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Dodd-Frank creates clearing date confusion for swaps industry

Ananda Radhakrishnan

The 2010 Dodd-Frank Act, which implements some of the most sweeping regulatory reforms in the U.S., has caused a number of uncertainties for the swaps and banking industries.

Beginning January 1, most swaps will have to be processed through central clearinghouses. Earlier this year, the Commodity Futures Trading Commission issued 90-, 180- or 270-day compliance deadlines to swaps firms based on the type of firm. Swaps dealers are required to process swaps through clearinghouses within 90 days after the rule takes effect, the Wall Street Journal reports.

Ananda Radhakrishnan, a senior staffer with the CFTC, told the swaps industry recently that firms would also be required to retroactively clear swaps. If the rules take effect Jan. 1, and the 90-day compliance period ends on April 1, any swaps transacted between those two dates must also be cleared before April 1.

The CFTC announced earlier this month that it planned to issue guidance intended to clarify the rule. Commissioner Scott O’Malia of the CFTC said that Radhakrishnan’s interpretation of the rule’s dates “didn’t seem consistent with where everyone’s thinking was” in the CFTC and within the industry, according to the Wall Street Journal.

Banks, however, are seeking to stretch their resources in order to comply with the law without adding to the regulatory burden. Some financial institutions are also considering seeking an exemption to the rule, The Standard reports.

If banks find that dealing with U.S.-based swaps proves to be too complicated and costly, some of the firms may choose to avoid dealing with U.S. entities, which could significantly alter the way banks do business.

The latest confusion follows growing concerns voiced by the industry regarding the speed with which swaps are to be cleared. O’Malia said that Radhakrishnan will likely clarify whether the CFTC will establish a two-minute maximum time period for firms to clear, adding that some firms have said they would require up to 90 minutes, according to the Wall Street Journal.

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