THE DODD-FRANK
WALL STREET TRANSPARENCY
AND REPORTING ACT – TITLE VII
IMPACT ON OTC DERIVATIVES
September, 2011
Confused About Dodd-Frank?
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Dodd-Frank Act Title VII – OTC Derivatives
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Background – Dodd-Frank Title VII
Focus – OTC Derivatives
• The Dodd-Frank Wall Street Transparency and
Accountability Act will have significant impact on the
regulation and transparency of OTC derivatives trading
• Within the many components of Dodd-Frank, Title VII
impacts the OTC derivatives in five key areas:
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Regulatory oversight/jurisdiction
Registration of swaps industry participants
Central clearing/elimination of counterparty risk
Execution via exchange or swap execution facility
Real-time public reporting of swaps data.
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Background (Cont’d) …
• Regulatory Oversight / Jurisdiction:
– Dodd-Frank Title VII empowers the CFTC and SEF to oversee
swaps products
– The SEC will oversee security based swaps (SBS)
– The CFTC will oversee everything else (e.g., credit, interest
rates, commodities)
– Both agencies will harmonize their rules as best as possible.
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Background (Cont’d) …
• Registration of Swaps Industry Participants:
– Dodd-Frank Title VII establishes several new regulatory
designation for swaps industry participants:
– Broker-dealers that make markets in swap products must
register as Swaps Dealers (SD) with the CFTC, SEC or both,
depending on what swaps products are traded
– Major Swaps Participants (MSP) are firms that have substantial
positions in swaps, or multiple counterparties (e.g., large asset
managers).
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Background (Cont’d) …
• Central Clearing / Elimination of Counterparty Risk:
– Those swap products deemed by regulators to require clearing
must be submitted to a Derivatives Clearing Organization (DCO)
– Swaps will be guaranteed by clearinghouses to eliminate
exposure to counterparty risk
– Not all swaps products will be eligible for clearing
– Major swaps clearing houses include: CME Clearing, ICE Clear
Credit, LCH. ClearNet, Eurex Clearing, International Derivatives
Clearing Group, New York Portfolio Clearing.
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Background (Cont’d) …
• Execution via Exchanges or Swap Execution Facilities:
– Cleared swaps transactions in the US must be traded on a
registered trading venue
– Registered trading venues include Designated Contract Markets
(DCM), or Swap Execution Facilities (SEF)
– Inter-dealer brokers, trading platform providers, exchanges and
clearing houses may most likely establish a SEF designation
– Platform providers and interdealer brokers that will offer SEFs
include Bloomberg TradeBook, BGC, Currenex, FXALL, GFI,
ICAP, MarketAxess, TradeWeb, Traditon, Tullett Prebon.
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Background (Cont’d) …
• Real-Time Public Reporting of Swaps Data:
– The CFTC and SEC require real-time, public reporting of
transaction data for swaps traded on exchanges or SEFs that
are subject to mandatory clearing requirements
– Real-time reporting is expected to create improved price
transparency (e.g., last sale data, swaps economic terms etc.)
– Reporting must be as soon as is technologically practicable
– Swap trade data will be reported to Swap Data Repositories
(SDR)
– CreditEx, DTCC, ISDA, TriOptima will register to become SDRs.
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Dodd-Frank –
Operational and Technology Impacts
• There are a number of aspects of Dodd-Frank Title VII
that will impact operations and technology at firms that
trade and clear OTC derivatives transactions:
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Broker-dealers
Futures commission merchants
Asset management firms
Hedge funds
End-user organizations.
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D-F - Operational and Technology Impacts (Cont’d) …
• Operational and technology impacts can include:
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Central clearing of OTC transactions
Bi-lateral margining of positions
Segregation of client collateral
Transaction reporting to counterparties, Swap Data Repositories,
regulators
Record keeping / record retention
Execution via Swap Execution Facilities
Sales/trading – business conduct changes and compliance
oversight
Legal documentation changes – client and counterparty
agreements.
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D-F - Operational and Technology Impacts (Cont’d) …
• Dodd-Frank – Title VII Timeline:
Dodd-Frank Impact Area
Timeline:
Swap Dealer Registration
Q4 2011
Central Clearing
Q2 2012
Bi-Lateral Margining
Q1 2012 / Q2 2012
Transaction Reporting / Record Keeping
Q4 2011
Execution via SEFs
Q2 2012
Sales/Trading Compliance
Q4 2011 / Q2 2012
Legal Documentation
Q3 2011 / Q2 2012
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Still Confused About Dodd-Frank?
I’m Chris, He’s Barney ….
Dodd-Frank Act Title VII – OTC Derivatives
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Call Us for the Roadmap
Tellefsen and Company, L.LC.
1-212 809 3800
JJR@Tellefsen.com
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