Katten Partner Raymond Mouhadeb Discusses the Purpose, Applicability and Implications of the August 2012 ISDA Dodd-Frank Protocol for Hedge Fund Managers, Focusing on Whether Hedge Funds Should Adhere to the Protocol
Hedge Fund Law Report
The Dodd-Frank Act’s overhaul of over-the-counter derivatives trading will fundamentally change the trading relationship between swap dealers and major swap participants (MSPs) and hedge funds and other counterparties. Among other things, the Dodd-Frank Act and related CFTC rules will impose significant new obligations on swap dealers and MSPs that will necessitate the amendment of bilateral swap documentation entered into with hedge funds. To standardize this process, the International Swaps and Derivatives Association, Inc. (ISDA) introduced the August 2012 ISDA Dodd-Frank Protocol (Protocol). The Protocol is a non-negotiable supplement designed to amend existing swap documentation with the goal of facilitating the exchange of information between swap dealers/MSPs and their counterparties. While adherence to the Protocol is not mandatory for counterparties, non-adherence is likely to have consequences for their swap trading activities. To help hedge fund managers understand the Protocol and evaluate whether their funds should adhere to it, the Hedge Fund Law Report recently interviewed Raymond Mouhadeb, a Partner at Katten Muchin Rosenman LLP. Mouhadeb advises investment managers and sponsors of hedge funds, funds of funds and other investment vehicles on structuring and legal issues, including the applicability of the Dodd-Frank Act and regulations related to derivative transactions. Our interview with Mouhadeb covered various topics, including: the purpose of the Protocol; understanding the hedge funds to which the Protocol applies; the specific entity that should consider Protocol adherence; consequences of non-adherence; principal concerns related to Protocol adherence; whether onshore funds should consider moving their swap relationships offshore; important compliance dates; the process for signing on to the Protocol; how adherence will lead to disclosure of information about the hedge fund; the types of representations that must be made in adhering to the Protocol; concerns relating to the DF Terms Agreement and the ISDA August DF Supplement; whether parties have entered into arrangements to amend the Protocol; continuing compliance obligations arising out of Protocol adherence; and whether the Protocol will change the procedures for entering into new ISDA agreements.