On November 19, 2010, the SEC issued proposed rules with respect to security-based swap data repository registration, duties, and core principles.

The proposed rules would establish registration procedures and conditions for registering as a security-based swap data repository (SB SDR). Under the proposed rules, applicants would be required to submit a Form SDR electronically to the SEC. Non-resident SB SDR applicants also would be required to provide an opinion of counsel that the SB SDR can, as a matter of law, provide the SEC with prompt access to its books and records and that the SB SDR can, as a matter of law, submit to onsite inspection and examination by the SEC.

SB SDRs will serve as secure, centralized recordkeeping facilities for security-based swap transaction and position data. As such, SB SDRs would be required to establish and enforce written policies and procedures with respect to data collection and maintenance. The proposed rules would require SB SDRs to maintain transaction data for not less than five years after the applicable security-based swap expires. Moreover, SB SDRs would be required to subject themselves to inspection and examination by the SEC. SB SDRs also would be required, upon request and after notice to the SEC, to make available, on a confidential basis to each appropriate prudential regulator, the Financial Stability Oversight Council (FSOC), the CFTC, the Department of Justice, the Federal Deposit Insurance Corporation and any other person that the SEC deems appropriate, including foreign financial supervisors, 10 Attorney Advertisement

foreign central banks and foreign ministries, all data obtained by the SB SDR, including individual counterparty trade and position data.

The proposed rules also would also implement the core principles set forth in Dodd-Frank relating to market access to services and data, governance and conflicts of interest, and would require each SB SDR to designate a chief compliance officer.

Click here for the proposed rules.

On November 19, 2010, the SEC issued proposed rules with respect to reporting and dissemination of security-based swap information.

Proposed Regulation SBSR would establish reporting and dissemination requirements with respect to security-based swaps. As a jurisdictional matter, no security-based swap will be subject to the reporting and dissemination requirements unless it has at least one counterparty that is a U.S. person, was executed in the United States, or was cleared through a clearing agency having its principal place of business in the United States.

For purposes of reporting any security-based swap to a SB SDR, Proposed Regulation SBSR allocates the reporting obligation as follows: (1) if only one counterparty is a U.S. person, the U.S. person would be the reporting party; (2) if both counterparties are U.S. persons, but only one counterparty is a security-based swap dealer or major security-based swap participant, the security-based swap dealer or major security-based swap participant would be the reporting party; (3) if both counterparties are U.S. persons, but one is a security-based swap dealer and the other is a major security-based swap participant, the security-based swap dealer would be the reporting party; (4) in all other situations where both counterparties are U.S. persons, the counterparties would be required to select a counterparty to be the reporting party; and (5) if neither counterparty is a U.S. person, but the security-based swap meets the jurisdictional test, the counterparties would be required to select a counterparty to be the reporting party.

Once the reporting party is determined, Proposed Regulation SBSR would require such party to report specific information about the security-based swap to the SB SDR (or, if no SB SDR would accept such information, to the SEC) either on a real-time basis or promptly, depending on the information. For security-based swaps entered into prior to the effective reporting date (i.e., six months after registration of a SB SDR), such information would be required to be reported to the extent available. Proposed Regulation SBSR also would require the reporting party to promptly report any "life cycle events," such as assignments or novations, partial terminations, or for non-cleared security-based swaps, changes to the collateral agreement, during the term of a security-based swap.

Immediately upon receipt from a reporting party of information relating to a security-based swap, except in the case of a block trade, a SB SDR would be required to publicly disseminate a transaction report of the security-based swap, where such report would consist of such reported information plus any indicator or indicators contemplated by the SB SDR's policies and procedures. For block trades, Regulation SBSR would permit delayed dissemination of the notional size. With respect to any security-based swap, however, Proposed Regulation SBSR would prohibit a SB SDR from disseminating the identity of either counterparty to a security-based swap, any information regarding a security-based swap entered into prior to the effective reporting date, or, for any non-cleared security-based swap, any information disclosing the business transactions and market positions of any person.

Click here the proposed rules.

On November 19, 2010, the CFTC issued proposed rules with respect to the protection of collateral of counterparties to non-cleared swaps and treatment of securities in a portfolio margining account in a commodity broker bankruptcy. 11 Attorney Advertisement

The proposed rules would require swap dealers and MSPs to notify each counterparty at the beginning of each non-cleared swap that such counterparty has the right to require that any initial margin that it provides in connection with the swap be segregated at an independent, third-party custodian. Note that the requirement would not apply to variation margin. The notification would be required to be made to the counterparty's chief risk officer or, if none, chief executive officer or, if none, highest-level decisionmaker. However, the proposed rules also would provide that notification to a particular counterparty by a swap dealer or MSP need only be made once in any calendar year. To the extent that a counterparty does not elect to have its initial margin so segregated, the chief compliance officer of the swap dealer or MSP would be required to report to the counterparty, on a quarterly basis, on whether the entity's back office procedures relating to margin and collateral requirements were, at any point during the previous calendar quarter, not in compliance with the agreement of the parties.

Separately, the proposed rules would make clear that, for purposes of Chapter 7 of the Bankruptcy Code, securities held in a portfolio margining account carried as a futures account would constitute "customer property" and the owner of such account would constitute a "customer."

Click here for the proposed rules.

On November 19, 2010, the CFTC issued proposed rules with respect to real-time public reporting of swap transaction data.

The proposed rules would implement a new framework for the real-time public reporting of swap transaction and pricing data for all swap transactions. As a general matter, the proposed rules would require a reporting party to report any executed swap, novation, swap unwind, partial novation or partial swap unwind, or post-execution event that affects the pricing of a swap (a reportable swap transaction) to a SDR or third-party service provider that accepts swap transaction and pricing data from multiple data sources and publicly disseminates such data in real-time (each, a real-time disseminator) as soon as technologically practicable.

For swaps executed on a SEF or DCM (a swap market), the reporting party would satisfy its reporting requirement simply by executing the reportable swap transaction on the swap market's trading system or platform and the swap market would be required to publicly disseminate all swap transaction and pricing data for such swaps as soon as technologically practicable after execution. The swap market would satisfy its public dissemination requirement by sending the swap transaction information to a real-time disseminator. Note, however, that if a swap market sends swap information to a third-party service provider, the swap market will not satisfy its public dissemination requirement until such information is publicly disseminated.

For swaps that are not executed on a swap market, the reporting party for such swaps would be required to report such swaps to a SDR as soon as technologically practicable after execution; however, if no SDR is available, the reporting party would be permitted to satisfy its real-time public reporting requirement by publicly disseminating the required data through a third-party service provider in the same manner that a swap market could. The proposed rules would allocate the reporting obligation as follows: (1) if only one party is a swap dealer or MSP, the swap dealer or MSP would be the reporting party; (2) if one party is a swap dealer and the other party is a MSP, the swap dealer would be the reporting party; (3) if the parties are either both swap dealers or both MSPs, the parties would be required to designate which party would be the reporting party; and (4) if neither party is a swap dealer or MSP, the parties would be required to designate which party (or its agent) would be the reporting party.

The proposed rules would further require that SDRs publicly disseminate swap transaction and pricing data as soon as technologically practicable upon receipt of such data. Moreover, to the extent that a swap market chooses to publicly disseminate swap transaction and pricing data through a third-party service provider, the swap market would be required, among other things, to ensure that the third-party service provider publicly disseminates the swap market's swap transaction and pricing data in a manner that complies with those standards for SDRs. In 12 Attorney Advertisement

any event, however, the proposed rules would prohibit any swap transaction and pricing data that is publicly disseminated from disclosing the identities of the parties to the swap.

The proposed rules also contain detailed provisions regarding block trades and large notional trades, including a time delay requirement for all swap transaction and pricing data for those trades.

Click here for the proposed rules.

On November 19, 2010, the CFTC issued proposed rules with respect to swap data recordkeeping and reporting requirements.

The proposed rules would apply to SDRs, DCOs, DCMs, SEFs, swap dealers, MSPs, and swap counterparties that are neither swap dealers nor MSPs (Non-SD/MSP Counterparties)

With respect to recordkeeping, the proposed rules would require all DCOs, DCMs, SEFs, swap dealers, and MSPs to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of such entities or persons with respect to swaps, as prescribed by the CFTC. A lesser, swap-specific standard would apply to Non-SD/MSP Counterparties, in that they would be required to keep full, complete, and systematic records, together with all pertinent data and memoranda, with respect to each swap in which they are a counterparty, including all required swap creation data and all required swap continuation data that they are required to report under the proposed rules. For SDRs, the requirement would be to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the SDR and all swap data reported to the SDR, as prescribed by the CFTC.

The proposed rules would require that all records that must be kept by DCOs, DCMs, SEFs, swap dealers, MSPs, and Non-SD/MSP Counterparties must be kept with respect to each swap from the date of the creation of the swap through a date at least five years from final termination thereof. For SDRs, the five-year post-termination recordkeeping requirement is a baseline, subject to a further period to be determined by the CFTC. Depending on the entity, the proposed rules would require that records be retrievable via real-time electronic access indefinitely, in the case of an SDR, or at the other end of the spectrum, within three business days throughout the period for which they are required to be kept, in the case of a Non-SD/MSP Counterparty.

The proposed rules also contain detailed provisions that would establish the general swap data reporting obligations of DCOs, DCMs, SEFs, swap dealers, MSPs, and Non-SD/MSP Counterparties to report swap data to SDRs. The provisions address the various reporting obligations, depending on whether a swap is or is not executed on a DCM or SEF and whether or not it is cleared on a DCO.

Click here for the proposed rules.

On December 1, 2010, the CFTC issued proposed rules with respect to reporting, recordkeeping, and daily trading records requirements for swap dealers and major swap participants.

The proposed rules would require swap dealers and MSPs to keep full, complete, and systematic records, together with all pertinent data and memoranda, of their swaps activities. The required records would include (1) records of each transaction, including daily trading records of all swaps the swap dealer or MSP executes, (2) records of each position held by the swap dealer or MSP, identified by product and counterparty and indicating whether the position is long or short and whether it is cleared, (3) records of each transaction executed on a SEF or DCM or cleared by a DCO, and (4) records of all activities related to the swap dealer's or MSP's business as such, including governance records, financial records, complaints, and marketing and sales materials. Transaction records would be required to be kept in a form and manner identifiable and searchable by transaction and counterparty, and 13 Attorney Advertisement

position records would be required to be linked to transaction records in a manner that would permit identification of the transactions that established the positions.

With respect to daily trading records, the proposed rules would require swap dealers and MSPs to maintain a vast amount of pre-execution, execution, and post-execution trade information. For example, pre-execution trade information would include, at a minimum, "records of all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and prices, that lead to the execution of a swap, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device, or other digital or electronic media." Swap dealers and MSPs also would be required to make and keep detailed ledgers of various cash flows and calculations of the value, exposure, and margin. The proposed rules also would require swap dealers and MSPs to make and keep daily trading records for related cash and forward transactions.

Click here for the proposed rules.

On December 1, 2010, the CFTC issued proposed rules for derivatives clearing organizations.

The proposed rules would make certain definitional and procedures amendments to the CFTC's rules relating to DCOs. In particular, the proposed rules would streamline the DCO application process by eliminating the 90-day expedited application review period, and also would clarify the procedures for submission by a DCO of rules in connection with the establishment of a portfolio margining program and the procedures for when a DCO requests a transfer of its DCO registration due to a corporate change.

With respect to DCO core principles, the proposed rules would implement Core Principles A, H, N, and R, relating to compliance, rule enforcement, antitrust considerations, and legal risk, respectively. It should be noted that the CFTC stated that this proposed rulemaking is one of a series of rulemakings that will, in their entirety, implement all 18 DCO core principles.

The proposed rules also would implement the requirements under Dodd-Frank relating to chief compliance officers of DCOs.

Click here for the proposed rules.

On December 1, 2010, the CFTC issued proposed rules with respect to information management requirements for derivatives clearing organizations.

The proposed rules would implement DCO Core Principles J, K, L, and M, relating to reporting, recordkeeping, public information, and information sharing, respectively. With respect to reporting requirements, the proposed rules would require DCOs, among other things, to compile at the end of each trading day and report to the CFTC by 10:00 a.m. the next business day (1) initial margin requirements and initial margin on deposit for each clearing member, (2) daily variation margin, separately listing the mark-to-market amount collected from (or paid to) each clearing member, (3) all other daily cash flows relating to clearing and settlement, and (4) end-of-day positions for each clearing member, in each case by customer origin and house origin.

Click here for the proposed rules.

On December 1, 2010, the CFTC issued proposed rules with respect to core principles and other requirements for designated contract markets.

The proposed rules would make substantial revisions and additions to Part 38 of the CFTC Regulations. In doing so, the proposed rules would implement Section 735 of Dodd-Frank, which eliminates the eight criteria for 14 Attorney Advertisement

designation as a DCM, amends many of the core principles, including incorporating many of the substantive provisions from the designation criteria, and adds five new core principles, and would reflect the new regulatory environment where swaps may be executed on a DCM.

Click here for the proposed rules.

On December 1, 2010 and December 7, 2010, the CFTC and SEC, respectively, approved joint proposed rules further defining "swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant," and "eligible contract participant."1

Under Dodd-Frank and the proposed rules, a "swap dealer" or "security-based swap dealer" is any person who (1) holds itself out as a dealer in swaps or security-based swaps, (2) makes a market in swaps, (3) regularly enters into swaps with counterparties as an ordinary course of business for its own account, or (4) engages in activity causing itself to be commonly known in the trade as a dealer or market maker in swaps. The proposed rules would narrowly implement the de minimis exception to the dealer definitions. Specifically, the exception would apply to a person and its swap dealing activity if (i) the swap positions into which the person enters during the immediately preceding 12 months have an aggregate gross notional amount of no more than $100 million (or $25 million with regard to "special entity" counterparties), (ii) the person has not entered into swaps in connection with those activities with more than 15 non-swap dealers during the immediately preceding 12 months, and (iii) the person has not entered into more than 20 swaps in connection with those activities during the immediately preceding 12 months. The proposed rules also would permit the CFTC and SEC to limit a person's designation as a swap dealer and security-based swap dealer, respectively, to specified categories of swaps or specified activities of the person in connection with swaps. With respect to swap dealers only, the proposed rules would clarify the carve-out from that definition for insured depository institutions offering to enter into swaps with customers in connection with origination loans with those customers. In order to qualify for the carve-out, the rate, asset, liability, or other notional item underlying the swap would have to be, or be directly related to, a financial term of the loan. Furthermore, the proposed rules would consider an insured depositary institution having originated a loan if it, among other things, directly transfers the loan amount to the customer, is part of a syndicate of lenders for the loan, or purchases or receives a participation in the loan.

Under the proposed rules, a "major swap participant" or "major security-based swap participant" is any person that is not a swap dealer and (1) that maintains a substantial position in swaps for any of the major swap categories,2 excluding positions held for hedging or mitigating commercial risk or positions maintained by an employee benefit plan for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan, (2) whose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets, or (3) that is a financial entity that (i) is highly leverage relative to the amount of capital such entity holds and that is not subject to capital requirements established by an appropriate Federal banking agency and (ii) maintains a substantial position in outstanding swaps in any major swap category. As in the case of swap dealers, the proposed rules would permit the CFTC and SEC to limit a person's designation as a MSP and major security-based swap participant, respectively, to specified categories of swaps or specified activities of the person in connection with swaps.

For the purpose of defining the term "substantial position," the proposed rules would employ a current uncollateralized exposure test and a potential future exposure test in determining the various thresholds applicable to the major swap categories. The two tests also would be used in defining the "substantial counterparty exposure" phrase, although the calculation of those tests would be based on all of a person's swap positions, rather than on any one major swap category.

The proposed rules also clarify when a swap position would be deemed to be held for the purpose of "hedging or mitigating commercial risk," although with some differences between the CFTC and SEC versions. For example, the CFTC version would recognize positions that qualify for the bona fide hedging exemption from position limits under the CEA or that qualify for hedging treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging (formerly known as Statement No. 133), and the SEC version would require the person relying on the exception to identify and document the risks that are being reduced by the security-based swap position, establish and document a method of assessing the effectiveness of the security-based swap as a hedge, and regularly assess the effectiveness of the security-based swap as a hedge.

The CFTC and SEC proposed and sought comment on two alternative ratios for the term "highly leveraged." Specifically, the agencies proposed that the term would mean that the ratio of an entity's total liabilities to equity would be greater than 8:1 or 15:1, measured at the close of business on the last business day of the applicable fiscal quarter.

Lastly, the proposed rules would further define the term "eligible contract participant" (ECP) by adding swap dealer, security-based swap dealer, MSP, and major security-based swap participant to the definition. The proposed rules also would clarify that certain types of commodity pools engaging in retail foreign currency transactions would not qualify as an ECP if one or more direct or indirect participants in the commodity pool is not an ECP.

Click here for the proposed rules.

On December 2, 2010, the SEC and CFTC issued a joint request for public comment with respect to the study mandated by Section 719(b) of Dodd-Frank.

Dodd-Frank mandates that the CFTC and SEC conduct a study on the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions that may be used to describe complex and standardized financial derivatives. Among other things, the study must examine the extent to which the algorithmic description, together with standardized and extensible legal definitions, could serve as the binding legal definition of derivative contracts. In connection with the study, the CFTC and SEC seek responses to a specific set of questions.

Click here for the request for comment.

On December 9, 2010, the CFTC issued interim final rules with respect to reporting certain post-enactment swap transactions.

The interim final rules establish a reporting obligation for swaps entered into after the enactment of Dodd-Frank but prior to the effective date of the swap data reporting and recordkeeping rule implemented under Section 2(h)(5)(B) of the CEA (transition swaps). The reporting obligation and guidance note under the interim final rules for transition swaps are essentially the same as the interim final rule for pre-enactment swaps that the CFTC adopted on October 1, 2010.

Click here for the interim final rules.

On December 9, 2010, the CFTC issued proposed rules with respect to business conduct standards for swap dealers and major swap participants with counterparties.

The proposed rules would establish business conduct standards for swap dealers and MSPs applicable to their dealings with counterparties, including "special entity" counterparties (i.e., Federal agencies, state and local governments or political subdivisions, employee benefit or governmental plans, and endowments). Such standards and duties would include, among other things, a "know your counterparty" requirement, verification of eligible contract participant status, and a duty to communicate with a counterparty in a fair and balanced manner based on principles of fair dealing and good faith. The proposed rules would apply to transactions in swaps, as wells as in connection with swaps that are offered but not entered into.

In addition, the proposed rules would require swap dealers and MSPs to disclose to their counterparties (other than swap dealers, MSPs, security-based swap dealers, or major security-based swap participants), at a reasonably sufficient time prior to entering into a swap, material information concerning the swap. Such disclosure would have to be in a manner reasonably designed to allow the counterparty to assess the material risks and characteristics of the particular swap and the material incentives and conflicts of interest that the swap dealer or MDP may have in connection with the swap. In its release, the CFTC stated that it anticipates that swap dealers and MSPs typically will rely on a combination of general and more particularized disclosures to satisfy this requirement. Nevertheless, the proposed rules would require swap dealers and MSPs to provide their counterparties with, in the case of a "high-risk complex bilateral swap" (a term which is not defined), a scenario analysis designed in consultation with the counterparty to allow the counterparty to assess its potential exposure under the swap. Moreover, swap dealers and MSPs would have to notify their counterparties of the right to receive such a scenario analysis prior to entering into a bilateral swap that is not available for trading on a DCM or SEF.

Click here for the proposed rules.

On December 15, 2010, the SEC issued proposed rules with respect to the SEC review process for mandatory clearing of security-based swaps.

The proposed rules would require any clearing agency that plans to accept for clearing a security-based swap, or any group, category, type, or class of security-based swaps, to submit to the SEC electronically on Form 19b-4 the information required by such form and under Rule 19b-4 and provide notice to its members of the submission. Any such security-based swap submission would be required to include information that will assist the SEC in the quantitative and qualitative assessment of the required factors under Dodd-Frank. Generally speaking, the SEC's proposed rules would require less information in a security-based swaps submission than would be required under the CFTC's comparable rules for DCOs seeking to clear swaps. As in the CFTC context, security-based swap submissions would be public, in that a clearing agency would be required to post its security-based swap submissions on its website within two business days after its submission to the SEC.

Although not expressly included in the proposed rules, Dodd-Frank requires the SEC to make a determination as to whether any security-based swap, or any group, category, type, or class of security-based swaps, is required to be cleared within 90 days after receipt of a complete security-based swap submission, subject to any extension agreed to by the clearing agency. In connection with any such determination, the proposed rules would require the SEC to take into account the factors addressed in the security-based swap submission, as well as any other factors that the SEC determines to be appropriate.

After making any determination with respect to mandatory clearing, the SEC may stay the application of such clearing requirement upon its own initiative or upon the application of a counterparty to an affected swap, pending a 90-day review period (as required under Dodd-Frank), subject to any extension agreed to by the clearing agency.

Separately, the proposed rules would require any clearing agency for which the SEC is the supervisory agency and that has been designated by the FSOC as systemically important or likely to become systemically important (designated clearing agency) to provide advance notice to the SEC of any proposed changes to its rules, procedures, or operations that could materially affect the nature or level of risks presented by such designated clearing agency.

Click here for the proposed rules.

On December 15, 2010, the SEC issued a proposed rule with respect to the end-user exception to mandatory clearing of security-based swaps.

In order for a non-financial end-user to avail itself of the exception to the mandatory clearing requirement under Dodd-Frank, such end-user must notify the SEC how it generally meets its financial obligations associated with entering into non-cleared security-based swaps. The proposed rule would establish the manner in which end-users provide such notice. Specifically, the end-user would be required to deliver (or cause to be delivered) to a SB SDR, among other things, the identity of the end-user relying on the clearing exception, whether it is a financial entity and whether it is using the security-based swap to hedge or mitigate commercial risk, and how it generally expects to meet its financial obligation associated with the security-based swap (e.g., through the use of a written credit support agreement, a written agreement to pledge or segregate assets, a written third-party guarantee, solely its available financial resources, or some other means).

It is noted in the release that the portion of the proposed rule that would have exempted certain institutions with total assets of $10 billion or less from the definition of "financial entity" is still under consideration by the SEC.

Click here for the proposed rule.

On December 16, 2010, the CFTC issued proposed rules with respect to confirmation, portfolio reconciliation, and portfolio compression requirements for swap dealers and major swap participants.

The proposed rules would establish requirements for swap confirmation, portfolio reconciliation, and portfolio compression for swap dealers and MSPs. Each of the three areas distinguishes between swap transactions between swap dealers and MSPs (institutional swaps) and swap transactions between a swap dealer or MSP and a non-swap dealer/non-MSP (customer swaps).

With respect to the confirmation requirements, counterparties to each institutional swap would be required to execute a confirmation within 15 minutes after execution (for swap transactions that are executed and processed electronically) and no later than the same calendar day as execution (for swap transactions that cannot be processed electronically). For each customer swap, swap dealers and MSPs would be required to send a written or electronic record of all of the terms of the customer swap (an acknowledgment) to their customers under the same timing requirements as for institutional swaps. The proposed rules also would require swap dealers and MSPs to establish, maintain, and enforce written policies and procedures reasonably designed to ensure that they execute confirmations of swap transactions with financial entities on the same calendar day as execution and confirmations of swap transactions with counterparties that are neither swap dealers, MSPs, nor financial entities not later than the next business day after execution. Furthermore, such procedures would be required to include a requirement that, prior to execution, a swap dealer or MSP either sends to, or receives from, its prospective counterparty a draft acknowledgment specifying all terms of the swap transaction, other than the applicable pricing and other relevant terms to be expressly agreed at execution.

With respect to the portfolio reconciliation requirements, swap dealers and MSPs would be required to engage in portfolio reconciliation for their institutional swaps. The proposed rules would permit portfolio reconciliation to 18 Attorney Advertisement

be performed on a bilateral basis or by a qualified third party but would require portfolio reconciliation to be performed no less frequently than (1) once each business day for each swap portfolio with 300 or more swaps, (2) once each week for each swap portfolio with more than 50 but fewer than 300 swaps, and (3) once each calendar quarter for each swap portfolio that includes no more than 50 swaps. Swap dealers and MSPs would be required to immediately resolve any discrepancy in a material term of a swap, and differences identified in a portfolio reconciliation between the lower valuation and the higher valuation of 10% or more would be required to be resolved between swap dealers and MSPs within one business day. For customer swaps, swap dealers and MSPs would need only to establish, maintain, and enforce written policies and procedures for engaging in portfolio reconciliation with their customers and resolving any discrepancies in the material terms of valuation of each swap identified in any portfolio reconciliation process. The frequency of portfolio reconciliation of customer swaps would be the same as for institutional swaps, but the number of swaps in each timing category would be higher, and discrepancies would be required to be resolved in a timely manner.

With respect to the portfolio compression requirements, fully offsetting institutional swaps would be required to be terminated no later than the close of business on the business day following the day on which the counterparties enter into the fully offsetting institutional swap. Swap dealers and MSPs would be required to engage in bilateral portfolio compression of their institutional swaps at least once per calendar year, except to the extent that they participate in multilateral portfolio compression involving those swaps in the same calendar year. For customer swaps, swap dealers and MSPs would be required to establish, maintain, and enforce written policies and procedures for periodically terminating fully offsetting customer swaps and for periodically engaging in portfolio compression exercise, to the extent that such customer swap are able to be terminated through a portfolio compression exercise.

Click here for the proposed rules.

On December 16, 2010, the CFTC issued proposed rules with respect to core principles and other requirements for swap execution facilities.

The proposed rules, guidance, and acceptable practices would implement the statutory framework under Dodd-Frank for SEFs. Of particular note, Proposed § 37.9 sets forth the permitted execution methods that SEFs may offer. It provides that transactions that are subject to the execution requirements under the CEA and that are not block trades may be executed on an "Order Book" or a "Request for Quote System," each as defined in Proposed § 37.9.

Click here for the proposed rules.

On December 16, 2010, the CFTC issued proposed rules with respect to risk management requirements for derivatives clearing organizations.

A full copy of the proposed rules is not yet available.

On December 16, 2010, the CFTC was scheduled to consider proposed rules regarding position limits for derivatives but did not vote to issue them.

Footnotes

1 For ease of discussion of these joint proposed rules, (1) references to a "swap" shall mean a "swap" in the context of swap dealers and MSPs and shall be deemed to be references to a "security-based swap" in the context of security-based swap dealers and major security-based swap participants, (2) references to a "swap dealer" shall mean a "swap dealer" in the context of swap dealers and MSPs and shall be deemed to be references to a "security-based swap dealer" in the context of security-based swap dealers and major security-based swap participants, and (3) references to "major swap categories" shall mean "major swap categories" in the context of MSPs and shall be deemed to be references to "major security-based swap categories" in the context of major security-based swap participants.

2 The "major swap categories" would be rate swaps, credit swaps, equity swaps, and other commodity swaps; and the "major security-based swap categories" would be security-based credit derivatives and other security-based swaps.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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