Final Rules on Designated Contract Markets under Dodd-Frank Issued by CFTC | Practical Law

Final Rules on Designated Contract Markets under Dodd-Frank Issued by CFTC | Practical Law

The CFTC issued final rules on the core principles and other requirements for certain swap exchanges known under the Dodd-Frank Act as designated contract markets (DCMs).

Final Rules on Designated Contract Markets under Dodd-Frank Issued by CFTC

Practical Law Legal Update 4-519-4449 (Approx. 3 pages)

Final Rules on Designated Contract Markets under Dodd-Frank Issued by CFTC

by PLC Finance
Published on 15 May 2012 • USA (National/Federal)
The CFTC issued final rules on the core principles and other requirements for certain swap exchanges known under the Dodd-Frank Act as designated contract markets (DCMs).
On May 10, 2012, the CFTC issued final rules under the Dodd-Frank Act regarding the designation and operation of designated contract markets (DCMs). DCMs are major recognized exchanges on which non-security-based swaps are executed. The final rules affect all DCMs, DCM applicants, DCM market participants, and DCM members and intermediaries.
The final rules:
  • Implement 23 new and amended core principles under the Commodity Exchange Act (CEA), as amended by Title VII of the Dodd-Frank Act, with which all DCMs and DCM applicants must comply in order to obtain and maintain designation as a DCM.
  • Require that non-security-based swaps subject to the mandatory clearing requirements of Section 2(h) of the CEA, added to the CEA by Title VII of Dodd-Frank, be executed on a DCM or a swap execution facility (SEF), except where no DCM or SEF makes the swap available for trading.
  • Impose new requirements for DCMs, including:
    • providing the CFTC with certain financial information;
    • capital requirements;
    • compliance obligations;
    • operational capabilities;
    • surveillance obligations; and
    • trading and product requirements.
  • Impose new DCM application and approval procedures, including:
    • elimination of 90-day accelerated-approval procedures; and
    • a requirement that applications for designation as a DCM must be reviewed within 180 days.
  • Require that DCMs implement risk control mechanisms, including pauses and halts to trading under certain conditions, to prevent market disruption.
The final rules affect all DCMs, DCM applicants, DCM market participants, DCM members and intermediaries. The final rules take effect 60 days after publication in the Federal Register and DCMs must comply with most of the requirements within 60 days of the effective date.
For more information on this proposed rule, see the CFTC's fact sheet and Q&A.
For more information on the regulation of swaps and derivatives under the Dodd-Frank Act, see Practice Notes, Summary of the Dodd-Frank Act: Swaps and Derivatives: Swap Clearing and Exchange Trading and Road Map to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: Swaps and Derivatives.