The Dodd-Frank derivatives rules have been a long-time coming, but rest assured they are coming. According to this great primer I just received from Jones Day, in-house counsel will need to begin to address reporting, recordkeeping, and clearing requirements by early 2013 so it’s time to get up to speed. Here is an excerpt:
So—you are in-house counsel to a company that, either occasionally or on a regular basis, enters into swaps. Perhaps you’re hedging interest rate or currency risk, or maybe you’re even using derivatives to address credit risk on some of your major customers. You’ve been hearing a lot about “Dodd-Frank,” but you’re not sure whether it will affect you—after all, you haven’t seen too many changes in the two years since Dodd-Frank was enacted. Is there anything you really need to know?
Unfortunately, the answer to that question is “yes.” The development and publication of final rules implementing the derivatives provisions of Dodd-Frank have taken longer than Congress anticipated, but we are finally entering the home stretch. You will start seeing changes to swap documentation within the next few months, and you will need to begin to address reporting, recordkeeping, and clearing requirements by early 2013.
Dodd-Frank took the derivatives market from an effectively unregulated market (at least for entities that qualified as “eligible contract participants”) to a regime in which virtually all swaps are regulated by either the Commodity Futures Trading Commission (the “CFTC”) or the Securities and Exchange Commission (the “SEC”). Some swaps (called “mixed swaps”) will actually be regulated by both regulators. Eventually, many swap transactions will have to be cleared through central clearinghouses and traded on designated contract markets, on swap execution facilities, or on national securities exchanges rather than being executed bilaterally as they are today. This shift will be phased in over time as the CFTC and SEC designate particular types of swaps for clearing, and the change will result in a major shift in how swaps are negotiated and executed. Importantly, however, the law and the regulations issued by the CFTC with respect to swaps regulated by the CFTC contain an exception to the clearing and trading mandates for swaps executed by “end-users” under certain circumstances.
Click here for the complete Jones Day article - Dodd-Frank Derivatives 101: What In-House Counsel Needs to Know Now