Dodd-Frank: The Regulatory Reset of the OTC Derivatives Markets
Mondaq Business Briefing › United Kingdom Law Articles in English (2010)
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Dodd-Frank: The Regulatory Reset of the OTC Derivatives Markets
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") provides, for the first time, a comprehensive regulatory framework for the over-the-counter ("OTC") derivatives markets. Fundamentally, Title VII aims to prevent future financial crises by mandating robust market and transactionlevel transparency, while reducing structural leverage and systemic risk throughout the derivatives markets. While significant portions of Title VII remain subject to rulemaking by the Securities and Exchange Commission ("SEC") and the Commodity Futures Trading Commission ("CFTC"), Title VII codifies the global de-risking process underway since the start of the financial crisis, with a particular focus on:
Reducing counterparty risk and enhancing transparency and price discovery by requiring clearing and exchange trading for eligible derivatives contracts; Deleveraging the OTC derivatives markets by imposing new regulatory capital and margin requirements on OTC swap dealers ("swap dealers") and most large OTC swap participants ("major swap participants"); Requiring swap dealers and major swap participants to register with the SEC and/or CFTC and to continuously disclose detailed information regarding their derivatives trading; and Prohibiting Federal guarantees and other assistance from being provided to insured depository institutions involved in the swaps markets, subject to exceptions for certain types of swaps activities and affiliated swap dealers. To help accomplish these goals, Title VII allocates jurisdiction over the OTC derivatives markets largely between the SEC, for "securitybased swaps" and participants in the securitybased swaps markets, and the CFTC, for all other "swaps" and participants in the swaps markets. The SEC, for example, will be the regulatory authority responsible for imposing new capital and margin requirements on security-based swaps, such as eq...See the full content of this document
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