The CFTC unanimously adopted amendments to regulations governing (i) real-time public swap reporting and dissemination, (ii) swap data recordkeeping and reporting, and (iii) swap data verification policies and procedures.
Real-Time Reporting Requirements
The CFTC adopted revisions to Part 43 of its rules governing real-time public reporting requirements. (See here for previous coverage of the proposal.) The amendments address various reporting and dissemination issues including:
- maintaining the current delay periods (15 minutes for most liquid products) for block trades, rather than adopting the proposed 48-hour delay;
- raising the threshold methodology for block trade treatment from 50% to 67%, and increasing the threshold for capping large notional trades from 67% to 75%;
- allowing reporting parties to delay the reporting of "post-price swaps" (i.e., swaps where pricing occurs after execution);
- addressing the reporting of "prime-brokerage" swaps by amending the method by which offsetting swaps executed in such arrangements are reported; and
- updating current swap categories to better reflect large trades that merit block treatment.
Swap Data Recordkeeping and Reporting and Verification
The CFTC also adopted amendments to Part 45, Part 46, and Part 49 of its rules. The finalized amendments address the goal of standardizing swap data elements reported to swap data repositories ("SDRs"), and reflect the CFTC's efforts at regulatory harmonization. The revisions to the Part 45 requirements align the CFTC's data reporting fields with standards set forth through international technical guidance established by the Committee on Payments and Infrastructures and IOSCO ("CPMI-IOSCO"). Moreover, the finalized amendments update the swap data verification and error correction requirements to ensure the veracity of SDR data reported by swap dealers. Among other things, the finalized amendments:
- replace the various individualized SDR data fields with 128 data elements that are harmonized internationally with some CFTC-specific requirements;
- adopt the use of Unique Transaction Identifiers and Legal Entity Identifiers in lieu of the CFTC's Unique Swap Identifier system, to enhance the CFTC's ability to identify swaps and swap participants;
- remove the obligation for end users to report swap valuation data, and provide an extended T+2 time frame to report required data;
- exclude derivatives clearing organization reporting counterparties from the requirement to report collateral data; and
- require SDRs to provide a mechanism for swap dealers and other reporting counterparties to access SDR data to (i) verify whether data for their open swaps is accurate, and (ii) address and correct any possible errors.
Chair Heath P. Tarbert stated that the final rules (i) enable the CFTC's swap data reporting systems to operate more effectively and efficiently, (ii) bolster transparency and price discovery in derivatives markets, and (iii) advance the CFTC's efforts at standardization and harmonization with international standards. Mr. Tarbert stressed that the CFTC was "doubl[ing] down on transparency," noting the decision to not adopt a uniform 48-hour dissemination delay. Mr. Tarbert also emphasized regulatory harmonization through the incorporation of aspects of the CPMI-IOSCO Technical Guidance for data reporting.
Though generally supporting the final rules, Commissioners Brian D. Quintenz and Dawn D. Stump criticized the CFTC decision on block trades. Mr. Quintenz said that the rule "misses [the] mark" by sacrificing aspects of market liquidity in favor of transparency. Mr. Quintenz expressed support for further "evaluation and refinement" of the block reporting rules "based upon market data and analysis." Ms. Stump said she thought the CFTC should have set aside the block trade issue for now, while adopting the other rules, saying that leaving the rules as is leaves the CFTC "grappl[ing] with an arbitrary metric set by a former Commission in 2013." (Mr. Quintenz issued separate statements on Part 43, Part 45 and SDR verification.)
Commissioner Rostin Behnam emphasized that the CFTC's ongoing monitoring for compliance with swap dealer registration requirements could be improved through data collection and analysis. Regarding the reporting of block trades, Mr. Benham cautioned that the CFTC needs to be mindful of certain instances where "public disclosure of the details of large transactions in real time will materially reduce market liquidity," but said that the final rules struck the "appropriate balance." He noted that the CFTC received comments on whether to collect data on transactions entered for dealing purposes or for dealer de minimis purposes. He acknowledged that these rules may not be the appropriate means to acquire the information, but said that the CFTC's surveillance of these matters could be "enhanced through data collection and analysis."
Commissioner Dan M. Berkovitz supported the block trade rule. He reemphasized concerns with the 48-hour delay and that the CFTC adopted a mechanism in Part 43 to regularly review and refine block trade sizing and reporting delays. Further, he expressed concern that cross-border matters could undermine the CFTC approach, and urged the CFTC to exercise caution in granting substituted compliance determinations that could create arbitrage opportunities. Mr. Berkovitz also warned about Part 49 amendments, saying that changes from the proposal "may merit future scrutiny to ensure that reconciliation is working as intended."
The effective date for each proposal is 60 days after its respective publication in the Federal Register.
As noted with respect to the proposal, while much of the discussion of these rules has focused on the block trade delay period, there are a significant amount of changes in these new rules that will require careful attention from all persons involved in swap data reporting. While the changes are generally sensible and improvements over the status quo, the changes may require significant effort by firms to build appropriate processes and operations in order to fully implement them.
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