THE DODD-FRANK WALL STREET TRANSPARENCY

AND REPORTING ACT TITLE VII

IMPACT ON OTC DERIVATIVES

September, 2011

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Dodd-Frank Act Title VII OTC Derivatives
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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

Background (Contd)

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

Background (Contd)

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

Background (Contd)

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

Background (Contd)

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

Background (Contd)

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

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

D-F - Operational and Technology Impacts (Contd)

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.
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D-F - Operational and Technology Impacts (Contd)

Dodd-Frank Title VII Timeline:

Dodd-Frank Impact Area Swap Dealer Registration Central Clearing Bi-Lateral Margining Transaction Reporting / Record Keeping Execution via SEFs Timeline: Q4 2011 Q2 2012 Q1 2012 / Q2 2012 Q4 2011 Q2 2012

Sales/Trading Compliance
Legal Documentation

Q4 2011 / Q2 2012
Q3 2011 / Q2 2012

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Dodd-Frank Act Title VII OTC Derivatives
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