Dodd-Frank Developments

The Commodity Futures Trading Commission KISS initiative has finally produced some substantive results for swap dealers in the form of proposed amendments to Subpart L of the CFTC’s regulations (“Segregation of Assets in Uncleared Swap Transactions”) that were issued for comment on July 24. Subpart L (which encompasses CFTC Regulations 23.700-704) has been problematic for swap dealers since it was adopted early in 2014 because of the compliance challenges created by the extremely complicated and prescriptive nature of these provisions.
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On July 17, the Federal Register published proposed changes to the Volcker Rule that were jointly approved by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission. As described in greater detail in the June 1,

On February 21, the US Supreme Court decided Digital Realty Trust, Inc. v. Somers (583 U.S. ____ (2018)), which resolved a circuit split related to whether the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 124 Stat. 1376 (Dodd-Frank) extend to individuals who have not reported a securities law violation to the Securities and Exchange Commission and, therefore, falls outside of Dodd-Frank’s definition of a “whistleblower.”
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On February 5, the Prudential Regulators—the five federal banking regulators for swap dealers that are banks—proposed technical amendments to their margin rules for uncleared swaps. The amendments aim to harmonize the definition of Eligible Master Netting Agreement (EMNA) in the margin rules with recent changes made to the definition of “Qualifying Master Netting Agreement” (QMNA) in the capital and liquidity rules applicable to banks.
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On October 13, the Commodity Futures Trading Commission and the European Commission (EC) made three announcements that are significant for cross-border swap activity between the United States and Europe.

  1. CFTC Margin Rule Comparability Determination.

The CFTC has made a determination that the margin rules for uncleared swaps that apply in the European Union are comparable to the CFTC’s margin rules. This determination activates the substituted compliance provisions found in Section 23.160(b)(2)(iii) of the CFTC margin rules that until now have not been available to EU entities registered as swap dealers.
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On September 5, the regular settlement cycle for most securities transactions in the United States will change from three days (T+3) to two days (T+2). In order to assist derivative market participants that have existing equity derivative transactions with payment dates based on T+3, the International Swaps and Derivatives Association (ISDA) has developed the 2017 OTC Equity Derivatives T+2 Settlement Cycle Protocol (“T+2 Protocol”).
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On May 10, the Consumer Financial Protection Bureau (CFPB) held a field hearing and issued a notice and request for information related to the small business lending market. Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Equal Credit Opportunity Act to require “financial institutions” (as defined in Section 1071) to compile, maintain and report information concerning credit applications made by women-owned, minority-owned and small businesses. The purpose of the data collection is to facilitate enforcement of fair lending laws and to enable communities, governmental entities and creditors to identify business and community development needs and opportunities of women-owned, minority-owned and small businesses.
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Lacking the ability to issue formal no-action relief from strict compliance with the variation margin rules for uncleared swaps coming into effect on March 1, the Board of Governors of the Federal Reserve System, the Office of Comptroller of the Currency (OCC) and the European Supervisory Authorities (ESA) have each issued statements suggesting that they

On February 6, the acting Securities and Exchange Commission Chairman, Michael Piwowar, issued a statement soliciting public comment on “unexpected challenges” that issuers have experienced in anticipation of complying with the pay ratio disclosure rule and directing the SEC staff to reconsider the implementation of the rule. The pay ratio disclosure rule, adopted to implement Section 953(b) of the Dodd–Frank Wall Street Reform and Consumer Protection Act, will require each issuer to disclose the ratio of the compensation of its chief executive officer to the median compensation of all of its employees, as discussed in the August 7, 2015 edition of the Corporate & Financial Weekly Digest. As currently adopted, this rule will first apply with respect to compensation for the company’s first fiscal year beginning on or after January 1, 2017 (for most companies, their proxy statements for their 2018 annual shareholder meetings). Comments are being solicited for 45 days following the announcement.
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