A brief look at what’s on International Treasurer’s radar screen this week.
Several topics came out of this week’s International Treasurer editorial meeting, including a further review of how to prepare for coming Dodd-Frank rules; and why companies are reluctant to fill out documentation that would allow swap dealers the ability to continue trading with them.
Coming DFA rules this summer will require companies to have certain structures in place and paperwork signed in order to continue to do business with few headaches or punishments or both. One observer compared the rules to a lot of “wet cement.” Here is a quick rundown of a couple of the rules
CFTC’s External Business Conduct rules.
By May 1, under new DFA rules, all counterparties must provide their registered Swap Dealers with legal classifications and representations. This will allow the Swap Dealers to comply with the CFTC’s External Business Conduct Rule (EBCR). “After the EBCR deadline, Swap Dealers will only continue offering and executing swaps with in-scope counterparties who have provided the necessary information for compliance,” according to the International Swaps and Derivatives Association (ISDA).
According to the Wall Street Journal, the regulation is intended to ensure that companies are aware of the risks they take when using the often-complex financial instruments and so dealers can verify their customers are sufficiently sophisticated. But so far, companies have been reluctant to fill out the paperwork due to fears they will be giving away too much trading information among other things.
One expert familiar with companies’ reluctance said his main concern “is the confidentiality waiver for parties who do not have NDAs in place and are concerned about confidential trade information being misused once reporting begins today.” Despite the fears, companies will adhere. This expert predicts “a mad rush to adhere at the end of the month.”
Adhering to August 2012 Protocols.
Many corporates are already in compliance with the August 2012 protocol requiring them to determine what kind of entity they are, and the deadline to have a board-approved end-user exception to use uncleared swaps is August 2013. Otherwise, clearing will begin on September 9th and will cover rates, FX activities, commodities, credit and equity swaps without the end-user exemption.
IT will dig a little further into the issues surrounding this, including the language some companies are using and what committee on the Board will be tapped to give approvals. But here is a short list of what the Board will have to disclose annually to the CFTC:
- Is the organization part of a financial entity, and if so, under which provision is it eligible for the end user exception?
- How does the organization generally meet its financial obligations under uncleared swaps?
- How is it hedging or mitigating commercial risk?
- Is it an SEC filer? If so, then must have board authorization for uncleared swaps
Systems Update from AT30
A recent pre-meeting survey for the coming Assistant Treasurers’ Group of 30 (AT30) reveals a very active situation when it comes to treasury management systems. Just about all respondents are doing something related to their TMS situation, whether implement new ones, developing new RFPs; implementing their first TMSs or doing an upgrade. Only small portion of group will be idle this year when it comes to TMS projects.
IT will report on some of the progress made following the AT30’s April 16-17 meeting.