Alert April 02, 2013

ISDA Releases Second Dodd-Frank Protocol

The International Swaps and Derivatives Association (“ISDA”) released the ISDA March 2013 Dodd-Frank Protocol, also known as “DF Protocol 2.0,” which became open for adherence on March 22, 2013.  Like its predecessor, the ISDA August 2012 Dodd-Frank Protocol (the “August Protocol”), DF Protocol 2.0 is intended to facilitate compliance with certain CFTC Dodd-Frank rulemaking by providing an efficient and standardized way of amending swap documentation to make changes responsive to the new rules. 

DF Protocol 2.0 is intended to address the requirements of three rules finalized in the latter half of 2012, too late to be covered by the August Protocol.  More specifically, DF Protocol 2.0 addresses the end-user exception to the clearing requirement for swaps (discussed in the July 17, 2012 Financial Services Alert), the clearing requirement determination that mandates clearing for certain classes of interest rate swaps and credit default swaps (discussed in the December 4, 2012 Financial Services Alert), and the rule entitled “Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants” (discussed in the September 4, 2012 Financial Services Alert).

The structure of DF Protocol 2.0 is similar to that of the August Protocol.  The Protocol Agreement defines the overall structure of DF Protocol 2.0 and includes common terms, representations, and agreements.   The DF Protocol 2.0 Supplement includes several schedules containing additional representations and agreements that adhering parties may elect to make.  Adhering parties must also complete and deliver to each of their counterparties a Protocol Questionnaire, which, among other things, provides certain identifying and contact information, identifies whether the adhering party falls into certain regulatory categories established in the Commodity Exchange Act and in CFTC regulations, and specifies whether the adhering party wishes to avail itself of certain exceptions or exemptions from the applicable CFTC rules.  As with the August Protocol, ISDA Amend, an online portal, may be used to automate the exchange of information and documents between counterparties.  Institutions that wish to adhere to DF Protocol 2.0 must submit an Adherence Letter to ISDA along with a one-time fee of $500. 

DF Protocol 2.0 is independent of the August Protocol.  Adherence to the August Protocol does not imply or require adherence to DF Protocol 2.0 (and vice versa).  Market participants that have chosen to adhere to one protocol should consider whether they wish to adhere to the other protocol as well, to the extent it is applicable.