Imminent Dodd-Frank Compliance Issues for Users of Swaps and Derivatives

22 February 2013 Publication
Author(s): David M. Reicher Kathryn M. Trkla

Legal News Alert: Finance & Financial Institutions

Implementation of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) affecting users of swaps and derivatives has been moving forward. Numerous rules of the Commodity Futures Trading Commission (CFTC) require compliance actions and changing business practices between now and early June 2013. For example:
  • If a borrower or issuer entered into an interest rate swap in connection with a loan or a bond issue prior to July 21, 2010, which expired (or remained in place) on or after July 21, 2010, it has recordkeeping responsibilities requiring compliance by April 10, 2013. Swaps done on or after July 21, 2010 have increasing levels of recordkeeping requirements.
  • If a lender or an investment bank provided swaps in connection with loans or bond issues described above or later, it likely has detailed reporting requirements as well as recordkeeping requirements requiring compliance by April 10, 2013 (earlier if it is a swap dealer or a major swap participant).
  • If an entity uses inter-affiliate derivatives transactions (including both financial and nonfinancial entities), it has detailed recordkeeping and reporting requirements for both historical and current swaps and derivatives requiring compliance by April 10, 2013 (or earlier depending on the entity).
  • Depending on the nature of an entity’s business, it may be required to use clearing (instead of bilateral contracting) of interest rate swaps and credit derivatives entered into on or after March 11, June 10, or September 9, 2013. Using clearing requires understanding the clearing process and the parties involved, and entering into new contractual arrangements. Even if a user meets an exception to mandatory clearing, reporting rules may apply and, if it is a public company, board committee action may be required.
  • A user’s swap dealer counterparties may stop doing business with it on May 1, 2013 if it does not amend certain agreements governing their relationship.

These are only examples. Users of swaps and derivatives for risk management, such as FX and commodities derivatives, face similar compliance requirements.

Past and present users of swaps and derivatives should be evaluating the impact of these CFTC rules and required compliance actions.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss the topic further, please contact your Foley attorney or the following:

David M. Reicher
Milwaukee, Wisconsin

Kathryn M. Trkla
Chicago, Illinois

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