CFTC Proposes Rules for Swap Trading Relationship Documentation
Section 731 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which was enacted on July 21, 2010, adds Section 4s(i) to the Commodity Exchange Act ("CEA"), which requires each registered swap dealer (an "SD") and major swap participant (an "MSP") to conform with standards as may be prescribed by the Commodity Futures Trading Commission (the "CFTC") for the timely and accurate confirmation, processing, netting, documentation and valuation of swaps. The stated aim is to, among other things, increase the standardization of swap documentation in order to facilitate central clearing, automated processing and swap reporting, increase market liquidity, improve valuation and risk management and reduce risk.
Accordingly, the CFTC has proposed rules to establish certain requirements for documenting the swap trading relationship between SDs, MSPs and their counterparties and for related recordkeeping and reporting obligations. These rules for swap trading relationship documentation would effectively require SDs and MSPs to amend or change existing documentation with their counterparties when entering into new transactions.
Comments on the proposed rule must be submitted to the CFTC on or before April 11, 2011.