As the Dodd Frank deadline for clearing approaches in just over 2 weeks, there has been much concern over how non-US clients may start to cease their relationships with foreign branches of US banks. Well—this is becoming a reality, as many non-US counterparties have decided to stop trading with US banks.
As originally reported, there was a suspected equivalent of having the exemptive period extended past Oct 9, but without any such rules having been implemented to date, determining substituted compliance seems unlikely. Clients will now have to comply with Dodd-Frank when trading with foreign branches. Many are looking to hold back on trading with branches of US banks, especially in the UK. Non-US swap dealers and non-US major swap participants are also required to follow substituted compliance.
The deadline also brings with it the expanded “US person” definition which limits the US person status to those who reside in the US, or any entity that is organized in the US or does its business in the US. The new definition is to cover various bodies, such as any commodity pool, pooled account, investment fund or other collective investment that is majority owned by a US person.
For both participants here and across the pond, everyone will be watching the deadline closely when it comes to what is really defined by “US Person,” by the CFTC.