OTC Derivatives Reform

The US was first mover in derivatives reporting, and many G-20 countries have followed suit. Rules for clearing, trading, margining, collateral and external business conduct are in various states throughout the world-wide system of financial regulators. While there has been much talk about “harmonization”, there is no final determination as to how the rules will be applied to cross-border trades and counterparties in practice.

In the US, in order to meet the mandates of Title VII of the Dodd Frank Wall Street Reform and Consumer Protection Act, regulators have imposed sweeping changes, many with broad impacts to the OTC derivatives markets, and others with deep implications to each firm. Given the number of rules to be implemented, it is difficult to not only determine which may apply to your firm, but how to gauge your level of compliance with them. At the highest level, in order to comply with these requirements, your firm must:

  • Determine process to identify which trades must be centrally cleared vs. processed bilaterally
  • Identify products and counterparties which must be executed on a Swap Execution Facility or Designated Contract Market
  • Maintain rigorous credit/risk management and margin/collateral programs
  • Meet complex reporting requirements to SDRs
  • Adhere to strict codes of conduct for internal and external business activities
  • Track, publish and consume new identifiers including USIs (Unique Swap Identifiers) and counterparties’ LEIs (Legal Entity Identifiers)
  • Coordinate with current third-party service providers, or select new ones, and verify their integration with in-house systems (back-office, credit/risk) and external systems
  • Select direct Central Clearing Counterparty (CCP) membership(s) or membership through a clearing agent (e.g. a Futures Commission Merchant (FCM))
  • Select Swap Execution Facilities (SEF) to provide market access and liquidity
  • Revamp client on-boarding procedures to ensure all necessary information is collected and properly maintained over time, including repapering ISDAs and credit agreements if needed
  • Link all client interactions and disclosures (including verbal and written) with orders and executions, and make readily accessible to regulatory examiners

Jordan & Jordan’s team consists of industry experts with deep experience in trading, clearing, credit/risk, margin/collateral management, and financial controls. Our team will analyze the business and operational impacts to your firm and work with your staff to define and implement the many projects that must be undertaken to comply with Dodd Frank Title VII and global OTC derivatives reform.