United States: Reminder Of Upcoming Dodd-Frank Compliance Dates For End-Users

V&E Dodd-Frank Regulatory Update E-communication, April 1, 2013

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank") imposes a new regulatory framework upon swap dealers, major swap participants and other counterparties to swaps, including end-users.¹ As explained in further detail below, end-users face rapidly approaching deadlines for compliance with certain aspects of Dodd-Frank: a compliance deadline of April 10, 2013, for obtaining a CFTC Interim Compliant Identifier, and a deadline of May 1, 2013, for providing swap dealers with the information they require to enable them to comply with certain business conduct rules applicable to their relationships with end-users. End-users who have not already been contacted by their swap dealers regarding these deadlines may want to consider approaching the swap dealers to discuss these matters.

A. April 10, 2013 Deadline for Obtaining CFTC Interim Compliant Identifier

Section 45.6 of the rules adopted by the Commodity Futures Trading Commission ("CFTC") pursuant to Dodd-Frank provides that each counterparty to any swap subject to the jurisdiction of the CFTC must be identified in all recordkeeping and swap data reporting by means of a single legal entity identifier, currently, the CFTC Interim Compliant Identifier ("CICI"). The CFTC has imposed a deadline of April 10, 2013, for each end-user to obtain a CICI. CICIs may be obtained through the CICI utility webportal (https://www.ciciutility.org/) operated by DTCC and SWIFT.

B. ISDA August 2012 DF Protocol

Pursuant to Dodd-Frank, the CFTC has also adopted rules requiring swap dealers and major swap participants to comply with certain external business conduct rules. These rules become effective on May 1, 2013. In order to facilitate compliance with the business conduct rules, the International Swaps and Derivatives Association, Inc. ("ISDA") has launched the ISDA August 2012 DF Protocol (the "Protocol"), which provides for certain standardized amendments to existing ISDA documentation. The Protocol is open to both ISDA members and non-members. The Protocol is designed to facilitate compliance with the CFTC's rules by supplementing existing master agreements or other written agreements relating to swaps. The Protocol consists of (i) the ISDA August 2012 DF Protocol Agreement, (ii) the ISDA August DF Supplement (which includes six schedules), (iii) the ISDA August 2012 DF Protocol Questionnaire the ("Protocol Questionnaire"), and (iv) the ISDA August 2012 DF Terms Agreement, which would apply to swaps that are not governed by an existing master agreement or other written agreement.

In order to accept the terms of the Protocol, a party must sign and deliver an Adherence Letter, pay an adherence fee of $500 and complete the Protocol Questionnaire. Once the parties to an existing master agreement have signed and delivered the Adherence Letter, paid the adherence fee, and completed and exchanged the Protocol Questionnaire, the existing master agreements between the parties would be deemed to be amended based upon the elections made in the Protocol Questionnaires.

The Protocol procedure is not required by the CFTC's rules; rather, the Protocol is a mechanism put in place by ISDA to assist swap dealers and major swap participants in complying with their responsibilities under the CFTC's Dodd-Frank regulations. It is possible for a swap dealer or major swap participant, on the one hand, and an end-user counterparty, on the other, to execute a bilateral amendment agreement that addresses the Dodd-Frank requirements instead of adopting the Protocol, and some swap dealers and major swap participants have circulated such agreements to certain of their clients.

Because the deadline for compliance with the business conduct rules is May 1, 2013, end-user counterparties will need to have either adhered to the Protocol or entered into a bilateral agreement by that date. However, ISDA has issued a Memorandum recommending that, in order to avoid significant disruptions in trading with swap dealers and major swap participants, end-users should adhere to the Protocol by no later than April 1, 2013, and should complete the Protocol Questionnaire by no later than April 5, 2013. Information about the Protocol and the mechanics for adherence can be found on ISDA's website: http://www2.isda.org/functional-areas/protocol-management/protocol/8

Footnotes

^{1. Under the CFTC's rules regarding the end-user exception, a counterparty to a swap (other than a swap dealer or major swap participant) may elect to be excepted from Dodd-Frank's clearing requirements if that counterparty (a) is not a "financial entity" as defined in Section 2(h)(7)(C)(i) of the Commodity Exchange Act, and (b) is using the swap to hedge or mitigate commercial risk, as further explained in the CFTC's rules.}

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