Video: Andrew Lese on Dodd-Frank Act and OTC derivatives

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Executive Director, Andrew Lese of Financial Services Advisory, describes some key regulatory changes and requirements that will affect the OTC derivatives markets.

Key Takeaways:

  1. Title VII of the Dodd-Frank Act will bring greater regulatory oversight and transparency to the over the counter (OTC) derivatives markets. Requirements of the regulations include registration of Swap Dealers and Major Swap Participants, changes to the execution processes and price discovery of OTC derivatives, "real time" reporting of transactions, and mandated clearing and margining of OTC derivatives. It creates a regulatory framework for the governance over OTC derivatives markets and vests authority in the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to promulgate rules that further the law’s objectives.
  2. Dodd-Frank impacts all areas of the organization's OTC derivatives businesses and will require significant business model, infrastructure and process changes. These changes include amending business processes to support the cleared OTC contract model, policies and procedures; significant IT modification to support the new market infrastructure; changing front office behavior to support real time reporting; developing due diligence and monitoring strategies; informing and training staff; and instituting proper measures for record-keeping.
  3. Organizations must invest in robust project governance and implementation structures to meet required changes to business processes and IT infrastructure. Among other things, they should consider an impact assessment across all businesses and regions and identification of key changes required and approaches to address these changes. Key considerations could include mapping reporting requirements to applications and data sources across multiple disciplines; defining a rules and requirements tracking process to monitor developments; designing appropriate client on-boarding and reporting procedures; and defining a compliance control framework.
  4. With new rules being proposed regularly, organizations should establish a formal governance structure for overseeing rule-making initiatives and updating the broader implementation workstreams, including managing compliance processes with the new rule requirements.