Posts Tagged ‘Swaps entities’

SEC’s Cross-Border Derivatives Rule

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday July 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Dan Ryan, Chairman of the Financial Services Regulatory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication.

The SEC provided the “who” but not much else in its final rule regarding cross-border security-based swap activities (“final rule”), released at the SEC’s June 25, 2014 open meeting. Although most firms have already implemented a significant portion of the CFTC’s swaps regulatory regime (which governs well over 90% of the market), the SEC’s oversight of security-based swaps means that the SEC’s cross-border framework and its outstanding substantive rulemakings (e.g., clearing, reporting, etc.) have the potential to create rules that conflict with the CFTC’s approach. The impact that the SEC’s regulatory framework will have on the market remains uncertain, but the final rule at least begins to lay out the SEC’s cross-border position.

…continue reading: SEC’s Cross-Border Derivatives Rule

Defining Dealers and Major Participants in the Cross-Border Context

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Sunday June 29, 2014 at 9:00 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Dealers and major participants play a crucial role in the derivatives market, a market that has been estimated to exceed $710 trillion worldwide, of which more than $14 trillion represents transactions in security-based swaps. In the United States, the Commodity Futures Trading Commission (“CFTC”) and the SEC share responsibility for regulating the derivatives market. Out of the total derivatives market, the SEC is responsible for regulating security-based swaps. As evidenced in the most recent financial crisis, the unregulated derivatives market had devastating effects on our economy and U.S. investors. In response to this crisis, Congress enacted the Dodd-Frank Act and directed both the CFTC and SEC to promulgate an effective regulatory framework to oversee the derivatives market.

…continue reading: Defining Dealers and Major Participants in the Cross-Border Context

CFTC Provides Streamlined No-Action Relief Filing Procedure

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday June 21, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Carolyn A. Jayne, partner in the Investment Management, Hedge Funds and Alternative Investments practice at K&L Gates LLP, and is based on a K&L Gates publication by Ms. Jayne, Cary J. Meer, and Lawrence B. Patent; the complete publication, including footnotes, is available here.

The Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (“CFTC” or the “Commission”) recently issued CFTC Letter No. 14-69 (May 12, 2014) (the “Letter”), which provides to certain commodity pool operators (“CPOs”) who delegate (the “Delegating CPO”) their CPO responsibilities to registered CPOs (the “Designated CPO”) a standardized, streamlined approach to apply for no-action relief from the requirement to register as a CPO. The Division previously has granted no-action relief to many Delegating CPOs on an individualized basis. However, the Division recently has seen a substantial increase in the number of no-action requests after the rescission of the CPO exemption from registration in Regulation 4.13(a)(4) and the adoption of a broad definition of the types of swaps subject to CFTC regulation. This streamlined approach will eliminate the need for many, but not all, Delegating CPOs to apply for individualized no-action relief, a more labor-intensive and time-consuming endeavor. However, this approach is available only under certain circumstances described below, and not all Delegating CPOs will qualify.

…continue reading: CFTC Provides Streamlined No-Action Relief Filing Procedure

Segregation of Initial Margin Posted in Connection with Uncleared Swaps

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday April 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Leigh R. Fraser, partner and co-head of the hedge funds group at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Ms. Fraser, Isabel K.R. Dische, and Molly Moore.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and Commodity Futures Trading Commission (“CFTC”) Rules 23.702 and 23.703 thereunder (together, the “Rules”), swap dealers are required to notify their counterparties that they have the right to require segregation with a third-party custodian of any initial margin (also known as “independent amounts”) posted to the swap dealer in connection with uncleared swaps. As a result of these new rules, the International Swaps and Derivatives Association (“ISDA”) recently published a form of notification and a set of frequently asked questions regarding these rules. All buy-side entities that trade in uncleared swaps with swap dealers (including buy-side entities that already post their margin with a third-party custodian, such as registered investment companies, and buy-side entities that do not post initial margin) should receive a copy of the notification from their swap dealer counterparties in the coming weeks or months and should plan to respond promptly to the notification in order to avoid any trading disruptions.

…continue reading: Segregation of Initial Margin Posted in Connection with Uncleared Swaps

Why the Market Should Care About Proposed Clearing Agency Requirements

Editor’s Note: Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on an article by Ms. Nazareth and Jeffrey T. Dinwoodie that first appeared in Traders Magazine.

On March 12, the SEC issued a 400-page rule proposal that, if adopted as proposed, would impose a multitude of new compliance requirements on The Options Clearing Corporation (“OCC”), The Depository Trust Company (“DTC”), National Securities Clearing Corporation (“NSCC”), Fixed Income Clearing Corporation (“FICC”) and ICE Clear Europe. Since these clearing agencies play a fundamental role in the options, stock, debt, U.S. Treasuries, mortgage-backed securities and credit default swaps markets, the proposed requirements have important implications for banks, broker-dealers and other U.S. securities market participants, as well as securities exchanges, alternative trading systems and other trading venues.

…continue reading: Why the Market Should Care About Proposed Clearing Agency Requirements

Dodd-Frank Rules Impact End-Users of Foreign Exchange Derivatives

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday April 3, 2014 at 9:13 am
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Editor’s Note: The following post comes to us from Michael Occhiolini, partner focusing on corporate finance, corporate law and governance, and derivatives at Wilson Sonsini Goodrich & Rosati, and is based on a WSGR Alert memorandum. The complete publication, including annexes, is available here.

This post is a summary of certain recent developments under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that impact corporate end-users of over-the-counter foreign exchange (FX) derivative transactions and should be read in conjunction with the four prior WSGR Alerts on Dodd-Frank FX issues from October 2011, September 2012, February 2013, and July 2013.

Title VII of Dodd-Frank amended the Commodity Exchange Act (CEA) and other federal securities laws to provide a comprehensive new regulatory framework for the treatment of over-the-counter derivatives, which are generally defined as “swaps” under Section 1a(47) of the CEA. Among other things, Dodd-Frank provides for:

…continue reading: Dodd-Frank Rules Impact End-Users of Foreign Exchange Derivatives

CFTC Issues Cross-Border Substituted Compliance Determinations

Posted by Annette L. Nazareth, Davis Polk & Wardwell LLP, on Tuesday January 28, 2014 at 9:14 am
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Editor’s Note: Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Davis Polk client memorandum. The complete publication, including appendices, is available here.

Just one day in advance of the December 21, 2013 expiration of the CFTC’s exemptive order delaying the applicability of some CFTC swap regulations for non-U.S. swap dealers and foreign branches of U.S. swap dealers, the CFTC approved a series of comparability determinations. These comparability determinations will allow CFTC-registered non-U.S. swap dealers and foreign branches of U.S. swap dealers to comply with local requirements rather than the corresponding CFTC rules in cases where substituted compliance is available under the CFTC’s cross-border guidance. [1] The CFTC made comparability determinations for some swap dealer entity-level requirements for Australia, Canada, the European Union (the “EU”), Hong Kong, Japan and Switzerland and for a limited number of transaction-level requirements for the EU and Japan.

…continue reading: CFTC Issues Cross-Border Substituted Compliance Determinations

CFTC Issues Guidance Regarding Cross-Border Swaps

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday August 16, 2013 at 8:47 am
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Editor’s Note: The following post comes to us from Joshua Cohn, partner focusing on Derivatives & Structured Products at Mayer Brown LLP, and is based on a Mayer Brown legal update. The complete publication, including footnotes and appendices, is available here.

On July 12, 2013, the US Commodity Futures Trading Commission (“CFTC”) approved the issuance of an interpretive guidance and policy statement (the “Guidance”) regarding the cross-border application of the swaps provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Although the CFTC may continue to refine its approach to the cross-border regulation of swaps, the Guidance is intended to finalize the proposed interpretive guidance and policy statement issued on July 12, 2012 (the “Proposed Guidance”). Like the Proposed Guidance before it, the Guidance represents the CFTC’s attempt to meet its statutory mandate to (1) regulate swaps that “have a direct and significant connection with activities in, or effect on, commerce of the United States” and (2) prevent the evasion of the swaps provisions of the Dodd-Frank Act.

In brief, the Guidance: (1) defines “US person” and “non-US person,” which are key for applying the CFTC’s extraterritorial framework; (2) establishes the calculation and aggregation methodologies used for determining whether non-US persons engage in swap transactions at levels that trigger swap dealer (“SD”) or major swap participant (“MSP”) registration; (3) categorizes “Entity-Level Requirements” and “Transaction-Level Requirements” and describes their extraterritorial application; (4) discusses the “substituted compliance” framework; and (5) describes the requirements applicable to nonregistered swap participants (“Non-Registrants”).

The CFTC also issued an exemptive order (the “Order”) that effectively provides for the phased implementation of certain aspects of the Guidance. The Order, in many respects, builds upon relief granted in prior CFTC exemptive orders.

…continue reading: CFTC Issues Guidance Regarding Cross-Border Swaps

Cross-Border at the Crossroads: The SEC’s “Middle Ground”

Posted by John Ramsay, U.S. Securities and Exchange Commission, on Saturday June 1, 2013 at 9:58 am
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Editor’s Note: John Ramsay is acting director of the Division of Trading and Markets at the U.S. Securities and Exchange Commission. This post is based on Mr. Ramsay’s remarks at the New York City Bar Association, available here. The views expressed in the post are those of Mr. Ramsay and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.

I’d like to describe the Commission’s recent set of proposals on the cross-border regulation of derivatives. First, though, I’ll describe the state of play among international regulators, both in developing their derivatives regimes and in grappling with the thorny cross-border aspects of derivatives trading.

Status of International Regulatory Efforts

Countries are at various stages of implementing their derivatives regimes in response to the G20 commitments.

The U.S. is further along in this effort. The SEC has now proposed substantially all of the rules required by Title VII, and we have adopted the foundational definitional rules and those governing swap clearing agencies standards, among others. The CFTC is further along in the adoption mode and is on track to complete the adoption of their rules later this year.

Other jurisdictions are further behind, which means that it is difficult to assess at this point how similar their requirements may be to those that the U.S. is implementing.

…continue reading: Cross-Border at the Crossroads: The SEC’s “Middle Ground”

SEC Publishes Proposed Rules Regarding Cross-Border Security-Based Swap Transactions

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday May 24, 2013 at 9:21 am
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Editor’s Note: The following post comes to us from Robert Buckholz, partner and co-coordinator of the Corporate and Finance Group at Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication.

Yesterday the Securities and Exchange Commission (“SEC”) proposed rules and interpretive guidance regarding the application of the U.S. regulatory regime to cross-border security-based swap (“SBS”) transactions. The proposals also address the impact of cross-border SBS transactions on the registration obligations of security-based swap dealers (“SBSDs”), major security-based swap participants (“MSBSPs”), SBS clearing agencies, SBS execution facilities and SBS swap data repositories (“SDRs”).

The proposed rules also would establish a framework of “substituted compliance” under which certain participants in the SBS market may comply with non-U.S. regulatory regimes that the SEC determines to be comparable with U.S. requirements, in lieu of the rules that would otherwise apply to these participants. The proposed rules will be open for comment for 90 days after the date of their publication in the Federal Register.

The SEC separately voted to reopen, for 60 days, the comment period for all rules relating to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) that are not yet final. This 60-day comment period also applies to the related SEC policy statement describing the expected order for these rules to take effect.

The proposing release is more than 600 pages long and requests public comment on numerous topics. This post provides a preliminary outline of a few key aspects of the proposals. We will publish a more detailed memorandum on the proposed rules and interpretive guidance shortly.

…continue reading: SEC Publishes Proposed Rules Regarding Cross-Border Security-Based Swap Transactions

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