Federal Register: Orderly Liquidation Termination Provision in Swap Trading Relationship Documentation for Swap Dealers and Major Swap Participants

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Gavel.png FINAL RULE: This page refers to the proposed rule on orderly liquidation provision in swap documentation requirements. The CFTC Final Rule: Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants was issued August 27, 2012.
Dodd-Frank Timeline, Orderly Liquidation Termination Provision in Swap Trading Relationship Documentation
Proposal Date Final Rule Issue Effective Date
February 8, 2011 September 11, 2012 November 13, 2012

Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) contains a provision whereby, if a party to a swap transaction were to default,a forced liquidation of the entity's holdings may become necessary. This proposal, approved at the CFTC Open Meeting, January 20, 2011, requires that swap dealers and major swap participants include documentation explaining these "orderly liquidation" procedures. Specifically:

  • Documentation must include language that both counterparties understand the orderly liquidation procedures,
  • The FDIC is given one (1) business day in which to transfer positions to a qualified third party,
  • The non-defaulting counterparty may not be allowed to liquidate the swap holding, as the FDIC will have until 5:00 pm on the one business day in which to seek a qualified third party to which the swap can be transferred.

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