A new protocol from the International Swaps and Derivatives Association (ISDA) will allow market participants to bring agreements that underpin over-the-counter derivatives contracts in line with the US Dodd-Frank Act.
ISDA, a trade association representing users of OTC derivatives, has designed the new protocol to allow simultaneous adjustment of multiple Master Agreements to ensure compliance with Dodd-Frank’s external business conduct rules – which come into force on 14 October – and other rules as they are finalised.
Counterparties will be required to complete a series of standardised questionnaires for the amendments to become effective.
To help market participants adjust their existing Master Agreements, ISDA has partnered with data analysis firm Markit to launch ISDA Amend, a service that automates the information-gathering process and supports sharing of submitted data and documents to permissioned counterparties.
“The Dodd-Frank rulemakings impose new obligations in a range of areas focused on enhancing customer protection,” said Robert Pickel, CEO, ISDA. “The ISDA August 2012 Dodd-Frank Protocol provides an industry standard roadmap for updating swap documentation to comply with these regulatory requirements. ISDA Amend helps make the protocol process more efficient.”
ISDA said multiple protocols may be developed as more of Dodd-Frank’s OTC derivatives rules are finalised and that similar reviews for documentation changes in other markets would be considered as legislation develops globally.
The Dodd-Frank Act, which is due to come into force by the start of next year, includes rules that will require a large proportion of the OTC derivatives market to be traded on exchange-like platforms, cleared through central counterparties and reported to data repositories. Contracts that cannot be standardised and remain bilaterally traded – and therefore continue to be governed by the ISDA Master Agreement – will be subject to higher capital charges.
Following the approval last month by the Securities and Exchange Commission and Commodity Futures Trading Commission of swap definitions and exemptions to clearing, a raft of new rules related to Dodd-Frank’s reporting, clearing, trading and record-keeping obligations are expected to come into force in the coming months.