Dodd-Frank and Selected International Aspects OTC Derivatives – Reporting Standards

1. Dodd-Frank and Selected International AspectsOTC Derivatives – Reporting Standards Shannon Rhoten April 16, 2014

2. Executive Summary • The Dodd-Frank Act was passed in 2010 as a reaction to the Financial Crisis of 2007-2009; its goals were to promote transparency and stability within the financial system. Dodd-Frank’s regulation of reporting standards of OTC derivatives aims to improve transparency, but these new transaction reporting provisions have proved to be costly and burdensome to many companies and banking institutions. Thus, subsidiaries and branches of U.S. banks in other countries should be able to follow swap rules of foreign nations under the “substituted compliance” rule of the Dodd-Frank Act in order to remain competitive in a global market while maintaining transparency.

3. Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) • Overhaul of the U.S. financial system after the Financial Crisis • Largest since the Great Depression • Aimed to promote stability and transparency within the financial sector • Improved banking provisions • Built upon the Bank Holding Company Act of 1956 • Closer regulation of insurance sector • Uniform standards of risk management • Greater governance and oversight of institutions • Anti-predatory lending

4. Dodd-Frank and Extraterritorial Issues • Derivatives regulation • Instruments that derive their values from other assets (indexed or interest rate) • Swaps, options, futures • OTC derivatives • “Unlisted stock” • Smaller companies or those with bad credit ratings • Under Dodd-Frank, those wishing to enter into contracts over a specified amount must register with the CFTC and follow Dodd-Frank rules • Reporting of transactions • Applies to all branches • Exception made for “substituted compliance” • Seen by some as a burden

5. Proposal • Subsidiaries and branches of U.S. banks in other countries should be able to follow swap laws of foreign nations under the “substituted compliance” rule of Dodd-Frank • Enhance the ability to compete while maintaining transparency • Compliance with G-20 and Basel Accord provisions on swap agreements • Regulation of swaps is becoming more of an international norm • European Union - EMIR

6. Sources • The CFTC’s webpage about Dodd-Frank and its impact on futures trading provides a great wealth of information on the requirements of swaps participants. • http://www.cftc.gov/lawregulation/doddfrankact/index.htm • PwC released a helpful brief for companies that describes application of the derivative guidance by the CFTC. • http://www.pwc.com/en_US/us/financial-services/regulatory-services/publications/assets/pwc-cftc-cross-border-derivatives-regulation.pdf • The Bank of International Settlements released summary description of margins for OTC derivative transactions. • http://www.bis.org/publ/bcbs261.pdf • This article from Jones Day provides commentary on swaps requirements under Dodd-Frank. • http://www.mondaq.com/unitedstates/x/277256/Commodities+Derivatives+Stock+Exchanges/Application+Of+Dodd+Frank+Requirements+To+Swaps+Between+NonUS+Swap+Dealers+And+NonUS+Counterparties • This article from Great Britain’s Financial Conduct Authority gives information about EMIR, the E.U.’s version of the Dodd-Frank regulations as a point of comparison. • http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/emir