derivative transactions

SEC Adopted a New Rule Allowing Registered Funds to Enter Into Derivative Transactions


On October 28, the Securities and Exchange Commission (SEC) adopted a new rule 18f-4 under the Investment Company Act of 1940 allowing registered funds to enter into derivative transactions, provided they comply with certain conditions intended to protect investors. The rule will become effective 60 days after publication with an 18-month transition period for compliance with the provisions and related reporting requirements. Release.

ISDA Publishes EMIR Frontloading Additional Termination Event Amendment Agreement

On June 12, 2015, ISDA published its EMIR Frontloading Additional Termination Event Amendment Agreement and an accompanying explanatory memorandum. The amendment agreement allows parties to an ISDA Master Agreement to amend the agreement to incorporate a new additional termination event covering frontloading.

Frontloading refers to the requirement for certain derivative transactions to be cleared in accordance with the clearing obligation under EMIR where the transactions are entered into during a given period before the clearing obligation takes effect. According to ISDA, in such cases, if clearing is not possible by the time the clearing obligation takes effect, the only way the parties can avoid breach of the frontloading requirement (or stop a breach that has occurred from continuing) is to terminate the problem contract. The amendment agreement provides the required termination right, thereby reducing the risk of regulatory breach faced by market participants subject to frontloading.

OCC Lending Limit Rule

On June 20, the OCC adopted an interim final rule amending its lending limit rule to apply to certain credit exposures from derivative transactions and securities financing transactions. Effective July 21, Section 610 of the Dodd-Frank Act revises the definition of loans and extensions of credit for the lending limit to include certain credit exposures from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim final rule adopted by the OCC implements this statutory change which applies to both national banks and savings associations. Comments on the interim final rule are due by August 6. OCC Release. Rule.