Dodd-Frank and Energy Trading: Where do we go now?
- Feb 15, 2012
- Nathan Stein
In recent weeks, the buzz about the coming final entity definition rule has been growing. With it, energy companies /trading organizations will be more able to assess if they are a Swap Dealer (SD), Major Swap Participant (MSP), on non-SD/MSP. This rule, when combined with the soon to follow product definition rule, will give energy companies clarity on requirements, and will start the countdown to required Dodd-Frank compliance.
To date, exemption requests, legal challenges, and regulatory delays have led many to a wait and see approach to compliance. This is a false sense of security. The dates by which Dodd-Frank compliance are required are becoming increasingly clear. The recently finalized real-time public reporting rule provides a great example. Here's a quick list of dates as they apply to energy traders:
| Category | Date | Group Affected |
| Compliance Date 1 | July 16, 2012 or 60 days after the final definitions rules | SD and MSPs' interest rate and credit swaps |
| Compliance Date 2 | 90 days after Compliance Date 1 | SD and MSP's Commodity, FX, and equity swaps |
| Compliance Date 3 | 90 days after Compliance Date 2 | All swaps of non-SD/MSPs |
Counting backwards from Compliance Date 1's July 16th, we can see that the regulators have until mid-May to make the Dodd-Frank definition rules effective and still hit their July target. This is a very real indicator that those expecting to be Swap Dealers (SDs) and Major Swap Participants (MSPs) could have little time to implement the capabilities required to comply.
If Dodd-Frank Compliance Date 1 is July 16th, SDs and MSPs would have just over 8 months from now in early February to bring their commodity swaps business into compliance. Non-SDs/MSPs would need to do so by mid-January, 2013. Even with a little more time, given the work to be done, implementation probably should've started already.
Still waiting to see if you are a SD? You can no longer afford to wait. There is no risk of wasted effort if you start by addressing the rules that will apply to all energy traders. At worst, you might end up ahead of the required compliance date for your entity designation (i.e., planning to comply by SD date, but you end up as a non-SD/MSP). See the table below for some guidance on how the rules apply. Hopefully we'll confirm entity definitions soon, update plans accordingly, and continue to move confidently in the direction of compliance.
| Applicability | Finalized | Still Pending |
| All Energy Traders | Interim Final Rule for Reporting Pre-Enactment Swap TransactionsReporting Certain Post-Enactment Swap TransactionsProhibition on the Employment, or Attempted Employment, of Manipulative and Deceptive DevicesProhibition on Price Manipulation
Position Limits for Futures and Swaps Real-Time Public Reporting of Swap Transaction Data Swap Data Recordkeeping and Reporting Requirements |
Product DefinitionsEntity DefinitionsEnd-User ExceptionReporting of Historical Swaps
Commodity Options Conforming Rules Disruptive Trade Practices
|
| More for SDs and MSPs | Business Affiliate Marketing and Disposal of Consumer Information RulesPrivacy of Consumer Financial Information; Conforming Amendments under Dodd-Frank ActLarge TraderReporting for Physical Commodity SwapsRegistration of Swap Dealers and Major Swap Participants
Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties1 |
Internal BusinessConduct (Duties, Recordkeeping, Chief Compliance Officer)Block RuleCapital and Margin
Internal Business Conduct (Documentation) Governance and Conflict of Interest Segregation for Uncleared Swaps |
UPDATE, February 16, 2012: The CFTC has announced a public meeting to, among other items, consider the final entity definition rule. The rumored release of rule has been hinted for a few weeks, only to have previously-scheduled meetings cancelled. However, this is the first time it has been officially announced on the agenda. Sounds pretty serious. The related press release from the CFTC can be found at LINK.