CFTC's Proposed Business Conduct Regulation: Can the OTC Swap Market Survive the "Cure"?

On December 22, 2010, the U.S. Commodity Futures Trading Commission issued a proposed regulation to implement the provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 related to external business conduct standards for swap dealers and major swap participants. In addition to subjecting all swap dealers to extensive new requirements, the proposed regulation imposes particularly stringent business conduct standards on swap dealers in their dealings with “Special Entities,” including employee benefit plans and governmental plans within the meaning of the Employee Retirement Income Security Act of 1974, as amended. The comment period for the proposed regulation closes on February 22, 2011. The memorandum reviews the proposed requirements and considers the impact of the proposed changes on the continued viability of the OTC swap market.