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September, 2011

THE DODD-FRANK WALL STREET TRANSPARENCY AND REPORTING ACT – TITLE VII IMPACT ON OTC DERIVATIVES. September, 2011. Confused About Dodd-Frank?. Can’t Tell Barney From Chris?. Background – Dodd-Frank Title VII Focus – OTC Derivatives.

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September, 2011

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  1. THE DODD-FRANK WALL STREET TRANSPARENCY AND REPORTING ACT – TITLE VII IMPACT ON OTC DERIVATIVES September, 2011

  2. Confused About Dodd-Frank? Can’t Tell Barney From Chris? Dodd-Frank Act Title VII – OTC Derivatives

  3. 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

  4. Background (Cont’d) … • 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

  5. Background (Cont’d) … • 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

  6. Background (Cont’d) … • 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

  7. Background (Cont’d) … • 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

  8. Background (Cont’d) … • 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

  9. 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

  10. D-F - Operational and Technology Impacts (Cont’d) … • 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. Dodd-Frank Act Title VII – OTC Derivatives

  11. D-F - Operational and Technology Impacts (Cont’d) … • Dodd-Frank – Title VII Timeline: Dodd-Frank Act Title VII – OTC Derivatives

  12. Still Confused About Dodd-Frank? I’m Chris, He’s Barney …. Dodd-Frank Act Title VII – OTC Derivatives

  13. Call Us for the Roadmap Tellefsen and Company, L.LC. 1-212 809 3800 JJR@Tellefsen.com Dodd-Frank Act Title VII – OTC Derivatives

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