On October 9, the Internal Revenue Service (IRS) proposed regulations to eliminate tax issues that might otherwise arise due to the modification of instruments and transactions as a result of discontinuation of interbank offered rates (IBORs) used in debt instruments and non-debt contracts (such as derivatives). Under current rules, material alteration of the terms of instruments and contracts can result in tax events, including the realization of gain or loss for income tax purposes.

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On September 19, the Securities and Exchange Commission adopted a package of new final rules and rule amendments dealing with recordkeeping and reporting requirements for security-based swap dealers (SBS dealers). In general, the SEC is requiring SBS dealers to create and maintain records with respect to security based-swaps in a manner consistent with current recordkeeping and record retention rules that apply to broker-dealers. The SEC is, however, providing alternate compliance mechanisms that will allow an SBS dealer that also is a swap dealer but is not a broker-dealer to comply with Commodity Futures Trading Commission (CFTC) rules instead and will allow a non-US SBS dealer to request permission to comply with its home country rules.
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On September 17, the directors of the Federal Deposit Insurance Corporation (FDIC) approved a joint notice of proposed rulemaking (NPR) with respect to the prudential regulator margin rules for non-cleared swaps. The joint form of the NPR indicates that the other prudential swap regulators (the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Farm Credit Administration and the Federal Housing Finance Agency) will all be approving the same NPR in the near future.
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On September 9, the Market Risk Advisory Committee of the Commodity Futures Trading Commission (CFTC) approved some “plain” English disclosures concerning the risks of executing new derivative transactions involving interbank offered rates (IBORs) that will be replaced by new benchmark rates in the relatively near future. The disclosures, which are not mandatory, are intended as “helpful examples” of the information that market participants should share, as appropriate, with all clients and counterparties with whom they continue to transact derivatives referencing London Interbank Offered Rate (LIBOR) and other IBORs. They are drafted for use on a transaction-by-transaction basis, but alternatively can be delivered as part of general risk disclosures. The disclosures will be submitted to the CFTC for consideration.
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On September 13, the Commodity Futures Trading Commission (CFTC) announced the extension of the public comment periods for two rule proposals. First, the CFTC announced that it will extend the comment period from September 17 to November 18 for the proposed alternative compliance framework for derivatives clearing organizations (DCOs) organized outside of the United States that do not pose substantial risk to the US financial system (Alternative Compliance Framework Proposal). Under the Alternative Compliance Framework Proposal, these DCOs would be able to register with the CFTC, yet comply with the core principles applicable to DCOs in the Commodity Exchange Act through their compliance with the regulatory regime of their home country, subject to certain conditions and limitations.
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On September 13, the CFTC and European Commission issued a joint statement reaffirming their mutual commitment to transatlantic cooperation among regulators (Joint Statement). The Joint Statement was released following a September 5 meeting between CFTC Chairman Heath Tarbert and John Berrigan, Deputy Director General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA), European Commission.
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On August 27, the International Swaps and Derivatives Association (ISDA) published a new protocol to give swap market participants an easy way to amend existing credit derivative documentation to incorporate changes that have been made to the ISDA Credit Derivatives Definitions and address the market concern about companies creating credit events for the benefit of particular credit derivative parties.
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On August 20, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved their version of a set of amendments intended to simplify some of the requirements of the regulations implementing Section 13 of the Bank Holding Company Act of 1956 (the “Volcker Rule”), which was enacted as Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from owning or controlling hedge funds or private equity funds subject to numerous qualifications and exemptions set forth in the Volcker Rule regulations, which are identical sets of rules adopted by each of the Volcker Rule regulators (the FDIC, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission). These final amendments incorporate the responses of the Volcker Rule regulators to the numerous comments they received when they initially proposed a set of amendments in 2018.
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On July 23, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) published a revised framework for mandatory initial margin applicable to swaps that are not cleared with a central clearing party. The key revision was the insertion of an additional year into the implementation schedule for the margin rules.
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The Commodity Futures Trading Commission has published for comment two proposals intended to reduce the regulatory obligations that certain non-US clearing organizations would otherwise be subject. In accordance with section 5b(a) of the Commodity Exchange Act (CEA), it is unlawful for any clearing organization to clear swaps on behalf of US persons unless that clearing organization is registered with the CFTC as a derivatives clearing organization (DCO). However, CEA section 5b(h) authorizes the CFTC to exempt from registration any non-US clearing organization that is “subject to comparable, comprehensive supervision and regulation” by its home country regulator. In the exercise of this latter authority, the CFTC has proposed to permit those non-US clearing organizations that the CFTC determines do not pose a substantial risk to the US financial system to elect either 1) registration as a DCO with alternative compliance obligations; or 2) an exemption from registration altogether.
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