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2013 Dodd-Frank Agreement for Non-US Swap Transactions Published by ISDA
Practical Law Legal Update 7-549-6346 (Approx. 5 pages)
2013 Dodd-Frank Agreement for Non-US Swap Transactions Published by ISDA
by Practical Law Finance
| Published on 21 Nov 2013 • USA (National/Federal) |
ISDA published the 2013 Dodd-Frank agreement for non-US swap transactions, which is designed to facilitate compliance with the CFTC's cross-border guidance on the application of Dodd-Frank swaps rules to certain swaps with an indirect connection to the US.
On November 15, 2013, ISDA published the 2013 DF Agreement for Non-US Transactions, which is designed to facilitate compliance with the CFTC's Dodd-Frank swaps cross-border interpretive guidance (cross-border guidance). The agreement contains provisions and terms that are relevant to certain swap transactions that have an indirect connection to the US, but which may still need to comply with certain Dodd-Frank rules under the cross-border guidance (see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules). Unlike the ISDA Dodd-Frank Protocols (see Practice Note, The ISDA Dodd-Frank Protocols), the ISDA Non-US DF Agreement does not function as a supplement to the parties' existing swap agreements, and is not incorporated by reference into other documents. Instead, it functions as a separate agreement that is applicable based on the trading relationship between the transacting parties.
The ISDA Non-US DF Agreement is not intended to replace the Dodd-Frank Protocols. Parties that have already supplemented their swap agreements with the either of the August 2012 Dodd-Frank Protocol or the March 2013 Dodd-Frank Protocol would have no need to use the ISDA Non-US DF Agreement. The agreement is tailored for international parties and omits some provisions from the Protocols that are inapplicable to these transactions.
Under the cross-border guidance, Dodd-Frank swaps rules are categorized into entity-level requirements and transaction-level requirements (see Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules: "Substituted Compliance": Entity-level Requirements and Transaction-level Requirements). Transaction-level requirements are further broken down into Category A transaction-level requirements (all transaction-level requirements other than external business conduct standards) and Category B transaction-level requirements (external business conduct standards (see Practice Note, Swap Dealers and MSPs: Final Dodd-Frank External Business Conduct (EBC) Rules)).
The ISDA Non-US DF Agreement includes a four-page base agreement and two accompanying annexes. Each annex outlines the scope of the transactions covered by that annex. Annex I addresses entity-level requirements, such as swap reporting and record-keeping requirements, and:
- Mainly includes actual terms from, or terms, including representations, adapted from the ISDA August 2012 DF Supplement (see Practice Note, The ISDA Dodd-Frank Protocol: The August 2012 Protocol: Compliance with Final EBC Rules for Swap Dealers and MSPs).
- Is useful in transactions where one of the parties is a non-US person (as defined in the CFTC cross-border guidance) and the counterparty is:
- a non-US swap dealer (SD); or
- a US-bank SD transacting out of a non-US branch.
Annex II addresses Category A transaction-level requirements, such as swap trading relationship documentation and portfolio reconciliation, and:
- Mainly includes actual terms from, or terms, including representations, adapted from the ISDA March 2013 DF Supplement (see Practice Note: The ISDA Dodd-Frank Protocol: The March 2013 Protocol: Compliance with Final IBC Rules for Swap Dealers and MSPs).
- Is useful in transactions in which:
- a non-US SD enters into a transaction with a non-US person that is guaranteed by a US person or functions as a US person's affiliate conduit; or
- a US-bank SD that enters into a transaction through a non-US branch with a non-US person (including a non-US person guaranteed by a US person or functioning as a US person's affiliate conduit).
The Non-US DF Agreement and annexes:
- Include terms that address entity-level requirements and Category A transaction-level requirements, but not terms addressing Category B transaction-level requirements because the cross-border guidance does not generally require those parties for which the Non-US DF Agreement was created to comply with Category B requirements.
- Include notice provisions and representations, which are adapted from the August 2012 Dodd-Frank Protocol and the March 2013 Dodd-Frank Protocol, regarding the accuracy of information in the annexes and provisions which may be used to update this information.
- Do not include the representations found in the ISDA cross-border representation letters (see Legal Updates, ISDA Publishes Cross-border Swaps Representation Letter and Methodology and Cross-border Swaps Representation Letter for US Banks Published by ISDA). However, the agreement and annexes include acknowledgements from parties that the cross-border representations have already been received.
- Include terms that update corresponding provisions in the August 2012 Dodd-Frank Protocol and the March 2013 Dodd-Frank Protocol to reflect more recent regulations. These include terms related to status of information, LEI/CICI and the end-user exception (see Practice Note, The Commercial End-user Exception to the Dodd-Frank Mandatory Swap Clearing Requirement).
- Address substituted compliance with EMIR (see Practice Note, EMIR: Overview and Practice Note, The Dodd-Frank Act: Cross-border Application of Swaps Rules: "Substituted Compliance": Entity-level Requirements and Transaction-level Requirements). Specifically, Annex II provides for the production of swap trading-relationship documentation and portfolio reconciliations to address the requirements of CFTC regulations 17 C.F.R. § 23.504(b)(4) and 17 C.F.R. 23.502 (see Practice Note, Swap Dealers and MSPs: Final Dodd-Frank Internal Business Conduct (IBC) Rules on Documentation, Confirmation, Reconciliation and Compression), which market participants subject to EMIR can satisfy instead of EMIR.
For more details, see ISDA's explanatory memorandum.