KEYWORDS: assets under management, AUM, CCP, central clearing, central counterparties, CFTC, clearing, collateral, Commodity Futures Trading Commission, credit default swaps, derivative, Dodd-Frank Act, electronic trading, EMIR, execution, FCM, futures commission merchant, hedge fund infrastructure, Hedge Fund IT, ISDA, legal segregation with operational commingling, Liquidity, LSOC, MF Global, OTC derivatives, reporting requirements, SEF, straight-through-processing, swap execution facility, swaps, swaps data repository, Title VII of Dodd-Frank
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.