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SDR

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Rule

On September 17, 2020, the Commodity Futures Trading Commission (CFTC) unanimously approved final rules amending the agency’s swap data reporting and derivatives clearing organization (DCO) registration requirements. The first set of rules makes significant changes under the CFTC’s swap data reporting regulations for numerous categories of market participants. The second rule set creates a framework to allow certain clearing organizations not based in the U.S. to register with the agency while relying largely on their home country regulatory regimes. The swap data reporting and DCO registration amendments will become effective 60 and 30 days after publication in the Federal Register, respectively.

 

Part 43 Real-Time Reporting Requirements

The Part 43 swap data reporting amendments revise rules for real-time public reporting and dissemination of swap data. The amendments apply to swap data repositories (SDRs), DCOs, swap execution facilities (SEFs), designated contract markets (DCMs), swap dealers (SDs) and non-SD swap counterparties. The changes include:

  • Amending the definition of a “block trade” under CFTC Regulation 43.2 in order to promote swap trading on SEFs, mitigate risks of information leakage and provide SEFs with increased flexibility. Additionally, while the CFTC had proposed imposing a uniform 48-hour delay on block trade reporting — a significant change from the current rules, which set the delay based on transaction and counterparty characteristics — commenters registered concerns regarding negative impacts on transparency, price discovery and liquidity, and the CFTC ultimately declined to adopt this change. The rules also increase cap sizes and block trade thresholds. Once the amendments take effect, certain trades that are currently treated as block trades subject to reporting delays may no longer be subject to those delays if they do not meet the revised block trade thresholds.

  • Adding new provisions under Regulation 43.3 to address reporting of “post-priced swaps” to respond to market participants’ concerns related to complying with reporting requirements for swaps where one or more terms are unknown at the time of trade execution.

  • Specifying that a DCO is responsible for publicly reporting clearing swaps.

  • Defining and exempting certain legs of prime brokerage transactions from public dissemination in response to concerns that publicly disseminating all legs of those transactions “incorrectly suggests the presence of more trading activity and price discovery than actually exists.”

  • Specifying that SDRs make swap transaction and pricing data available on public websites for a period of at least one year after that data is initially publicly disseminated.

  • Amendments to the swap transaction and pricing data elements that must be reported in Appendix A to Part 43 of the CFTC’s regulations.

  • New regulations specifying steps SDRs must take to validate swap transaction and pricing data reported to them and notify reporting counterparties of whether a swap report satisfies the SDR’s data validation procedures.

 

Part 45 Regulatory Reporting Requirements

The Part 45 swap data reporting amendments include substantial changes to the CFTC’s swap data recordkeeping and regulatory reporting requirements for SDRs, DCOs, SEFs, DCMs, SDs and non-SD swap counterparties. Some of the significant changes in the rulemaking include:

  • Requiring a single data report at execution rather than two separate reports for primary economic terms and confirmation data.

  • Removing the requirement for SDRs to map allocations.

  • Removing regulations for international swaps.

  • Removing the option for state data reporting (i.e., “snapshot” reporting) in favor of requiring reporting counterparties and DCOs required to report swap continuation data to report life cycle event data for swaps electronically to a SDR.

  • Extending deadlines for reporting new swaps and swap continuation data.

  • Removing requirements for non-SD/DCO reporting counterparties to report valuation data quarterly.

  • Requiring SD reporting counterparties to report margin and collateral data on a daily basis.

  • Transitioning reporting of Unique Swap Identifiers to reporting of Unique Transaction Identifiers.

  • Amending the swap data elements in Appendix 1 to Part 45 of the CFTC’s regulations that must be reported.

 

Additional SDR and Data Reporting Requirements

The swap data reporting amendments also encompass widespread changes to the agency’s regulations related to data reported to and maintained by SDRs, including:

  • SEFs, DCMs and reporting counterparties must correct errors and omissions for both live and expired or matured swaps (also known as “dead” swaps), unless the applicable record retention period for the swap has expired.

  • SD/DCO reporting counterparties must verify the completeness and accuracy of their swap data every 30 days, while non-SD/DCO reporting counterparties must do so once each calendar quarter, with at least two months between verifications.

  • SEFs, DCMs and reporting counterparties must correct any error in swap data as soon as technologically practicable, but in any case within seven business days after discovery. If the SEF, DCM or reporting counterparty fails to timely correct an error for any reason, it must then notify the director of DMO or their designated employees by providing, among other things, “an initial assessment of the scope of the error or errors that were discovered” and “any initial remediation plan for correcting the error or errors,” if such a plan exists.

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Common Issues

  • Late reporting of both real-time and PET data (e.g. as the result of batch processing)

  • Reporting of non-reportable transactions such as FX spot (over-reporting)

  • Failure to report reportable transactions (under-reporting)

  • Inaccurate reporting

  • Incomplete reporting

  • Failure to monitor for late, inaccurate, or incomplete reporting

  • Inadequate technical infastructure to enable proper reporting

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Get in touch

While recent rule changes have lessened the burden of some of the more stringent SDR requirements, this area of compliance remains a challenge for swap dealers across the industry. Contact us today for a free review of your current SDR process and let us help you navigate this complex web of regulatory obligations.

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