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Dodd-Frank for Producers
 

Dodd-Frank for Producers

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This webinar explains the many facets of Dodd-Frank rules and regulations and what companies, such as Producer companies, need to know now in order to be compliant. Our seasoned Compliance and ...

This webinar explains the many facets of Dodd-Frank rules and regulations and what companies, such as Producer companies, need to know now in order to be compliant. Our seasoned Compliance and Commodities experts describe exactly how the Dodd-Frank rules and rule changes affect Producer companies and what you can do now to mitigate these challenging risks:
--Producers’ Exposure to Dodd-Frank
--Clearing and End-User Exception
--Recordkeeping and Reporting
--Duties of SDs to Non-SD/MSPs – Counterparty Documentation
--Policies, Procedures, and Training
--Exchange Position Limits
--Achieving Compliance

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    Dodd-Frank for Producers Dodd-Frank for Producers Presentation Transcript

    • Dodd-Frank for Producers What You Need To Know www.wgconsulting.com
    • Table of Contents Introduction Producers’ Exposure to Dodd-Frank Requirements and Potential Obligations Achieving Compliance Questions Page 2
    • Introduction to WG Consulting The Risk, Systems & Compliance (RSC) service line of WG Consulting (WG) specializes in: • Developing • Implementing and • Maintaining risk management solutions WG Regulatory Compliance Consultants specialize in the: • Mechanics of the underlying commercial trading and marketing activities • Letter and intent of those external laws, rules and regulations that govern these activities • Information systems and processes required to support a Regulatory Compliance Program • Development and implementation of a systematic approach to Compliance #DoddFrankWebinar As of June 2013 Page 3
    • Definition of a Swap • Commodity swaps and commodity options, whether or not physically settled, are subject to regulation under Dodd-Frank, subject to certain Exclusions and Exemptions • Exclusions exist for any sale of a nonfinancial commodity for deferred shipment or delivery, so long as the transaction is intended to be physically delivered (the Forward Contract Exclusion) • Commodity Trade Options are still deemed a swap, but are exempt from some of the Dodd-Frank swap regulations • In order to determine whether a transaction is a swap, excluded from the definition of a swap, or exempt from some of the rules regulating swaps, the CFTC will examine the facts and circumstances of each transaction #DoddFrankWebinar As of June 2013 Page 4
    • Producers’ Exposure to Dodd-Frank Rules Hedging Production can actually create exposure to: • Mandatory Clearing of Swaps • Reporting and Recordkeeping • Counterparty Documentation (ISDA Protocols) • Anti-Manipulation • Margining and Capital • Exchange Position Limits #DoddFrankWebinar As of June 2013 Page 5
    • Mandatory Clearing of Swaps • Mandated central clearing for all swaps • As of August 2012 the CFTC declared following swap types as required to be cleared: • Interest Rate Swaps • Credit Default Swaps • Compliance Dates to note: • Interest Rate and Credit Default Swaps: September 9, 2013 • Other Commodity Swaps: TBD • Non-SD/MSPs may elect the End-user Exception if the swaps are eligible #DoddFrankWebinar As of June 2013 Page 6
    • End User Exception To Clearing • • • • Clearing requirements do not apply if one counterparty applies for the End-User Exception to Clearing and • Is not a Financial Entity • Is using swaps to hedge or mitigate commercial risk • Notifies the Commission, in a manner set forth by the Commission, how it generally meets its financial obligations associated with entering into noncleared swaps A party’s ability to elect the end-user exception is a function of the purpose of the particular swap in question Not limited to physical position hedging Use of the exception by non-financial entities for financial risk-hedging must be an incidental part (i.e. not central to) of the Electing Counterparty’s business #DoddFrankWebinar As of June 2013 Page 7
    • Part 43 Real Time Reporting Part 43 establishes the requirements for real time dissemination to the public of all swap transaction and pricing data, including those swaps executed on or pursuant to the rules of a Swap Execution Facility (SEF) or Designated Contract Market (DCM) and those executed bilaterally, off-facility between counterparties. Part 43 applies to all transactions considered as “Swaps”; including: • Swaps subject to the mandatory clearing requirement • Swaps that are not subject to the mandatory clearing requirement, but are cleared at a registered derivatives clearing organization (DCO) • Swaps that are not cleared at a registered DCO and are reported to a registered swap data repository (SDR) that accepts and publicly disseminates swap transaction and pricing data in real-time • Any executed swap that is an arm’s-length transaction between two parties that results in a corresponding change in the market risk position between the two parties • Any termination, assignment, novation, exchange, transfer, amendment, conveyance, or extinguishing of rights or obligations of a swap that changes the pricing of the swap #DoddFrankWebinar As of June 2013 Page 8
    • Part 43 Real Time Reporting Out of Scope Transactions include: • Internal swaps between one hundred percent owned subsidiaries of the same parent entity • Swaps between Exempt Entities • Portfolio compression exercises Part 43 applies to all parties to a swap including swap dealers, major swap participants and U.S.-based market participants (non-Swap Dealers / non-Major Swap Participants). #DoddFrankWebinar As of June 2013 Page 9
    • Part 45 Swap Data Reporting Part 45 establishes the requirements for reporting swap confirmation, continuation, and valuation data to a SDR, including those swaps executed bilaterally, off-facility between counterparties. • Reporting party must report all confirmation, continuation, and valuation data for the swap to a SDR • Confirmation data includes all Primary Economic Terms (PET) to a swap and must be reported to a SDR “as soon as technologically practicable” • Continuation data includes any changes to the PET to a swap and generally must be reported the day the change happens throughout the life of the swap • Valuation data is the current daily mark of the swap as of the last day of each fiscal quarter and must be reported to a SDR within 30 calendar days of the end of each fiscal quarter Part 45 applies to all parties to a swap including swap dealers, major swap participants, U.S. and Non-US based market participants (non-Swap Dealers / non-Major Swap Participants). #DoddFrankWebinar As of June 2013 Page 10
    • Part 45 Swap Data Recordkeeping Part 45 implements rules relating to the swap data recordkeeping and reporting of certain economic terms to a swap transaction to ensure swap data is current and readily available to Regulators to carry out their market monitoring and enforcement duties. Recordkeeping Requirements All non-SD/MSP counterparties subject to the jurisdiction of the Commission shall keep full, complete, and systematic records, together with all pertinent data and memoranda, with respect to each swap in which they are a counterparty, including, without limitation, all records demonstrating that they are entitled, with respect to any swap, to elect the clearing requirement exception. Record Retrieval Records required to be kept by Non-SD/MSP swap counterparties shall be retrievable by that counterparty within five business days throughout the period during which it is required to be kept. Records required to be kept by non-SD/MSP counterparties may be kept in either electronic or paper form, so long as they are retrievable, and information in them is reportable. #DoddFrankWebinar As of June 2013 Page 11
    • Part 46 Historical Swap Reporting Part 46 establishes the requirements for reporting and retaining certain information regarding swap transactions entered into prior to the implementation of the Swap Data SDR Reporting and Swap Data Recordkeeping rule. Historical Reporting Requirements • Reporting of swaps executed before July 21, 2010 and remain open as of July 21, 2010 • Reporting of swaps executed on or after July 21, 2010 and before April 10, 2013 • These records must be reported In the format required by the Commission, just as in the Part 45 Swap Data Reporting rule • Same general information is required to be reported as in the Part 45 Swap Data Reporting rule #DoddFrankWebinar As of June 2013 Page 12
    • External Business Conduct Standards The ISDA August 2012 DF Protocol (in effect as of May 1, 2013) addresses: • Confirmation of Counterparty Eligibility (ECP) • Documentation of Counterparty’s Status and Business Purpose • Counterparty Acknowledgement of Qualified Personnel The ISDA March 2013 DF Protocol (in effect on of July 1, 2013) addresses: • Agreement on handling of Confirmations, Clearing • General Method and Agreement of Entering into Portfolio Reconciliation • Documentation on Non-SD/MSP requirements when electing End-User Exception to Clearing #DoddFrankWebinar As of June 2013 Page 13
    • Policies, Procedures, and Training A robust Risk Management Program contains: • Identification of risks and risk tolerance limits • Procedures for detecting risk limit violations • Actions to mitigate specific risks, • Periodic Risk Exposure Reports highlighting your risk exposure • Monitoring of compliance with the Risk Management • Distribution of risk management policies and procedures to applicable supervisors • Recordkeeping, including retaining copies of all written approvals required under the Risk Management Program • An annual review and testing of the Risk Management Program policies and procedures Training Due to the complex and highly prescriptive nature of the Dodd-Frank rules and regulations, it is good practice to provide training to your Trading and Compliance personnel in order to ensure the relevant personnel within your organization have sufficient knowledge of the applicable rules and how they affect their day-to-day operation. #DoddFrankWebinar As of June 2013 Page 14
    • Exchange Position Limits Written policies and procedures should be established to represent how you monitor compliance with Exchange Position Limits: • Diligent monitoring to ensure compliance with Exchange Position Limits • Implementation of an early warning system to flag positions in danger of breaching the limits • Development of a process for promptly notifying Governing Body and the CFTC when a position limit is violated • Quarterly testing of Position Limit Procedures for effectiveness • Annual training should be held on applicable position limits • A process for retaining documentation of the implementation of the Position Limit Procedures, including: • Training records • Early warning notifications • Quarterly testing and annual audit written reports • Changes to the Position Limit Procedures. #DoddFrankWebinar As of June 2013 Page 15
    • Dodd-Frank Compliance Monitoring Exchange Position Limits (Intraday) • With ICE and CME listing Swap products on their Futures Exchange platform, organizations that previously only traded OTC products are now subject to exchange position limits. CFTC Position Limits (Intraday) • CFTC Position Limits were vacated in September of 2012 but should return sometime in 2013. MSP Calculations (Frequency varies) • There are a number of MSP tests and safe harbor calculations that are needed to identify if your organization is an MSP. Swap Dealer Notional (Monthly) • Organizations will need to calculate their annual notional value to determine if they are a Swap Dealer. #DoddFrankWebinar As of June 2013 Page 16
    • Exchange Position Limits WG Consulting has built an Exchange Position Limit tool that can monitor your organization's position limits by commodity code, based on various data sources. Thresholds: 1. Spot(Front) Month Limit* 2. Any Single Month Level 3. All Month Level #DoddFrankWebinar As of June 2013 Spot (Front) Month Total and % of Limit Any Single Month Total and % of Limit All Month Combined Total and % of Limit Page 17
    • MSP Calculations WG Consulting has built an MSP Calculation tool that can perform the three MSP and Safe Harbor tests on an as needed basis. #DoddFrankWebinar As of June 2013 Page 18
    • Recordkeeping & Reconciliation Recordkeeping The goal is to retain full, complete, systematic records, together with related data and memoranda with respect to each swap. WG has a simple, spreadsheet based solution that allows you to seamlessly connect to the SDR or SDRs of your choice and download your relevant trade data in the format consistent with Dodd Frank requirements. • Quick to implement • Connects seamlessly to SDR • Single record with all required Dodd Frank data elements • Easily exportable reports and Integrated audit log Reconciliation • Ability to validate that trades in your C/ETRM system match the data that is being disseminated to the public through the various SDRs. • Ability to validate that trades in your C/ETRM systems match the data that is being reported on your behalf to a SDR when you are not the Reporting Party to a swap. #DoddFrankWebinar As of June 2013 Page 19
    • Recordkeeping WG Consulting has built an agile Recordkeeping tool to pull data from the Swap Data Repositories (SDR) and transform the data to meet Part 45 Recordkeeping requirements. Log: Provides audit transactional information in addition to separate Audit Log view #DoddFrankWebinar As of June 2013 Recordkeeping Data: Contains all the reporting elements required for recordkeeping Page 20
    • Reconciliation The complimenting Reconciliation tool will identify any discrepancies between your internal ETRM system(s) and the multiple SDRs used by you and your counterparties. The intelligent design allows users to “teach” the tool to improve performance. #DoddFrankWebinar As of June 2013 Page 21
    • Dodd-Frank for Producers Reporting Requirements WG Compliance Reporting Solutions • Reporting and Recordkeeping • Quick & Easy to Implement • Compatible with Microsoft Office • Easy to read in a familiar Microsoft Excel format • Connects seamlessly to SDR • Single record with all required Dodd Frank data elements • SDR Recordkeeping Reports • SDR Reconciliation Reports • MSP Calculations • Exchange Position Limits Procedures & Policies Requirements • Counterparty Documentation (ISDA Protocols) • Mandatory Clearing of Swaps • Anti-Manipulation • Margining and Capital #DoddFrankWebinar As of June 2013 WG Solutions • Assist in the completion of ISDA protocols • Assist in the rewrite completion of company Policies • Assist in company training sessions • Ease of mind knowing your company is compliant Page 22
    • Financial Advisory Services Financial Advisory CFO Services Financial & Operational Reporting Transaction Advisory Business Process & Controls Process Improvement Internal Controls • SEC & IFRS Reporting • M&A Services (buy/sell side) • Sarbanes-Oxley Compliance • Private Equity Services • External Audit Preparation • Business Transformation • Project Management • Turnaround Management • Regulatory Reporting • Capital Transaction Services (equity & debt raises) • Technical Research • Transaction Due Diligence • Procure-to-Pay Process • Controls Needs Assessment & Program Development • Lender & Private Equity Services • Financial Reporting Process • Budgeting & Forecasting • Interim or Outsourced Corporate Development • Supply Chain / Inventory Management • Management Reporting & Dashboards • Valuation & Dispute Resolution • Demand Planning & Forecasting • Oil & Gas Reporting • Restructuring Services • Control Design & Integration • Interim CFO • IPO Services • Merger Integration • Interim Controller / CAO • Treasury Management • Strategic Planning & Analysis • Federal & State Tax • Quote-to-Cash Process • Controls Risk Assessment • IT Controls • Interim Personnel • Controls Testing • Fraud Investigations & Forensics • FCPA • Change Management #DoddFrankWebinar As of June 2013 Page 23
    • Risk, Systems & Compliance Services Regulatory Compliance & Dodd Frank Solutions Trading and Risk Management • • • • ETRM System Selection & Implementation • Strategy & Operations for Front, Middle & Back Office • Supply, Trading & Risk Management • • Interim CRO • • • #DoddFrankWebinar As of June 2013 Enterprise Performance Management (EPM) Business Intelligence (BI) All aspects of DF CFTC Final Rules Implementation • Data Discovery • Visualization Design Policies, Procedures, Manual Drafting • Dashboard Design and Implementation • Analytical Application Design & Development Training Compliance Program Reviews and Testing Trade Monitoring Service Regulatory Reporting and Recordkeeping Compliance Function Outsourcing/ Interim CCO • • Project Management • Application functionality enhancement and end user training • Self-Discovery & Analytics Training • Workflow Control • Areas of Expertise: TIBCO Spotfire, Oracle BIEE, SAP BusinessObjects • Reporting Strategy, Process Review and Optimization Enterprise Architecture Strategy and Roadmap • Interim and Outsourced Managed Services • Application Upgrades and Assessments Enterprise Resource Planning (ERP) • System Selection • Implementation • Upgrades • Functional Enhancements • • • • Application Integration Areas of Expertise: J.D. Edwards, Oracle eBusiness Suite, PeopleSoft, SAP, OGSYS Managed Services Treasury Services • • Improvement and Automation of Treasury and Finance Processes Asset Based Lending Facilities (ABL) Set-up, Automation and Maintenance Treasury and Cash Management Functions • System Support • Process Design • Report Management • Quality Assurance • System Assessment • Middle Tier Administration • Database Support • System Forensics/Root Cause Analysis • Middle and Back Office processing Financial Analysis Page 24
    • Let’s Stay in Touch Dan Masch Tim McKone Director, Regulatory Compliance DMasch@wgconsulting.com C: 832.863.6659 Director, Regulatory Compliance TMcKone@wgconsulting.com C: 713.962.5586 James Yu Managing Director, Trading & Risk Management JYu@wgconsulting.com C: 832.603.1572 For more information, email letstalk@wgconsulting.com www.wgconsulting.com WG Consulting, LLC @thewgcpromise WG Consulting WG Consulting 1415 Louisiana, Suite 3450 Houston, TX 77002 Page 25
    • Appendix – Compliance Services Dodd Frank & CFTC Final Rules Trade Monitoring Service All aspects of CFTC Final Rules implementing Dodd Frank, including: • Reporting requirements under Parts 43, 45, and 46 and LTR Part 20 • Business Conduct Standards (Internal and External) • Confirmations, Portfolio Reconciliation, Portfolio Compression, and Swap Documentation Standards • Whistleblower Provisions • End User Exception to Clearing • Commodity Options • Chief Compliance Officer duties • Prohibition on Manipulation • SD Registration and de-minimis calculations • WG SMEs review our client’s trading activity against a variety of Scenarios to identify potential areas of exposure for further investigation • WG SMEs have designed the Scenarios and coded the logic within its monitoring tools, and use these tools to analyze the client’s trades and trading patterns • These Scenarios incorporate the factors that underlie many of the violations described in enforcement actions and experienced by WG SMEs during our industry practice • The basis of the approach is identifying trading anomalies based on patterns of behavior, activities and market movements , and applying the knowledge and experience of WG SMEs to highlight targeted high risk activities for mitigation • It is a robust, secure and cost effective approach that supports our client’s efforts to take reasonable steps to prevent and detect noncompliant activity, thus effectively mitigating the risk of violations while satisfying Regulatory expectations Services include: • Explaining the requirements and validating the specifications • Training applicable personnel on the Rules and the resulting Policies, Procedures and Manuals • Providing IT and business process support, including coding, mapping and source system modifications • Performing gap analyses, measuring current practices against the requirements, and recommending solutions for closing those gaps • Drafting Policies, Procedures and Manuals tailored to the client’s commercial profile and internal controls • Proposing monitoring activities to ensure compliance and prevent evasion of the CEA and CFTC regulations. • Reviews and testing #DoddFrankWebinar As of June 2013 Page 26
    • Appendix – Compliance Services The WG IT team, in conjunction with our Regulatory Compliance SMEs, understand the regulatory requirements, source systems and most effective tools to deliver tailored solutions that maximize efficiencies in support of your Program. We can assist in any part of your compliance program in regards to the following: Dodd Frank CFTC Final Rules • SDR Requirements (Parts 43, 45 and 46) • Assessing trade data setup • Mapping of source systems to SDRs • Gathering and validating reportable data • Creating a common trade data warehouse for centralized reporting • Enhancing systems and processes to align with regulations • SD de minimis calculation FERC • EQR • Natural Gas Order 704 Form 552 CFTC/Exchanges • Position Limits Monitoring Tool #DoddFrankWebinar As of June 2013 Page 27
    • Appendix - Policies, Procedures, and Training While SD/MSPs are explicitly required to establish, document, maintain, and enforce a system of written risk management policies and procedures designed to monitor and manage the risks associated with its Swaps Activities (‘‘Risk Management Program”) by the Dodd-Frank Act, NonSD/MSPs are not. Though not a Dodd-Frank requirement for Non-SD/MSPs, an effective Risk Management Program is an expectation. In order to be as prepared as possible, you should consider implementing a Risk Management Program containing the following elements: • • • • • Identification of risks and risk tolerance limits, to be reviewed and approved quarterly by senior management and annually by the Governing Body Procedures for detecting risk limit violations and alerting senior management of the violations Actions to mitigate specific risks, including: market, credit, liquidity, foreign currency, legal, operational, and settlement Periodic Risk Exposure Reports highlighting your risk exposures, to be submitted to senior management immediately upon detection of any material change in risk exposures New Product Policy, designed to identify and take into account the risks of any new product prior to engaging in transactions involving the new product, and including an assessment, signed by a supervisor in the risk management unit, as to whether the new product would materially alter the overall entity-wide risk profile of your company #DoddFrankWebinar As of June 2013 Page 28
    • Appendix - Policies, Procedures, and Training • • • • Monitoring of compliance with the Risk Management Program, including policies and procedures designed to detect and respond to violations of the Risk Management Program, encourage employees to report violations to senior management without fear of retaliation, and take specified disciplinary action against employees who violate the Risk Management Program Distribution of its written risk management policies and procedures to applicable supervisors Recordkeeping, including retaining copies of all written approvals required under the Risk Management Program An annual review and testing of the Risk Management Program policies and procedures By creating, and complying with, a robust Risk Management Program you reduce the risk of being assessed hefty penalties by the CFTC in the case of unknown or accidental rule violations. #DoddFrankWebinar As of June 2013 Page 29
    • Appendix -Exchange Position Limit Monitoring • • • • • • • • • • SD/MSP is to establish and enforce written policies and procedures reasonably designed to monitor for and prevent violations of CFTC, DCM and SEF position limits and position limit exemptions (“Position Limit Procedures”), including: Converting all swap positions into equivalent futures positions (as required). Annual training to all relevant personnel on applicable position limits and prompt notification to them upon any change to these limits. Diligent monitoring and supervision of trading personnel’s trading activity to ensure compliance with SD/MSP’s Position Limits Procedures. Implementation of an early warning system to notify applicable personnel when SD/MSP’s positions are in danger of breaching the limits. A process for promptly notifying SD/MSP’s Governing Body and the CFTC when a position limit is violated. Quarterly testing of SD/MSP’s Position Limit Procedures for effectiveness. A quarterly written report that documents SD/MSP’s compliance with the CFTC’s position limits, to be promptly reported to and reviewed by SD/MSP’s CCO, senior management and Governing Body. An annual audit of SD/MSP’s Position Limits Procedures as part of the audit of the Risk Management Program. A process for retaining documentation of the implementation of the Position Limit Procedures, including training records, early warning notifications, quarterly testing and annual audit written reports, and changes to the Position Limit Procedures. #DoddFrankWebinar As of June 2013 Page 30