Commodity Futures Trading Commission Clarifies Which Provisions Of The Dodd-Frank Act Are Now Effective; Delays Effective Date Of Others (January 2012)

In an action that will affect virtually all participants in the over-the-counter swaps market, as well as futures exchanges and derivatives clearing organizations, the Commodity Futures Trading Commission ("CFTC" or "Commission") recently extended, by way of a December Order,1 the effective date of major provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").

Revisiting its earlier deadline of December 31, 2011,2 the CFTC confirmed that certain self-effectuating provisions of the Commodity Exchange Act ("CEA"), as amended by the Dodd-Frank Act, will not now become effective until the earlier of the CFTC's issuance of final definitions for key terms, such as "swap," "swap dealer" and other product and entity-related definitions. Significantly, the Commission reaffirmed that despite the repeal of various CEA statutory and regulatory exemptions and exclusions, the Order's relief, together with prior CFTC staff no-action letters relating to other specified provisions of the Dodd-Frank Act, effectively preserves the status quo with respect to trading over-the-counter swaps and options pending further implementation of the Dodd-Frank Act's provisions.

Why did the CFTC issue this extension?

The Commission issued an Order extending the effective date for two reasons. First, the CFTC, by way of a July Order, had issued an earlier extension of the effectiveness of the Dodd-Frank Act provisions until December 31, 2011. With the first extension set to expire and the rules not yet fully implemented, a follow-up extension was required. Second, Part 35 of the Commission's regulations, which was the backbone for maintaining the status quo for trading over-the-counter swaps and options, was repealed on December 31, 2011.3 The Commission therefore temporarily extended the effectiveness of the provisions of Part 35, as in force prior to December 31, 2011, despite its repeal.

How does the CFTC categorize the various Dodd-Frank Act provisions with respect to their effectiveness?

The Commission's action affects four different categories of Dodd-Frank Act provisions and CFTC rules under those provisions. These four categories are:

Category 1: Provisions of the Dodd-Frank Act that, on their face, do not become effective until the CFTC issues implementing rules;

Category 2: Provisions of the Dodd-Frank Act that would be effective, but for their dependence on pivotal terms that the CFTC must finalize through rulemaking;

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