The Trade Execution and Central Clearing Requirements of Dodd-Frank Title VII — Transparency, Risk Management, and Financial Stability

The bankruptcy of Lehman Brothers, the subsequent rescue of American International Group, and related events in the fall of 2008 marked a turning point in the Great Financial Crisis. Among other things, they focused attention on over-the-counter (OTC) derivatives (or “swaps”) and provided the impetus for increased regulation of the OTC swaps market. In 2010, Congress enacted Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Title VII provides a comprehensive framework for swaps regulation and is intended to promote financial stability. Among other things, Title VII requires swap dealers (and certain other market participants) to register with regulatory authorities and meet new capital adequacy, collateral, recordkeeping and reporting obligations. Title VII also requires swaps (subject to certain exceptions) to be: (1) traded on exchanges or centralized trading platforms (called “swap execution facilities” or “security-based swap execution facilities”); and (2) cleared through central counterparty clearinghouses. This chapter briefly discusses some of the implications of the trade execution and clearing requirements of Title VII for transparency, risk management and financial stability.