"CFTC Proposes Regulations On Swap Trading Relationship Documentation Requirements"

The CFTC in consultation with the SEC, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, recently proposed new regulations in two complementary notices of proposed rulemaking to implement statutory provisions under Title VII of the Dodd-Frank Act.  Section 731 of the Dodd-Frank Act added a new section 4s(i) to the CEA that requires the CFTC to prescribe standards for SDs and MSPs related to the timely and accurate confirmation, processing, netting, documentation and valuation of swaps.  Pursuant to this authority, the Proposed Regulations seek to establish swap trading relationship documentation requirements for SDs and MSPs.  They also propose parameters for the inclusion of an orderly liquidation termination provision in the swap trading relationship documentation.  The primary impact of the Proposed Regulations would be on derivative transactions that are not subject to the clearing requirements of the Dodd-Frank Act.

The SEC has not yet proposed any comparable trading relationship documentation requirements for security-based swaps.  If the SEC does not promulgate trading relationship documentation requirements on security-based swaps, the absence of such requirements will create a potentially significant regulatory disparity between security-based swaps subject to SEC jurisdiction and swaps subject to CFTC jurisdiction.

This Stroock Special Bulletin highlights the major provisions of the Proposed Regulations.