On March 13, 2014, ISDA® released an advisory note on CFTC Dodd-Frank margin collateral segregation rules for swap dealers (SDs) and major swap participants (MSPs). Under CFTC Regulation 23.701, SDs and MSPs must notify their non-SD and non-MSP swap counterparties of their right to require the SD or MSP to segregate with an independent third-party custodian the initial margin collateral they post with the SD or MSP in connection with uncleared swap transactions (see Legal Update, Final Rules on Segregation of Initial Margin for Uncleared Swaps Issued by CFTC).

The advisory also includes a form that market participants can use to send the required contact information to SDs and MSPs and also reminds SDs and MSPs that, in connection with this rule, prior to executing new uncleared swaps, they must:

For the above requirements under Subpart L of Part 23 of the CFTC's regulations, all parties have until:

The ISDA advisory notes that potential market disruptions could occur if market participants wait until the above compliance dates to receive and respond to these notices. In order to avoid disruption, non-SD/non-MSP swap counterparties should be prepared to provide necessary contact information to their SD and MSP counterparties well in advance of these compliance dates in order to comply with CFTC Regulation 23.701. ISDA and Markit are developing electronic forms to assist non-SD/non-MSP swap market participants in delivering their required contact information, receipt confirmations and elections to multiple SD and MSP participant counterparties simultaneously. These tools are expected to be ready around late April 2014.

Note that Section 4s(l) of the CEA sets out the rights of swap counterparties to SDs and MSPs with respect to the segregation of money, securities or other property used to margin, guarantee or otherwise secure uncleared swaps. CFTC Regulation 23.701 covers the obligations of SDs and MSPs with respect to counterparty notification of these segregation rights.