Archived from the original on 16 July Additionally, the CBO points out that the reclassification of collected fees by various government agencies has the effect of boosting revenue. You're given very few moments in history to make this kind of a difference, and we're trying to do that. It also requires the SEC to study the standards of care that broker-dealers and investment advisers apply to their customers and to report to Congress on the results within 6 months. However, the Office of Management and Budget attempts to "monetize" benefits versus costs to prove the contrary.
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Please note that the swap dealer is required to provide the Confirmation Documentation. The external business conduct standards prohibit certain abusive practices and require swap dealers to 1 disclose certain material information to counterparties and 2 conduct due diligence relating to their dealings with counterparties the "know your customer" requirements.
Accordingly, end-users should expect to amend their existing trade documentation to facilitate swap dealers' and major swap participants' compliance with the external business conduct rules by May 1, Failure to do so would prevent an end-user from trading with a swap dealer or a major swap participant counterparty after such date. We expect that most corporate end-users of FX derivatives will meet the documentation requirements required by swap dealers under the external business conduct standards by using the online International Swaps and Derivatives Association ISDA August Protocol.
While the parties to a swap could individually amend the documentation for each swap transaction on a one-by-one basis, the ISDA August Protocol allows parties to amend their existing documentation by agreeing to certain supplements published by ISDA.
It is important to note that each corporate entity that is a party to a swap must amend its existing trade documentation to facilitate its swap dealer's or major swap participant's compliance with the external business conduct standards. For example, if both a parent company and a subsidiary of the parent company trade FX derivatives, each entity must enter into the ISDA August Protocol documentation separately.
An end-user may use the protocol to supplement its existing swap documentation with a counterparty by 1 agreeing to an adherence letter published by ISDA for viewing by other swap participants and 2 exchanging a questionnaire with each of its counterparties. The end-user will submit the adherence letter via an online form, which will contain the end-user's agreement to the protocol and specify the manner in which questionnaires should be exchanged.
Questionnaires may be exchanged in a variety of ways, including via an electronic platform called ISDA Amend. However, it is important to note that an exchange of questionnaires with every counterparty is not required. Thus, an end-user may elect to exchange questionnaires with some, but not all, of its counterparties. After submission of the adherence letter and delivery by each counterparty of a questionnaire to the other counterparty, the existing swap documentation will be amended.
The questionnaire includes various representations to be made by the end-user, such as corporate status and power, no violations or conflicts with charter documents or existing contracts, no required consents, and the binding nature of its obligations under the protocol.
It also contains the required "know your counterparty" information, which includes the end-user's name, legal identifier i. The questionnaire requires the end-user to verify that it is an "eligible contract participant" under the CEA and permits the end-user to specify whether it is a "specified entity" or "financial entity. In order to make certain representations set forth in Schedule 3 of the ISDA DF Supplement, the corporate end-user should have in place written policies and procedures that are reasonably designed to ensure that the person evaluating swap recommendations from the swap dealer and making trading decisions for the corporate end-user has the requisite capabilities capable-person representation.
Most of our end-user clients have amended their FX trading policies to implement the written policies and procedures necessary to make this capable-person representation. Furthermore, ISDA is considering adding an addendum to the ISDA August Protocol that would include an election by end-users not to receive pre-trade mid-market marks from their counterparties with respect to certain FX transactions.
The reporting and recordkeeping requirements for swaps under Dodd-Frank including FX derivatives are quite complex. These reporting requirements are applicable to you as a corporate end-user of FX derivatives only in the event that your counterparty is neither 1 a clearinghouse in the case of a cleared swap nor 2 a swap dealer or major swap participant in the case of an uncleared swap.
As a result, you will be subject to these reporting requirements only if your counterparty is another end-user, which will be extremely unlikely for most corporate end-users of FX derivatives. The regulatory reporting requirement as it applies to FX swaps will become effective by April 10, , and will apply to both exempt and non-exempt FX swaps.
The real-time and historical reporting requirements will only apply to non-exempt FX swaps. Under the general recordkeeping requirements for new FX swaps, corporate end-users will be required to keep full, complete, and systematic records, together with all pertinent data and memoranda, with respect to each swap to which it is a counterparty, including, without limitation, all records demonstrating that it is entitled with respect to any swap to elect the End-User Exception to the clearing requirement.
Records are to be made available for CFTC inspection and may be maintained in paper or electronic form. FX swap records must be maintained from the date of creation of the FX swap through at least five years after the termination of a swap. Swap records must be retrievable within five business days.
In addition, corporate end-users must keep records of all required identifiers, including the unique swap identifier, the CICI, and any product identifier.
These recordkeeping obligations will require corporate end-users to establish swap recordkeeping policies and procedures. We expect that complying with these new rules may require investment in new recordkeeping systems, depending on the nature and extent of trading activity.
For each historical swap that terminated or expired prior to April 25, , end-users must retain the records of the primary economic terms of the swap that were in their possession as of October 1, in the case of pre-enactment swaps , or as of December 17, in the case of transition swaps. In each case, the end-user must retain the records for five years after the termination or expiration date of such a swap.
Additionally, end-users must retain copies of 1 any confirmation executed by the parties, 2 any master agreement governing the swap and any amendment or modification thereof, and 3 any credit support agreement relating to the swap and any amendment or modification thereof. Records of historical swaps may be kept in paper or electronic form and must be retrievable within five business days.
The anti-evasion rules apply to both exempt and non-exempt FX swaps and provide that any transaction that is "willfully structured" as a foreign exchange forward or foreign exchange swap to evade any provision of the CEA shall be deemed a swap for purposes of the CEA.
Accordingly, end-users should be sensitive to any actions or communications that could be construed as evidence of a willful intent to evade swap treatment under the CEA.
We do not expect any such final rule requiring the clearing and trading of FX derivatives to become effective for corporate end-users prior to the end of , based on the expectation that the CFTC would allow days after the effective date of the final rule for such a clearing requirement to be applicable to a corporate end-user.
Therefore, we expect that there will be no need to implement the End-User Exception for any corporate end-use of FX derivatives prior to the end of Corporate end-users of FX derivatives should take the following steps, among others, in order to comply with the regulations described above:. If you have any questions about this alert, please contact Michael Occhiolini at or mocchiolini wsgr. Foreign Exchange Swap Exempted by Treasury Exemption A transaction that solely involves A an exchange of two different currencies on a specific date at a fixed rate that is agreed upon on the inception of the contract covering the exchange; and B a reverse exchange of the two currencies involved in A at a later date and at a fixed rate that is agreed upon on the inception of the contract covering the exchange.
The final determination does not extend to other FX derivatives: These other derivative instruments will still be subject to mandatory clearing as well as the requirement that they be traded on either a designated contract market DCM or a swap execution facility SEF.
Additional requirements for off-exchange retail forex transactions were addressed in a previous CFTC ruling on September 10, However, the Act allows the Secretary of the Treasury to determine whether to allow an exemption for such contracts. On October 29, , the Department of the Treasury issued a notice and request for comments regarding the proposed exemption.
The notice included a list of questions regarding, among other things:. On April 29, , the Treasury Department issued its notice of proposed determination of foreign exchange swaps and forwards. The proposed determination entered the Federal Register on May 5, The deadline for public comment was June 6, According to the Treasury Department , the foreign exchange swap and forward exemption was based on several factors, including:.
Commodity Futures Trading Commission.