CFTC Adopts Customer Property Segregation and Other Swap Regulations; Proposes Volcker Rule

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The Commodity Futures Trading Commission (CFTC) on January 11, 2011 finalized three important rules and proposed one additional rule as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). These rules address the treatment of collateral posted for cleared swaps, the registration and business conduct requirements applicable to swap dealers and major swap participants, and the CFTC-specific provisions of the “Volcker Rule.” Various aspects of these final and proposed rules will have direct and indirect implications for mutual funds, private funds, separately managed accounts, and other users participating in the commodity markets.

Protection of Cleared Swap Customer Contracts and Collateral

The CFTC adopted rules that impose requirements on futures commission merchants (FCMs) and derivatives clearing organizations (DCOs) to protect cleared swap customer contracts and related collateral. These rules are also intended to enhance the portability of cleared swaps in the event of an FCM’s bankruptcy.

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