CFTC's rulemaking on the segregation of cleared swaps customer collateral: LSOC and beyond

Abstract

Purpose

The paper's aim is to explain the rules the Commodity Futures Trading Commission has adopted for the segregation of cleared swaps customers' collateral as mandated by the Dodd‐Frank Act.

Design/methodology/approach

The paper discusses: the deliberations that led the commission to arrive at the legal separation with operational commingling model (“LSOC”) as the regulatory standard; the characteristics of the LSOC model; and the possible future enhancements to the segregation framework under consideration by the commission, including the guaranteed clearing participant model.

Findings

Although the commission has adopted the final rules that will implement LSOC as the segregation model for cleared swaps, a number of significant issues remain open and are likely to be revisited by the commission. Additional changes to the segregation framework may be proposed as the lessons of the MF Global Bankruptcy proceedings become evident.

Originality/value

Practical guidance from experienced financial services lawyers is provided by the paper.

Citation

Architzel, P.M. and Walker, P.P. (2012), "CFTC's rulemaking on the segregation of cleared swaps customer collateral: LSOC and beyond", Journal of Investment Compliance, Vol. 13 No. 3, pp. 36-45. https://doi.org/10.1108/15285811211266092