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Commodity Futures Trading Commission Extends Compliance Date for Dodd-Frank Protocol

Insight Robin Powers Robin Powers · December 19, 2012

Commodity Futures Trading Commission Extends Compliance Date for Dodd-Frank Protocol to May 1, 2013 in Order to Give Market Participants Additional Time to Adhere. Buy side market participants received a holiday gift from the Commodity Futures Trading Commission (“CFTC”) - compliance deadlines for the business conduct and documentation rules (the “Business Conduct Rules“) related to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), have now been delayed until May 1, 2013. These Business Conduct Rules have been obliging end users to enter into the ISDA August 2012 DF Protocol or otherwise amend their swap documents by the end of the year.

Yesterday, the CFTC released interim final rules to extend the deadline for swap dealers (“SDs”) and major swap participants (“MSPs”) to comply with many provisions of the Business Conduct Rules including the rules that require counterparty agreement or the exchange of information with counterparties.

Specifically, the interim final rules extend until May 1, 2013 the compliance date for (i) disclosures of material risks, characteristics and incentives, including disclosure of the pre-trade mid-market mark and scenario analysis, (ii) clearing disclosures, (iii) the requirement to make counterparty suitability determinations with respect to swap recommendations or swap trading strategies, and (iii) the provisions relating to Special Entities (ERISA entities, municipalities, etc). The May 1, 2013 compliance date also applies to SD and MSP documentation of end-user clearing exemption and records indicating that the SD or MSP has notified its counterparty of an address for complaints. The current compliance deadlines continue to apply to provisions of the external business conduct rules relating to (i) prohibitions on fraud, manipulation and abusive practices, (ii) disclosure of a daily mark, (iii) fair dealings in communications, and (iv) reasonable diligence to understand the risk/benefit associated with swap recommendations or swap trading strategies.

The delayed compliance deadline is in response to a request from the International Swaps and Derivatives Association, Inc. (“ISDA”). ISDA stated that the deferrals were necessary to facilitate a smooth transition to the new regulatory regime and avoid market disruptions and reduced liquidity.