Pursuant to CFTC Regulation 50.25, mandatory clearing will be implemented on a phased basis. The first phase of implementation is scheduled to begin on March 11, 2013. Beginning on March 11, 2013, Covered Swaps between “Category 1 Entities” (must be submitted for clearing, absent an exemption. Category 1 Entities include, swap dealers, major swap participants, security-based swap dealers, major security-based swap participants, and “Active Funds".
The term “Third-Party Subaccount” means an account that is managed by an investment manager who is independent of and unaffiliated with the account’s beneficial owner or sponsor and responsible for the documentation necessary for the account’s beneficial owner to clear swaps.
Each market participant that will enter into Covered Swaps with a Category 1 Entity is responsible for making its own determination regarding whether it is a Category 1 Entity and for compliance with related mandatory clearing requirements under the CEA. In particular, buy-side market participants transacting with other Category 1 Entities will be required to determine whether they are Active Funds.
To avoid unwanted trading disruptions, ISDA recommends that buy-side market participants communicate with their Category 1 Entity counterparties about whether they are Active Funds well in advance of March 11th.
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