June 10th marks the day on which many "Category 2 Entities" will be required to centrally clear certain credit default index and interest rate swaps.  Unlike the Category 1 implementation date - which only involved swap dealers with the operational infrastructure required to process cleared swaps -  the June 10th implementation date will affect thousands upon thousands of market participants with varying degrees of operational capabilities and limitations.  The affected participants will include non-swap dealer banks that use interest rate swaps to manage the risks of routine commercial lending activity, as well as the vast majority of mutual funds and hedge funds that trade the types of swaps to which the clearing mandate applies. 

At the present time, we are receiving a relatively unprecedented number of inquiries as to whether or not the June 10th implementation date applies to a particular type of market participant or swap and, if so, what effects the June 10th implementation will have on business and investment operations. 

By way of example, we continue to receive inquiries as to the types of swaps that will be subject to the June 10th clearing mandate. In other cases, market participants understand the scope of the central clearing mandate, but are hurriedly putting clearing and execution documentation into place, so that they can run operational testing to ensure that trading processes will function as intended on June 10th.  We also continue to receive calls on a daily basis from clients who have not yet started to negotiate clearing and execution documentation.  We have no way of knowing how many trading relationships "remain to be papered," but expect that it is not an immaterial segment of the Category 2 universe of market participants. 

Finally, we have spoken with several market participants who have documentation in place and have already conducted their operational testing, but are deeply concerned that June 10th will cause disruptions in the trading of the contracts that are subject to central clearing due to the sheer volume of market participants that will be affected on June 10th. 

Together, this mix of information does not seem to point to a Category 2 implementation that will be as seamless as the Category 1 implementation in March 2013. 

Accordingly, we believe that now is the time to defer the June 10th Category 2 implementation date.  Having said that, we also believe that Category 2 market participants that are ready to clear should start doing so as soon as possible.  In short, we believe that both regulators and market participants have a responsibility to do what they can to avoid a "mad rush to clearing," and the potential adverse consequences that could result if many market participants are, in fact, not ready for central clearing on June 10th.