The Commodity Futures Trading Commission’s (CFTC) external business conduct standards (BCS) for swaps require compliance for registered swap dealers by January 1, 2013.1 To facilitate compliance with the BCS rules, the International Swaps and Derivatives Association, Inc. (ISDA) published the August 2012 Dodd-Frank Protocol (DF Protocol). The DF Protocol is a web-based system that permits market participants to amend existing swaps documentation and exchange information, including information the BCS rules require, with multiple counterparties in a streamlined fashion. Beginning on January 1, 2013, those swap dealers that are relying on the DF Protocol process to meet their BCS compliance obligations will be unable to engage in new or amended swap transactions with their counterparties without violating the BCS rules unless their counterparties have adhered to the DF Protocol.
On November 27, 2012, ISDA, citing technological challenges, low end-user responses and Hurricane Sandy, requested the CFTC to delay the compliance date for the BCS rules until May 1, 2013. A delayed BCS compliance date would result in pushing back the date for counterparties to complete the DF Protocol process.
Recent CFTC history on similar timing issues makes it difficult to predict whether the CFTC will grant a delay and, if it does, if the delay will extend until May 1, 2013.2 Look for additional client alert updates as this situation develops.
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1 See “Business Conduct Standards for Swap Dealers and Major Swap Participants with Counterparties,” 77 Fed. Reg. 9734 (Feb. 17, 2012). The CFTC deferred the original compliance date of October 14, 2012, when it adopted subsequent internal business conduct standards rules. 77 Fed. Reg. 55904, 55942 (Sept. 11, 2012).
2 See Letter from Robert G. Pickel, chief executive officer, ISDA, to the CFTC (Nov. 27, 2012), available here. The requested relief is limited to certain BCS rules and does not include rules that impose fair-dealing requirements, prohibitions on fraud and manipulation, or restrictions on political contributions to certain State and local government officials.
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