Commodity Futures Trading Commission 

 Office of Public Affairs 

 Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 www.cftc.gov

Orderly Liquidation Termination Provision in Swap Trading Relationship 

Documentation for Swap Dealers and Major Swap Participants 

The Commodity Futures Trading Commission (Commission) is proposing a regulation establishing a requirement 

that swap trading relationship documentation for swap dealers and major swap participants include a provision 

regarding termination rights in the event a party becomes subject to the orderly liquidation provisions of Title II of 

the Dodd-Frank Wall Street Reform and Consumer Protection Act or the Federal Deposit Insurance Act (FDIA).

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 

Section 731 of the Dodd-Frank Act amends the Commodity Exchange Act (CEA) by adding section 4s, which sets forth 

a number of requirements for swap dealers and major swap participants. This rulemaking is being proposed pursuant to 

section 4s(i). Section 4s(i)(1) requires swap dealers and major swap participants to “conform with such standards as may 

be prescribed by the Commission by rule or regulation that relate to the timely and accurate confirmation, processing, 

netting, documentation, and valuation of all swaps.” Section 4s(i)(2) expressly directs the Commission to “adopt rules 

governing documentation standards for swap dealers and major swap participants.” 

Proposed Orderly Liquidation Termination Provision Rule 

On January 13, 2011, the Commission voted to issue a notice of proposed rulemaking entitled, “Swap Trading 

Relationship Documentation Requirements for Swap Dealers and Major Swap Participants.” This proposed regulation 

would supplement that proposal and set forth another element of the swap trading relationship documentation that swap 

dealers, major swap participants, and their counterparties must include in their documentation. 

The proposed regulation would require that swap dealers and major swap participants include in the documentation with 

each of their counterparties a provision that confirms both parties’ understanding of how the new orderly liquidation 

authority under the Title II of the Dodd-Frank Act and the FDIA may affect their portfolios of uncleared, over-thecounter, bilateral swaps. 

As part of the resolution authority in Title II and in the existing provisions of the FDIA for insured depository 

institutions, the Federal Deposit Insurance Corporation (FDIC) is given a one business day period in which to transfer 

swaps and certain other contracts to a solvent third party financial institution. For this transfer authority to be effective,

a brief stay on the ability of counterparties to terminate, liquidate, or net is necessary. 

The proposed regulation would ensure both counterparties to a swap understand that under particular, unique 

circumstances, if one of the counterparties to a swap defaults, the non-defaulting party’s swap positions could be 

transferred to a new, solvent counterparty by the FDIC, and the non-defaulting party may not be able to terminate its 

claims against the defaulting counterparty until 5:00 p.m. (U.S. eastern time) on the business day following the day the 

FDIC is appointed receiver. This stay would facilitate the FDIC’s orderly liquidation of the defaulting counterparty’s 

swap positions. This stay also is critical because it would allow the FDIC the requisite time to transfer the defaulter’s 

open swap positions, claims, and collateral with the objective of avoiding widespread market disruption in the form of 

fire sales and contagion risk. The proposed regulations also would require that each party consent to the transfer of 

swaps by the FDIC to a performing third party.

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080