We previously noted certain matters that needed to be completed by May 1, 2013 for those entities engaged in derivatives transactions to allow swap dealers to comply with the CFTC’s External Business Conduct Rule. In addition, there are two other ISDA protocols that derivative market participants should be familiar with at this time.
The ISDA March 2013 Protocol, also referred to as the DF Protocol 2.0, is intended to facilitate industry compliance with three final rulemakings by allowing market participants to:
- supplement the terms of existing written agreements under which parties may execute swaps, or
- enter into an agreement to apply selected Dodd-Frank compliance provisions to their trading relationship in respect of swaps.
The DF Protocol 2.0 adds notices, representations and covenants responsive to Dodd-Frank requirements that must be satisfied at or prior to the time that swap transactions are offered and executed. Also, the DF Protocol 2.0 includes additional bilateral delivery requirements, including a Protocol Questionnaire, to allow counterparties to make certain elections related to their swap trading relationship under Dodd-Frank.
The Protocol is intended to address the requirements of the following CFTC final rules:
- Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants;
- End-User Exception to the Clearing Requirement for Swaps; and
- Final Rule, Clearing Requirement Determination Under Section 2(h) of the CEA.
As a result of recent regulatory reforms, including rules implemented under the Dodd-Frank Act, parties will have to comply with the relevant reporting requirements for derivative transactions. However, the same parties may also be subject to contractual, statutory, regulatory or other legal limitations (under non-disclosure, confidentiality, bank secrecy or other laws) under other laws applicable to them which could prohibit the disclosure of the relevant information. To facilitate compliance with their reporting obligations while addressing these disclosure limitations, the Protocol contains a counterparty’s consent to the disclosure of information. However, the consent language in the Protocol may not be sufficient to fully address any applicable disclosure limitations or otherwise. Satisfaction of additional disclosure requirements, if any, will have to be met on a bilateral basis.