CFTC Issues Final Rules Related to Swap Trading Relationship Documentation, Swap Confirmations, and Swap Portfolio Reconciliation and Compression

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[author: Kevin M. Foley, Blake J. Brockway

On August 27, the Commodity Futures Trading Commission published final rules related to swap trading documentation for swap dealers (SDs) and major swap participants (MSPs). The final rules set forth standards for the timely and accurate confirmation of swaps, require the reconciliation and compression of swap portfolios, and set forth requirements for documenting the swap trading relationship between and among SDs, MSPs and their counterparties.

The final rules related to swap trading relationship documentation require each SD and MSP to establish policies and procedures reasonably designed to ensure that the parties have agreed in writing to all terms governing their trading relationship. These requirements do not apply to swaps that: (1) were executed prior to the compliance date of the final rules; (2) are executed on a designated contract market (DCM) or executed anonymously on a swap execution facility (SEF), provided that certain conditions are met; or (3) are cleared by a derivatives clearing organization (DCO).

The final confirmation rules require each SD and MSP to send an acknowledgment of the transaction as soon as technologically practicable, but no later than the time periods set forth in the rules. Each SD or MSP must establish, maintain, and follow written policies and procedures reasonably designed to ensure that it executes a confirmation for each swap transaction within the prescribed time frame. The swap confirmation rules do not apply to swap transactions: (1) executed on a SEF or DCM, provided that certain conditions are met; or (2) submitted for clearing by a DCO, provided that the transaction is submitted for clearing as soon as technologically practicable, but no later than the times set forth in the rules, and all terms are confirmed at the same time as the transaction is accepted for clearing.

The final rules also require SDs and MSPs to adhere to certain portfolio reconciliation and compression requirements and related recordkeeping obligations for swap transactions. The portfolio reconciliation and compression requirements do not apply to swaps cleared by a DCO.

The final rules are available here.