Sutherland Alert: CFTC Issues Sixth Series of Proposed Rules Under Dodd-Frank Including Rules to Further Define Swap Entities December 2, 2010

by The Sutherland Regulatory Reform Task Force Team

The Commodity Futures Trading Commission (CFTC) issued its sixth series of proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) at an open meeting held yesterday, Wednesday, December 1, 2010. The proposed rules:

  • Further define the terms "swap dealer," "major swap participant" and "eligible contract participant."
  • Amend existing rules and establish new rules to govern the trading and execution of swaps on designated contract markets (DCMs).
  • Establish reporting, recordkeeping, public information and information requirements for derivatives clearing organizations (DCOs).
  • Establish reporting, recordkeeping and daily trading records requirements for swap dealers and major swap participants.
  • Amend CFTC regulations to clarify procedures to be followed by DCOs, as well as to streamline the DCO application process and the process by which DCOs submit rules to permit portfolio margining of futures and securities in a futures account.

During yesterday's meeting CFTC Chairman Gary Gensler again emphasized the important role that public comments play in the rulemaking process. In particular, Chairman Gensler encouraged members of the public to participate in a public roundtable on capital and margin requirements scheduled for December 10, 2010. Chairman Gensler posed a series of questions about capital and margin that he would like the public to address during the roundtable, revealing his personal view about margin in the process. According to Chairman Gensler, uncleared swaps entered into between financial entities pose more risk to the financial system than those where one of the parties is a non-financial entity. Chairman Gensler's comments seem to suggest the possibility of a broad end-user exemption with respect to capital and margin requirements for uncleared over-the-counter swaps.

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