Alert October 11, 2011

CFTC Issues Proposals Regarding Compliance Timetables for Requirements Relating to Swap Trading Relationship Documentation, Margin for Uncleared Swaps and Swap Clearing and Trade Execution

The CFTC issued two rule proposals regarding the timing of compliance with various requirements regarding swap trading and clearance under the Dodd-Frank Act and its implementing rules.  The first proposal addresses the compliance timetables for (1) proposed rules regarding swap trading relationship documentation that swap dealers (“SDs”) and major swap participants (“MSPs”) must execute with counterparties and (2) proposed rules regarding margin requirements that apply to SDs and MSPs that are not banks with respect to swaps not cleared by a registered derivatives clearing organization.  In the expectation that certain types of counterparties may need additional time to comply with the new requirements once adopted, the CFTC proposes to group counterparties into four different categories which will be assigned compliance dates of 90, 180 and 270 days after final rules defining the applicable requirements are published in the Federal Register.  The proposal notes that its implementation is contingent on the finalization of other pending rule proposals.

The second CFTC proposal addresses the clearing requirement for swaps under Section 2(h)(1)(A) of the Commodity Exchange Act (the “CEA”) and the trade execution requirements for swaps under Section 2(h)(8)(A) of the CEA.   For reasons similar to those discussed above with respect to the first rule proposal, the CFTC proposes to group counterparties into three different categories which could, at the CFTC’s discretion, be assigned compliance dates with respect to the Section 2(h)(1)(A) clearing requirement of 90, 180 and 270 days after the CFTC determines that a new group, category, type or class of swaps must be cleared; the corresponding trading execution requirement would be triggered by the later of the compliance date for the clearing mandate or 30 days after the relevant swap is available for trading on either a swap execution facility or a designated contract market.  The CFTC would make the decision whether or not to implement a compliance timetable in connection with its mandatory clearing determination, and would base its decision on the considerations outlined in the CFTC’s proposing release.  The proposal notes that the CFTC will need to finalize pending rule proposals regarding its mandatory clearing determination process and related matters before it begins making mandatory clearing determinations.

Comments on both proposals must be submitted no later than November 4, 2011.