Since the publication of the ISDA August 2012 Dodd-Frank Protocol (the "DF Protocol") in early August, many market participants are asking how the DF Protocol works, what it is intended to achieve and whether they should adhere to it. To assist market participants in understanding the DF Protocol, we are publishing the below summary. This summary does not address all the minutiae of the protocol or cover in detail the provisions that may affect certain types of entities (such as "special entities") and is intended only as an introduction to the DF Protocol.
What Is the DF Protocol?
The DF Protocol was published by the International Swaps and Derivatives Association ("ISDA") to facilitate compliance by the industry with documentation requirements for various Commodity Futures Trading Commission ("CFTC") rules including the external business conduct rules (the "Covered Rules"), compliance with which was originally set for October 15, 2012.1 Pursuant to the Covered Rules, swap dealers ("SDs") and major swap participants ("MSPs") must obtain certain information and verifications from their counterparties. For example, SDs must obtain certain "know your counterparty" information and also verify that counterparties qualify as "eligible contract participants". In addition, SDs/MSPs must provide certain information, give notices and make certain disclosures to their counterparties, which differ depending on the legal status of the counterparty (e.g., eligible contract participant, swap dealer, major swap participant, special entity, etc.). The DF Protocol is the first protocol published by ISDA to address industry compliance with the requirements of the Dodd-Frank Act and relevant CFTC rules. It is likely that further protocols will follow. The DF Protocol is intended to provide a simple solution to facilitate the (i) amendment of bilateral trading relationship documentation between SDs and their counterparties and (ii) exchange of relevant information between SDs and their counterparties.
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© 2012 White & Case LLP