Commonwealth Bank’s approach

As a Bank that provides a wide range of over-the-counter (OTC) derivatives products to counterparties that are US persons or in-scope categories of non-US persons, CBA is currently provisionally registered as a non US SD.

CBA is a member of the National Futures Association (NFA ID 0249150). For further information, please refer to the below BASIC link:

https://www.nfa.futures.org/BasicNet/

CBA’s status as a provisionally registered non-U.S. Swap Dealer triggers a number of obligations. CBA is required to:

  • ensure that our counterparties are aware of certain matters;
  • collect certain information from our U.S. counterparties;
  • provide certain information to U.S. counterparties; and
  • modify the terms upon which we do business with our counterparties.

Like most swap market participants, CBA generally meets the above requirements by:

  • adhering to the latest ISDA Dodd-Frank Protocols (the “Protocols”);
  • exchanging information with our counterparties using the MarkitSERV online documentation portal. If you are not familiar with the MarkitSERV portal and how it will work, please contact us on CommBankDoddFrank@cba.com.au

What our counterparties need to do

If you are a U.S. counterparty of CBA entering into swap transactions, you need to execute additional documentation included in the Protocols. Even if you have not already executed an ISDA Master Agreement you can still adhere to the Protocols, which facilitates compliance by allowing market participants to (i) supplement the terms of existing master agreements under which the parties may execute swaps, or (ii) enter into an agreement to apply selected Dodd-Frank compliance provisions to their trading relationship in respect of swaps.

Executing the Protocols is a three-step process that you can complete online. You will need to:

  1. Submit an adherence letter. This is an acknowledgement that you agree to adhere to the latest Protocols. This letter is a legal document and should be given appropriate consideration before making a commitment. If necessary, consult your legal adviser. Your adherence letter will be visible to all visitors to the ISDA website.
  2. Complete the questionnaires. The questionnaires covers all the information you need to provide, including identity, address and Dodd-Frank classification (e.g. Swap Dealer, Special Entity, Financial Entity, Exempt End User).
  3. Use MarkitSERV to exchange information. Once you have entered the adherence letter and questionnaire into MarkitSERV, you can use the portal to exchange with CBA the information both parties need to fulfil our respective Dodd-Frank obligations.

To execute documents or for further information on the Protocols, visit the International Swaps and Derivatives Association website and click on the open protocols section.

The cost for executing the Protocols is US$500.

For those acting under a third-party relationship (e.g. Custodians), your authorised third-party agent may execute this documentation on your behalf.

In addition to the requirements outlined above, Dodd-Frank requires all counterparties to a swap to obtain a Legal Entity Identifier (LEI). CBA is obliged to use this identifier on the trade reports we provide to the U.S. regulator as part of our compliance with Dodd-Frank. You can get your LEI from the Commodity Futures Trading Commission website. You will need to have a LEI to complete your Protocol questionnaire.

It is important to follow the steps above to ensure uninterrupted trading relationships between yourself and CBA.

We strongly recommend that all parties obtain their own specialist advice (specific to their own particular circumstances) on how the Dodd-Frank Act is affecting them.

Mandatory Clearing of Swaps

One of the key reasons for Dodd-Frank is the introduction of clearing of all standardised eligible OTC derivatives through a centralised counterparty (or Clearing House) in order to mitigate counterparty risk.

Clearing is a process by which a third party, the Clearing House, steps in between the original counterparties (you and us) and guarantees the performance of the transaction, by requiring that we both post substantial amounts of liquid collateral.

For instance, you will agree the terms of a swap with us, and then we will both notify the clearer (or your Clearing Broker) of the terms of the trade. We will both face the Clearing House as their Legal counterparty.

The main exception to mandatory clearing is where our counterparty elects to utilize the End User Exemption. The End User Exemption can be elected by non-financial entities that are hedging or mitigating a commercial risk. In such a case the client faces Commonwealth Bank on a bilateral basis.

The most commonly used clearing houses are the LCH (London Clearing House) and CME Group (Chicago Mercantile Exchange). All counterparties intending to clear trades over a Clearing House must set up an account with a Clearing House and/or Clearing Broker, and execute the appropriate documentation before trading. Please contact your Clearing Broker or the Clearing House for the account set up process. The Counterparty has the right to nominate to the Swap Dealer which Clearing House should be used for each trade.

For cleared trades, the Clearing House will charge each party an Initial Margin, and then a Maintenance Margin where necessary. Depending on the Exchange, netting across Swaps and even across Futures positions may be recognized for margin calculations. For trades on a bilateral basis, at the moment the parties are free to agree their own margining regime, but Dodd-Frank rules will likely evolve that prescribe the margining regime for bilateral trades.

Mandatory Clearing applies to a specific set of Credit and Rates products for swaps conducted with US Persons with the exception of those that have represented that they have an End User Exception (as described above).Contact us

If you have any questions, please contact your CBA Relationship Executive or send us an email at CommBankDoddFrank@cba.com.au.

Things you should know

The contents of this webpage were prepared exclusively for the benefit and use of the Commonwealth Bank’s counterparties to whom it was directly addressed and delivered. It contains only factual information. It has been prepared for discussion and information purposes only. You should note that many aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to dealing in swaps are not finalised and may be subject to change without notice to you. You should not treat the information on this website as advice or explanation of all relevant issues in connection with your consideration of the Protocols or the Dodd-Frank Act. You should consult with your legal advisers and such other advisers as you deem necessary or appropriate. The Commonwealth Bank is not providing any legal or other advice to you. Commonwealth Bank is not acting as an advisor or fiduciary in any respect in connection with providing this information. The Bank or any of its subsidiaries or affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with Bank of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.