CFTC and SEC Publish Final “Swaps” Definition; Countdown Begins for Regulatory Compliance

The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission published the final rules defining “swap” and other swap-related terms in the Federal Register earlier this week, setting into motion a countdown to compliance for a number of CFTC regulations governing the swap market. From law firm Skadden Arps:

“The effective date and compliance date for the Final Rules, and the interpretations contained therein, is 60 days following their publication in the Federal Register, with two exceptions. First, the compliance date for the CFTC’s interpretation regarding guarantees of swaps will be defined in a subsequent rulemaking. Second, solely for purposes of the July 7, 2011, SEC order granting temporary exemptions to security-based swaps from certain Exchange Act provisions, the compliance date for the Final Rules further defining ‘security-based swap’ will be 180 days following publication in the Federal Register. Once the compliance date kicks in for these rules further defining ‘security-based swap,’ the SEC order’s temporary exemptions for security-based swaps will expire.”

For your reference, here’s a roundup of legal updates on the topic (we will continue to add commentary as it comes in):

CFTC and SEC Adopt Rules Defining ‘Swap’ and ‘Security-Based Swap’ (Skadden, Arps, Slate, Meagher & Flom LLP):

“As amended, the [Commodity Exchange Act ] defines swaps broadly to include ‘any agreement … that provides on an executory basis for the exchange … of 1 or more payments based on the value or level of 1 or more … rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind … and that transfers, as between the parties to the transaction, in whole or in part, the financial risk associated with a future change in any such value or level without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred.’ This broad statutory definition is subject to numerous exclusions.” Read on>>

CFTC Starts Dodd-Frank Compliance Countdown for Energy Companies (Leonard, Street and Deinard):

“The term ‘swap’ broadly includes any contract that provides for an exchange of payments based on the value of commodities or other items and that transfers the financial risk associated with future changes in such values without also conveying an ownership interest in the underlying asset. ‘Swaps’ include options, commodity swaps, energy swaps, basis swaps, emission swaps and weather swaps. An important exception excludes ‘forward contracts’ in physical commodities, so long as such contracts are intended to be physically settled at the time of execution.” Read on>>

Publication of “Swap” Definition Triggers Dodd-Frank Derivatives Reform Compliance Dates (Sutherland Asbill & Brennan LLP):

“The joint final rules, which were adopted by the CFTC on July 10, will become effective on October 12, 2012. These rules are a key component of the new regulatory regime imposed on the over-the-counter derivatives market by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Publication of the joint final rules in the Federal Register triggers the compliance dates for a number of CFTC final rules.” Read on>>

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