KirklandPEN Kirkland & Ellis LLP

KirklandPEN brief: Financial Reform Bill May Increase Transaction Costs for Private Funds Using Derivatives

In this KirklandPEN brief, we discuss how the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed by the House on June 30 and currently under consideration by the Senate (the "Dodd-Frank Act"), imposes significant new requirements on private funds that use derivatives. Although the Dodd-Frank Act provides exemptions for certain operating companies that use swaps to hedge commercial risk, most "financial entities," such as private funds, will be required to trade "standardized" swaps (e.g., interest rate swaps, equity swaps and currency swaps, unless currency swaps are later exempted by the U.S. Treasury) on an exchange and submit them to a clearing entity.