Written by Jay Gould, Ildiko Duckor and Peter Chess

The Commodity Futures Trading Commission (CFTC) released a Final Rule on January 11, 2012, on the Registration of Swaps Dealers (SDs) and Major Swap Participants (MSPs).  The Final Rule establishes the process for the registration of SDs and MSPs and now requires SDs and MSPs to become and remain members of a registered futures association.  Included in the CFTC rulemaking is a definition of an “associated person” of an SD or MSP and an implementation of a prohibition on an SD or MSP permitting an associated person who is statutorily disqualified from registration from effecting or being involved in effecting swaps of behalf of the SD or MSP.

In a companion Notice and Order by the CFTC on the same day, the National Futures Association (NFA) was authorized to perform registration functions under the new rulemaking.  Specifically, the NFA is authorized to perform the following registration functions: 

  • To process and grant applications for registration and withdrawals from registration of SDs and MSPs, and to notify of provisional registration; 
  • In connection with processing and granting applications for registration of SDs and MSPs, to confirm initial compliance with such other related CFTC regulations that may be adopted;  
  • To conduct proceedings to deny, condition, suspend, restrict or revoke the registration of any SD or MSP or any applicant for registration in either category; and 
  • To maintain records regarding SDs and MSPs, and to serve as the official custodian of those CFTC records.

The Final Rule and the Notice and Order released on January 11, 2012, are just a portion of a comprehensive new regulatory framework for swaps and security-based swaps under the Dodd-Frank Act.  The goal of the legislation is to reduce risk, increase transparency, and promote market integrity within the financial system. 

The Dodd-Frank Act further directs the CFTC, under Section 4s of the Commodity Exchange Act, to provide for the regulation of SDs and MSPs with respect to, among others, the following areas: capital and margin, reporting and recordkeeping, daily trading records, business conduct standards, documentation standards, duties, designation of chief compliance officer, and, with respect to uncleared swaps, segregation.

Pillsbury will continue to monitor the CFTC’s rulemaking and will provide further information as it becomes available.