Under the 2010 Dodd-Frank Act, the commission is required to adopt rules pertaining to the accurate and timely processing, confirmation, documentation, netting and valuation of swaps, as well as reconciliation and compression of swap portfolios, according to Waters Technology.
Proper documentation of swaps is essential to reducing risk in the swaps market and has been at the forefront of the foreign and domestic regulatory agenda. Confirmation, portfolio reconciliation and portfolio compression have been noted as critical post-trade mechanisms used to reduce risk and improve efficiency.
“Each of these requirements promotes crucial back office standards that will reduce risk and increase efficiency in the swaps market,” Gary Gensler, chairman of the CFTC, said, Waters Technology reports. “These final rules are critical to the risk management of swap dealers and major swap participants and lowering their risk to the public. The rules establish procedures to promote legal certainty by requiring timely confirmation of all swap transactions, setting forth documentation requirements for bilateral swap transactions, and requiring timely resolutions of valuation disputes. In addition, the rules enhance understanding of one counterparty’s risk exposure to another, and promote sound risk management through regular reconciliation and compression of swap portfolios.”
The new rules will take effect 60 days after publication in the Federal Register.