Regulation After Dodd-Frank

Before 2010 the swap market was almost entirely bilateral and unreported, which is why nobody could size the exposure in 2008. Title VII of the Dodd-Frank Act rebuilt it. Standardized swaps must now be cleared through a registered clearing organization and executed on a swap execution facility, with the CFTC regulating most swaps and the SEC regulating security-based swaps. Everything gets reported to a swap data repository. Uncleared swaps that remain bilateral carry mandatory initial and variation margin between covered entities.

For an individual, the operative consequence of all this is the eligible contract participant threshold: you generally cannot enter a bilateral swap at all unless you have more than $10 million in total assets (or $5 million if hedging an identifiable commercial risk). Below that line the market is closed to you as a direct participant, which is why swap exposure reaches most portfolios only through the funds and notes of section “Where You Already Own Swaps”.