september, 2011 the dodd-frank wall street transparency and reporting act – title vii impact on...
TRANSCRIPT
September, 2011
THE DODD-FRANK
WALL STREET TRANSPARENCY
AND REPORTING ACT – TITLE VII
IMPACT ON OTC DERIVATIVES
Dodd-Frank Act Title VII – OTC Derivatives 2
Confused About Dodd-Frank?
Can’t Tell Barney From Chris?
• The Dodd-Frank Wall Street Transparency and Accountability Act will have significant impact on the regulation and transparency of OTC derivatives trading
• Within the many components of Dodd-Frank, Title VII impacts the OTC derivatives in five key areas:– Regulatory oversight/jurisdiction– Registration of swaps industry participants– Central clearing/elimination of counterparty risk– Execution via exchange or swap execution facility– Real-time public reporting of swaps data.
Dodd-Frank Act Title VII – OTC Derivatives 3
Background – Dodd-Frank Title VII Focus – OTC Derivatives
• Regulatory Oversight / Jurisdiction:– Dodd-Frank Title VII empowers the CFTC and SEF to oversee
swaps products– The SEC will oversee security based swaps (SBS)– The CFTC will oversee everything else (e.g., credit, interest
rates, commodities)– Both agencies will harmonize their rules as best as possible.
Dodd-Frank Act Title VII – OTC Derivatives 4
Background (Cont’d) …
• Registration of Swaps Industry Participants:– Dodd-Frank Title VII establishes several new regulatory
designation for swaps industry participants:– Broker-dealers that make markets in swap products must
register as Swaps Dealers (SD) with the CFTC, SEC or both, depending on what swaps products are traded
– Major Swaps Participants (MSP) are firms that have substantial positions in swaps, or multiple counterparties (e.g., large asset managers).
Dodd-Frank Act Title VII – OTC Derivatives 5
Background (Cont’d) …
• Central Clearing / Elimination of Counterparty Risk:– Those swap products deemed by regulators to require clearing
must be submitted to a Derivatives Clearing Organization (DCO) – Swaps will be guaranteed by clearinghouses to eliminate
exposure to counterparty risk– Not all swaps products will be eligible for clearing– Major swaps clearing houses include: CME Clearing, ICE Clear
Credit, LCH. ClearNet, Eurex Clearing, International Derivatives Clearing Group, New York Portfolio Clearing.
Dodd-Frank Act Title VII – OTC Derivatives 6
Background (Cont’d) …
• Execution via Exchanges or Swap Execution Facilities:– Cleared swaps transactions in the US must be traded on a
registered trading venue– Registered trading venues include Designated Contract Markets
(DCM), or Swap Execution Facilities (SEF)– Inter-dealer brokers, trading platform providers, exchanges and
clearing houses may most likely establish a SEF designation– Platform providers and interdealer brokers that will offer SEFs
include Bloomberg TradeBook, BGC, Currenex, FXALL, GFI, ICAP, MarketAxess, TradeWeb, Traditon, Tullett Prebon.
Dodd-Frank Act Title VII – OTC Derivatives 7
Background (Cont’d) …
• Real-Time Public Reporting of Swaps Data:– The CFTC and SEC require real-time, public reporting of
transaction data for swaps traded on exchanges or SEFs that are subject to mandatory clearing requirements
– Real-time reporting is expected to create improved price transparency (e.g., last sale data, swaps economic terms etc.)
– Reporting must be as soon as is technologically practicable – Swap trade data will be reported to Swap Data Repositories
(SDR)– CreditEx, DTCC, ISDA, TriOptima will register to become SDRs.
Dodd-Frank Act Title VII – OTC Derivatives 8
Background (Cont’d) …
• There are a number of aspects of Dodd-Frank Title VII that will impact operations and technology at firms that trade and clear OTC derivatives transactions:– Broker-dealers– Futures commission merchants– Asset management firms– Hedge funds– End-user organizations.
Dodd-Frank Act Title VII – OTC Derivatives 9
Dodd-Frank – Operational and Technology Impacts
• Operational and technology impacts can include:– Central clearing of OTC transactions– Bi-lateral margining of positions– Segregation of client collateral– Transaction reporting to counterparties, Swap Data
Repositories, regulators– Record keeping / record retention– Execution via Swap Execution Facilities– Sales/trading – business conduct changes and compliance
oversight– Legal documentation changes – client and counterparty
agreements.
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D-F - Operational and Technology Impacts (Cont’d) …
• Dodd-Frank – Title VII Timeline:
Dodd-Frank Act Title VII – OTC Derivatives 11
D-F - Operational and Technology Impacts (Cont’d) …
Dodd-Frank Impact Area Timeline:
Swap Dealer Registration Q4 2011
Central Clearing Q2 2012
Bi-Lateral Margining Q1 2012 / Q2 2012
Transaction Reporting / Record Keeping Q4 2011
Execution via SEFs Q2 2012
Sales/Trading Compliance Q4 2011 / Q2 2012
Legal Documentation Q3 2011 / Q2 2012
Dodd-Frank Act Title VII – OTC Derivatives 12
Still Confused About Dodd-Frank?
I’m Chris, He’s Barney ….
Tellefsen and Company, L.LC.1-212 809 3800
Dodd-Frank Act Title VII – OTC Derivatives 13
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