* Dodd-Frank rules require increase in use of clearing
* CFTC remains far behind on major rules from 2010 law
By Christopher Doering
WASHINGTON, March 20 The U.S. futures regulator
on Tuesday will vote on rules outlining clearing requirements
for swaps, a step regulators hope will increase transparency to
Wall Street's risky bets and make markets operate more smoothly.
The Commodity Futures Trading Commission measures being
finalized detail the documentation for customer clearing,
requirements for processing of their positions and risk
management procedures that must be followed by clearing members.
Credit default swaps, a type of over-the-counter derivative,
were blamed for amplifying market distress in 2008 as the world
slipped into economic recession.
Congress passed the Dodd-Frank law in 2010, which
established a framework for regulators to use to boost oversight
of the previously opaque $700 trillion OTC swaps market.
The law requires swaps dealers and large participants to
trade swaps on exchanges or platforms known as swap execution
facilities, and use clearinghouses that guarantee the trades to
Swap data repositories would act as a warehouse to collect
The CFTC rules establish documentation requirements that
protect a customer by banning so-called tri-party agreements
between customers; swap dealers and FCMs that are clearing
members; and clearinghouses.
The measure prevents certain documentation that would
disclose the identity of a customer's original executing
counterparty, limit the number of counterparties that a customer
may enter into a trade with, or restrict the size of the
position a customer can take with any individual counterparty.
The rules also include procedures to be followed when trades
are submitted for clearing.
The regulations require a clearing member, or the
clearinghouse, to accept or reject each trade submitted for
clearing as quickly as "technologically practicable," but
usually between milliseconds to at most a few minutes.
A swap dealer, swap execution facility, designated contract
market, and FCM also would have a limited time to submit swaps
to a clearinghouse.
In addition, the CFTC would require swap dealers and FCMs
that act as clearing members to follow risk management rules.
Clearing members would have to establish certain procedures,
including establishing limits for their customers, monitor
accounts for adherence to those limits and conduct stress tests
of their positions.
The futures regulator has competed about 30 Dodd-Frank
rules and has 20 more to go, including swap and swap dealer
definitions and measures outlining capital and margin
requirements - factors that will highlight who will have to
comply with the potentially costly and onerous measures.