Dodd-Frank Act: Implications for Derivatives Trading, Investing, and Hedging Activities

Training

JUL

New York City, United States

Two-day workshop presented by William Allen

Two-day workshop presented by William Allen

The Dodd-Frank Act (DFA) mandates comprehensive changes to a wide range of financial institutions and products. This course explores in detail one major area impacted by several parts of the DFA: the trading, investing and hedging activities using a wide range of derivatives and related products. These products may be used by many different types of market participants in many different ways, such as bank dealers in market making, fund managers trading and hedging investments, regional banks managing their Asset-Liability positions, municipalities and government entities managing their debt, corporate entities managing commercial risks, and agricultural enterprises hedging market exposure.

The course provides not only a review of DFA law and regulations related to trading, investing, and hedging, but also through a series of special workshops dives deeply into special situations, including in-depth explanations of the types of calculations, reports, summaries, and scenarios that will be encountered or required.

The workshops provide an opportunity for focused discussions and analysis in small groups with debriefs. As a result, the course is very “hands-on” and includes not only 1) copies of relevant regulations, but also 2) Excel files illustrating calculations and models that are commonly used.

Who The Course is For

Treasury and derivatives marketing professionals
Asset-Liability Management committee members
Fund managers
Pension managers
Risk managers
Compliance officers
Bank mid- and back-office personnel
Corporate treasury executing hedging strategies
Regional bank ALM and structured product sales
Attorneys and accountants
Government debt management and investment offices

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Prior Knowledge

Basic understanding of the current regulatory environment, familiarity with treasury and capital markets operations.

This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

Day One

Introduction and Overview

A quick revision of Black-Scholes and Ito lemma
Intent and purpose of the Dodd-Frank Act (DFA)
Behind the headline stories
Comprehensive overview and categorization of DFA
Wide impact on products and participants
Clarification of regulator jurisdiction under DFA
Special roles for SEC, CFTC, Fed, Treasury and other prudential regulatory bodies
Benefits and risks of use of swaps in trading, investing, and hedging activities

Transactions, Participants, and Important Definitional Issues

Broad inclusion of derivatives products in DFA
Swaps, security-based swaps, and mixed swaps
Determining standard and non-standard swaps
Cleared versus non-cleared transactions
Designated contracts and clearing execution
Limited exclusions for FX swaps and forwards
Limited exclusions for commercial hedgers
Enhancement of protection on cleared transactions
Types of derivatives counterparties
Swap dealers under DFA
Major swap participants
Eligible contract participants
Special entities
Market and counterparty risks
Registration of entities
Capital and margin rules
Reporting and recordkeeping requirements
Business conduct rules
Role for chief compliance officer

Workshop: Transactions, Participants, and Important Issues

This workshop comprises a series of short case studies that illustrate the broad expanse of the implications of DFA to trading, investing, and hedging activities, including:

Pension asset allocation and management
Hedge fund long-short trading activity
Corporate hedging transactions
Regional bank ALM swaps
Local bank back-to-back structured customer deals
Commodities businesses derivatives uses

Workshop on Required Swap Calculations

Characteristics of swaps products risks
Material risks disclosure
Preparing and interpreting swap scenario analyses
Material characteristics and factors for swaps
Modeling swap cash flows
Fair value calculation methods and acceptable models
Limitations and assumptions underlying calculations

Day Two

Rules of Conduct for Dealing with Counterparties

Business conduct standards
Requirement to “Know Your Counterparty “
Verification of counterparty eligibility
Disclosures and records
Prohibitions on fraud, manipulation and other abusive practices
Confidentiality issues
Trading ahead and front running
Disclosure of characteristics and material risks
Incentives and conflicts of interest
Clearing alternatives and procedures
Fair dealing requirements and compliance
Recordkeeping and disclosure requirements
Daily standard mid-mark for value

Workshop: DFA Collateral Margins

Characteristics of counterparty risks
Current market value
Threshold amounts
Potential future changes in value
Transactions and counterparties subject to DFA collateral margins
Risks subject to margins under DFA
Cleared versus uncleared swaps margins
Methods of calculating initial margins
Variations in margin amounts required over time
“Look-up” versus margin models
Margin investment and liquidity issues

Workshop: Lessons Learned from MF Global

Segregation of customer assets
Reinvestment of customer assets
Margin levels and top-up
Monitoring status of assets
Porting commitments
Margin for ported positions
Potential need for multiple Futures Commission Merchants (FCMs)
Jurisdiction and regulators of FCM when different rules apply

Swap Transactions with Special Entities

Defining and ascertaining Special Entity status
Subtle differences in dealing with different types of Special Entities
Requirements and recommendations for advisors to Special Entities
Acting in best interest and making reasonable efforts
Reasonable reliance on representations
Assessing the qualifications of a Special Entity’s representative
Disclosures: capacity, costs, contributions, and risks Institutional suitability and appropriateness