• adopts a new temporary definition of “U.S. person”;
• clarifies what swap activity a non-U.S. person should include in determining whether it must register as a swap dealer or major swap participant; and
• allows non-U.S. SDs and MSPs to delay compliance with most of the CFTC’s entity-level swap requirements and the CFTC’s transaction-level swap requirements in certain cases.

The Proposal’s capital and margin requirements would apply only to security-based swap dealers and major security-based swap participants that are neither banks nor bank holding companies, whereas the segregation requirements would apply to all security-based swap dealers and major security-based swap participants. In addition, the Proposal would enhance the capital requirements that apply to all large broker-dealers that have been approved to use internal models to compute net capital, regardless of whether they are security-based swap dealers.

• As of September 4, 2012, a total of 237 Dodd-Frank rulemaking requirement deadlines have passed. Of these 237 passed deadlines, 145 (61.2%) have been missed and 92 (38.8%) have been met with finalized rules.
• In addition, 131 (32.9%) of the 398 total required rulemakings have been finalized, while 132 (33.2%) rulemaking requirements have not yet been proposed.
• Major rulemaking activity this month included the Federal Reserve final rule on risk management standards for financial market utilities and the SEC final rules on conflict minerals and the disclosure of payments by resource extraction issuers. Additionally, the OCC, Federal Reserve, NCUA, FHFA and CFPB released a proposed rule on appraisals for higher-risk mortgage loans.

As of June 1, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Of these 221 passed deadlines, 148 (67.0%) have been missed and 73 (33.0%) have been met with finalized rules.

In addition, 110 (27.6%) of the 398 total required rulemakings have been finalized, while 144 (36.2%) rulemaking requirements have not yet been proposed.

 As of May 1, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Of these 221 passed deadlines, 148 (67%) have been missed and 73 (33%) have been met with finalized rules.

 In addition, 108 (27.1%) of the 398 total required rulemakings have been finalized, while 144 (36.2%) rulemaking requirements have not yet been proposed.

 Of particular note this month, the CFTC and SEC approved joint final rules further defining the terms "swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant" and "eligible contract participant."

§        the arrangements that swap dealers (“SDs”), major swap participants (together with swap dealers, “Swap Entities”) and futures commission merchants (“FCMs”) that clear swaps for customers and derivatives clearing organizations (“DCOs”) have with respect to clearing customers;

§        timing of acceptance or rejection of trades for clearing by DCOs and clearing members that are FCMs or Swap Entities (“Clearing Members”);

§        risk management procedures of Clearing Members; and

§        swap processing.

In addition, 100 (25.5%) of 393 total required rulemakings have been met with finalized rules. Rules have not yet been proposed to meet 138 (35.1%) rulemaking requirements.

• reporting, recordkeeping and daily trading records requirements;
• conflicts of interest involving research and clearing activities;
• chief compliance officer designation and duties; and
• risk management and operational requirements. 

The adopted rules are largely similar to the rules proposed by the CFTC at the end of 2010, with a small number of changes in response to comments. Some of these changes will have significant ramifications for swap entities. Most importantly, the CFTC has restricted many of the risk management requirements, recordkeeping requirements and chief compliance officer duties to the "swaps activities" of a swap entity rather than applying them to all of a swap entity’s activity. The rule, however, remains quite burdensome in many ways. For example, swap entities must make and maintain records of all oral or written communications that lead to the execution of a swap and must tape all telephone conversations that include such information.

The rules will become effective 60 days after publication in the Federal Register, which is expected shortly. However, the compliance dates for different provisions depend on the regulatory status of the swap entity, as discussed in greater detail in this memorandum.

Major rulemaking activity this month included CFTC final rules relating to swap dealer internal business conduct, and a CFPB proposed a rule defining "larger participants" in certain consumer financial markets.

The LSOC model is designed to eliminate the “fellow customer risk” to which futures customers are exposed. Under the LSOC model, if a customer of a futures commission merchant (“FCM”) defaults on a cleared swap margin obligation and the FCM is not able to satisfy the defaulting customer’s obligations, the derivatives clearing organization (“DCO”) has no recourse to funds of the FCM’s non-defaulting customers. Therefore, LSOC is intended to provide additional protection, albeit at an additional cost, to cleared swap customers beyond the current futures DCO model. In contrast, under the futures DCO model, any FCM customers’ swap collateral is available to the DCO upon a default of both the FCM and one of its futures customers. The CFTC has not extended the LSOC model to futures at this time, but will consider doing so.

• As of the end of 2011, deadlines for half of Dodd-Frank's rulemaking requirements have passed. 25.5% of the passed deadlines have been met with finalized rules.
• Major rulemaking activity this month included a Federal Reserve proposal on enhanced prudential standards and CFTC final rules on swap data recordkeeping and reporting.
• In 2011, the CFTC, FDIC, Federal Reserve and SEC held 1720 reported meetings with the public on Dodd-Frank. The Progress Report includes each regulator's top five topics of discussion at those meetings.
• Davis Polk is pleased to announce the launch of the DavisPolkReg Twitter feed, which will provide real-time updates on key Dodd-Frank rulemaking activities and relevant Davis Polk publications.

Volcker Rule Proposed Regulations: Proprietary Trading Summary

Volcker Rule Proposed Regulations: Proprietary Trading Summary with Annexes

On the same day, the CFTC proposed rules governing margin requirements for uncleared swaps entered into by non-bank swap entities subject to its jurisdiction.  Based upon the Fact Sheet and Q&As that were released by the CFTC, the CFTC’s proposal appears to be similar, but not identical, to the banking regulators’ proposal.  The SEC has not yet released a proposal for capital or margin requirements for security-based swap entities.