ISDA® has issued a market advisory on the impending November 3, 2014 deadline for swap dealers (SDs) and major swap participants (MSPs) to apprise their existing uncleared-swap counterparties of the counterparty's right to require segregation of non-variation-margin collateral (in most cases, initial margin) posted in connection with these swaps in accordance with final CFTC rules adopted under Title VII of the Dodd-Frank Act (see Legal Updates, Final Rules on Segregation of Initial Margin for Uncleared Swaps Issued by CFTC and ISDA Releases Sample Initial Margin Segregation-Rights Notice and FAQs).

Under CFTC Regulation 23.701, SDs and MSPs must:

Section 724(c) of the Dodd-Frank Act added Section 4s(l) to the CEA, under which these regulations were promulgated. These rules became effective on January 6, 2014 and SDs and MSPs entering into "new" ISDA Master Agreements with counterparties after that date were required to apprise their new counterparties of their option to require initial margin segregation by May 5, 2014. SDs and MSPs that entered into ISDA Master Agreements with counterparties prior to January 6, 2014 have until November 3, 2014, to apprise those counterparties of these segregation rights.

In addition, market participants should note that elections to segregate margin in accordance with CFTC Regulations 23.702 and 23.703 require segregation with a separate legal entity pursuant to agreements that comply with the specific requirements of the regulations. An election for segregation under the rule is effective for all uncleared swaps executed after the election is made (or, if such election is made before the relevant compliance date, on or after such compliance date).

Note that, in order to facilitate compliance with this rule, ISDA has also published:

"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.