Public Companies: Board Should Review End-User Swap Approvals Annually

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The Dodd-Frank Act permits certain end-users to elect to use an exception to the swap clearing requirements under certain conditions, which is referred to as the end-user exception.  For public companies, the ability to elect the end-user exception requires a committee of the public company to review and approve the decision to use uncleared swaps. When rules related to the end-user exception were adopted, the CFTC stated “The Commission would expect an SEC Filer’s board to set appropriate policies governing the SEC Filer’s use of swaps subject to the end- user exception and to review those policies at least annually and, as appropriate, more often upon a triggering event (e.g., a new hedging strategy is to be implemented that was not contemplated in the original board approval).” We therefore suggest public companies have a procedure for an annual or more frequent board or committee review to permit use of the end-user exception.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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