• CFTC ADOPTS FINAL RULE ON MANDATORY CLEARING OF DERIVATIVES: The Commodities Futures Trading Commission (CFTC) has adopted a final rule regarding the process for the mandatory clearing of derivatives on clearinghouses. The rule establishes procedures for the review of swaps to determine which derivatives should be cleared on a clearinghouse. However, in spite of many comments urging the CFTC to set forth a process by which such a determination will be made by the CFTC, the CFTC has declined to do so in this final rule. The CFTC notes that it expects “that the initial mandatory clearing determinations would only involve swaps that are either already being cleared or that a [derivatives clearing organization] (DCO) wants to clear” and that once it makes those determinations, the CFTC “will be in a better position to assess that portion of the swaps market that remains uncleared.” The rule envisions a process by which DCOs submit swaps to the CFTC for a clearing determination, and a CFTC-initiated process that reviews swaps that remain uncleared. The CFTC does note that it will utilize the same criteria for assessing swaps regardless of whether the swaps are submitted to the CFTC by a DCO or whether the CFTC has initiated its own review of an uncleared swap. The review process will include a 30-day public comment period on any swap that is submitted for review by a DCO or for which a review is initiated by the CFTC. Additionally, if the CFTC determines that a swap must be cleared, the counterparty to the swap may ask for a stay of the clearing requirement while the CFTC reviews the issues raised by the counterparty relating to the clearing of the swap. The CFTC’s final determination after a stay will be made within 90 calendar days. This rule becomes effective September 26, 2011 and can be viewed by clicking the following link.
  • IRS ADOPTS TEMPORARY REGULATION TO PROTECT BUY-SIDE DERIVATIVES PARTIES: The IRS has just released a temporary regulation protecting buy-side parties to swaps and other derivatives from gain or loss recognition when the bank or broker-dealer counterparty assigns its position under the swap to another dealer or novates the contract to a clearinghouse. Novations to clearinghouses will be mandatory after the provisions of the Dodd-Frank legislation are fully implemented. This temporary regulation substantially expands a regulation that was finalized in 1998. For more information on this temporary regulation, please view the White Paper prepared by Mark Leeds describing this new regulation, which is effective immediately.
  • CFTC AND SEC STAFFS TO HOST PUBLIC ROUNDTABLE TO ADDRESS INTERNATIONAL ISSUES RELATING TO DERIVATIVES REGULATION UNDER DODD-FRANK: On August 1, 2011 at 9:00 a.m. EST, the staffs of the CFTC and SEC will conduct a joint public roundtable to discuss various international issues pertaining to the implementation of derivatives regulation and address the considerable industry and public concerns relating to these extra territorial application of the Dodd-Frank derivatives rules. Members of the public may submit comments on the topics addressed during the roundtable and are invited to attend on a first-come, first-served basis or to dial in to hear these discussions. The panelists have not yet been announced, but a full agenda, along with dial-in information for those who would like to listen by telephone and instructions on how to submit comments to the panel, is available here.  
  • FINRA EXTENDS INTERIM PILOT PROGRAM ON CDS MARGIN REQUIREMENTS: The Financial Industry Regulatory Authority (FINRA) extended the implementation of its interim pilot program on the margin requirements for credit default swaps transactions executed by a member. This program is now scheduled to expire on January 17, 2012. In its regulatory notice, FINRA mentioned that it has already approved the use of margin methodology of the Chicago Mercantile Exchange, and has also approved the use of margin methodology of ICE Trust (although pending further review by FINRA). In addition, FINRA may consider whether to possibly replace the interim pilot program with a “permanent comprehensive rule” on the margin requirements for all swaps and security-based swaps executed by a member. A copy of the FINRA regulatory notice is available here.