CFTC and SEC Finalize Swap Definition, Set Regulatory Reforms Into Motion

On July 7, 2012, the Commodities Futures Trading Commission (CFTC) finalized its definition of a “swap” as required by the Dodd-Frank financial reforms law, one day after the Securities and Exchange Commission approved its parallel version of the definition.

For your reference, here’s a roundup of legal commentary on this latest Dodd-Frank development:

CFTC-SEC Final Swap Rules Start Regulatory Compliance Countdown (Skadden, Arps, Slate, Meagher & Flom LLP):

“Part one of this client alert is a timeline showing estimated initial compliance dates for CFTC rules that are triggered by the publication of the final swap definition in the Federal Register… The actual timeline could be longer or shorter. Part two of this client alert summarizes the SEC’s plan for phasing in compliance with SB swap rules.” Read on>>

What’s in a Name? Understanding the New Dodd-Frank Rules Defining “Swap Dealer,” “Major Swap Participant” and “Eligible Contract Participant” (Katten Muchin Rosenman LLP):

“An entity will be a major swap participant if … it maintains a “substantial position” in any of the major swap categories, excluding swaps held for hedging/mitigating commercial risk or swaps maintained by certain employee benefit plans for hedging/mitigating risks in operating the plan; its outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the US banking system or financial markets; or it is a highly leveraged financial entity not subject to capital requirements promulgated by a Federal banking agency and maintains a substantial position in any of the major swap categories.” Read on>>

Who’s In and Who’s Out? CFTC and SEC Finalize the Swap Entity Definitions (K&L Gates LLP):

“The Dodd-Frank Act defines the terms ‘swap dealer’ and ‘security-based swap dealer’ in a functional manner by focusing on how a person holds itself out in the market, the nature of the person’s conduct, and the market’s perception of the person’s activities. Subject to certain exclusions, the Dodd-Frank Act’s definitions of ‘swap dealer’ and ‘security-based swap dealer’ generally encompass any person that holds itself out as a dealer in swaps or security-based swaps, makes a market in swaps or security- based swaps, regularly enters into swaps or security-based swaps with counterparties in the ordinary course of business for its own account, or engages in activity that causes it to be commonly known in the trade as a ‘dealer’ or ‘market maker’ in swaps or security-based swaps.” Read on>>

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