AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

Dodd-Frank Act Title VII

On 17 July 2010, US President Obama enacted the Dodd-Frank Act into law. Title VII of the Dodd-Frank Act creates new requirements for the trading, clearing and reporting of the details of swap and security-based-swap contracts. 

Implementation of Title VII is divided among the Commodity Futures Trading Commission (CFTC), which is responsible for the regulation of swaps, and the Securities and Exchange Commission (SEC), which is responsible for the regulation of security-based-swaps. 

Clearing 

Under the Dodd-Frank Act certain derivatives that have traditionally been traded over-the-counter will now be required to be cleared through a derivatives clearing organization (DCO) or clearing agency and derivatives contracts deemed unsuitable for clearing will be subject to increased margin and capital requirements.

The SEC and CFTC are charged with making the determination regarding which of the Dodd-Frank categories, types and groups of swaps will be subject to clearing requirements. Swaps are required to be cleared through a DCO and security-based swaps through a clearing agency.

The CFTC has already issued its first mandatory clearing requirement with respect to certain interest rate and credit default swaps (so-called ‘covered swaps’). Category I entities (swap dealers, major swap participants, security-based swap dealers, major security-based swap dealers and active funds (200 swaps per month)) will be required to clear covered swaps entered into on or after 11 March 2013. Category 2 entities (commodity pools, private funds other than active funds, and financial entities (including entities predominantly engaged in activities that are in the business of banking or activities that are financial in nature)) will be required to clear covered swaps entered into on or after 10 June 2013. All other entities will be required to clear covered swaps entered into on or after 9 September 2013. Covered Swaps entered into by counterparties that fall within different counterparty categories will be subject to the later of the two applicable compliance dates.

Cross-border application of CFTC and SEC rules

The Dodd-Frank Act provides for the application of both its swap and security-based swap provisions to apply cross-border activities when certain conditions are met. The manifestation of the CFTC and SEC’s interpretation of the relevant sections of the Dodd-Frank Act which relate to the cross-border reach of their respective rules, can be seen in various pieces of rule-making and guidance, including:

  • the SEC Proposed Rules and Guidance that would apply to cross-border security-based swap transactions (issued 1 May 2013, comments due by 21 August 2013); and
  • the CFTC Final Guidance and an Exemptive Order that would apply to cross-border swap transactions (issued 12 July 2013).

Key legislative documents

Dodd-Frank Wall Street Reform and Consumer Protection Act 2010

CFTC Dodd-Frank Final Rulemaking

SEC Dodd-Frank Final Rulemaking

CFTC No-Action Letters


Consultations and AIMA documents

CFTC Dodd-Frank Proposed Rulemakings

SEC Proposed Rulemakings

 

Recent activities:

 

Cross-border swaps

AIMA Request to CFTC for Time Limited Relief for EMIR Covered Funds (October 2013)

AIMA/MFA submission - Cross-Border Exemptive Order (August 2013)

AIMA/MFA submission - cross-border swaps rules (August 2013)

AIMA submission - EU/US dialogue on cross-border regulation of OTC derivatives (August 2013)

CFTC Exemptive Order on cross-border swaps (July 2013)

AIMA Paper - addressing overlaps between EMIR and CFTC OTC derivatives regulation(May 2013)

SEC Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security Based Swap Participants (May 2013)

AIMA MFA Joint Response on CFTC Further Proposed Guidance Regarding Compliance with Certain Swap Regulations  (February 2013)

AIMA MFA Joint Response - CFTC Proposed Interpretive Guidance on Cross-Border Application of Certain Swaps Provisions – AIMA & MFA joint response (August 2012)

 

Margin and Segregation rules

AIMA Response - SEC Staff’s requirements for a customer margin regime for the cleared CDS portfolio margin program (December 2013)

AIMA Response - SEC Staff Requirements for Approving Individual BD/FCM Margin Methodologies for the CDS Customer Portfolio Margin Program(September 2013)

AIMA Response - Request for Action by the SEC and CFTC to Improve Coordination and to Facilitate Portfolio Margining for Customers in the Cleared CDS Market (May 2013)

AIMA Response - CFTC enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations - AIMA Response (February 2013)

CFTC Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations (November 2012)

AIMA Response - SEC Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers (February 2013)

SEC Proposed capital, margin, and segregation requirements for security-based swap dealers and major security-based swap market participants (October 2012) 

 

Swap Data Reporting

AIMA-MFA Response - CFTC Review of Swap data reporting and recordkeeping requirements (May 2014)

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