1. Evolution of U.S. Financial Markets
THE DODD-FRANK
WALL STREET TRANSPARENCY
AND REPORTING ACT – TITLE VII
IMPACT ON OTC DERIVATIVES
September, 2011
Developed by: Tellefsen and Company, LLC

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Dodd-Frank Act Title VII – OTC Derivatives

3. Background – Dodd-Frank Title VII Focus – OTC Derivatives
The Dodd-Frank Wall Street Transparency and Accountability Act will have significant impact on the regulation and transparency of OTC derivatives trading
Within the many components of Dodd-Frank, Title VII impacts the OTC derivatives in five key areas:
Regulatory oversight/jurisdiction
Registration of swaps industry participants
Central clearing/elimination of counterparty risk
Execution via exchange or swap execution facility
Real-time public reporting of swaps data.
Dodd-Frank Act Title VII – OTC Derivatives

4. Dodd-Frank Act Title VII – OTC Derivatives
Background (Cont’d) …
Regulatory Oversight / Jurisdiction:
Dodd-Frank Title VII empowers the CFTC and SEF to oversee swaps products
The SEC will oversee security based swaps (SBS)
The CFTC will oversee everything else (e.g., credit, interest rates, commodities)
Both agencies will harmonize their rules as best as possible.
Dodd-Frank Act Title VII – OTC Derivatives

5. Dodd-Frank Act Title VII – OTC Derivatives
Background (Cont’d) …
Registration of Swaps Industry Participants:
Dodd-Frank Title VII establishes several new regulatory designation for swaps industry participants:
Broker-dealers that make markets in swap products must register as Swaps Dealers (SD) with the CFTC, SEC or both, depending on what swaps products are traded
Major Swaps Participants (MSP) are firms that have substantial positions in swaps, or multiple counterparties (e.g., large asset managers).
Dodd-Frank Act Title VII – OTC Derivatives

6. Dodd-Frank Act Title VII – OTC Derivatives
Background (Cont’d) …
Central Clearing / Elimination of Counterparty Risk:
Those swap products deemed by regulators to require clearing must be submitted to a Derivatives Clearing Organization (DCO)
Swaps will be guaranteed by clearinghouses to eliminate exposure to counterparty risk
Not all swaps products will be eligible for clearing
Major swaps clearing houses include: CME Clearing, ICE Clear Credit, LCH. ClearNet, Eurex Clearing, International Derivatives Clearing Group, New York Portfolio Clearing.
Dodd-Frank Act Title VII – OTC Derivatives

7. Dodd-Frank Act Title VII – OTC Derivatives
Background (Cont’d) …
Execution via Exchanges or Swap Execution Facilities:
Cleared swaps transactions in the US must be traded on a registered trading venue
Registered trading venues include Designated Contract Markets (DCM), or Swap Execution Facilities (SEF)
Inter-dealer brokers, trading platform providers, exchanges and clearing houses may most likely establish a SEF designation
Platform providers and interdealer brokers that will offer SEFs include Bloomberg TradeBook, BGC, Currenex, FXALL, GFI, ICAP, MarketAxess, TradeWeb, Traditon, Tullett Prebon.
Dodd-Frank Act Title VII – OTC Derivatives

8. Dodd-Frank Act Title VII – OTC Derivatives
Background (Cont’d) …
Real-Time Public Reporting of Swaps Data:
The CFTC and SEC require real-time, public reporting of transaction data for swaps traded on exchanges or SEFs that are subject to mandatory clearing requirements
Real-time reporting is expected to create improved price transparency (e.g., last sale data, swaps economic terms etc.)
Reporting must be as soon as is technologically practicable
Swap trade data will be reported to Swap Data Repositories (SDR)
CreditEx, DTCC, ISDA, TriOptima will register to become SDRs.
Dodd-Frank Act Title VII – OTC Derivatives

9. Dodd-Frank – Operational and Technology Impacts
There are a number of aspects of Dodd-Frank Title VII that will impact operations and technology at firms that trade and clear OTC derivatives transactions:
Broker-dealers
Futures commission merchants
Asset management firms
Hedge funds
End-user organizations.
Dodd-Frank Act Title VII – OTC Derivatives

10. D-F - Operational and Technology Impacts (Cont’d) …
Operational and technology impacts can include:
Central clearing of OTC transactions
Bi-lateral margining of positions
Segregation of client collateral
Transaction reporting to counterparties, Swap Data Repositories, regulators
Record keeping / record retention
Execution via Swap Execution Facilities
Sales/trading – business conduct changes and compliance oversight
Legal documentation changes – client and counterparty agreements.
Dodd-Frank Act Title VII – OTC Derivatives

11. D-F - Operational and Technology Impacts (Cont’d) …
Dodd-Frank – Title VII Timeline:
Dodd-Frank Impact Area
Timeline:
Swap Dealer Registration
Q4 2011
Central Clearing
Q2 2012
Bi-Lateral Margining
Q / Q2 2012
Transaction Reporting / Record Keeping
Execution via SEFs
Sales/Trading Compliance
Q / Q2 2012
Legal Documentation
Q / Q2 2012
Dodd-Frank Act Title VII – OTC Derivatives

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Dodd-Frank Act Title VII – OTC Derivatives

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Dodd-Frank Act Title VII – OTC Derivatives