Swaps

FSA Investigating Mis-selling of Swaps to SMEs

On 23 May 2012, the Treasury Select Committee published a press release on correspondence between its chairman, Andrew Tyrie, and Lord Turner, chair of the FSA, and Sir Nicholas Montagu, Financial Ombudsman Service (FOS) chairman, on the potential mis-selling of interest rate swap products to small businesses by major banks. In his letter, Lord Turner stated that the FSA is “doing more work to understand…the types of products that have been sold” and that if the FSA finds “widespread evidence” of breaches of its rules or mis-selling it “will take action”. Press Release and Correspondence.

CFTC Rule on Aggregation for Position Limits for Futures and Swaps

On May 18, the CFTC approved a proposed rule that would modify the aggregation provisions for limits on futures and swaps. The proposed rule would permit any person with greater than 10% ownership or equity interest in an entity to disaggregate the owned entity’s positions, provided that protections and firewalls are in place to ensure trading decisions are made independently from one another. CFTC Release.

CFTC Vote on Dodd-Frank Indemnification and Confidentiality Provisions

On May 1, the CFTC voted to issue a proposed interpretative statement to clarify that, in certain instances, foreign regulators are exempt from requirements under the Dodd-Frank Act to enter into confidentiality and indemnification agreements with Swap Data Repositories in connection with its access to swap data.  Comments may be submitted for 30 days from publication in the Federal Register.  CFTC Release.

 

Exemptions for Security-Based Swaps

On March 30, the SEC issued final rules adopting exemptions for certain security-based swaps under the Securities Act (other than the Section 17(a) anti-fraud provisions), the Securities Exchange Act, and the Trust Indenture Act.  Exempt security-based swaps must be issued by certain clearing agencies and satisfy certain conditions.  The final rules are effective April 16.  Final Rules.

Effective Date of Swaps Pushout Provision

On March 30, the FDIC, Fed, and OCC issued guidance clarifying that the effective date of Section 716 of the Dodd-Frank Act (known as the Swaps Pushout provision) is July 16, 2013. Section 716 prohibits the provision of Federal assistance to any entity defined under that section to be a swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity.  Joint Release.  Guidance.

CFTC No-Action Letter on Reporting

On March 22, the CFTC issued a letter to market participants providing temporary and conditional no-action relief for less than fully compliant reporting under the CFTC’s large trader reporting system for physical commodity swaps and swaptions.  This relief is intended to give sufficient time for the industry and the CFTC to have fully compliant reporting by July 2.  CFTC Release.

Rating Agency Developments – Week of February 13, 2012

On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.

On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.

On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.

On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.

CFTC and SEC Report on International Swap Regulation

On January 31, pursuant to section 719(c) of the Dodd-Frank Act, the CFTC and the SEC delivered a report to Congress on international swap regulation. The report: (i) describes the regulatory framework for OTC derivatives in the Americas, EU and Asia; (ii) analyzes the similarities and differences across jurisdictions; (iii) discusses potential areas for harmonization; and (iv) makes recommendations for next steps. Joint Report.

CFTC Final Rules on Business Conduct Standards for Swap Dealers and Major Swap Participants

On January 11, the CFTC adopted final business conduct standards rules for swap dealers and major swap participants dealing with counterparties, which: (i) prohibit certain abusive practices; (ii) require disclosure of material information; and (iii) require due diligence relating to dealings with counterparties. CFTC Release.

CFTC Final Rule on Protection of Cleared Swaps Customer Contracts and Collateral

On January 11, pursuant to Section 724(a) of the Dodd-Frank Act, the CFTC adopted a final rule regarding the protection of cleared swaps and collateral belonging to cleared swaps customers of futures commission merchants (FCMs). The CFTC adopted the Legally Segregated Operationally Commingled Model (LSOC Model, or Complete Legal Segregation Model), which provides that: (i) pre-bankruptcy, cleared swaps collateral of all FCM cleared swaps customers may be kept together in one account, but the FCM’s own property must be kept segregated and (ii) post-bankruptcy, the collateral of one cleared swaps customer may not be used to cover the obligations of another cleared swaps customer or the FCM. CFTC Release. CFTC Final Rule.