CFTC and SEC Joint Study Open to Comments on the Joint Study on the Feasibility of Requiring the Adoption of Standardized Computer-Readable Descriptions of Complex and Standardized Derivatives

The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are preparing a joint study on “the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions which may be used to describe complex and standardized financial derivatives.”  These algorithmic descriptions should be designed to “facilitate computerized analysis of individual derivative contracts and to calculate net exposures to complex derivatives.” – as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 719(b) of the Act requires the study to be conducted by the initiation of an interagency working group comprising the CFTC and the SEC. The request for comment will soon be published in the Federal Register.

Additionally, the study is intended to explore the scope of the algorithmic descriptions in serving as the binding legal definition of derivative contracts mutually with standardized and extensible legal definitions.

31 December 2010 is the date set for comments to be received in electronic form through the CFTC’s Comments Online process on the website: www.cftc.gov.

Section 719(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") was enacted on 21 July 2010.

Following the preparation of the study, the design of the algorithmic descriptions and the joint working group (as described above), the Dodd-Frank Act requires the collaboration of the CFTC and SEC with “international financial institutions and regulators as appropriate and practical”.

Pursuant to Title VII, Sec. 719(b) of Dodd-Frank, the CFTC and SEC must jointly report to Congress by March of 2011 on the feasibility study conducted.

Roundtable discussion

The SEC and CFTC have set Friday, December 10, 2010, from 1:00 p.m. to 5:00 p.m. as a time for a public roundtable for discussions regarding requirements with regard to capital and margin requirements for swap participants and dealers – dealers and security-based dealers and participants. The roundtable will help agencies implement the Dodd-Frank Act in the rulemaking process. Other participants include prudential regulators and the Federal Reserve Board.