ISDA and Markit Unveil Compliance Service08.15.2012
Ahead of an Oct. 15 compliance deadline with major Dodd-Frank rules, the International Swaps and Derivatives Association (ISDA) and Markit have launched a technology-based initiative that automates the information-gathering process, and provides sharing of submitted data and documents to counterparties.
Called ISDA Amend, the new compliance service will make use of the Markit Document Exchange platform to facilitate the secure sharing of numerous documents with a multitude of counterparties electronically.
“ISDA and Markit have developed a tool to support the process of amending documentation involving OTC derivatives, a required by the Dodd-Frank Act,” said Eric Maldonado, managing director at Markit.
The CFTC’s external business conduct rules, which have an Oct. 15 compliance date, impose new obligations on swap dealers in a range of areas, focusing on enhanced customer protection.
Swap dealers must sign amendments to their ISDA documentation with impacted swap counterparties to become compliant with these Dodd-Frank rules.
Major dealers may have in excess of 10,000 counterparties with whom they have signed Master Agreements, and many end-users may be counterparties with multiple dealers. This creates significant levels of legal and administrative complexity and the potential for duplication of efforts as firms attempt to comply with the new rules.
Although the direct impact of the business conduct rules is on swap dealers and major swap participants, counterparties are also affected.
“It’s not the case that regulatory requirements can be met by simply relying on swap dealers to apply new procedures governing their own activities,” said Jeffrey Robins, partner at Cadwalader, Wickersham & Taft. “The buy side is required actively and affirmatively to do things in preparation for trading after Oct. 15.”
SDs and MSPs are required to obtain information and “must conduct intrusive diligence on their counterparties, unless the counterparty provides adequate representations and certain safe harbors are used,” said Robins.
“Parties should prepare now to ensure that trading can continue uninterrupted,” he said.
ISDA’s Dodd-Frank Documentation Initiative will provide a standard set of amendments, in the form of protocols, to facilitate updating of existing swap relationship documentation for Dodd-Frank compliance.
The first such protocol, launched on Monday and formally titled “ISDA August 2012 DF Protocol,” is a “multilateral contractual amendment mechanism” that allows swap market participants to simultaneously amend multiple ISDA Master Agreements for the purpose of facilitating compliance with Dodd-Frank regulatory requirements, such as external business conduct rules, and rules on position limits, large trader reporting for physical commodity swaps, real-time reporting of swap transaction data, and swap data recordkeeping and reporting requirements.
The protocol consists of a series of amendments to existing documentation, as well as standardized questionnaires that must be completed by counterparties to satisfy new regulations.These questionnaires must be delivered to each relevant counterparty for the amendments and compliance to be effective.
To facilitate these bilateral delivery requirements, ISDA and Markit launched ISDA Amend.
“With ISDA Amend, swap dealers and their clients can amend and share multiple ISDA master agreements with a single online tool, ensuring compliance with new Dodd-Frank business conduct rules,” said Maldonado.
ISDA envisions the possibility for multiple protocols to the extent future final rules may require documentation amendments. ISDA also expects to conduct similar reviews for documentation changes mandated by legislative developments in other countries and regions as these develop.
ISDA survey shows variety of views on whether increased clearing would improve resilience and efficiency.
Crypto derivatives need central clearing to become a major asset class.
Clients can agree collateral on a real-time basis and increase efficiencies.
Margin and collateral are a new use case for bond ETFs.
Additional volatility due to unforeseen macro events, particularly the conflict in Ukraine, were contribers.