Recent Proposals Regarding Regulation of Swaps

May 6, 2011

Possible Extension of Effective Date for Certain Swap-Related Provisions of the Dodd-Frank Act

A bill recently introduced into the House of Representatives (H.R. 1573) will, if passed, extend the deadline for implementing certain portions of the derivative title of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) from July 2011 until December 2012. This extension will apply to most swap-related provisions of the Dodd-Frank Act, including:

(i) the required registration of swap dealers and major swap participants with the Commodity Futures Trading Commission (the “CFTC”),

(ii) the required registration of security-based swap dealers and major security-based swap participants with the Securities and Exchange Commission (the “SEC”),

(iii) the establishment of position limits and

(iv) the requirement that derivatives generally be cleared through a derivatives clearing organization and traded through a regulated exchange.

This extension will not apply to the obligation of the CFTC and the SEC, in consultation with the Board of Governors, to define certain key terms under the Dodd-Frank Act or the record retention and regulatory reporting requirements of derivatives.

H.R. 1573 will also require that before prescribing final rules and regulations, the CFTC and the SEC must conduct public hearings and roundtables, take testimony of affected market participants, experts and other interested parties and solicit public comment and must take such testimony and comment into consideration when performing a cost-benefit analysis and determining the effective date for the final rules and regulations. Finally, H.R. 1573 will grant the CFTC and the SEC authority to exempt from registration and regulatory requirements under the Dodd-Frank Act any person that is subject to comprehensive supervision and regulation by another regulatory authority that has an adequate information-sharing arrangement with the CFTC or the SEC, as applicable.

The House Committee on Agriculture has voted in favor of H.R. 1573 and the House Committee on Financial Services is expected to begin considering H.R. 1573 as early as next week.

Proposed Exclusion of Foreign Exchange Swaps and Forwards from Certain Regulations

The Dodd-Frank Act provides that foreign exchange swaps and foreign exchange forwards shall be considered “swaps” and shall be subject to all the requirements applicable to swaps unless the Secretary of Treasury (the “Treasury”) issues a determination stating otherwise. The Treasury does not have the authority to issue a determination with respect to other foreign exchange products, such as foreign currency options, non-deliverable forwards, currency swaps and cross-currency swaps. The Treasury recently issued a proposed determination that foreign exchange swaps and foreign exchange forwards shall be exempt from the definition of “swaps” and accordingly shall not be subject to the central clearing, exchange trading and other requirements applicable to swaps. Foreign exchange swaps and foreign exchange forwards will remain subject to the other provisions of the Commodity Exchange Act, including trade-reporting requirements, anti-evasion authority and business conduct standards.

If you have any questions about these potential changes, please contact an attorney in the Investment Management Group at Seward & Kissel LLP.