“Derivative reforms are well underway, and significantly expanded, mandatory clearing, collateral and reporting standards come into force on September 9 for pension plan asset managers,” said Kurt Woetzel, chief executive officer, BNY Mellon’s Global Collateral Services business. “Asset managers need to assess the implications of new reporting requirements, prepare for clearing specified interest-rate swaps and credit-default swaps, understand new modes of trade execution, and review their preparations with trading, clearing and custody partners.”
According to a report jointly issued by BNY Mellon and global law firm Davis Polk, key steps that asset managers should take to prepare for clearing and other regulatory requirements include:
- Classifying financial instruments traded. New Dodd-Frank derivatives regulatory requirements apply only to swaps, security-based swaps and mixed swaps;
- Determining the extent to which the regulations apply to the entity whose assets they trade, as well as to the counterparties with whom they trade;
- Considering the implications of reporting requirements, as well as the public transparency of swap transaction data;
- Preparing to clear specified swaps before the September deadline. The Dodd-Frank Act requires market participants to clear standardized interest-rate and credit-default swaps through clearinghouses. Clearinghouses require initial margin and variation margin;
- Confirming that a pension plan has adhered to International Swaps and Derivatives Association (ISDA) protocols;
- Preparing for mandatory exchange trading of mandatory cleared swaps; and
- Reviewing preparations with trading, clearing and custody partners and advisers in advance of the September deadline.
BNY Mellon and Davis Polk partnered on the report, “Are You Ready? New Swap-Trading Requirements for Pension Plan Asset Managers,” which can be found here.