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by Craig Donner

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  • Definition of 'Rules'

  • Comment Letters on Dodd-Frank Rulemakings

  • DTCC has submitted several comment letters to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in response to proposed rulemakings to implement the Dodd-Frank Act.

    The comment letters build on DTCC's government relations and public affairs program, which is focused on increasing knowledge about the company's capabilities through extensive in-person briefings with key stakeholders, including lawmakers, regulators and the media. These meetings also allow DTCC to share insights gained from its nearly 40 years of experience providing safety, soundness and stability to global financial markets.

    "The comment letters give us an opportunity to formally communicate our policy positions to the agencies," said Larry Thompson, DTCC managing director and general counsel. "They allow us to provide detailed comments on the more technical parts of the proposed rules as well as outline alternate options that may prove more effective at achieving the goals of regulators without imposing undue and costly mandates on the industry."

    Rulemaking process

    The SEC and the CFTC are primarily responsible for implementing the 2,300-page Dodd-Frank Act, which calls for at least 243 separate rulemakings, 67 one-time studies/reports and 22 periodic reports. Under the Dodd-Frank Act, the majority of these rules and reports are required to be completed by July 2011. For this reason, the regulators have moved quickly to issue proposed rules for public comment.

    Once the comment period closes, typically 30 to 60 days after a proposed rule has been published in the Federal Register, the agencies spend four to six months reviewing the input and making revisions, if necessary, before voting on final approval.

    Below is an overview of several rules proposed by the SEC and CFTC as well as highlights of DTCC's responses. The comment periods for these rules have closed.

    DTCC plans to submit additional comment letters on proposed rules throughout the rulemaking process.

    Agencies: CFTC and SEC

    Interim Final Rule: Reporting Pre-Enactment Swap Transactions.

    The interim final rule requires counterparties of swap transactions entered into, but not expired before enactment of Dodd-Frank on July 21, 2010, to report certain information to a registered data repository or to the appropriate agency. The interim final rule also requires counterparties to retain information relating to the terms of these pre-enactment swaps.

    Overview of DTCC's Response: DTCC's comment letter expresses support for preserving data on pre-enactment unexpired swap transactions and notes that the reporting of a binding, legal electronic record agreed to by the two counterparties to such a transaction should satisfy the rule's reporting and document retention requirements. DTCC also raises awareness that the rule's single counterparty reporting obligation could result in the fragmentation of swap market data, which would decrease the utility of the information collected.

    Agencies: CFTC and SEC

    Proposed Rule: Mitigation of conflicts of interest in the ownership and governance of derivatives and security-based swap clearing organizations, designated contract markets, national securities exchanges that post or make available for trading security-based swaps, and swap and security-based swap execution facilities (referred to as "registered entities").

    The SEC and CFTC each issued separate rules to mitigate potential conflicts of interest in the ownership and governance of these entities, and the proposed rules conform in many aspects. In general, each set of rules imposes certain composition and governance requirements on the boards and specified committees registered entities, as well as certain limits on the ownership and voting power of affiliates and members.

    Overview of DTCC's Response: For both the SEC and CFTC rules, DTCC recommends eliminating the ownership and voting limitations in their entirety because of their potential negative impact on capital, liquidity and systemic risk. DTCC believes the structural governance requirements outlined in each of the proposed rules offer the best solution to meet the goals of regulators. DTCC also expresses its support for ensuring an independent perspective is represented on the board of directors and committees. DTCC recommends, however, that the indirect application of the rules to affiliates and members be eliminated or refined and, in any case, that DTCC as a user-owned financial market utility should not be subject to certain of these rules.

    Agencies: CFTC and SEC

    Proposed Rule: Proposed rules on swap data repositories (SDRs), reporting and recordkeeping.

    Overview of DTCC's Response: In advance of the release of the proposed rules, DTCC reinforced its policy positions in a comment letter that focused on the value of SDRs as a single source of information that can help regulators effectively monitor and mitigate systemic risk. The letter also notes that Dodd-Frank authorizes regulators to designate one repository to act as an aggregator of multiple repositories in order to have a consolidated and complete view of market activity. In addition, DTCC explains the need for SDRs to maintain a legally binding electronic record and perform asset servicing to support market oversight, and also highlights the necessity for appropriate indemnification provisions to ensure regulators have access to comprehensive data from repositories. @