CFTC’s new swap-trading requirements take effect on September 9, 2013
According to BNY Mellon and Davis Polk, regulatory complexities for pension plan asset managers will take on new urgency on September 9, 2013, when new swap-trading requirements take effect.
“Derivative reforms are well underway and significantly expanded, mandatory clearing, collateral and reporting standards come into force on September 9 for pension plan asset managers,” said Kurt Woetzel, Chief Executive Officer, BNY Mellon’s Global Collateral Services business. “Asset managers need to assess the implications of new reporting requirements, prepare for clearing specified interest-rate swaps and credit-default swaps, understand new modes of trade execution, and review their preparations with trading, clearing and custody partners.”
According to a report jointly issued by BNY Mellon and Davis Polk, key steps asset managers should take to prepare for clearing and other regulatory requirements include:
· Classifying financial instruments traded. New Dodd-Frank derivatives regulatory requirements apply only to “swaps,” “security-based swaps” and “mixed swaps.”
· Determining the extent to which the regulations apply to the entity whose assets they trade as well as to the counterparties with whom they trade.
· Considering the implications of reporting requirements as well as the public transparency of swap transaction data.
· Preparing to clear specified swaps before the September 9, 2013 deadline. The Dodd-Frank Act requires market participants to clear standardized interest-rate and credit-default swaps through clearinghouses. Clearinghouses require initial margin (independent amounts) and variation margin (mark-to-market amounts).
· Confirming that a pension plan has adhered to ISDA protocols.
· Preparing for mandatory exchange trading of mandatory cleared swaps.
· Reviewing preparations with trading, clearing and custody partners and advisors in advance of the September 9, 2013 deadline.
BNY Mellon and the global law firm Davis Polk partnered on the report available from www.bnymellon.com, which is entitled “Are You Ready? New Swap-Trading Requirements for Pension Plan Asset Managers.”
