CFTC Issues SD/MSP Risk Management Rule

The CFTC voted 5-0 Monday to approve a final rule governing swap dealer and major swap participant requirements for swap trading relationship documentation, swap confirmation, reconciliation and compression of swap portfolios.

Part of a new regulatory regime mandated by the Dodd-Frank Act to improve swap market transparency and minimize systemic risk in order to prevent a repeat of the 2008 financial crisis, the rule is intended to improve the risk management procedures of entities that fall within the newly created SD and SP registration categories, which go into effect beginning October 12.

The proper documentation of swaps will facilitate reporting to swap data repositories (SDRs), required by another recent CFTC rule. Confirmation, portfolio reconciliation, and portfolio compression are essential risk management tools that will further Dodd-Frank’s overall goals.

“Each of these requirements promotes crucial back office standards that will reduce risk and increase efficiency in the swaps market,” CFTC Chairman Gary Gensler said in a statement of support for the rule. “These final rules are critical to the risk management of swap dealers and major swap participants and lowering their risk to the public.”

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