A number of Dodd-Frank compliance deadlines are quickly approaching for all users of swap contracts. By April 10, 2013, all swap counterparties must obtain a "legal entity identifier," currently known as the "CFTC Interim Compliant Identifier" or "CICI." Commodity Futures Trading Commission (CFTC) regulations require that the CICI be used for swap data recordkeeping as well as swap data reporting.
Each counterparty entering into or modifying a swap with a swap dealer or major swap participant ("MSP") on or after May 1, 2013, must adhere to the ISDA August 2012 Dodd-Frank Protocol or enter into similar contractual terms. Each counterparty must also enter into a second Dodd-Frank protocol, known as DF Protocol 2.0, by July 1, 2013.
Mandatory clearing for certain interest rate and credit default swaps is also nearing. On June 10, 2013, mandatory clearing for certain interest rate and index credit default swaps begins for all "Category 2 Entities" (generally, financial end users other than third-party subaccounts). Mandatory clearing of these swaps for non-financial end users, ERISA plans, and third-party subaccounts begins September 9, 2013. In order to enter into cleared swaps, a party must establish a relationship with one or more futures commission merchants and negotiate appropriate documentation by the applicable compliance date.
Legal Entity Identifier
CFTC regulations require that each party to a swap use its LEI, or CICI, in both swap data recordkeeping and swap data reporting. To comply, each swap counterparty, including a party that is not a swap dealer or major swap participant, and a party that is not required to report swap data, must obtain an LEI, or CICI, by April 10, 2013. The CICI must be included in recordkeeping and reporting for swaps in effect on or after April 25, 2011.
A swap counterparty may obtain a CICI through the CICI Utility at http://www.ciciutility.org. If another party, such as a swap dealer, previously obtained a CICI for a counterparty through third-party registration without the counterparty's explicit permission, the counterparty must self-certify the CICI data record before April 10, 2013. An entity that obtained a CICI through self-registration or assisted registration with permission need not self-certify.
Each swap counterparty must maintain its own CICI after issuance, keeping its reference data current and accurate, and re-certifying the data annually. This applies to an entity that obtains its CICI through self-registration, assisted registration with permission, or third party registration.
For more information about the CICI Utility, see CICI Guidance on Registration and Certification.
ISDA Dodd-Frank Protocols
On May 1, 2013, the CFTC’s external business conduct rules and certain other rules relating to swap reporting and recordkeeping become applicable to swap dealers and MSPs. On and after that date, a swap dealer or MSP may not legally enter into new swaps with a counterparty, or materially modify existing swaps, unless the swap dealer is in compliance with these rules. The ISDA August 2012 DF Protocol is intended to permit a swap dealer or MSP to receive certain information from, and to satisfy certain obligations to, its counterparties, in order to comply with these rules. Accordingly, on or after May 1, 2013, swap dealers and MSPs will require any counterparty that seeks to enter into or modify a swap to adhere to the ISDA August 2012 Dodd-Frank Protocol or enter into similar contractual terms.
- Overview of the ISDA August 2012 Dodd-Frank Protocol
- Dodd-Frank Insight Webinar Series: Swap Compliance for US and Non-US End-Users, a webinar addressing the ISDA August 2012 Dodd-Frank Protocol
On July 1, 2013, the CFTC’s internal business conduct rules become applicable to swap dealers. These rules include swap trading relationship documentation requirements, and confirmation and portfolio reconciliation and compression rules, among others. The ISDA March 2013 Dodd-Frank Protocol, or DF Protocol 2.0, is intended to permit a swap dealer to comply with these rules. Swap dealers will require that their counterparties adhere to DF Protocol 2.0 prior to trading on or after this compliance date.
The CFTC’s first clearing mandate, relating to certain interest rate and index credit default swaps, becomes applicable to commodity pools, private funds, and certain other financial end users, but not third-party subaccounts, on June 10, 2013, and non-financial end users, ERISA plans, and third-party subaccounts on September 9, 2013. Swap market participants entering these types of swaps after the relevant compliance date will have to clear the swaps through a CFTC-regulated clearinghouse, except in the case of certain inter-affiliate swaps and swaps entered into by a non-financial end-user that can and does avail itself of the end-user exception to mandatory clearing. Clearing will require each party to post initial margin and variation margin to the clearinghouse, even if its prior uncleared swap arrangements did not require margin posting. In order to enter into cleared swaps, a counterparty must negotiate and enter into a suite of documentation with one or more futures commission merchants, including a futures and options agreement and related documentation.