The CFTC proposed amendments to rules governing "swap data reporting, dissemination, and public reporting requirements."
Real-Time Reporting Requirements Proposal
Proposed revisions to Part 43 of the CFTC rules ("Real-Time Public Reporting") would, among other things:
- amend the process and timing for real-time reporting and the public distribution for swap data repositories ("SDRs"), derivatives clearing organizations ("DCOs"), swap execution facilities, designated contract markets, swap dealers ("SDs"), major swap participants ("MSPs") and certain swap counterparties;
- provide for a 48-hour delay for the reporting of block transactions while amending the definition of what constitutes a "block" and removing the definition and use of "large notional off-facility swaps" from the rules;
- clarify the reporting of "mirror swaps" executed in prime broker arrangements;
- amend real-time reporting fields' standardization and validations; and
- make a number of technical and other changes to the rules.
Swap Data Recordkeeping and Reporting Proposal
Proposed amendments to Parts 45, 46 and 49 of the CFTC rules would:
- provide a definition of "as soon as technologically practicable" that looks to the technology use by "comparable market participants";
- change the requirements for determining the "execution date" of a swap (a change on which the CFTC specifically requested commenters' input vis-à-vis similar definitions in the CFTC rulebook, such as "day of execution" in the uncleared margin rules (23.501(a)(5)(i));
- make technical amendments to recordkeeping requirements under Rule 45.2;
- extend the reporting deadlines for swap creation data, including by imposing a T+1 standard for SD/MSP/DCO counterparties and T+2 for non-SD/MSP/DCO counterparties;
- remove the requirement for non-SD/MSP reporting parties to provide quarterly reports of valuation data;
- amend the timing and process for reporting "allocation" swaps (but not the requirement that an agent identify principals within 8 hours from execution);
- mandate that SDRs validate swap reports;
- allow swap data to be transferred between SDRs;
- amend the rules governing the use of "unique transaction identifiers" and "unique swap identifiers";
- amend various rules relating to the use of legal entity identifiers, including an affirmative obligation for a "financial entity" reporting counterparty to "cause, prior to reporting any required swap creation data" for a swap, an LEI to be assigned to the counterparty, including, if necessary, through third-party registration;
- consider requiring reporting counterparties to indicate whether a swap was entered into for "dealing" purposes;
- add a new requirement that SDs, MSPs and DCOs report margin and collateral data each business day; and
- make changes to Part 46 of the CFTC rules largely to be consistent with the proposed changes to Part 45.
Comments must be submitted within 90 days following the publication of the proposals in the Federal Register.
In addition, the CFTC reopened the comment period for its proposal titled Certain Swap Data Repository and Data Reporting Requirements, (see previous coverage). The comment period has been extended to May 20, 2020.
- Chair Heath P. Tarbert commended the proposals for simplifying the reporting process for swap data by (i) removing redundant reporting data that fails to increase price discovery or mitigate market risk and (ii) stopping the practice of collecting data that does not enhance the agency's oversight of the swaps market.
- Commissioner Brian Quintenz also supported the proposals, while noting that the CFTC's initial regulations for reporting were done in a "partial, non-descriptive, and non-technical fashion."
- Commissioner Rostin Behnam expressed concern about the time delay for block trades. He asked for comments on whether this significant reduction in real-time transparency is justified, and whether there are potential risks to market structure efficiency that may reward some participants at the expense of others." Mr. Behnam supported requiring data to be reported as to the "dealing" nature of a transaction, saying that it would be helpful for the CFTC's "ongoing surveillance for compliance with the swap dealer registration requirements. . . ."
- Commissioner Dawn D. Stump praised the proposal for creating a mechanism that achieves better quality swaps data by (i) standardizing validations, (ii) encouraging the use of validations and rejection of swaps and (iii) clarifying reporting counterparties' right to address errors relating to swaps rejection.
- Commissioner Dan M. Berkovitz argued that the proposed 48-hour delay for block trades is too long. Mr. Berkovitz supported the amendments to Part 45, stating that they would encourage the standardization and accuracy of SDRs' reporting of swap data. Mr. Berkovitz questioned whether the collateral reporting requirement went far enough, suggesting the rules should also require daily "exposure" data. Mr. Berkovitz also criticized the proposal for not (i) addressing actual use cases for the data to be collected or analytical needs to be met in order to conduct swap risk management or (ii) clarifying the intent for how the swap data will be used to assess and mitigate systemic risk.
Commentary Nihal Patel
While much of the attention on these proposals has focused on the changes to the treatment of block trades, there is a great deal more to be digested here. These proposals contain a significant number of modifications to existing requirements and even relatively subtle ones that could involve substantial technological builds. While the CFTC is lessening a number of burdens in the current rules (particularly for non-registrants), the proposals also impose new requirements, such as identifying "dealing" transactions and reporting collateral requirements.
Mr. Berkovitz raises important points about the policy justification for reporting. Given the significant amount of time and resources involved in producing the required reports, not to mention the substantial resources the agency has committed to enforcement, the CFTC should more clearly express the policy need for the various data it is collecting.
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