KEYWORDS: derivative, OTC derivatives, clearing, Liquidity, straight-through-processing, electronic trading, Hedge Fund IT, hedge fund infrastructure, swaps data repository, swaps, collateral, Dodd-Frank Act, CFTC, Commodity Futures Trading Commission, credit default swaps, assets under management, AUM, MF Global, FCM, futures commission merchant, Title VII of Dodd-Frank, ISDA, SEF, execution, swap execution facility, central clearing, CCP, central counterparties, LSOC, legal segregation with operational commingling, reporting requirements, EMIR
Robert Stowsky, David Weiss
Central clearing regulations under Title VII of the Dodd-Frank Act are dramatically transforming the swaps market. The Category III mandate will mark the official end of the bilateral days of International Swaps and Derivatives Association (ISDA) negotiations, client-to-dealer execution and negotiated collateral for transactions moving to the cleared model. Central clearing has implications across the lifecycle of a derivatives transaction. From the use of Swap Execution Facilities (SEF) and Futures Commission Merchants (FCM) to mandated collateral, regulation is fundamentally altering the status quo.