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Saturday, February 24, 2024
Courthouse News Service
Saturday, February 24, 2024 | Back issues
Courthouse News Service Courthouse News Service

Swap Dealers Get Record-Keeping Requirements

WASHINGTON (CN) - Futures commission merchants, introducing brokers, dealers and major participants in commodities swaps face new record-keeping and firewall requirements under new internal business control rules adopted by the Commodity Futures Trading Commission.

The rules are mandated by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act and are intended to increase transparency in the swap markets and limit conflicts of interest within organizations that provide more than one function to consumers.

Swap service providers must appoint a chief compliance officer to maintain firewalls between their clearing personnel and trading business personnel as well as between research personnel and non-research personnel.

To encourage the separation, dealers, participants, merchants and brokers are forbidden from considering the impact of a research analyst's contributions to the trading or clearing business when setting the analyst's compensation.

Analysts are similarly prohibited from asking for a quid pro quo to produce favorable research. Market participants must disclose if the researchers they use maintain a financial interest in any derivative of a type traded by the participant.

The record-keeping requirements of the rules mandate that swap entities maintain records of all oral and written communications, including tapes of telephone conversations that end in execution of a swap. Such records must be kept for five years after the expiration of the trade and be made available to the CFTC upon request.

Dealers and market participants may not rely on records maintained by swaps clearing houses, which also have to retain information on all swaps they clear for five years after the expiration of the swap, to satisfy the new record-keeping requirements.

The CFTC also rejected industry requests to allow participants who are subject to risk and recordkeeping regimes by other regulators to substitute their current compliance requirements with those imposed in the new rules.

The potential layering of regulatory requirements led Commissioner Scott O'Malia to vote against the new rules when they were proposed in February, and to ask the White House Office of Management and Budget to review the cost/benefit analysis for the new rules proposed by the CFTC staff.

The new rules are effective June 4, with compliance for most provisions required at that time.

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