO).

  • SBS are to be cleared through a "securities clearing agency" (SCA) that clears SBS.

An entity may be designated as one or both of these under Dodd-Frank. Most major swap clearinghouses will likely be classified as both a DCO and a SCA by the CFTC and the SEC, respectively. Generally, the clearinghouse or the applicable regulator may initiate the review process for approval of clearing a category of swaps.

Clearinghouses collect variation margin (www.practicallaw.com/5-517-1763) collateral and in certain cases initial margin (www.practicallaw.com/3-517-1759) on behalf of the parties to a cleared swap, and essentially guarantee counterparty performance of cleared derivatives trades so that parties to swaps do not have to rely on the credit risk of their counterparties. For details on the mechanics of swap clearing, see Practice Note, Mechanics of Derivatives Clearing (www.practicallaw.com/9-505-9203).

Title VII requires that most standardized swaps, regardless of whether they are security-based or non-security-based swaps, be cleared through a registered clearinghouse (DCO/SCA), if a clearinghouse accepts the contract for clearing, provided an exemption or exception does not apply to the swap, such as the exception for commercial end users from the Title VII clearing requirement (see Practice Note, The Commercial End-user Exception to the Dodd-Frank Mandatory Swap Clearing Requirement (www.practicallaw.com/0-521-5929)). For details on swaps that must be cleared under the CFTC's initial clearing determination, see Legal Update, Final Clearing Determination for CDS and Interest Rate Swaps Issued by CFTC (www.practicallaw.com/3-522-7450).

For information on final SEC rules on the process for the clearing of SBS, see Legal Update, SEC Adopts Final Clearing Submission Rules for Security-based Swaps under Dodd-Frank (www.practicallaw.com/9-520-1409).

For information on DCOs and other swap clearing and exchange trading entities, see Swap Exchanges and Clearinghouses Under Dodd-Frank: DCOs, DCMs, SEFs and More.

For a guide to important applicable rulemaking and regulatory activity on Dodd-Frank swaps clearing, see Road Map to Dodd-Frank Swaps and Derivatives Regulation: Swap Clearing (www.practicallaw.com/7-557-8945).

Swap Exchange Trading under Title VII

Mandatory exchange trading for many common interest rate swaps and CDS becomes effective on various dates in February 2014 (see Legal Update, MAT Summary: CFTC Exchange-trading Mandates and Effective Dates for MAT Determinations (www.practicallaw.com/3-555-9185)).

Swaps that are approved for clearing must be traded on a registered exchange that has been approved by the applicable regulator (CFTC for swaps, SEC for SBS) unless no registered exchange accepts the swap for trading. Under Title VII:

A swap exchange may be designated as one or more of these under Dodd-Frank.

For further information on DCMs, SEFs and other swap clearing and exchange trading entities, see Swap Exchanges and Clearinghouses Under Dodd-Frank: DCOs, DCMs, SEFs and More.

For a guide to important applicable rulemaking and regulatory activity on Dodd-Frank swaps exchange trading, see Road Map to Dodd-Frank Swaps and Derivatives Regulation: Swap Exchange Trading (www.practicallaw.com/7-557-8945).

Exchange Trading under Title VII Driven by Made Available to Trade (MAT) Determinations

Swaps become subject to mandatory exchange trading under Title VII of the Dodd-Frank Act and Section 2(h)(8) of the CEA through the CFTC's made-available-to-trade (MAT) process. Under CFTC Regulation 40.6 (17 C.F.R. § 40.6), SEFs and DCMs may make an initial determination that certain types of swaps are designated to be been MAT on that exchange. The exchange's MAT determination, if not objected to or stayed by the CFTC, becomes effective ten days after submission. Under CFTC Regulations 40.6(c) and 40.7(a)(2)(iii) (17 C.F.R. §§ 40.6(c) and 40.7(a)(2)(iii)), the CFTC has the authority to stay MAT submissions for 90 days in order to request comment and gain additional time to analyze the submissions. MAT determinations are not exchange-specific. So if a MAT determination goes into effect, all swaps covered by that MAT determination must be exchange traded. However, the swaps subject to the MAT determination are not required to be traded on the exchange that submitted the MAT determination for those swaps.

Swap Clearing and Exchange Trading Exemptions

The following swaps are exempt from Title VII mandatory swap clearing and exchange trading requirements:

Other final Dodd-Frank swaps rules such as data reporting still apply to these swaps.

Other derivatives such as options and futures on physical commodities (see Legal Update, CFTC Clarifies: Most Commodity Options Are Swaps Subject to Dodd-Frank (www.practicallaw.com/3-544-1025)) are also exempt from Title VII clearing and exchange trading rules (see Derivatives Excluded from Regulation under Title VII), however most of these products are already cleared and exchange traded by definition.

FX Swap Exemption

On November 19, 2012, the US Treasury announced that Title VII central clearing and exchange trading requirements do not apply to FX swaps and forwards (see Legal Update, FX Swaps and Forwards Exempted from Dodd-Frank Clearing Requirement (www.practicallaw.com/1-522-5211)). The exemption, effective November 20, 2012, covers a narrowly defined segment of FX swaps, primarily swaps in which a fixed amount of one currency are exchanged for a fixed amount of another currency on a particular date. Though narrowly constructed, the exemption does cover a large segment of the foreign exchange markets. In particular, the exemption covers foreign exchange swaps that:

  • Have fixed payment obligations.

  • Are physically settled.

  • Are short-term instruments.

Other FX derivatives are not exempted from Title VII central clearing and exchange trading requirements. For example, FX options, currency swaps and non-deliverable forwards (NDFs) are not exempted to the extent they are not captured by the "FX swap" and "FX forward" definitions.

Because the exemptions cover a relatively narrow range of FX products, it appears final regulations effectively require FX dealers to divide their businesses between products such as currency options and NDFs that must be cleared and traded through central counterparties and SEFs, and FX swaps that will continue to be traded over the counter. The FX exemption should allow exempt FX products to continue to be traded on bank electronic trading platforms.

Traders of FX swaps will still, however, be required to report FX swap data, as discussed under Swap Data Reporting Requirements, and to adhere to other requirements with respect to their FX swaps, such as business conduct requirements for SDs and MSPs (see The Dodd-Frank Act: Requirements for Swap Dealers and MSPs Checklist (www.practicallaw.com/5-522-2705)).

Swap Exchanges and Clearinghouses under Dodd-Frank: DCOs, DCMs, SEFs and More

Swap clearing and exchange trading entities such as DCOs, DCMs and SEFs create the potential for concentration of large amounts of systemic risk. Because of this, the CFTC and the SEC have undertaken extensive rulemaking under Dodd-Frank regarding operational, risk management and financial requirements, as well as standards of conduct, for DCOs, DCMs, SEFs and SBS clearing agencies and exchanges.

Swap and SBS Clearinghouses: DCOs and SCAs

On October 18, 2011, the CFTC issued final rules for non-security-based swap clearinghouses, or DCOs (derivatives clearing organizations), under Dodd-Frank. These rules cover core principles such as required capital reserves for DCOs, product eligibility, standards for DCO risk management policy and procedure, margin rules including collateral haircut requirements and asset valuation methodology, clearing member insolvency procedures and more (see Legal Update, CFTC Issues Final Rules for Derivatives Clearing Organizations Under Dodd-Frank (www.practicallaw.com/9-509-4744)). Perhaps most noteworthy of the final rules is the DCO open access rules that requires entities with net adjusted capital (as defined in CFTC rules) of $50 million or greater be given access to DCOs as clearing members for swap clearing purposes. The CFTC release accompanying these final rules notes that there will be final rulemaking covering other DCO matters not addressed by these final rules. These rules prohibit a DCO from refusing to clear a swap because neither party to the swap is a clearing member of that DCO. Parties that are not clearing members, however, still have to submit their bilateral swap trades for clearing through a clearing member of the DCO.

For information on other final Dodd-Frank DCO rules, see Legal Updates:

For information on SEC rulemaking under the Dodd-Frank Act relating to SCAs that clear SBS, see the SEC's final rules and the following Legal Updates:

Swap Exchanges: DCMs and SEFs

The trading venues by which US regulators are seeking to implement more transparency and standardization in the derivatives markets are:

For additional information on CFTC rulemaking under Dodd-Frank relating to DCMs and SEFs, see Legal Updates:

For information on final Dodd-Frank swap data reporting rules that require reporting of swap data by DCMs and SEFs to swap data repositories (SDRs), see Practice Note, The Dodd-Frank Act: Swap Data Reporting and Recordkeeping (www.practicallaw.com/8-517-5401).

Under Dodd-Frank, the FSOC may designate certain swap clearinghouses and exchanges as SSFIs, which would subject them to enhanced oversight and regulation under the Act. For information on the FSOC's proposed rules for designation of certain financial market utilities (FMUs), including swap and SBS exchanges and clearinghouses, as SSFIs under Dodd-Frank, see Legal Update, FSOC Issues Final Rules on Designating FMUs as Systemically Important (www.practicallaw.com/2-506-9516). For more on FMUs, see Legal Update, Federal Reserve Board Establishes Risk-management and Notice Requirements for Certain Systemically Important FMUs (www.practicallaw.com/6-505-4971).

For information on SEC proposals under Dodd-Frank relating to SB SEFs, see Legal Updates, SEC Proposes Rules on Security-based Swap Facility Ownership and Governance Under Dodd-Frank (www.practicallaw.com/2-503-6578) and SEC Proposes Dodd-Frank Rules for Security-based Swap Execution Facilities (www.practicallaw.com/7-504-6985).

Swap Exchange and Clearinghouse Ownership and Control

Both the SEC and the CFTC have delayed voting on final rules on ownership and voting-control limits for security-based and non-security-based swap clearinghouses and exchanges that are designed to prevent conflicts of interest in the governance of these entities. The CFTC proposal would require independent directors at non-security-based swap clearinghouses and exchanges. The CFTC is deciding between independent director requirements of 35% and 51% at these entities.

The delays on rulemaking in this area are a response to pushback from financial industry groups on these proposals, which have drawn the attention of financial industry advocacy groups. Financial institutions are seeking to ensure their involvement in the ownership and control of swap clearinghouses and exchanges that would provide them with leverage in negotiating swap transactions with counterparties and guaranteed revenue streams as gatekeepers to swap clearing and exchange trading activities (as they have historically enjoyed as FCMs). This is also the driving factor behind the recent wave of exchange mergers, in which the goal is control over the derivatives clearing and trading platforms that are seeing volumes and revenues rise with the onset of mandatory Title VII clearing and exchange trading.

For more information, see Legal Updates, SEC Re-opens Comment Period on Ownership and Voting Limits for Security-based Swap Exchanges and Clearinghouses (www.practicallaw.com/7-505-0086) and CFTC Proposes Limits on Ownership and Voting Stakes in Swap Clearinghouses, Exchanges and Execution Facilities (www.practicallaw.com/5-504-0687).

Registration of Foreign Boards of Trade (FBOTs) under Dodd-Frank

On December 5, 2011, the CFTC approved final Dodd-Frank rules establishing registration requirements and procedures for FBOTs seeking to provide their members or other participants located in the US with direct access to their electronic swaps trading systems. FBOTs are CFTC-registered non-US swap exchanges. The rules may ultimately facilitate an open and competitive central global swaps market. However, the requirement that an FBOT must be subject to a regulatory regime similar to that which the CFTC provides for US exchanges has raised extraterritoriality concerns among foreign regulators. For more information on these rules, see Legal Update, Final Rules on Registration of Foreign Boards of Trade under Dodd-Frank Issued by CFTC (www.practicallaw.com/2-515-2167).

 

Dodd-Frank Swap Data Reporting and Recordkeeping Requirements

One of the primary goals of the Dodd-Frank Act is to create transparency in what many believed to be an opaque OTC derivatives market. Toward that end, regulators have issued a number proposed and final rules covering swap data reporting under Title VII of the Act. Swap data reporting is the most broadly applicable of all Dodd-Frank swaps obligations. Even swaps entered into by commercial end users that are exempt from Dodd-Frank swaps rules such as mandatory clearing and exchange trading must still be reported under Dodd-Frank rules. Therefore, all parties to swaps need to concern themselves with data reporting obligations for swaps they enter into.

For a comprehensive guide to compliance with all applicable swap data reporting rules, see Practice Note, The Dodd-Frank Act: Practical Guide to Swap Data Reporting (www.practicallaw.com/5-522-2710).

For extensive detail on all applicable Dodd-Frank swap data reporting rules, see:

Rules covered in these resources include:

For information on applicable compliance dates for all final swap data reporting rules, see Practice Note, The Dodd-Frank Act: Practical Guide to Swap Data Reporting: Compliance Dates for All Final Swap Data Reporting Rules (www.practicallaw.com/5-522-2710).

 

Swap Margin Collateral Matters under Dodd-Frank

Margin collateral arrangements for swaps and derivatives transactions are subject to rulemaking under Title VII of the Act. Events such as the collapse of Lehman Brothers and MF Global have underscored the need for regulation of swap margin collateral matters to:

  • Mitigate systemic risk arising from the failure of a systemically significant financial institution, or SSFI, that maintains substantial swap positions with other SSFIs.

  • Protect customer and end user swap collateral.

See Practice Note, The Dodd-Frank Act: Swap Margin Collateral Rules (www.practicallaw.com/7-517-5388) for extensive detail on both proposed and final Dodd-Frank rulemaking on:

  • Levels and threshold amounts of swap collateral that must be collected by certain parties (primarily swap dealers and MSPs) to collateralize certain swaps. This is referred to as margin collateral "collection" because the proposed rules take a collection-based approach.

  • Segregation and treatment of posted margin collateral by the secured party that holds the collateral including important issues such as collateral segregation and rehypothecation (www.practicallaw.com/4-386-4111) of customer funds.

 

Commodity Position Limits

While the CFTC implemented final position limits rules under Title VII for physical commodities and their economic equivalents, a federal district court invalidated these rules, finding that they were not mandated under Title VII and that they were not properly established by the CFTC. As a result, final CFTC position limits rules did not become effective on October 12, 2012 as originally scheduled (see Legal Update, CFTC Commodity Position Limits Rules Vacated by DC District Court (www.practicallaw.com/5-521-6832)). The CFTC has filed a notice of appeal of this ruling.

For detailed information on the vacated final CFTC position limits rules, as well as information on position limits rules for so-called "legacy" contracts, which remain effective, see Practice Note, The Dodd-Frank Act: Commodity Position Limits (www.practicallaw.com/5-517-5964).

Security-based Swap Position Limits Not Yet Proposed

To prevent fraud and market manipulation, the SEC is authorized by the Dodd-Frank Act to set position limits on:

  • Individual SBS traders.

  • The size of any SBS.

For these purposes, the SEC may consider positions held by a party to a SBS in securities, groups of securities or indexes to which the particular swap relates. The SEC has yet to propose position limits for SBS.

 

Dodd-Frank and Related Risk Capital Requirements for Derivatives Exposures

Final US Risk Capital Rules for Derivatives Exposures

Title VII contains few specific details regarding capital reserve requirements for entities engaging in swap trading activity. However, on June 7, 2012, the Federal Reserve Board (FRB) issued final rules implementing changes to its market risk capital rules (77 Fed. Reg. 53060 (Aug. 30, 2012)). These rules became effective on January 1, 2013. Under these final risk capital rules, banking organizations with significant trading activities will be required to adjust their capital requirements to give greater weight to the market risks of activities related to foreign exchange and commodities positions and certain trading assets and liabilities. These rules, which were also approved by the FDIC, apply to BHCs and state-chartered banks that have aggregate trading assets and liabilities that are at least:

  • 10% of the organization's total assets, or

  • $10 billion.

Trading accounts covered by the rule (called "covered positions") include assets and liabilities held:

  • For short-term resale.

  • With the intention of benefiting from actual or expected short-term price movements.

  • For locking in arbitrage profits.

Covered positions also include trading positions that hedge other trading positions, as well as most foreign exchange and commodity positions.

Banking institutions covered by the rule will be subject to:

  • Computational requirements that set out in detail:

    • how to calculate the necessary market risk capital; and

    • minimum market risk capital levels.

  • Governance standards for:

    • setting, validating and changing the calculation methods and models; and

    • publicly disclosing information about the banking institution's market risk capital requirements and exposures.

These final rules apply to SDs, SBSDs, MSPs and MSBSPs, as well as other parties that qualify as covered banks.

For more information on these final rules, see Legal Update, Federal Reserve Board Issues Final Rule Implementing Market Risk Capital Rule Changes (www.practicallaw.com/2-519-8207).

The SEC has also proposed capital requirements for SBSDs and MSBSPs based on the Exchange Act's rule governing capital for broker-dealers, Rule 15c3-1 (17 C.F.R. § 240.15c3-1) (see Legal Update, Capital and Margin Rules for Security-based Swap Dealers and Major Security-based Swap Participants Proposed by SEC: Capital Requirements (www.practicallaw.com/1-521-9776)).

US bank regulators have proposed capital requirements for nonbank swap dealers and MSPs. For detail on proposed swap-related capital reserve requirements for nonbank swap dealers and MSPs, see Legal Update, CFTC Proposes Capital Requirements for Nonbank Swap Dealers and Major Swap Participants under Dodd-Frank (www.practicallaw.com/3-505-8895).

Basel Risk Capital Rules for Derivatives Exposures

The rules discussed above under Final US Risk Capital Rules for Derivatives Exposures have been supplemented and modified by final rules adopted by US bank regulators to implement the Basel III framework. The Basel III framework, which becomes effective January 1, 2015, requires banks to account for derivatives exposures in their capital structures differently depending on whether the transaction is cleared or not cleared, collateralized or not collateralized, and on the quality of the collateral. Certain institutions also have a choice of how to account for these exposures, and can choose from either:

  • A standardized approach.

  • An advanced approach.

These approaches result in differing required risk capitalization levels, both of which qualify under the final Basel III implementation rules. For more details on the treatment of a variety of types of derivatives exposures under the final Basel III risk capital rules, see Articles, The Final US Basel III Capital Framework (www.practicallaw.com/9-535-5185) and Basel III Framework: US-EU Comparison (www.practicallaw.com/3-545-1745).

Bank Lending Limits Modified to Include Derivatives Exposure

On June 19, 2013, the Office of the Comptroller of the Currency (www.practicallaw.com/0-386-6961) (OCC) issued a final rule on bank lending limits under Section 610 of the Dodd-Frank Act (12 U.S.C. §§ 84 and 1464). Under the final rule, bank single-counterparty credit exposure limits (12 C.F.R. §§ 32.1-32.9) must now include exposures under:

The OCC also extended the compliance date for the final rule to October 1, 2013. The rule was originally scheduled to become effective on July 1, 2013. The rule, which is substantially similar to the 2012 interim final rule (see Legal Update, OCC Modifies Bank Lending Limits to Include Derivatives and Securities Financing Transactions (www.practicallaw.com/5-519-9644)), applies to all national banks and state and federal thrifts (collectively, covered banks).

Under 12 U.S.C. § 84, the limit on the aggregate amount of "loans and extensions of credit" that a covered bank can extend to one borrower are:

  • For loans and extensions of credit that are not fully secured, 15% of the bank's unimpaired capital and surplus.

  • For loans and extensions of credit fully secured by readily marketable collateral, an additional 10% of the bank's unimpaired capital and surplus. This is separate and in addition to the 15% limitation on unsecured loans for an aggregate upper limit of 25% of the bank's unimpaired capital and surplus.

State banks are not subject to the rule and are covered by the lending limits of their respective states. However, under another Section 610 amendment that became effective January 21, 2012, insured state banks may engage in derivative transactions only if the lending limit law of its chartering state takes into account credit exposures in connection with derivative transactions.

Lending limits apply to all credit extended to a single counterparty, including counterparty exposure under derivatives, repo and securities lending transactions. The final lending limits rule provides a number of alternative methods for calculating credit exposure arising from these types of transactions.

For further information on the final lending limits rule, including details and models for how to calculate exposure under the rule, see this helpful Davis Polk memo.

For more information on state and national bank lending limits, see Practice Notes, US Banking Law: Overview: US Banking Organizations, Their Regulators and Scope of Permissible Activities (www.practicallaw.com/0-504-4367) and Insider Loan Restrictions for Banks: Dodd-Frank Act Changes to Insider Loan Requirements (www.practicallaw.com/8-505-3942).

 

Application of Securities Laws to Security-based Swaps

Title VII expanded the definition of "security" under both the Securities Act and the Exchange Act to include SBS as of July 16, 2011. Section 761(a)(2) amended the definition of "security" in Exchange Act Section 3(a)(10) (15 U.S.C. § 78c), and Section 768(a)(1) amended the definition of "security" in Securities Act Section 2(a)(1) (15 U.S.C. § 77b) to include SBS. However, compliance with most US securities laws for most SBS that would result from this change has been delayed until February 11, 2017 (see Legal Update, SEC Further Delays Application of Securities Laws to Security-based Swaps (www.practicallaw.com/1-557-3205)). As of that date, US securities laws will apply to uncleared SBS. Most cleared SBS are permanently exempted from the securities laws. SBS are already subject to the general antifraud provisions and beneficial ownership reporting requirements of the US securities laws. For more information on the application of US securities laws to SBS, see Practice Note, The Dodd-Frank Act: Application of US Securities Laws to Security-based Swaps (www.practicallaw.com/6-532-2752).

 

Non-security-based Swap Antifraud Rules

The CFTC has adopted final rules under the Dodd-Frank Act on market manipulation in connection with non-security-based swap trading (see Legal Update, CFTC Adopts Final Rules Prohibiting Market Manipulation under Dodd-Frank (www.practicallaw.com/6-506-8299)), These rules:

  • Prohibit fraud, including both intentional and reckless conduct that deceives or defrauds market participants, in connection with any non-security-based swap or contract for the sale of any commodity.

  • Make it unlawful to directly or indirectly manipulate or attempt to manipulate the price of any non-security-based swap or any commodity in interstate commerce, or for future delivery "on or subject to the rules of any registered entity." For information on registered entities under the Act, see Legal Update, CFTC Issues Final Rules on "Registered Entities" under Dodd-Frank (www.practicallaw.com/5-506-9770).

These rules essentially lower the standard of proof in non-security-based swap antifraud cases to recklessness. The CFTC will also be able to maintain an action for fraud in connection with non-security-based swaps under Dodd-Frank where a party intended to create an artificial market price.

CFTC Guidance on Prohibition of Disruptive Swap Trading Practices Under Dodd-Frank

On February 24, 2011, the CFTC provided clarification in an interpretive order on which swaps trading practices are prohibited as "disruptive" under Section 4c(a)(5) of the CEA, created under Dodd-Frank to promote "fair and equitable" swap trading. Among prohibited activities are "spoofing," the practice of placing and cancelling bids or offers in an attempt to manipulate prices or present the misleading appearance of market activity. For more information on this interpretive order, see Legal Update, CFTC Proposes Guidance on Prohibition of Disruptive Swap Trading Practices Under Dodd-Frank (www.practicallaw.com/8-504-9766). In July 2013, the CFTC issued its first disciplinary assessment in connection with the Dodd-Frank spoofing prohibition.

 

No Termination Event

Title VII provides that its implementation may not be considered a "termination event, force majeure, illegality, increased costs, regulatory change, or similar event under a swap (including any related credit support arrangement) that would permit a party to terminate, renegotiate, modify, amend, or supplement" any swap transaction, "unless specifically reserved in the applicable swap." This provision appears specifically designed to prevent termination of an ISDA Master Agreement, the most commonly used documentation for OTC derivatives transactions, as well as other standard trading agreements.

It is noteworthy that this provision only covers "swaps" (non-security-based swaps) and does not appear to apply to SBS. This may be due to legislative oversight.

 

The FDIC's Orderly Liquidation Authority Under Title II

Under Title II of the Dodd-Frank Act, a party to an uncleared swap with a non-depository financial counterparty may be subject to a stay of up to one business day on its ability to terminate, liquidate or net the swap and any other swaps with that counterparty if the counterparty becomes a covered financial company (CFC) subject to the FDIC's orderly liquidation resolution authority (OLA).

A CFC is any entity:

  • That is a financial company in default or in danger of default.

  • Whole failure and resolution under otherwise applicable federal or state law would have serious adverse effects on US financial stability.

This applies only to uncleared swaps. The cleared swaps of a failed financial company would be handled by the applicable clearinghouse.

Failed insured depository institutions (IDIs) continue to be resolved by the FDIC under the Federal Deposit Insurance Act (FDIA), so the OLA does not apply to failing IDI counterparties. However, under the FDIA, swaps of an IDI that enters into FDIC receivership may be subject to a similar termination and liquidation stay.

Under final internal business conduct (IBC) rules for SDs and MSPs, swaps involving SDs and MSPs must include certain representations by the parties regarding these FDIC powers (see Practice Note, Swap Dealers and MSPs: Final Dodd-Frank Internal Business Conduct (IBC) Rules on Documentation, Confirmation, Reconciliation and Compression: Documentation of Trading Relationships for Swap Dealers and Major Swap Participants (www.practicallaw.com/7-521-5959)). These representations can be made by parties to a swap through adherence to the Dodd-Frank March 2013 Protocol (see Practice Note, The ISDA Dodd-Frank Protocol: The March 2013 Protocol: Compliance with Final IBC Rules for Swap Dealers and MSPs (www.practicallaw.com/1-524-7048)).

For more information on the FDIC's OLA, see:

 

The Swaps Pushout Rule (Lincoln Rule)

Under Section 716 of the Dodd-Frank Act (15 U.S.C. § 8305), the so-called swaps "Pushout Rule" or Lincoln Rule, banks and other entities with access to the Fed discount window or FDIC deposit insurance are prohibited from engaging in many derivatives trading activities, subject to a transition period. This prohibition does not apply to and is not intended to prevent an IDI from having or establishing an affiliate which is a "swap entity" as long as the IDI:

  • Is part of a BHC or savings and loan holding company that is supervised by the Federal Reserve.

  • Complies with Sections 23A and 23B of the Federal Reserve Act (12 U.S.C. §§ 371c and 371c-1).

  • Complies with any other requirements as the CFTC and SEC, as applicable, and the Federal Reserve Board deem appropriate.

This provision is intended to force IDIs to spin off (www.practicallaw.com/0-385-7160) their derivatives trading operations to separately capitalized affiliates in an attempt to minimize the threat of risky derivatives activities to customer deposits, as well as the need for taxpayer bailout of these entities.

This prohibition does not apply to IDIs that limit their derivatives trading operations to commercial hedging or other risk mitigation activities directly related to the IDI's commercial activities. This exception appears to permit IDIs to engage in certain types of derivatives trading, including entering into non-market-making interest rate and FX swaps, as well as certain cleared CDS. These permitted activities do not appear to extend to US branches of non-US banks, though this appears to be an oversight.

The Pushout Rule exempts all swaps entered into by an IDI before the conclusion of the transition period. Each individual institution must apply for its own transition extension, which may extend to July 16, 2016 (see Legal Update, OCC Offers Swaps Pushout Rule Extensions (www.practicallaw.com/2-523-4502)).

For a detailed discussion of the Pushout Rule, see Practice Note, The Dodd-Frank Act's Pushout Rule (www.practicallaw.com/9-504-8573).

 

The Volcker Rule

The Volcker Rule prohibits "banking entities" (IDIs and BHCs), including most commercial banks in the US and their affiliates, from engaging in proprietary trading, including proprietary derivatives trading, and restricts their investment in hedge funds and private equity funds. The final version of the Volcker rule was released by federal regulators on December 10, 2013. For details, see Legal Update, Volcker Rule Finalized (www.practicallaw.com/8-551-5245).

For a discussion of the interaction between the Pushout Rule and the Volcker Rule, see Practice Note, The Dodd-Frank Act's Pushout Rule: Implications for the Derivatives Market: Interaction Between the Pushout Rule and the Volcker Rule (www.practicallaw.com/9-504-8573).

 

Title VII Implementation

On August 13, 2012, final rules on the definitions of the terms "swap" and "security-based swap" (final definitional rules) were published in the Federal Register, triggering the effective dates for many key Dodd-Frank swaps rules (77 Fed. Reg. 48208). The final definitions and a number of the final rules became effective on October 12, 2012, including registration requirements for SDs and MSPs. Additionally, the application of the US securities laws to SBS will become effective February 11, 2017.

Compliance Dates for Dodd-Frank Swaps Rules

The publication of the final definitional rules in the Federal Register triggered the implementation dates of several final Title VII rules that had already been adopted. However, most of these rules did not become effective at that time, as the CFTC announced compliance delays for most final rules, some of which became effective for certain parties on December 31, 2012. Note that compliance by non-US entities with many Dodd-Frank rules for SDs and MSPs was scheduled to begin on July 12, 2013, however, this date has been further delayed due to the new CFTC-EU cross-border derivatives regulatory accord (see Legal Update, CFTC and EU Reach Accord on Derivatives Regulation; CFTC Issues Cross-border Guidance and Relief (www.practicallaw.com/9-534-5846)).

Note the effective dates of the following major Dodd-Frank swaps rules:

For more important Dodd-Frank swaps dates, see Dodd-Frank Swaps Calendar (www.practicallaw.com/4-523-7774).

 

Title VII Enforcement

As reported by several sources, the CFTC's Division of Enforcement (DOE), which investigates and prosecutes alleged violations of the CEA and CFTC regulations, has created two specialized enforcement squads, the Swaps Squad and the Manipulation and Disruptive Trading Squad.

This is the first time that the CFTC has created specialized enforcement groups. According to the CFTC's 2013 Budget and Performance Plan released in February 2012, these squads will be staffed with trial attorneys and investigators from across the CFTC's regions. They are tasked with evaluating leads and serving as clearinghouses for related issues and policies.

The goal of the squads is to develop a focused expertise in their respective areas to accommodate the increase in swaps enforcement activities that will be necessitated by the Dodd-Frank Act. Matters before the DOE will still be addressed by both squad members and non-members at the CFTC.

The SEC will presumably rely on its existing enforcement mechanisms to police compliance with Dodd-Frank rules on SBS for which it is responsible.

Congressional funding for both the CFTC and the SEC is critical to the ability of these agencies to enforce derivatives regulation under Dodd-Frank. Legislative wrangling continues regarding funding levels for these agencies, as opponents of Dodd-Frank in congress seek to limit funding in order to limit Dodd-Frank's impact.

 

Application of Dodd-Frank Swaps Regulations to Non-US Entities

Title VII states that it does not apply to non-security-based swap activities outside the US unless those activities either:

  • Have a direct and significant connection with activities in, or effect on, US commerce.

  • Contravene any rules or regulations made by the CFTC to prevent evasion of any provision of the CEA related to non-security-based swap.

If either the SEC or CFTC determines that the regulation of swaps in a foreign country undermines the stability of the US financial system, the regulator, in consultation with the Secretary of the Treasury, may prohibit an entity domiciled in that foreign country from participating in any swap activity in the US.

For details on:

Non-US banks with $50 billion or more in total assets and therefore their swap activities, may also be subject to regulation under Dodd-Frank by the Federal Reserve and other bank regulators as SSFIs (see Practice Note, Summary of the Dodd-Frank Act: Regulation of Systemically Significant Financial Institutions (www.practicallaw.com/1-502-8437) and Legal Update, Federal Reserve Board Proposes Rule Related to Designation of Systemically Important Nonbank Financial Companies (www.practicallaw.com/6-504-7626)). This is likely to result in more stringent swap position limits, margin requirements and swap-related capital reserve requirements based on swap exposure than other entities are subject to under Dodd-Frank. However, it is not yet clear how and to what extent additional swaps regulation might apply to these institutions.

 
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