12.20.2011
By Terry Flanagan

CFTC Extends Dodd-Frank Deadline

Compliance with some swap provisions of Title VII extended until July 16, 2012.

The Commodity Futures Trading Commission has extended the deadline for compliance with some of the swap execution and clearing provisions of the Dodd-Frank Act until July 16, 2012, providing the derivatives industry with breathing space for the changeover.

It’s the second such extension that the CFTC has granted. In July 2011, just as the Dodd-Frank provisions were set to kick in, it extended the deadline to Dec. 31, 2011.

Industry groups have objected to a specific “sunset date” for the expiration of the temporary exemptive relief.

Sifma stated that the Commission should instead provide exemptive relief that lasts on a provision-by-provision basis until related substantive requirements of the Dodd-Frank Act are implemented, as the SEC provided for in its parallel relief order.

Sifma said that avoiding the imposition of a sunset date would allow the Commission to adopt its rules in a logical order that provides market participants with legal certainty.

After proposing all of the key rules under Title VII, the SEC intends to consider publishing a detailed implementation plan in order to enable it to move forward with the roll-out of the new securities-based swap requirements in the most efficient manner.

Sifma also reiterated its request that the CFTC provide a comprehensive rulemaking schedule and implementation plan, as well as clear positions on the extraterritorial scope of Title VII.

ISDA suggested that the CFTC designate a minimum 90-day review period after finalization of the entire framework, with implementation to follow.

Both the order of final rulemaking and the phase-in of regulations should reflect a “clear conceptual and definitional foundation upon which adequately precise rules can be layered,” it said.

In rejecting these proposals, the CFTC stated that it anticipates that additional rulemakings to implement Title VII will be completed during the extended period of exemptive relief between Dec. 31, 2011 and July 16, 2012. During this period, the Commission will also consider the appropriate phase-in of the various regulatory requirements under Dodd-Frank rulemaking.

The relief provided by the CFTC covers self-effectuating provisions (i.e., those that don’t require a rulemaking) that reference terms that require further definition, including sections of Title VII that impose segregation requirements upon swap dealers and major swap participants with respect to collateral for uncleared swaps.

Under a proposed rule, swap dealers and major swap participants must notify each counterparty at the beginning of a swap transaction that the counterparty has the right to require segregation of collateral and at the request of the counterparty, the SD or MSP must segregate such funds or other property with an independent third party.

The relief also covers transactions in exempt or excluded commodities (i.e., financial, energy and metals commodities) that were deemed subject to the CFTC’s Part 35 exemptive rules.

Part 35, which since 1993 has exempted from the CEA individually negotiated, non-standardized swap agreements between eligible swap participants, is to be eliminated on Dec. 31. The relief order expressly permits transactions that were exempted under Part 35 to remain exempt until July 16, 2012.

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