Regulatory reform through Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Basel III is about transparency, making the derivatives world less opaque, and more standardization. While the end goal of the derivatives provisions is less risk and greater stability in the market, these new standards come at a potentially considerable cost for all derivatives users—not just dealers and financial services companies.
Corporate End Users will pay more for over-the-counter (“OTC”) derivatives as banks pass along the increased cost of their own compliance to customers. Beyond the actual costs of the derivatives themselves, corporates will also incur the costs to comply with certain elements of the new trading regulations—including the increased recordkeeping and reporting requirements.
All swap counterparties, including End Users, will be required to maintain a full set of data related to each of their derivative positions. These rules apply to all derivatives with expiration dates after July 21, 2010. And it’s not just active swaps that need to be recorded; all swap records must be maintained for five years after the transactions are terminated, and two years’ worth must be readily accessible.