Member Article

On November 20 and 27, 2012, the International Swaps and Derivatives Association, Inc. (“ISDA”) filed two letters with the Commodity Futures Trading Commission (“CFTC”) requesting an extension of compliance dates for certain new business conduct, portfolio reconciliation and swap trading relationship documentation requirements issued by the CFTC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). These compliance dates are driving the request by many swap providers for their counterparties to enter into the ISDA August 2012 DF Protocol (“Protocol 1”) by the end of the year in order to meet the requirements of the new external business conduct rules, and ISDA is currently working to finalize a second protocol (“Protocol 2”) to satisfy other Dodd-Frank requirements.

The November 20 letter is available here and the November 27 letter is available here.

The November 27 letter describes the slow pace at which counterparties are adopting Protocol 1. As of the date of that letter, according to ISDA, fewer than 1 percent of counterparties had submitted the questionnaires necessary to complete Protocol 1.

The November 27 letter cites, as one of the reasons for the delay, “counterparties’ desire to understand fully and obtain advice regarding the legal consequences of adhering to Protocol 1 and of the various elections to be made under Protocol 1” and requests that the CFTC defer the compliance dates of the external business conduct rules until May 1, 2013.

The November 20 letter similarly cites difficulties in meeting the compliance deadlines established by the portfolio reconciliation and swap trading relationship documentation rules, the first of which falls on January 1, 2013, and requests no-action relief for any failure to comply prior to July 1, 2013.

The CFTC is not obligated to grant ISDA’s requests to delay these compliance dates. Counterparties are urged to review Protocol 1 (available here) and Protocol 2 (current draft available here), and seek counsel with questions

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