PRINCIPLES THAT ENDURE
Topics in Regulatory Reform
Service
Expertise
Integrity
Derivatives Regulation: Dodd-Frank and Its
Implications for the Buy-Side
September 12, 2012
northerntrust.com
Welcome
Thank you for joining today’s interactive webinar on Derivatives Regulation: DoddFrank and Its Implications for the Buy-Side

Moderator:



2
Judson Baker, Northern Trust
Key Note Speakers:

Joe Palumbo, Ernst & Young

Nathan Howell, Sidley Austin
Topics to be Addressed:

Final Dodd-Frank rulings and guidance

Key definitions such as "swap," "major swap participant," "active funds" and "financial entity"

End-User exceptions

Phase-in Periods

Swap data recordkeeping and reporting requirements
Derivatives Regulation: Dodd-Frank and Its Implications for the Buy-Side
BEIJING
BRUSSELS
CHICAGO
DALLAS
FRANKFURT
GENEVA
HONG KONG
HOUSTON
LONDON
LOS ANGELES
Dodd-Frank Title VII
CFTC Implementation
Northern Trust Presentation
N Howell – September 12, 2012
NEW YORK
PALO ALTO
SAN FRANCISCO
SHANGHAI
SINGAPORE
SYDNEY
TOKYO
WASHINGTON, D.C.
Overview
• Overall CFTC implementation status
• Clearing mandate
• End user exemption
• Phased compliance
• Exchange trading mandate
• Reporting
• Recordkeeping/retention
Status of DFA Implementation
• SEC is stuck in a holding pattern
• DFA effective July 21, 2011 (unless…)
• CFTC Order (expires October 12, 2012)
• CFTC has finalized 80%+ of rulemaking
• Compliance dates depend on each rulemaking
• CFTC has yet to finalize capital/margin rules or crossborder rules
Overview of Mandated Clearing
• No mandatory clearing until CFTC issues a mandate
• Any mandate must follow a notice and comment
period
• Once issued, a clearing mandate only applies to those
swaps that fit within the four corners of the mandate
• To date, no clearing mandate issued
CFTC Clearing Proposal
• CFTC has proposed to mandate clearing of several
interest rate swaps and index CDS
• Comment period has ended
• Unclear when CFTC will issue the mandate, but likely
soon
• Once mandated, clearing will be phased in
CFTC Phased Compliance Rules
• Cat 1 – Cat 1: 90 days
• Cat 2 – Cat 1 or 2: 180 days
• All others: 270 days
• Does not apply to swaps in which one of the parties
relies on the end-user clearing exemption
Phased Compliance Categories
• Category 1: swap dealer, SBS dealer, MSP, MSBSP,
active fund
• Category 2: commodity pool, private fund, 4(k)
entities (excl. third-party subaccounts)
• Active Fund: private fund that is not a third-party
subaccount, 200 or more swaps per month over
trailing 12 months
• Third-party subaccount: acct. managed by
independent manager resp. for clearing
documentation
End-User Clearing Exemption
• Section 2(h)(7) of CEA
• No mandatory clearing if:
– Not a “financial entity”
– Using the swap to hedge or mitigate commercial risk
(broadly defined)
– Notice to CFTC of how it meets financial obligations
assoc. with non-cleared swaps
• Clearing becomes optional
Financial Entities
• Swap dealer, SBS dealers
• MSPs, MSBSPs
• Commodity pools
• Private funds
• Employee benefit plans (whether or not subject to
ERISA)
• BHCA 4(k) entities
Exceptions to Financial Entity Definition
• Financing affiliates – primary business of providing
financing; uses swaps for hedging commercial risks
relating to rates or forex, 90% or more of which arise
from financing the purchase or sale of products, 90%
or more of which are mf. by parent or another sub
• Certain small regulated financial institutions ($10
billion or less in assets)
Exchange Trading Mandate
• If subject to mandatory clearing, must also be traded
on a regulated futures market or a SEF
• Exception if no futures market or SEF makes the
swap “available to trade”
• Rules for SEFs not yet final
• Rules on “available to trade” not yet final
Reporting
• Reporting obligations follow a waterfall
• Dealers > MSPs > End-users
• Dealers will principally be responsible for reporting
swap data
• Certain swap data will be made publicly available
Recordkeeping and Retention
• Extensive records required to be kept by all trading
parties
• Type of data depends on when the swap was entered
into
• Retention for life of the swap plus 5 years
World Offices
BEIJING
GENEVA
NEW YORK
SYDNEY
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China
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BRUSSELS
NEO Building
Rue Montoyer 51 Montoyerstraat
B-1000 Brussels
Belgium
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HONG KONG
Level 39
Two Int’l Finance Centre
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Central, Hong Kong
T: 852.2509.7888
F: 852.2509.3110
HOUSTON
One South Dearborn
Chicago, Illinois 60603
T: 312.853.7000
F: 312.853.7036
JPMorgan Chase Tower
600 Travis Street
Suite 3100
Houston, Texas 77002
T: 713.315.9000
F: 713.315.9199
DALLAS
LONDON
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Suite 3400
Dallas, Texas 75201
T: 214.981.3300
F: 214.981.3400
Woolgate Exchange
25 Basinghall Street
London, EC2V 5HA
United Kingdom
T: 44.20.7360.3600
F: 44.20.7626.7937
CHICAGO
FRANKFURT
Taunusanlage 1
60329
Frankfurt am Main
Germany
T: 49.69.22.22.1.4000
F: 49.69.22.22.1.4001
LOS ANGELES
555 West Fifth Street
Los Angeles, California 90013
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F: 213.896.6600
PALO ALTO
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Building 1
Palo Alto, California 94304
T: 650.565.7000
F: 650.565.7100
SAN FRANCISCO
555 California Street
San Francisco, California 94104
T: 415.772.1200
F: 415.772.7400
SHANGHAI
Suite 1901
Shui On Plaza
333 Middle Huai Hai Road
Shanghai 200021
China
T: 86.21.2322.9322
F: 86.21.5306.8966
SINGAPORE
6 Battery Road
Suite 40-01
Singapore 049909
T: 65.6230.3900
F: 65.6230.3939
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London, Hong Kong, Houston, Singapore and Sydney, is affiliated with other partnerships, including Sidley Austin LLP, an Illinois limited liability partnership (Chicago);
Sidley Austin (NY) LLP, a Delaware limited liability partnership (New York); Sidley Austin (CA) LLP, a Delaware limited liability partnership (Los Angeles, San Francisco,
Palo Alto); Sidley Austin (TX) LLP, a Delaware limited liability partnership (Dallas, Houston); Sidley Austin LLP, a separate Delaware limited liability partnership (London);
Sidley Austin LLP, a separate Delaware limited liability partnership (Singapore); Sidley Austin, a New York general partnership (Hong Kong); Sidley Austin, a Delaware
general partnership of registered foreign lawyers restricted to practicing foreign law (Sydney); and Sidley Austin Nishikawa Foreign Law Joint Enterprise (Tokyo). The
affiliated partnerships are referred to herein collectively as Sidley Austin, Sidley, or the firm.
TOKYO
Sidley Austin Nishikawa
Foreign Law Joint Enterprise
Marunouchi Building 23F
4-1, Marunouchi 2-chome
Chiyoda-Ku, Tokyo 100-6323
Japan
T: 81.3.3218.5900
F: 81.3.3218.5922
WASHINGTON, D.C.
1501 K Street N.W.
Washington, D.C. 20005
T: 202.736.8000
F: 202.736.8711
NORTHERN TRUST
Thank you for participating in
today’s webinar
Please contact Jud Baker at 312-444-7102 or jb193@ntrs.com regarding any additional questions.
Today’s webinar was recorded and the replay will be sent to all invitees by the end of this week. Please feel free to share with
your colleagues.
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Derivatives Regulation: Dodd-Frank and Its Implications for the Buy-Side