Dodd-Frank Swap Reforms and Requirements

Dodd-Frank Compliance:

Cardea Partners can assume the role of Designated Evaluation Agent (“DEA”) for non-Special Entities or a Qualified Independent Representative (“QIR”) for Special Entities.  Cardea Partners have the appropriate policies and procedures in place to help ensure compliance with regulatory requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Cardea Partners are registered Municipal Advisors with both the Municipal Securities Rulemaking Board (“MSRB”) and Securities and Exchange Commission (“SEC”) and we have served as an Independent Registered Municipal Advisor (“IRMA”) for municipalities and obligated persons (this would encompass for-profit and not-for-profit borrowers issuing debt through an agency, conduit or authority).  A copy of our Dodd-Frank Policy & Procedures is available upon request.

As part of the Dodd-Frank Act, the Commodity Futures Trading Commission (“CFTC”) has mandated that Swap Dealers (“SDs”) or Major Swap Participants (“MSPs”), in order to qualify for the “safe harbor” protection provided under CFTC Regulation §23.434(b), must disclose to the end-user that they are solely acting in their capacity as counterparties (in their own best interests) and are not assessing the suitability of the swap or trading strategy involving a swap for the end-user.

The SD or MSP must have a reasonable basis to assume the end-user or their DEA is capable of independently (i) evaluating the investment risks with regard to swaps and trading strategies involving swaps as well as any swap recommendations provided to the end-user and (ii) making trading decisions with respect to swaps on the end-user’s behalf.  If not engaging a DEA, end-users should review their policies and procedures in regards to providing a safe harbor election to the bank or financial institution.

As an FYI, SD’s & MSP’s refer to financial institutions that offer derivative products.  Also, end-user means: a corporation, real estate holding company, not-for-profit, educational institution, healthcare organization and other similar borrowing entities.  While many just think of swaps as fixed-to-floating exchanges, under the law, “Swap” means: swaps, caps, floors, collars, basis swaps, cross currency swaps, swaptions, corridors, CDS, Treasury Locks, and many more products.