• Save
Preparing Your Derivatives for Dodd-Frank
Upcoming SlideShare
Loading in...5
×
 

Preparing Your Derivatives for Dodd-Frank

on

  • 1,234 views

The long arm of Dodd Frank is finally reaching out to impact your hedge program. Hedge Trackers, Helen Kane, partnered with the law firm Holland & Knight to address the current DF Protocol ...

The long arm of Dodd Frank is finally reaching out to impact your hedge program. Hedge Trackers, Helen Kane, partnered with the law firm Holland & Knight to address the current DF Protocol requirements (information exchanges and contractual requirements) that will keep you trading with your counterparty past January 1, 2013. Our guest speaker Eileen Bannon, Partner at Holland & Knight in New York, focused on how the protocol impacts end-users specifically. She also addressed the pros and cons, as well as your options in making end-user elections under the guidance. End-user exemption to mandatory clearing of swaps; what end-users qualify for the exemption and how to go about claiming the exemption was also outlined.

Statistics

Views

Total Views
1,234
Views on SlideShare
1,234
Embed Views
0

Actions

Likes
1
Downloads
0
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Preparing Your Derivatives for Dodd-Frank Preparing Your Derivatives for Dodd-Frank Presentation Transcript

  • Dodd-Frank: Let the Games BeginNovember 15, 2012
  • Eileen Bannon Helen KaneIntroduction Financial Services Partner at Holland & President and founder of Hedge Knight in New York . Ms. Bannon Trackers, LLC. Ms. Kane leads the firm represents capital market participants in by monitoring FASB/IASB a wide variety of transactions, including pronouncements, reaching out to interest rate, credit spread, credit default accounting firm derivative hedge swaps, total return and market value accounting specialists, overseeing swaps, repurchase agreements, auditor and SEC responses, and securities lending agreements and consulting with clients contemplating insurance-linked products. She advises complex derivative hedge accounting clients on the implications of Title VII of applications. Hedge Trackers makes Dodd-Frank on derivative business. She hedging and the related derivative also provides counsel on matters accounting accessible to U.S. dealing with the treatment of derivative corporations with foreign currency, and other safe harbor contracts in interest rate, and commodity risk. insolvency. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Agenda End-User Exception DF Protocol © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • End-User Exception © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • End-User Exception• Could we quickly review what it takes to qualify a transaction as an end-user agreement and what does it get me?• What are the 2 types of swaps that currently are proposed to be cleared?• What is the timing once a swap clearance determination becomes final? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 5 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • End-User Exception• Clearing requirements do not apply if one party to the swap: • Is not a financial entity • Is using swaps to hedge or mitigate commercial risk • Notifies the CFTC how it meets its financial obligations related to the swaps • Written credit support agreements, 3rd party guarantee, pledged assets, general funds, etc. • If a 34 Act reporting company, an appropriate committee of the Board of Directors has reviewed/approved decision to enter swaps without protections of clearing (can be annual) © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 6 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • End-User Declines• And if I opt-out of, or do not qualify for, the end-user exception what does clearing entail?• What do I need in order to have a clearing relationship? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 7 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • End-User Declines• If clearing requirements do apply • Need a relationship with a clearing member • Select a clearing house • Daily monitoring of position and posting collateral © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 8 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Post Dodd-Frank Clearing House Clearing Clearing Member Member (affiliate of Initial Margin+ Dealer) MTM+ Excess Margin Counterparty Dealer + OTC Counterparty Dealer Two-way MTM © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 9 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • The Status of FX Swaps under DF?• The Treasury has not yet determined if FX Swaps and FX Forwards will be treated as swaps for general regulatory purposes under Dodd-Frank.• In April 2011 issued a proposal to exempt FX Swaps and FX Forwards• Other foreign exchange products: foreign exchange options, currency swaps, and non- deliverable forwards are subject to Dodd- Frank. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not10 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • August DF Protocol © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 11 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • January 1, 2013 • What are a company’s choices in amending existing ISDA agreements? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 12 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • January 1, 2013 • Swap dealers requirements • ISDA established the DF Protocol • All data must be entered, analyzed and matched by 12/31/12 © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 13 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Protocol • Explain what a protocol is • More specifically explain the “DF Protocol” © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 14 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Protocol • ISDA has prepared a mechanism to effect supplements to existing swap documents. • “Protocol” is a multilateral contractual amendment mechanism • Eliminate costly and time-consuming negotiations © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 15 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protocol • “DF Protocol” • Amendment to ISDA and other non-ISDA swap agreements • Swap dealers and their counterparties agree to ISDA specified contractual supplements • No variation in terms of DF Protocol © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 16 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protocol• Specifically what is the process I need to follow to adhere to the DF Protocol?• What entities or parties execute the DF Protocol? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 17 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protoc0l • The DF Protocol consists of three documents: • Protocol Agreement (including the Adherence Letter) • Protocol Questionnaire (including the Addendum to the Questionnaire) • DF Supplements to the Questionnaire © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 18 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protocol• Counterparties adhere to the Protocol by entering into a single Adherence Letter online with ISDA (and paying a single $500 fee for all trades)• ISDA will publish the Adherence Letter, which includes the manner the swap counterparty wishes to receive Questionnaires © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 19 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protocol• Counterparties may elect Markit which is an online method of completing the rest of the DF Protocol and communicating with counterparties• Counterparties will be required to deliver DF Questionnaires to each Swap Dealer in the method elected by the swap dealer (likely Markit) • Use of Markit is free to counterparties © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not20 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protocol• Contents of the DF Protocol? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 21 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • DF Protocol 1. Requires detailed representations 2. Obligates end-users to ongoing informational requirements 3. Provides one-time notifications of substantive rights of end-users 4. Constitutes agreement to disclosure of material confidential information 5. Provides for the election of certain safe harbors which swap dealers may require as a condition of future trades © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not22 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Representations• What representations do I have to make in the Protocol? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not23 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Representations• Know your Counterparty data • End-user’s name, address, principal occupation • Any guarantor of the end-user’s performance • Any “persons” exercising control over end-user’s positions © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not24 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Questionnaire • Supply LEI or CICI (www.ciciutility.org) • Eligible Contract Participant Verification. • Large ECP (total assets exceeding $10m) • Hedging ECP (net worth of $1M and enters into swaps in connection with entity’s business) • Large entity ECP and Hedging ECP not effective for commodity pools after 12/31/12. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not25 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Representations• Status as a “Special Entity” or not.• Status as a “Financial Entity” or not. May elect not to answer. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not26 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Agreements and Notifications• What are some of the notifications of rights that counterparties must provide end-users under Dodd Frank ? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not27 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Substantive Rights Notification• Information on the risks and characteristics of the swap • Request and receive scenario analysis• Right to a daily mid-market mark• Prior to trade, the right to receive the price of the swap and basic material economic terms of the swap • Agree to receive oral disclosure of such information © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not28 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Material Confidential Information• What are some of the provisions of the DF Protocol relating to material confidential information? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not29 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Material Confidential Information• Recording of personnel• Disclosures required by the DF Rules• Bring-down of existing non-disclosure agreement or incorporation of new non- disclosure agreement © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not30 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Addendum to the Questionnaire• What is the addendum to the Questionnaire? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not 31 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Addendum to the Questionnaire• The Addendum is a continuation of the Questionnaire• If counterparties have completed the Questionnaire before the publication of the Addendum on November 9, 2012, they should update their Questionnaires. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not32 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Addendum to the Questionnaire• Counterparties are asked to represent whether or not they are active funds. This is because swap dealers have to come into compliance with some further swap trading relationship documentation with active funds by 1/1/13. Such documentation will be the subject of a second protocol being called the ISDA November DF Protocol. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not33 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Addendum to the Questionnaire• The remainder of the Addendum only concerns entities that are commodity pools.• If a counterparty has represented in the Questionnaire that it is not a commodity pool, it can ignore the rest of the Questionnaire.• If a counterparty is a commodity pool, and it does not qualify as an ECP other than as a Large ECP or Hedging ECP, it will be required by 12/31/12 to make further ECP representations pursuant to the Addendum. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not34 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Addendum to the Questionnaire• In addition, if a commodity pool has any direct participants that are not ECPs (or in certain cases indirect participants that are not ECPs) it will be required to make further ECP representations in connection with retail Forex transactions. © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not35 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • SchedulesSix schedules 1. Definitions 2. Mandatory for each swap dealer & counterparty Agreements and notifications previously discussed 3. Safe harbor indicating that you assume responsibility for swaps and trading strategies recommended , if any 4-6 relate to “Special Entities” © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not36 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Schedules• What does election of Schedule 3 entail? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not37 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Schedule 3 –• Safe Harbor Counterparty Requirements • Designated Evaluation Agent or internal personnel responsible for evaluating swap recommendations• In either case, counterparty must have in place written policies and procedures designed to ensure that the Designated Evaluation Agent or internal personnel are capable of evaluating swap recommendations• Designated Evaluation Agent or counterparty must represent that it is exercising independent judgment © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not38 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • To Do• Will I have to agree to Schedule 3 to continue to trade? © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not39 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Where to Find Help Hedge Trackers and Holland & Knight are partnering to offer efficient compliance • Obtain LEI/CICI (s) • Complete and Submit Adherence Letter(s) • Familiarize your company with elections and evaluate implications (End-User & Safe Harbor Elections) • DF Terms Agreement determination • Review Existing Derivatives Policy and Counterparty Documents • Addressing Clearing vs. OTC Trading • Prepare for Board approval of policy or policy amendment • Registration on ISDA Amend • Create Board Training • Submit Questionnaire © 2012 Hedge Trackers, LLC and Holland & Knight. This publication contains general information and does not40 represent the rendering of accounting or legal advice and is not a substitute for such professional advice or services.
  • Questions www.hedgetrackers.com 408.350.8580Silicon Valley | Chicago | Los Angeles
  • Contact InfoEileen Bannon Helen KaneHolland Knight, Partner Hedge Trackers, PresidentNew York CaliforniaT: 212.513.3406 T: 408.350.8580eileen.bannon@hklaw.com hkane@hedgetrackers.comwww.hklaw.com www.hedgetrackers.com