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Dodd-Frank uncertainties grow as rules take effect

Though the Commodity Futures Trading Commission has finalized Dodd-Frank terminology and definitions, uncertainty remains, as rules dependent on those finalizations take effect one after another.

“From our point of view, and also our clients’, the most difficult element is the short time frame—just 60 days to implement in some cases,” David Dixon, product manager at OTC derivatives software firm Misys, said, Markets Media reports. “Much of what they need is available today, however to implement and to test takes time. Firms also have to install changes on their existing implementation.”

After the rule is published in the Federal Register, commodity pool operators will have 60 days to register with the CFTC. The registration deadline could be as early as Sept. 30.

Additionally, the CFTC rescinded a rule in April that exempted CPOs from registration if all the CPO fund’s investors are “qualified eligible persons.” Funds that expected an exemption under that rule will have until Dec. 31 to decide whether to register with the commission. That decision will be dependent on the final swaps definition rule, which will take effect 60 days after it is published in the Federal Register, according to Markets Media.

The CFTC also approved final definitions of the “end-user” exemption, which mandates that Dodd-Frank clearing requirements are not applicable to a swap if one of the swap’s counterparties is not a financial entity, is participating in risk-mitigation or hedging or notifies the CFTC how it plans to meet its financial obligations in non-cleared swaps.

“While generally applauded by those swap participants that may seek the exception, which exempts them from submitting swaps for central clearing, these participants may be surprised to learn that the additional burdens of noticing, documenting and reporting may be more burdensome than beneficial,” Alun Green, the general manager of Stream GMI at SunGard’s capital markets business, said, Markets Media reports.

Firms affected by Dodd-Frank’s swaps provisions will be forced to develop compliance programs to meet rule requirements that have yet to take effect.

Trade reporting will not take effect until September, though firms will be required to employ legal entity identifiers, the definitions of which will be unavailable until the end of the year.

“There are elements of Dodd-Frank to come that will affect areas of the solution already implemented,” Dixon said, according to Markets Media. “This gives further pressure and complication.”