[Federal Register Volume 85, Number 228 (Wednesday, November 25, 2020)]
[Rules and Regulations]
[Pages 75503-75601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21569]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 45, 46, and 49
RIN 3038-AE31
Swap Data Recordkeeping and Reporting Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is amending certain regulations setting forth the swap data
recordkeeping and reporting requirements for swap data repositories
(``SDRs''), derivatives clearing organizations (``DCOs''), swap
execution facilities (``SEFs''), designated contract markets
(``DCMs''), swap dealers (``SDs''), major swap participants (``MSPs''),
and swap counterparties that are neither SDs nor MSPs. The amendments,
among other things, streamline the requirements for reporting new
swaps, define and adopt swap data elements that harmonize with
international technical guidance, and reduce reporting burdens for
reporting counterparties that are neither SDs nor MSPs.
DATES: Effective Date: The effective date for this final rule is
January 25, 2021.
Compliance Date: SDRs, SEFs, DCMs, reporting counterparties, and
non-reporting counterparties must comply with the amendments to the
rules by May 25, 2022.
FOR FURTHER INFORMATION CONTACT: Richard Mo, Special Counsel, (202)
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418-7637, cftc.gov">[email protected]cftc.gov; Benjamin DeMaria, Special Counsel, (202) 418-
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5988, cftc.gov">[email protected]cftc.gov; Thomas Guerin, Special Counsel, (202) 734-
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4194, cftc.gov">[email protected]cftc.gov; Meghan Tente,
[[Page 75504]]
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Acting Deputy Director, (202) 418-5785, cftc.gov">[email protected]cftc.gov; Division of
Market Oversight, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581; Kristin Liegel,
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Surveillance Analyst, (312) 596-0671, cftc.gov">[email protected]cftc.gov, Division of
Market Oversight, Commodity Futures Trading Commission, 525 West Monroe
Street, Suite 1100, Chicago, Illinois 60661; Kate Mitchel, Business
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Analyst, (202) 418-5871, cftc.gov">[email protected]cftc.gov, Office of Data and
Technology; Nancy Doyle, Senior Special Counsel, (202) 418-5136,
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cftc.gov">[email protected]cftc.gov, Office of International Affairs; John Coughlan,
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Research Economist, (202) 418-5944, cftc.gov">[email protected]cftc.gov, Office of the
Chief Economist, in each case at the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
I. Background
II. Amendments to Part 45
A. Sec. 45.1--Definitions
B. Sec. 45.2--Swap Recordkeeping
C. Sec. 45.3--Swap Data Reporting: Creation Data
D. Sec. 45.4--Swap Data Reporting: Continuation Data
E. Sec. 45.5--Unique Transaction Identifiers
F. Sec. 45.6--Legal Entity Identifiers
G. Sec. 45.8--Determination of Which Counterparty Shall Report
H. Sec. 45.10--Reporting to a Single Swap Data Repository
I. Sec. 45.11--Data Reporting for Swaps in a Swap Asset Class
Not Accepted by Any Swap Data Repository
J. Sec. 45.12--Voluntary Supplemental Reporting
K. Sec. 45.13--Required Data Standards
L. Sec. 45.15--Delegation of Authority
III. Amendments to Part 46
A. Sec. 46.1--Definitions
B. Sec. 46.3--Data Reporting for Pre-Enactment Swaps and
Transition Swaps
C. Sec. 46.10--Required Data Standards
D. Sec. 46.11--Reporting of Errors and Omissions in Previously
Reported Data
IV. Amendments to part 49
A. Sec. 49.2--Definitions
B. Sec. 49.4--Withdrawal from Registration
C. Sec. 49.10--Acceptance and Validation of Data
V. Swap Data Elements Reported to Swap Data Repositories
A. Proposal
B. Comments on the Proposal and Commission Determination
VI. Compliance Date
VII. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
I. Background
Pursuant to section 2(a)(13)(G) of the Commodity Exchange Act
(``CEA''), all swaps, whether cleared or uncleared, must be reported to
SDRs.\1\ CEA section 21(b) directs the Commission to prescribe
standards for swap data recordkeeping and reporting.\2\ Part 45 of the
Commission's regulations implements the swap data reporting rules.\3\
The part 45 regulations require SEFs, DCMs, and reporting
counterparties to report swap data to SDRs. SDRs collect and maintain
data related to swap transactions, keeping such data electronically
available for regulators or the public.\4\
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\1\ 7 U.S.C. 2(a)(13)(G) (2020).
\2\ See 7 U.S.C. 24a(b)(1)-(3).
\3\ Commission regulations referred to herein are found at 17
CFR chapter I.
\4\ The term ``swap data repository'' means any person that
collects and maintains information or records with respect to
transactions or positions in, or the terms and conditions of, swaps
entered into by third parties for the purpose of providing a
centralized recordkeeping facility for swaps. See 7 U.S.C. 1a(48).
Regulations governing core principles and registration requirements
for, and duties of, SDRs are in part 49. See generally 17 CFR part
49.
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Since the Commission adopted the part 45 regulations, Commission
staff has worked with SDRs, SEFs, DCMs, reporting counterparties, and
non-reporting counterparties to interpret and implement of the
requirements established in the regulations. Several years ago, the
Division of Market Oversight (``DMO'') announced \5\ its Roadmap to
Achieve High Quality Swaps Data (``Roadmap''),\6\ consisting of a
comprehensive review to, among other things: (i) ensure the CFTC
receives accurate, complete, and high-quality data on swap transactions
for its regulatory oversight role; and (ii) streamline reporting,
reduce messages that must be reported, and right-size the number of
data elements reported to meet the agency's priority use-cases for swap
data.\7\
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\5\ See Commission Letter 17-33, Division of Market Oversight
Announces Review of Swap Reporting Rules in parts 43, 45, and 49 of
Commission Regulations (July 10, 2017), available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf.
\6\ The Roadmap is available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf. Comment letters related to the Roadmap
are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.
\7\ See Commission Letter 17-33, supra at n.5; Roadmap, supra at
n.6.
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In February 2020, the Commission proposed certain changes to its
parts 45, 46, and 49 regulations (``Proposal'') \8\ to simplify the
requirements for reporting swaps, require SDRs to validate swap
reports, permit the transfer of swap data between SDRs, alleviate
reporting burdens for non-SD/MSP reporting counterparties, and
harmonize the swap data elements counterparties report to SDRs with
international technical guidance.
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\8\ See Swap Data Recordkeeping and Reporting Requirements, 85
FR 21578 (Apr. 17, 2020).
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The Commission received 26 comment letters on the Proposal.\9\
After considering the comments, the Commission is adopting parts of the
rules as proposed, although there are proposed changes the Commission
has determined to either revise or decline to adopt. The Commission
believes the rules it is adopting herein will provide clarity and lead
to more effective swap data reporting by SEFs, DCMs, and reporting
counterparties.
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\9\ The following entities submitted comment letters: American
Public Gas Association (``APGA''); BP Energy Company (``BP'');
Chatham Financial (``Chatham''); Chris Barnard; CME Group (``CME'');
Coalition of Physical Energy Companies (``COPE''); Commercial Energy
Working Group (``CEWG''); Credit Suisse (``CS''); The Data Coalition
(``Data Coalition''); DTCC Data Repository (U.S.) LLC (``DTCC'');
Edison Electric Institute (``EEI'') and Electric Power Supply
Association (``EPSA'') (collectively, ``EEI-EPSA''); Eurex Clearing
AG (``Eurex''); Foreign Exchange Professionals Association
(``FXPA''); Futures Industry Association (``FIA''); Global Foreign
Exchange Division of the Global Financial Markets Association
(collectively, ``GFXD''); Global Legal Entity Identifier Foundation
(``GLEIF''); ICE Clear Credit LLC and ICE Clear Europe Limited
(``ICE DCOs''); ICE Trade Vault, LLC (``ICE SDR''); IHS Markit
(``Markit''); International Energy Credit Association (``IECA'');
International Swaps and Derivatives Association, Inc. (``ISDA'') and
Securities Industry and Financial Markets Association (``SIFMA'')
(collectively, ``ISDA-SIFMA''); Japanese Bankers Association
(``JBA''); Japan Securities Clearing Corporation (``JSCC''); LCH Ltd
and LCH SA (collectively, ``LCH''); National Rural Electric
Cooperative Association and American Public Power Association
(``NRECA-APPA''); and XBRL US, Inc. (``XBRL'').
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Before discussing the changes to the regulations, the Commission
highlights the important role international data harmonization efforts
have played in this rulemaking. As discussed in the Proposal, since
November 2014, regulators across major derivatives jurisdictions,
including the CFTC, have come together through the Committee on
Payments and Market Infrastructures (``CPMI'') and the International
Organization of Securities Commissions (``IOSCO'') working group for
the harmonization of key over-the-counter (``OTC'') derivatives data
elements (``Harmonisation Group'') to develop global guidance regarding
the definition, format, and usage of key OTC derivatives data elements
reported to trade repositories (``TRs''), including the Unique
Transaction Identifier (``UTI''), the Unique Product Identifier
(``UPI''), and critical data elements other than UTI and UPI
(``CDE'').\10\
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\10\ In February 2017 and September 2017, respectively, the
Harmonisation Group published Guidance on the Harmonisation of the
Unique Transaction Identifier (``UTI Technical Guidance'') and
Technical Guidance on the Harmonisation of the Unique Product
Identifier (``UPI Technical Guidance''). In April 2018, the
Harmonisation Group published Technical Guidance on the
Harmonisation of Critical OTC Derivatives Data Elements (other than
UTI and UPI) (``CDE Technical Guidance'').
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[[Page 75505]]
The Commission has played an active role in the development and
publication of each of the Harmonisation Group's technical guidance
documents. For the CDE Technical Guidance in particular, as part of the
Harmonisation Group, Commission staff worked alongside representatives
from Canada, France, Germany, Hong Kong, Japan, Singapore, and the
United Kingdom, among others, to provide feedback regarding the data
elements, taking into account the Commission's experience with swap
data reporting thus far. Commission staff also participated in the
solicitation of responses to three public consultations on the CDE
Technical Guidance, along with related industry workshops and
conference calls.\11\
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\11\ See CDE Technical Guidance at 9.
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The Commission's sustained, active role in the Harmonisation Group
in developing global guidance on key OTC derivatives data elements
reported to TRs is part of the Commission's broader, long-range goal of
continued efforts to achieve international harmony in the area of swaps
reporting. The Commission has co-led efforts to design ongoing
international regulatory oversight of these standards in the Financial
Stability Board (``FSB'') Working Group on UPI and UTI Governance
(``GUUG'') and the Commission's efforts to achieve international
harmonization in the entire clearing ecosystem, including swap data
reporting, will continue.
In particular, the Commission continues to be open to further ways
to cooperate with our foreign regulatory counterparts in the
supervision of TRs. An example is the consideration of when and how the
Commission should grant swap data reporting substituted compliance
determinations for SDs and DCOs domiciled in non-U.S. jurisdictions
with similar swap data reporting requirements, permitting reporting of
swap data to a foreign TR to satisfy Commission swap data requirements
under appropriate circumstances. Efficiencies in cross-border reporting
are critical to the smooth operation of transatlantic clearing and
trading. To the degree the Commission can work with its international
counterparts to thus increase interoperability between jurisdictions,
this will enhance cross-border trading efficiency. Moreover, with
appropriate tailoring and protections, and due access to foreign TR
data, deference to foreign jurisdictions will reduce expensive
redundancies in trade reporting.
II. Amendments to Part 45
A. Sec. 45.1--Definitions
The paragraph of existing Sec. 45.1 is not lettered. The
Commission is lettering the existing paragraph as ``(a)'' and adding
(b) to Sec. 45.1. Paragraph (a) will contain all of the definitions in
existing Sec. 45.1, as the Commission is modifying them. New paragraph
(b) provides the terms not defined in part 45 have the meanings
assigned to the terms in Commission regulation Sec. 1.3, which was
implied in the existing regulation but will now be explicit.\12\
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\12\ 17 CFR 1.3.
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The Commission is adding new definitions, amending certain existing
definitions, and removing certain existing definitions. Within each of
these categories, the Commission discusses the changes in alphabetical
order, except as otherwise noted.
1. New Definitions
The Commission is adding a definition of ``allocation'' to Sec.
45.1(a). ``Allocation'' means the process by which an agent, having
facilitated a single swap transaction on behalf of clients, allocates a
portion of the executed swap to the clients. Existing Sec. 45.3(f)
contains regulations for reporting allocations without defining the
term. The definition will help market participants comply with the
regulations for reporting allocations in Sec. 45.3.
The Commission is adding a definition of ``as soon as
technologically practicable'' (``ASATP'') to Sec. 45.1(a). ``As soon
as technologically practicable'' means as soon as possible, taking into
consideration the prevalence, implementation, and use of technology by
comparable market participants. The phrase ``as soon as technologically
practicable'' is currently undefined but used throughout part 45. The
Commission is adopting the same definition of ``as soon as
technologically practicable'' as is defined in Sec. 43.2 for swap
transaction and pricing data.\13\
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\13\ See 17 CFR 43.2 (definition of ``as soon as technologically
practicable'').
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The Commission is adding a definition of ``collateral data'' to
Sec. 45.1(a). ``Collateral data'' means the data elements necessary to
report information about the money, securities, or other property
posted or received by a swap counterparty to margin, guarantee, or
secure a swap, as specified in appendix 1 to part 45. The Commission
explains this definition in a discussion of collateral data reporting
in section II.D.4 below.
The Commission is adding definitions of ``execution'' and
``execution date'' to Sec. 45.1(a). ``Execution'' means an agreement
by the parties, by any method, to the terms of a swap that legally
binds the parties to such swap terms under applicable law.\14\ In the
Proposal, the Commission proposed ``execution date'' to mean the date,
determined by reference to Eastern Time, on which swap execution has
occurred. The execution date for a clearing swap that replaces an
original swap would be the date, determined by reference to Eastern
Time, on which the DCO accepts the original swap for clearing. The term
``execution'' is currently undefined but used throughout part 45, and
the Commission is adding regulations referencing ``execution date.''
\15\
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\14\ The definition of ``execution'' is functionally identical
to the part 23 definition of execution. See 17 CFR 23.200(e)
(definition of ``execution'').
\15\ See Sec. 45.3(a) and (b), discussed in sections II.C.2.a
and II.C.2.b, respectively, below.
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The Commission received three comments supporting the definition of
``execution date.'' \16\ In particular, ISDA-SIFMA believe the
definition is more practical than the referencing the ``day of
execution,'' because the latter would require a more complex build for
industry participants, including requiring reporting counterparties to
compare against the non-reporting counterparty to determine the party
with the calendar day that ends latest, on a swap-by-swap basis.\17\
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\16\ GXFD at 21; Eurex at 2; ISDA-SIFMA at 5.
\17\ ISDA-SIFMA at 5.
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The Commission received three comments opposing the reference to
Eastern Time in the proposed definition of ``execution date.'' CME and
Chatham both believe the definition should use a coordinated universal
time (``UTC'') standard.\18\ CME notes Eastern Time could make the
reporting entity convert data between three time zones-- local time
zone, Eastern Time, and UTC--and also account for daylight savings
time.\19\ Chatham notes reporting counterparties build systems using
UTC and it would be time-consuming and costly to convert to Eastern
Time, as well as inconsistent with other regulatory reporting
frameworks.\20\ JBA suggests the Commission use UTC to globally
harmonize and follow the CDE Technical Guidance, and points out the
January 2020 CPMI-IOSCO ``Clock
[[Page 75506]]
Synchronization'' report recommends business clocks synchronize to
UTC.\21\
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\18\ CME at 12; Chatham at 1.
\19\ CME at 12.
\20\ Chatham at 1.
\21\ JBA at 4.
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The Commission agrees the reference to Eastern Time in ``execution
date'' would create unnecessary operational complexities and be
inconsistent with the approach taken by other regulators. In addition,
the Commission's updated swap data elements in appendix 1 reference
UTC. In response, the Commission is removing the references to Eastern
Time in the definition of ``execution date,'' and the swap data
elements in appendix 1 will clarify that SEFs, DCMs, and reporting
counterparties should report the specific data elements using UTC. As
such, the new definition of ``execution date'' means the date of
execution of a particular swap. The execution date for a clearing swap
that replaces an original swap is the date on which the original swap
has been accepted for clearing.
The Commission is adding the following three definitions to Sec.
45.1(a): ``Global Legal Entity Identifier System,'' ``legal entity
identifier'' or ``LEI,'' and ``Legal Entity Identifier Regulatory
Oversight Committee'' (``LEI ROC''). ``Global Legal Entity Identifier
System'' means the system established and overseen by the LEI ROC for
the unique identification of legal entities and individuals. ``Legal
entity identifier'' or ``LEI'' means a unique code assigned to swap
counterparties and entities in accordance with the standards set by the
Global Legal Entity Identifier System. ``Legal Entity Identifier
Regulatory Oversight Committee'' means the group charged with the
oversight of the Global Legal Entity Identifier System that was
established by the finance ministers and the central bank governors of
the Group of Twenty nations and the FSB, under the Charter of the
Regulatory Oversight Committee for the Global Legal Entity Identifier
System dated November 5, 2012, or any successor thereof.\22\ These
definitions are all associated with, and further explained in the
context of, the Sec. 45.6 regulations for LEI, in section II.F
below.\23\
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\22\ See Charter of the Regulatory Oversight Committee For the
Global Legal Entity Identifier System, available at https://www.leiroc.org/publications/gls/roc_20190130-1.pdf.
\23\ GLEIF supports adding these definitions, but also suggests
moving definitions to Sec. 45.1(a) from Sec. 45.6(a) for ``local
operating unit'' and ``legal entity reference data.'' The Commission
is declining to adopt this suggestion, as the definitions in Sec.
45.6(a) are only used in Sec. 45.6.
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The Commission is adding a definition of ``non-SD/MSP/DCO reporting
counterparty'' to Sec. 45.1(a). ``Non-SD/MSP/DCO reporting
counterparty'' means a reporting counterparty that is not an SD, MSP,
or DCO. The existing definition of ``non-SD/MSP reporting
counterparty'' does not explicitly include DCOs. This creates problems
when, for instance, the Commission did not intend DCOs follow the
required swap creation data reporting regulations in Sec. 45.3(d) for
off-facility swaps not subject to the clearing requirement with a non-
SD/MSP reporting counterparty, even though DCOs are technically
reporting counterparties that are neither SDs nor MSPs. Instead, DCOs
follow Sec. 45.3(e) for clearing swaps. The definition of ``non-SD/
MSP/DCO reporting counterparty'' addresses this unintended gap.
The Commission is adding a definition of ``novation'' to Sec.
45.1(a). ``Novation'' means the process by which a party to a swap
legally transfers all or part of its rights, liabilities, duties, and
obligations under the swap to a new legal party other than the
counterparty to the swap under applicable law. The term ``novation'' is
currently undefined but used in the definition of ``life cycle event,''
as well as the existing Sec. 45.8(g) regulations for determining which
counterparty must report.
The Commission is adding a definition of ``swap'' to Sec. 45.1(a).
``Swap'' means any swap, as defined by Sec. 1.3, as well as any
foreign exchange forward, as defined by CEA section 1a(24), or foreign
exchange swap, as defined by CEA section 1a(25).\24\ The term ``swap''
is currently undefined but used throughout part 45 and the definition
codifies the meaning of the term as it is currently used throughout
part 45.\25\
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\24\ While foreign exchange forwards and foreign exchange swaps
are excluded from the definition of ``swap,'' such transactions are
nevertheless required to be reported to an SDR. See 7 U.S.C.
1a(47)(E)(iii) (definition of ``swap'').
\25\ NRECA-APPA believe the Commission should incorporate the
``swap'' definition in CEA section 1a into its interpretations,
exemptions, and other guidance, as well as remove from the
definition: guarantees of a swap, commodity options meeting the
conditions in Sec. 32.3, and other types of agreements, contracts,
and transactions the Commission has determined Congress did not
intend to regulate as ``swaps.'' NRECA-APPA at 5. The Commission
notes its interpretations, exemptions, and guidance are outside of
the scope of this rulemaking, as is removing certain types of
agreements, contracts, and transactions from the CEA definition of
``swap.'' The Commission emphasizes the definition of ``swap'' in
Sec. 45.1 is for swap data reporting purposes only, and does not
impact any regulations outside of part 45.
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The Commission is adding definitions of ``swap data'' and ``swap
transaction and pricing data'' to Sec. 45.1(a). In the Proposal, the
Commission proposed ``swap data'' to mean the specific data elements
and information in appendix 1 to part 45 required to be reported to an
SDR pursuant to part 45 or made available to the Commission pursuant to
part 49, as applicable. The Commission received a comment from DTCC
suggesting deleting the phrase ``and information'' from the definition
of ``swap data,'' because it is unclear to what ``and information''
refers.\26\ The Commission agrees and is modifying the definition to
remove ``and information.'' \27\ The Commission is adopting the rest of
the definition of ``swap data'' as proposed.
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\26\ DTCC at 4.
\27\ The Commission notes certain swap-related information may
be required to be reported to a SDR pursuant to other CFTC
regulations which are not included in the definition of ``swap
data.'' Market participants should be aware of other applicable
reporting requirements. For example, counterparties electing an
exception to or exemption from the swap clearing requirement under
Sec. 50.4 are required to report specific information to a SDR, or
if no SDR is available to receive the information, to the
Commission, under Sec. 50.50(b).
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Separately, the Commission is adopting the definition of ``swap
transaction and pricing data,'' with minor changes from the proposed
definition. ``Swap transaction and pricing data'' will mean all data
elements for a swap in appendix A \28\ to part 43 that are required to
be reported or publicly disseminated pursuant to part 43. Having ``swap
data'' apply to part 45 data, and ``swap transaction and pricing data''
apply to part 43 data, will provide clarity across the reporting
regulations.
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\28\ The Commission is changing the reference to appendix C in
the proposed definition of ``swap transaction and pricing data'' to
appendix A due to changes to the part 43 appendices the Commission
is adopting in a separate release.
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The Commission is adding a definition of ``swap data validation
procedures'' to Sec. 45.1(a). ``Swap data validation procedures''
means procedures established by an SDR pursuant to Sec. 49.10 to
accept, validate, and process swap data reported to an SDR pursuant to
part 45. The Commission discusses this definition in section IV.C.3
below.
The Commission is adding a definition of ``unique transaction
identifier'' to Sec. 45.1(a). ``Unique transaction identifier'' means
a unique alphanumeric identifier with a maximum of 52 characters
constructed solely from the upper-case alphabetic characters A to Z or
the digits 0 to 9, inclusive in both cases, generated for each swap
pursuant to Sec. 45.5. The Commission received a comment from DTCC
supporting the definition because it is consistent with UTI Technical
Guidance.\29\ The Commission explains this definition in a discussion
of the regulations to transition from using
[[Page 75507]]
unique swap identifiers (``USIs'') to UTIs in section II.E below.
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\29\ DTCC at 4, 5.
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2. Changes to Existing Definitions \30\
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\30\ CEWG comments the ``financial entity'' definition, which
the Commission did not propose changing, is overinclusive for
financial energy firms because if a central treasury unit (``CTU'')
enters into a swap for purposes other than hedging, the CTU cannot
qualify for the relief in CEA section 2(h)(7)(D). CEWG at 9. The
existing ``financial entity'' definition in Sec. 45.1 simply
references the CEA section 2(h)(7)(C) definition of financial
entity. The Commission does not see a connection between the
clearing rules in CEA section 2(h)(7)(D) to the reporting rules, and
thus declines to adopt CEWG's change to the existing definition.
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The Commission is making non-substantive technical changes to the
existing definitions of ``asset class,'' ``derivatives clearing
organization,'' and ``swap execution facility.''
The Commission is changing the definition of ``business day'' in
Sec. 45.1. Existing Sec. 45.1 defines ``business day'' to mean the
twenty-four hour day, on all days except Saturdays, Sundays, and legal
holidays, in the location of the reporting counterparty or registered
entity reporting data for the swap.\31\ In the Proposal, the Commission
proposed replacing ``the twenty-four hour day'' with ``each twenty-
four-hour day,'' and ``legal holidays, in the location of the reporting
counterparty'' with ``Federal holidays'' to simplify the definition by
no longer requiring the determination of different legal holidays
depending on the reporting counterparty's location.
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\31\ 17 CFR 45.1 (definition of ``business day'').
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The Commission received four comments raising concerns with the
changes to ``business day.'' CME believes the proposed changes could
result in firms keeping some staff in the office on local holidays or
reporting before the deadline.\32\ JSCC believes the proposed changes
would force non-U.S. reporting counterparties to report valuation,
margin, and collateral data on local holidays even though the data
would be unchanged because their markets would be closed.\33\ ISDA-
SIFMA request clarification that ``federal holidays'' include legal
holidays in the reporting counterparty's principal place of business so
a reporting counterparty located outside the U.S. can take into account
legal holidays that are not U.S. federal holidays.\34\ DTCC suggests
using the same definitions for parts 43 and 45.\35\
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\32\ CME at 12-13.
\33\ JSCC at 1, 2.
\34\ ISDA-SIFMA at 5.
\35\ DTCC at 4.
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The Commission seeks to avoid firms keeping staff in the office on
local holidays, as commenters pointed out the changes suggest. As such,
the Commission is keeping the current definition of ``business day''
with one modification: ``registered entity'' refers to SEFs and DCMs.
Therefore, the ``business day'' will mean the twenty-four-hour day, on
all days except Saturdays, Sundays, and legal holidays, in the location
of SEF, DCM, or reporting counterparty reporting data for the swap.
The Commission is changing the definition of ``life cycle event''
in Sec. 45.1. Existing Sec. 45.1 defines ``life cycle event'' to mean
any event that would result in either a change to a primary economic
term (``PET'') of a swap or to any PET data (``PET data'') previously
reported to an SDR in connection with a swap.\36\ The Commission is
replacing the reference to PET data with required swap creation data to
reflect the Commission's removal of the concept of PET data reporting
from Sec. 45.3.\37\ The Commission is also replacing a reference to a
counterparty being identified in swap data by ``name'' with ``other
identifiers'' to be more precise in when counterparties are identified
by other means.
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\36\ The Commission is not changing the examples the existing
definition provides: A counterparty change resulting from an
assignment or novation; a partial or full termination of the swap; a
change to the end date for the swap; a change in the cash flows or
rates originally reported; availability of an LEI for a swap
counterparty previously identified by name or by some other
identifier; or a corporate action affecting a security or securities
on which the swap is based (e.g., a merger, dividend, stock split,
or bankruptcy).
\37\ The Commission discusses this change to Sec. 45.3 in
section II.C below.
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The Commission is changing the definition of ``non-SD/MSP
counterparty'' in Sec. 45.1. Existing Sec. 45.1 defines ``non-SD/MSP
counterparty'' to mean a swap counterparty that is neither an SD nor an
MSP. The Commission is changing the defined term to ``non-SD/MSP/DCO
counterparty.'' \38\ ``Non-SD/MSP/DCO counterparty'' means a swap
counterparty that is not an SD, MSP, or DCO. This change conforms to
the changes to the term ``non-SD/MSP/DCO reporting counterparty''
explained in section II.A.1 above.
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\38\ The Commission is updating all references to ``non-SD/MSP
counterparty'' to ``non-SD/MSP/DCO counterparty'' throughout part
45. To limit repetition, the Commission will not discuss each update
of the phrase throughout this release.
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The Commission is changing the definition of ``required swap
continuation data'' in Sec. 45.1. Existing Sec. 45.1 defines
``required swap continuation data'' to mean all of the data elements
that must be reported during the existence of a swap to ensure that all
data concerning the swap in the SDR remains current and accurate, and
includes all changes to the PET terms of the swap occurring during the
existence of the swap. The definition further specifies that required
swap continuation data includes: (i) All life-cycle-event data for the
swap if the swap is reported using the life cycle reporting method, or
all state data for the swap if the swap is reported using the snapshot
reporting method; and (ii) all valuation data for the swap.
First, the Commission is removing the reference to ``[PET] of the
swap.'' \39\ Second, the Commission is removing the reference to
snapshot reporting to reflect the removal of the concept of snapshot
reporting from Sec. 45.4.\40\ Third, the Commission is adding a
reference to margin and collateral data.\41\ As amended, ``required
swap continuation data'' means all of the data elements that must be
reported during the existence of a swap to ensure that all swap data
concerning the swap in the SDR remains current and accurate, and
includes all changes to the required swap creation data occurring
during the existence of the swap. For this purpose, required swap
continuation data includes: (i) All life-cycle-event data for the swap;
and (ii) all swap valuation, margin, and collateral data for the swap.
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\39\ As explained above, the Commission is removing the concept
of PET data reporting from Sec. 45.3.
\40\ The Commission discusses the changes to Sec. 45.4 in
section II.D below.
\41\ The Commission discussed new margin and collateral data
reporting in section II.D below.
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The Commission is changing the definition of ``required swap
creation data'' in Sec. 45.1. Existing Sec. 45.1 defines ``required
swap creation data'' to mean all PET data for a swap in the swap asset
class in question and all confirmation data for the swap. The
Commission is replacing the reference to PET data and confirmation data
with a reference to the swap data elements in appendix 1 to part 45, to
reflect the Commission's update of the swap data elements in existing
appendix 1.\42\
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\42\ The Commission discusses the changes to appendix 1 in
section V below.
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The Commission is changing the definition of ``valuation data'' in
Sec. 45.1(a). Existing Sec. 45.1 defines ``valuation data'' to mean
all of the data elements necessary to fully describe the daily mark of
the transaction, pursuant to CEA section 4s(h)(3)(B)(iii),\43\ and
Sec. 23.431 of the Commission's regulations, if applicable. The
Commission is adding a reference to the swap data elements in appendix
1 to part 45 to link the definition and the data elements.
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\43\ 7 U.S.C. 6s(h)(3)(B)(iii).
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[[Page 75508]]
3. Removed Definitions
The Commission is removing the following definitions from Sec.
45.1: ``credit swap;'' ``designated contract market;'' ``foreign
exchange forward;'' ``foreign exchange instrument;'' ``foreign exchange
swap;'' ``interest rate swap;'' ``major swap participant;'' ``other
commodity swap;'' ``state data;'' ``swap data repository;'' and ``swap
dealer.'' The Commission wants market participants to use the terms as
they are already defined in Commission regulation Sec. 1.3 or in CEA
section 1a.\44\
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\44\ 7 U.S.C. 1a.
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The Commission is removing the following definitions from Sec.
45.1: ``confirmation;'' ``confirmation data;'' ``electronic
confirmation;'' ``non-electronic confirmation;'' ``primary economic
terms;'' and ``primary economic terms data.'' The definitions are
unnecessary due to the Commission combining PET data and confirmation
data into a single data report in Sec. 45.3.\45\
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\45\ The Commission discusses the changes to Sec. 45.3 in
section II.C below.
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The Commission is removing the definition of ``quarterly
reporting'' from Sec. 45.1 because the Commission is removing the
quarterly reporting requirement for non-SD/MSP reporting counterparties
from Sec. 45.4(d)(2)(ii).\46\
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\46\ The Commission discusses the changes to Sec. 45.4 in
section II.D below.
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The Commission is removing the definitions of ``electronic
verification,'' ``non-electronic verification,'' and ``verification''
from Sec. 45.1 because the Commission is changing the deadlines for
reporting counterparties to report required swap creation data in Sec.
45.3 to no longer depend on verification.\47\
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\47\ The Commission discusses the changes to Sec. 45.3 in
section II.C below.
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The Commission is removing the definition of ``international swap''
from Sec. 45.1. Existing Sec. 45.1 defines ``international swap'' to
mean a swap required by U.S. law and the law of another jurisdiction to
be reported both to an SDR and to a different TR registered with the
other jurisdiction. The Commission is removing the definition because
the Commission is removing the international swap regulations in Sec.
45.3(i).\48\
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\48\ The Commission discusses the changes to Sec. 45.3(i) in
section II.C.6 below.
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B. Sec. 45.2--Swap Recordkeeping
The Commission is adopting technical changes to the Sec. 45.2 swap
recordkeeping regulations.\49\ For instance, the Commission is removing
the phrase ``subject to the jurisdiction of the Commission'' from Sec.
45.2. The Commission is also removing this phrase from all of part
45.\50\ The phrase is unnecessary, as the Commission's regulations
apply to all swaps or entities within the Commission's jurisdiction,
regardless of whether the regulation states the fact.
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\49\ In a separate release, the Commission is relocating the
recordkeeping requirements for SDRs from Sec. 45.2(f) and (g) to
Sec. 49.12. 84 FR at 21103 (May 13, 2019).
\50\ To limit repetition, the Commission will not discuss each
removal in this release.
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The Commission received three comments on Sec. 45.2 unrelated to
the technical changes. COPE requests the Commission confirm
recordkeeping requirements for physical energy companies that use swaps
for hedging purposes are limited to recordkeeping in the normal course
of business, as is customary for the hedger's particular industry.\51\
As the requirement does not specify records outside of the normal
course of business, the Commission is unsure of what else the
regulation could require.
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\51\ COPE at 2.
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EEI-EPSA request the Commission clarify no additional recordkeeping
is mandated to avoid injecting regulatory uncertainty into
recordkeeping requirements.\52\ The Commission confirms its changes to
Sec. 45.2 in this release are technical and do not create new
requirements. Chris Barnard opposes retaining the current substantive
requirement of keeping records for ``at least five years,'' following
the final termination of the swap.\53\ The Commission declines to
substantively amend the five-year requirement as requested by Chris
Barnard. The Commission believes five years is reasonable for the
Commission to access records if it has concerns about particular swaps.
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\52\ EEI-EPSA at 3.
\53\ Chris Barnard at 2.
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The Commission did not receive any comments on the non-substantive
changes to Sec. 45.2. For the reasons discussed above, the Commission
is adopting the changes as proposed.
C. Sec. 45.3--Swap Data Reporting: Creation Data
Existing Sec. 45.3 requires SEFs, DCMs, and reporting
counterparties to report swap data to SDRs upon swap execution. As
discussed in the sections below, the Commission is adopting four
significant changes to the regulations for reporting new swaps: (i)
Requiring a single data report at execution instead of two separate
reports; (ii) extending the time SEFs, DCMs, and reporting
counterparties have to report new swaps to SDRs; (iii) removing the
requirement for SDRs to map allocations; and (iv) removing the
regulations for international swaps. The remaining changes to Sec.
45.3 discussed below are non-substantive clarifying, cleanup, or
technical changes.
1. Introductory Text
The Commission is removing the introductory text to Sec. 45.3. The
existing introductory text to Sec. 45.3 provides a broad overview of
the swap data reporting regulations for registered entities and swap
counterparties. The Commission believes the introductory text is
superfluous because the scope of Sec. 45.3 is clear from the operative
provisions of Sec. 45.3.\54\ Removing the introductory text does not
impact any regulatory requirements, including those referenced in the
existing introductory text.
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\54\ The Commission is moving the reference in the introductory
text to required data standards for SDRs in Sec. 45.13(b) to the
regulatory text of Sec. 45.3(a) and (b) and renumbering Sec.
45.13(b) as Sec. 45.13(a).
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The Commission did not receive any comments on the proposal to
remove the introductory text to Sec. 45.3.
2. Sec. 45.3(a) through (e)--Swap Data Reporting: Creation Data
a. Sec. 45.3(a)--Swaps Executed on or Pursuant to the Rules of a SEF
or DCM
The Commission is adopting several changes to the Sec. 45.3(a)
required swap creation data reporting regulations for swaps executed on
or pursuant to the rules of a SEF or DCM. Existing Sec. 45.3(a)
requires that SEFs and DCMs report all PET data \55\ for swaps ASATP
after execution. If the swap is not intended to be cleared at a DCO,
existing Sec. 45.3(a) requires the SEF or DCM also report confirmation
data \56\ for the swap ASATP after execution.
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\55\ PET data reporting includes the reporting of approximately
sixty swap data elements, varying by asset class, enumerated in
appendix 1 to part 45. See 17 CFR 45.1 (definition of ``primary
economic terms''). The Commission discusses the removal of the
definition of ``primary economic terms'' from Sec. 45.1 in section
II.A.3 above.
\56\ Confirmation data reporting includes reporting all of the
terms of a swap matched and agreed upon by the counterparties in
confirming a swap. See 17 CFR 45.1 (definition of ``confirmation
data''). The Commission discusses removing the definition of
``confirmation data'' from Sec. 45.1 in section II.A.3 above.
---------------------------------------------------------------------------
First, the Commission is changing Sec. 45.3(a) to require SEFs and
DCMs to report a single required swap creation data report, regardless
of whether the swap is intended to be cleared. While the Commission
intended the initial PET report would ensure SDRs have sufficient data
on each swap for the Commission to perform its regulatory functions
while the more complete confirmation data is not yet available,\57\
[[Page 75509]]
the Commission is concerned the separate reports may be encouraging the
reporting of duplicative information to SDRs. The Commission believes
this will streamline reporting, remove uncertainty, and reduce
instances of duplicative required swap creation data reports.
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\57\ See 77 FR at 2142, 2148 (Jan. 13, 2012).
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One of the PET data elements in existing appendix 1 to part 45 is
any other term(s) matched or affirmed by the counterparties in
verifying the swap.\58\ The Commission believes this catchall has
obscured the difference between PET data and confirmation data. The
Commission is concerned reporting counterparties, SEFs, and DCMs are
submitting duplicative reports to meet the distinct, yet seemingly
indistinguishable, regulatory requirements at the expense of data
quality.\59\
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\58\ The comment associated with this ``catch-all'' data element
in existing appendix 1 to part 45 instructs reporting
counterparties, SEFs, DCMs, and DCOs to use as many data elements as
required to report each such term. 17 CFR part 45 appendix 1.
\59\ Other regulators have taken different approaches to
required swap creation data reporting. The Securities and Exchange
Commission (``SEC'') does not have rules for reporting separate
confirmation data reports. See 17 CFR 242.901. The European Market
Infrastructure Regulation (``EMIR'') requires reporting of the
details of any derivative contract counterparties have concluded and
of any modification or termination of the contract. European
Securities and Markets Authority (``ESMA'') then develops the
specific technical standards and requirements for the implementation
of reporting. See Regulation (EU) No. 648/2012 of the European
Parliament and of the Council on OTC derivatives, central
counterparties and trade repositories, Article 9(1) (July 4, 2012)
(requiring reporting after execution without reference to separate
reports); Commission Implementing Regulation (EU) No. 1247/2012
laying down implementing technical standards with regard to the
format and frequency of trade reports to trade repositories
according to Regulation (EU) No. 648/2012 of the European Parliament
and of the Council on OTC derivatives, central counterparties and
trade repositories, Article 1 (Dec. 19, 2012) (referencing
``single'' reports under Article 9 of Regulation (EU) No. 648/2012).
---------------------------------------------------------------------------
Second, the Commission is changing Sec. 45.3(a) to extend the
deadline for SEFs and DCMs to report required swap creation data until
the end of the next business day following the execution date
(sometimes referred to as ``T+1''). Initially, the Commission believed
reporting swap data immediately after execution ensured the ability of
the Commission and other regulators to fulfill their systemic risk
mitigation, market transparency, position limit monitoring, and market
surveillance objectives,\60\ but the Commission is concerned the ASATP
deadline may be causing reporting counterparties to hastily report
required swap creation data that has contributed to data quality
issues. The Commission believes an extended reporting timeline will
help improve data quality while encouraging alignment with reporting
deadlines set by other regulators.\61\
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\60\ See 77 FR 2142 at 2149 (Jan. 13, 2012).
\61\ The SEC requires primary and secondary trade information be
reported within 24 hours of execution on the next business day. 17
CFR 242.901(j). The SEC noted commenters raised concerns that
unreasonably short reporting timeframes would result in the
submission of inaccurate transaction information, and that the SEC's
interim 24-hour reporting timeframe Sec. 901(j) strikes an
appropriate balance between the need for prompt reporting of
security-based swap transaction information and allowing reporting
entities sufficient time to develop fast and robust reporting
capability. See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, 80 FR 14564, 14623-64 (Mar. 19,
2015). ESMA requires reporting no later than the working day
following execution. Regulation (EU) No. 648/2012 Article 9(1).
---------------------------------------------------------------------------
The Commission received four comments supporting a single report
for PET data and confirmation data in Sec. 45.3(a).\62\ In particular,
DTCC believes this will streamline reporting, reduce instances of
duplicative reports, remove uncertainty regarding which data elements
are required to be reported to the SDR, and reduce operational burdens
for SDRs and market participants by reducing the number of message
types and duplicative data.\63\ CEWG believes the existing requirement
is duplicative and costly.\64\ The Commission agrees with commenters,
and for the reasons discussed above, is adopting the changes proposed.
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\62\ LCH at 2; FIA at 14; CEWG at 2; DTCC at 5.
\63\ DTCC at 5.
\64\ CEWG at 2.
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The Commission received seven comments generally supporting
extending the deadline for reporting required swap creation data in
existing Sec. 45.3(a).\65\ In particular, DTCC believes the change
will reduce the number of corrections being sent to SDRs because of
better quality data, be consistent with the SEC and ESMA, and promote
reporting structure consistency concerning timing that would, in turn,
create processing efficiencies for SDRs and data submitters.\66\ The
Commission agrees with commenters, and for the reasons discussed above,
is adopting the changes proposed, with one exception explained below.
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\65\ GFXD at 21, 22; DTCC at 5; Eurex at 2; ISDA-SIFMA at 5;
Chatham at 2; ICE DCOs at 3; LCH at 2.
\66\ DTCC at 5.
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Markit opposes extending the deadline for reporting because it
believes ASATP reporting is already possible and using experienced
third-party service providers like Markit helps minimize errors.\67\
The Commission understands ASATP reporting is possible and market
participants have developed ways to minimize errors, and expects SEFs
and DCMs have sophisticated reporting systems that will encourage them
to continue reporting ASATP after execution. However, the Commission
believes less-sophisticated reporting counterparties, especially for
off-facility swaps, will benefit from having more time to report swap
data to SDRs, and a single deadline for all reporting entities will be
clearest for market participants.\68\
---------------------------------------------------------------------------
\67\ Markit at 3-4.
\68\ The Commission discusses the extended deadline for off-
facility swaps in section II.C.2.b below.
---------------------------------------------------------------------------
The Commission received three comments concerning the reference to
Eastern Time in the proposed extended deadline. Eurex and Chatham
believe the Commission should consider aligning with regulators that
reference UTC for global harmonization.\69\ ISDA-SIFMA believe a T+1
deadline for required swap creation data is similar to the deadline
used by other jurisdictions, and that a specific cutoff time like 11:59
p.m. eastern time is less complex to build than T+24 hours.\70\ The
Commission agrees with Eurex and Chatham that referencing Eastern Time
would be inconsistent with global regulators. The swap data elements in
appendix 1 also reference UTC.\71\ As a result, the Commission deems it
appropriate to adopt a modification from the proposal to remove the
reference to 11:59 p.m. eastern time. Instead, Sec. 45.3(a) will
extend the deadline for reporting to not later than the end of the next
business day following the execution date. For the same reason, and to
be consistent, the Commission is removing the reference to 11:59 p.m.
eastern time from all of the proposed regulations in Sec. Sec. 45.3
and 45.4.\72\ While ISDA-SIFMA believe a specific cutoff time is less
complex to build, the Commission views the complications the deadline
would create for reporting counterparties, especially in other
countries, as offsetting build-simplicity considerations.
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\69\ Eurex at 2; Chatham at 2.
\70\ ISDA-SIFMA at 5-7.
\71\ The Commission discusses the changes to appendix 1 in
section V below.
\72\ To limit repetition, the Commission will not discuss each
removal in this release.
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In summary, in light of the above changes, Sec. 45.3(a) will
require that for each swap executed on or pursuant to the rules of a
SEF or DCM, the SEF or DCM shall report required swap creation data
electronically to an SDR in the manner provided in Sec. 45.13(a) not
later than the end of the next business day following the execution
date.
[[Page 75510]]
b. Sec. 45.3(b) through (e)--Off-Facility Swaps
The Commission is making several changes to the Sec. 45.3(b)
through (e) required swap creation data reporting regulations for off-
facility swaps. Most of these changes conform to the changes in Sec.
45.3(a) because the regulations in Sec. 45.3(b) through (e) for off-
facility swaps are analogous to the regulations in Sec. 45.3(a) for
swaps executed on SEFs and DCMs.
In general, for off-facility swaps subject to the Commission's
clearing requirement, existing Sec. 45.3(b) requires that SD/MSP
reporting counterparties report PET data ASATP after execution, with a
15-minute deadline, while non-SD/MSP reporting counterparties report
PET data ASATP after execution with a one-business-hour deadline.\73\
For off-facility swaps not subject to the clearing requirement but have
an SD/MSP reporting counterparty, existing Sec. 45.3(c)(1) generally
requires that SD/MSP reporting counterparties report PET data ASATP
after execution with a 30-minute deadline, and confirmation data for
swaps that are not intended to be cleared ASATP with a 30-minute
deadline if confirmation is electronic, or ASATP with a 24-business-
hour deadline if not electronic, for credit, equity, foreign exchange,
and interest rate swaps.\74\
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\73\ 17 CFR 45.3(b)(1)(i), (ii).
\74\ 17 CFR 45.3(c)(1)(i), (ii).
---------------------------------------------------------------------------
Existing Sec. 45.3(c)(2) requires that for swaps in the other
commodity asset class, SD/MSP reporting counterparties report PET data
ASATP after execution, with a two-hour deadline, and confirmation data
for swaps that are not intended to be cleared ASATP after confirmation
with a 30-minute deadline if confirmation is electronic, or a 24-
business-hour deadline if confirmation is not electronic.\75\ For off-
facility swaps that are not subject to the clearing requirement but
have a non-SD/MSP reporting counterparty, existing Sec. 45.3(d)
requires reporting counterparties report PET data ASATP after execution
with a 24-business-hour deadline, and confirmation data ASATP with a
24-business-hour deadline, if the swap is not intended to be
cleared.\76\
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\75\ 17 CFR 45.3(c)(2)(i), (ii).
\76\ 17 CFR 45.3(d).
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Finally, existing Sec. 45.3(e) requires that ASATP after a DCO
accepts an original swap for clearing, or ASATP after execution of a
clearing swap that does not replace an original swap, the DCO report
all required swap creation data for the clearing swap, which includes
all confirmation data and all PET data.
First, the Commission is replacing existing Sec. 45.3(b) through
(e) with Sec. 45.3(b), titled ``Off-facility swaps,'' to restructure
the regulations.\77\ Second, the Commission is changing the existing
Sec. 45.3(b) through (e) requirements for reporting counterparties to
submit separate PET data and confirmation data reports for all off-
facility swaps that are not intended to be cleared at a DCO to report a
single required swap creation data report. The Commission discusses its
reasoning for this change in section II.C.2.a above. As with swaps
executed on SEFs and DCMs, the Commission believes a single report
would align with the approach taken by other regulators and improve
data quality.
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\77\ The Commission is replacing Sec. 45.3(c) through (d) with
provisions for allocations and multi-asset swaps, respectively, as
discussed in the following sections. As part of this change, the
Commission is moving the requirements for reporting required swap
creation data for clearing swaps from Sec. 45.3(e) to Sec.
45.3(b).
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The Commission did not receive any comments beyond those discussed
in section II.C.2.a above.\78\ The Commission is adopting the new
requirement for reporting counterparties to report a single required
swap creation data report as proposed.
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\78\ See comments from DTCC, LCH, FIA, and CEWG.
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Third, the Commission is changing the existing Sec. 45.3(b)
through (e) requirements for reporting counterparties to report
required swap creation data ASATP after execution with different
deadlines for off-facility swaps in Sec. 45.3(b)(1) and (2). New Sec.
45.3(b)(1) requires SD/MSP/DCO reporting counterparties report swap
creation data to an SDR by T+1 following the execution date. New Sec.
45.3(b)(2) requires non-SD/MSP/DCO reporting counterparties report swap
creation data to an SDR not later than T+2 following the execution
date.
The Commission discusses the background to these changes in section
II.C.2.a above. The Commission discusses several comments beyond those
discussed in section II.C.2.a in this section. CEWG believes a T+2
deadline for non-SD/MSP/DCO reporting counterparties strikes an
appropriate balance between giving end-users enough time to report,
incurring a limited compliance burden, and providing the Commission
with swap data in a timely manner.\79\ The Commission agrees with CEWG
and believes the extended deadline reflects the Commission's interest
in avoiding placing unnecessary burdens on non-SD/MSP/DCO reporting
counterparties.
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\79\ CEWG at 2.
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The Commission received two comments raising issues with the new
deadlines for reporting required swap creation data in Sec. 45.3(b).
ICE SDR believes including a set time of no later than 11:59 p.m. on
T+1 or T+2 could impede the SDR's ability to update its reporting
system during its maintenance window.\80\ As the Commission discusses
in section II.C.2.a above, the Commission is removing 11:59 p.m.
eastern time from Sec. 45.3(b)(1) and (2). The Commission believes
this addresses ICE SDR's timing concern.
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\80\ ICE SDR at 7.
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CME believes the reporting deadline should be T+1 or T+2 for all
entities to avoid a sequencing issue with non-SD/MSP/DCO reporting
counterparties that have a T+2 deadline, and the Sec. 45.4(b) deadline
for DCOs to report original swap terminations, which would result in
DCO terminations being rejected until original swaps are reported.\81\
The Commission does not share CME's concern, as it expects SEFs, DCMs,
and DCOs will continue to report original swaps and clearing swaps
ASATP, which will avoid sequencing issues for original swap
terminations. The Commission expects to monitor the data for
implementation issues, however, and to work with SDRs in case the
deadlines need to be modified.
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\81\ CME at 14-15.
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In summary, Sec. 45.3(b) will require that for each off-facility
swap, the reporting counterparty shall report required swap creation
data electronically to an SDR as provided by Sec. 45.3(b)(1) or (2),
as applicable. If the reporting counterparty is an SD, MSP, or DCO,
Sec. 45.3(b)(1) will require the reporting counterparty report
required swap creation data electronically to an SDR in the manner
provided in Sec. 45.13(a) not later than the end of the next business
day following the execution date. If the reporting counterparty is a
non-SD/MSP/DCO counterparty, the reporting counterparty shall report
required swap creation data electronically to an SDR in the manner
provided in Sec. 45.13(a) not later than the end of the second
business day following the execution date.
3. Sec. 45.3(f)--Allocations \82\
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\82\ The Commission is re-designating existing Sec. 45.3(f) as
Sec. 45.3(c) to reflect the consolidation of Sec. 45.3(b) through
(e) into Sec. 45.3(b).
---------------------------------------------------------------------------
The Commission is making several changes to the existing Sec.
45.3(f) regulations for reporting allocations, re-designated as Sec.
45.3(c). The Commission is making most of the changes to Sec. 45.3(f)
to conform to the changes in Sec. 45.3(a) through (e). Existing Sec.
45.3(f)(1) provides that the reporting counterparty to an initial swap
with an allocation agent reports required swap creation
[[Page 75511]]
data for the initial swap, including a USI. For the post-allocation
swaps, existing Sec. 45.3(f)(2)(i) provides that the agent tells the
reporting counterparty the identities of the actual counterparties
ASATP after execution, with a deadline of eight business hours.
Existing Sec. 45.3(f)(2)(ii) provides that the reporting counterparty
must create USIs for the swaps and report all required swap creation
data for each post-allocation swap ASATP after learning the identities
of the counterparties. Existing Sec. 45.3(f)(2)(iii) provides that the
SDR to which the initial and post-allocation swaps were reported must
map together the USIs of the initial swap and each post-allocation
swap.
First, the Commission is making non-substantive changes, including
specifying required swap creation data for allocations must be reported
``electronically'' to SDRs in Sec. 45.3(c), (c)(1), and (c)(2)(ii),
and replacing the reference in existing Sec. 45.3(f)(1) (re-designated
as Sec. 45.3(c)(1)) to ``Sec. 45.3(a) through (d)'' with a reference
to paragraph (a) or (b) of Sec. 45.3, to reflect the structural
revisions to Sec. 45.3(a) through (e). However, because the Commission
is extending the time to report required swap creation data in Sec.
45.3(a) and (b), reporting counterparties will have additional time to
report required swap creation data for the initial swaps for
allocations as well.
Second, the Commission is changing existing Sec. 45.3(f)(2)(ii)
(re-designated as Sec. 45.3(c)(2)(ii)) \83\ to replace the requirement
to report required swap creation data for post-allocation swaps ASATP
after learning the identities of the actual counterparties with a
cross-reference to Sec. 45.3(b). This gives reporting counterparties
until T+1 or T+2, depending on their status, to report required swap
creation data for the allocated swaps. Failing to extend the deadline
for allocations would result in reporting counterparties unnecessarily
reporting allocations faster than creation and continuation data swap
reports.
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\83\ The Commission is not changing the Sec. 45.3(f)(2)(i)
requirement (re-designated as Sec. 45.3(c)(2)(i)) for the agent to
inform the reporting counterparty of the identities of the reporting
counterparty's actual counterparties ASATP after execution, with an
eight business hour deadline. Reporting counterparties would still
need to know their actual counterparties, and the eight-hour
deadline is consistent with other regulations for allocations. See
17 CFR 1.35(b)(5)(iv).
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Finally,\84\ the Commission is removing Sec. 45.3(f)(2)(iii)
without re-designation. The Commission is requiring an event data
element in appendix 1.\85\ One of the events in this data element is
``allocation,'' which requires reporting counterparties indicate
whether a swap is associated with an allocation. The Commission
believes this will simplify the current process involving SDRs mapping
data elements by having reporting counterparties report the information
about allocations themselves.
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\84\ The Commission is adopting several non-substantive and
technical language edits, but is limiting discussion in this section
to substantive amendments.
\85\ The swap data elements required to be reported to SDRs are
discussed in section V below.
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The Commission received one question from two commenters on the
proposed changes to Sec. 45.3(f).\86\ GFXD and ISDA-SIFMA request the
Commission clarify for allocations, T+1 begins on receipt of the
allocations, rather than on execution, given that allocations may not
be provided for up to eight hours.\87\ In response, the Commission
clarifies T+1 begins on receipt of the allocation notification, rather
than execution. However, the Commission notes it is retaining the
requirement for the agent to inform the reporting counterparties of the
allocation ASATP after execution, with an eight-business-hour deadline.
As such, in the majority of cases, the Commission expects the deadline
to effectively remain T+1 following execution.
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\86\ GFXD separately responded to a request for comment on
whether the changes create issues for SDRs stating it believes the
changes do not create issues for SDRs. GXFD at 21.
\87\ GFXD at 21; ISDA-SIFMA at 6-7.
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The Commission did not receive additional comments on the proposed
changes to Sec. 45.3(f), re-designated as Sec. 45.3(c). For the
reasons discussed above, the Commission is adopting the changes to
Sec. 45.3(f).
4. Sec. 45.3(g)--Multi-Asset Swaps \88\
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\88\ The Commission is re-designating Sec. 45.3(g) as Sec.
45.3(d) to reflect: The consolidation of Sec. 45.3(b) through (e)
into Sec. 45.3(b); and re-designating Sec. 45.3(f) as Sec.
45.3(c).
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The Commission is making non-substantive changes to the Sec.
45.3(g) regulations for reporting multi-asset swaps to conform to the
changes in Sec. 45.3(a) through (f). Existing Sec. 45.3(g) provides
that for each multi-asset swap, required swap creation data and
required swap continuation data must be reported to a single SDR that
accepts swaps in the asset class treated as the primary asset class
involved in the swap by the SEF, DCM, or reporting counterparty making
the first report of required swap creation data pursuant to Sec. 45.3.
Existing Sec. 45.3(g) also provides that the registered entity or
reporting counterparty making the first report of required swap
creation data report all PET data for each asset class involved in the
swap.
First, the Commission is replacing ``making the first report'' of
required swap creation data with ``reporting'' required swap creation
data to reflect the single report for required swap creation data,
instead of separate PET data and confirmation data reports. Second, the
Commission is removing the last sentence of the regulation concerning
all PET data for each asset class involved in the swap. The Commission
believes this sentence is unnecessary and no longer relevant with the
Commission's removal of PET data from the regulations.
The Commission did not receive any comments on the amendments to
Sec. 45.3(g). The Commission is adopting the amendments to Sec.
45.3(g), re-designated as Sec. 45.3(d), as proposed.
5. Sec. 45.3(h)--Mixed Swaps \89\
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\89\ The Commission is re-designating Sec. 45.3(h) as Sec.
45.3(e) to reflect: The consolidation of Sec. 45.3(b) through (e)
into Sec. 45.3(b); re-designating Sec. 45.3(f) as Sec. 45.3(c);
and re-designating Sec. 45.3(g) as Sec. 45.3(d).
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The Commission is making several non-substantive changes to the
Sec. 45.3(h) regulations for mixed swaps to conform to the changes in
Sec. 45.3(a) through (g). Existing Sec. 45.3(h)(1) requires that for
each mixed swap, required swap creation data and required swap
continuation data shall be reported to an SDR registered with the
Commission and to a security-based SDR (``SBSDR'') registered with the
SEC. This requirement may be satisfied by reporting the mixed swap to
an SDR or SBSDR registered with both Commissions. Existing Sec.
45.3(h)(2) requires that the registered entity or reporting
counterparty making the first report of required swap creation data
under Sec. 45.3(h) ensure that the same USI is recorded for the swap
in both the SDR and the SBSDR.
The Commission is replacing ``making the first report'' of required
swap creation data with ``reporting'' required swap creation data,
among other non-substantive changes. The Commission did not receive any
comments on the changes to Sec. 45.3(h), re-designated as Sec.
45.3(e). The Commission is adopting the changes as proposed.
6. Sec. 45.3(i)--International Swaps
The Commission is removing the Sec. 45.3(i) regulations for
international swaps. Existing Sec. 45.3(i) requires that for each
international swap, the reporting counterparty report to an SDR the
identity of the non-U.S. TR to which the swap is also reported and the
swap identifier used by the non-U.S. TR.\90\
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\90\ Existing Sec. 45.1 defines ``international swaps'' to mean
swaps required to be reported by U.S. law and the law of another
jurisdiction to be reported to both an SDR and to a different TR
registered with the other jurisdiction. The Commission discusses
removing the definition of ``international swap'' from Sec. 45.1 in
section II.A above.
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[[Page 75512]]
When Sec. 45.3(i) was adopted, the Commission believed the
regulations for international swaps were necessary to provide an
accurate picture of the swaps market to regulators to further the
purposes of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the ``Dodd-Frank Act'').\91\ However, if the same swap is reported
to different jurisdictions, the USI or UTI \92\ should be the same. If
the transaction identifier is the same for the swap, there is no need
for the counterparties to send the identifier to other jurisdictions.
In addition, in the future, regulators should have access to each
other's TRs, if necessary, further obviating the need for reporting
counterparties sending identifiers to multiple jurisdictions. As a
result, the Commission believes Sec. 45.3(i) is unnecessary and is
removing Sec. 45.3(i) from its regulations. The Commission did not
receive any comments on the removal of Sec. 45.3(i).
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\91\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136, 2151 (Jan. 13, 2012).
\92\ The Commission discusses USIs and UTIs in section II.E
below.
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7. Sec. 45.3(j)--Choice of SDR \93\
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\93\ The Commission is re-designating Sec. 45.3(j) as Sec.
45.3(f) to reflect: The consolidation of Sec. 45.3(b) through (e)
into Sec. 45.3(b); re-designating Sec. 45.3(f) as Sec. 45.3(c);
re-designating Sec. 45.3(g) as Sec. 45.3(d); re-designating Sec.
45.3(h) as Sec. 45.3(d); and removing Sec. 45.3(i).
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The Commission is making non-substantive changes to the Sec.
45.3(j) regulations for reporting counterparties in choosing their SDR.
Existing Sec. 45.3(j) requires that the entity with the obligation to
choose the SDR to which all required swap creation data for a swap is
reported be the entity to make the first report of all data pursuant to
Sec. 45.3, as follows: (i) For swaps executed on or pursuant to the
rules of a SEF or DCM, the SEF or DCM choose the SDR; (ii) for all
other swaps, the reporting counterparty, as determined in Sec. 45.8,
choose the SDR.
The Commission is changing the heading of re-designated Sec.
45.3(f) from ``Choice of SDR'' to ``Choice of swap data repository,''
to be consistent with other headings throughout part 45, among other
technical changes. The Commission did not receive any comments on the
proposed changes to Sec. 45.3(j), re-designated as Sec. 45.3(f). The
Commission is adopting the changes to Sec. 45.3(j) as proposed.
D. Sec. 45.4--Swap Data Reporting: Continuation Data
Existing Sec. 45.4 requires reporting counterparties to report
updates to existing swap data and swap valuations to SDRs. As discussed
in the sections below, the Commission is adopting four significant
changes to these regulations: (i) Removing the option for state data
reporting; (ii) extending the deadline for reporting required swap
continuation data to T+1 or T+2; (iii) removing the requirement for
non-SD/MSP/DCO reporting counterparties to report valuation data
quarterly; and (iv) requiring SD/MSP reporting counterparties to report
margin and collateral data daily. The remaining changes to Sec. 45.4
discussed below are non-substantive clarifying, cleanup, or technical
changes.
1. Introductory Text
The Commission is removing the introductory text to existing Sec.
45.4.\94\ The existing introductory text to Sec. 45.4 provides a broad
overview of the swap continuation data reporting regulations for
registered entities and swap counterparties. The Commission believes
the introductory text is superfluous because the scope of Sec. 45.4 is
clear from the operative provisions of Sec. 45.4. Removing the
introductory text would not impact any regulatory requirements,
including those referenced in the introductory text.
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\94\ The introductory text to Sec. 45.4 references: The
existing Sec. 45.13(b) regulations for required data standards for
reporting swap data to SDRs; the existing Sec. 49.10 regulations
for SDRs to accept swap data; the existing part 46 regulations for
reporting pre-enactment swaps and transition swaps; the existing
Sec. 45.3 regulations for reporting required swap creation data;
the existing Sec. 45.6 regulations for the use of LEIs; the real-
time public reporting requirements in existing part 43; and the
parts 17 and 18 regulations for large trader reporting.
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The Commission did not receive any comments on the proposal to
remove the introductory text to Sec. 45.4.
2. Sec. 45.4(a)--Continuation Data Reporting Method Generally
The Commission is making several changes to the Sec. 45.4(a)
regulations for required swap continuation data reporting. Existing
Sec. 45.4(a) requires reporting counterparties and DCOs \95\ report
required swap continuation data in a manner sufficient to ensure that
all data in the SDR for a swap remains current and accurate, and
includes all changes to the PET data of the swap occurring during the
existence of the swap. Existing Sec. 45.4(a) further specifies
reporting entities and counterparties fulfill their obligations by
reporting, within the applicable deadlines outlined in Sec. 45.4, the
following: (i) Life-cycle-event data to an SDR that accepts only life-
cycle-event data reporting; (ii) state data to an SDR that accepts only
state data reporting; or (iii) either life-cycle-event data or state
data to an SDR that accepts both life-cycle-event data and state data
reporting.
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\95\ SEFs and DCMs do not have reporting obligations with
respect to required swap continuation data. DCOs are reporting
counterparties for clearing swaps, and are thus responsible for
reporting required swap continuation data for these swaps. However,
DCOs also have required swap continuation data obligations for
original swaps, to which DCOs are not counterparties. As a result,
Sec. 45.4(a) must address reporting counterparties and DCOs
separately.
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First, the Commission is changing the first two sentences to state
that for each swap, regardless of asset class, reporting counterparties
and DCOs required to report required swap continuation data shall
report, to improve readability without changing the regulatory
requirement.
Second, the Commission is removing state data reporting as an
option for reporting changes to swaps from Sec. 45.4. State data
reporting involves reporting counterparties re-reporting the PET terms
of a swap every day, regardless of whether any changes have occurred to
the terms of the swap since the last state data report.\96\ In
contrast, life-cycle-event data reporting involves reporting
counterparties re-submitting the PET terms of a swap when an event has
taken place that results in a change to the previously reported terms
of the swap.\97\
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\96\ 17 CFR 45.1 (definition of ``state data''). The Commission
discusses removing the definition of ``state data'' from Sec. 45.1
in section II.A.3 above.
\97\ 17 CFR 45.1 (definition of ``life cycle event''). The
Commission discusses amending the definition of ``life-cycle-event
data'' in Sec. 45.1 in section II.A.2 above.
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In adopting part 45, the Commission gave reporting counterparties
the option of reporting changes to swaps by either the state data
reporting method or life cycle event method to provide flexibility.\98\
However, the Commission believes state data reporting may be
contributing to data quality issues by filling SDRs with unnecessary
swap messages. As noted in the Proposal, the Commission estimates that
state data reporting messages represent the vast majority of swap
reports maintained by SDRs and the Commission.\99\ The Commission
believes eliminating state
[[Page 75513]]
data reporting will improve data quality without impeding the
Commission's ability to fulfill systemic risk mitigation, market
transparency, position limit monitoring, and market surveillance
objectives.
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\98\ See 77 FR at 2153.
\99\ For instance, an analysis of part 45 data showed that
during January 2018, SDRs received approximately 30 million state
data reporting messages, which included over 77% of all interest
rate swap reports submitted to SDRs during that time period. Since
reporting began, the Commission estimates SDRs have received and
made available to the Commission over a billion state data reporting
messages.
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CME opposes removing state data reporting from Sec. 45.4(a). CME
believes the Commission should instead require the reporting of final-
state life cycle event changes per swap on the day in question to
reduce further submission of unnecessary data, noting that this
requirement would be consistent with the requirements of other
international regulators.\100\ The Commission agrees with CME updates
should be limited to final-state life cycle event changes per swap on a
day in question, but believes the Commission can clarify this without
continuing to permit state data reporting. As a result, the Commission
declines to keep state data reporting, but does clarify life cycle
updates should be limited to end of day updates where multiple take
place on a day.
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\100\ CME at 15.
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For the reasons discussed above, the Commission is adopting the
changes to Sec. 45.4(a) as proposed. Therefore, Sec. 45.4(a) will
require that for each swap, regardless of asset class, reporting
counterparties and DCOs required to report required swap continuation
data shall report life-cycle-event data for the swap electronically to
an SDR in the manner provided in Sec. 45.13(a) within the applicable
deadlines outlined in Sec. 45.4.
3. Sec. 45.4(b)--Continuation Data Reporting for Clearing Swaps
The Commission is making several changes to the existing Sec.
45.4(b) regulations for required swap continuation data reporting for
clearing swaps. The Commission is moving the Sec. 45.4(b) required
swap continuation data reporting regulations for clearing swaps to
Sec. 45.4(c) as part of structural changes to the regulations.\101\
The Commission is re-designating existing Sec. 45.4(c) as Sec.
45.4(b). Existing Sec. 45.4(c) contains the continuation data
reporting regulations for original swaps. Re-designated Sec. 45.4(b)
will be titled ``Continuation data reporting for original swaps.''
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\101\ The Commission discusses the revisions to the continuation
data requirements for clearing swaps and uncleared swaps in section
II.D.4 below.
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The Commission is also making several changes to the continuation
data reporting regulations for original swaps in re-designated Sec.
45.4(b). Existing Sec. 45.4(c) requires required swap continuation
data, including terminations, must be reported to the SDR to which the
original swap that was accepted for clearing was reported pursuant to
Sec. 45.3(a) through (d).\102\ For continuation data, existing Sec.
45.4(c)(1) requires: (i) Life-cycle-event data or state data reporting
either on the same day that any life cycle event occurs with respect to
the swap, or daily for state data reporting; and (ii) daily valuation
data. In addition, existing Sec. 45.4(c)(2) requires the reporting of:
(i) The LEI of the SDR to which all required swap creation data for
each clearing swap was reported by the DCO under Sec. 45.3(e); (ii)
the USI of the original swap that was replaced by the clearing swaps;
and (iii) the USI of each clearing swap that replaces a particular
original swap.
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\102\ The regulation also specifies the information must be
reported in the manner provided in Sec. 45.13(b) and in Sec. 45.4,
and must be accepted and recorded by such SDR as provided in Sec.
49.10. 17 CFR 45.4(c).
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First, the Commission is extending the deadline for reporting swap
continuation data for original swaps in Sec. 45.4(c)(1) to either T+1
or T+2, depending on the reporting counterparty, to be consistent with
the new deadlines for reporting required swap creation data in Sec.
45.3.\103\ As the Commission discusses in section II.C.2.a above,
though, the Commission is removing the references to 11:59 p.m. eastern
time that were in the Proposal. The Commission is thus changing the
reference from 11:59 p.m. eastern time to the end of the next business
day or the second business day that any life cycle event occurs for the
swap. Second, the Commission is removing the references to state data
reporting \104\ in Sec. 45.4(b) and clarifying that required swap
continuation data must be reported ``electronically,'' among other non-
substantive changes.
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\103\ The Commission discusses these changes in sections II.C.2
above. The Commission also considered the deadlines set by other
regulators. The SEC requires that any events that would result in a
change in the information reported to a SBSDR be reported within 24
hours of the event taking place. 17 CFR 242.900(g); 17 CFR
242.901(e). EMIR requires that contract modifications be reported no
later than the working day following the modification. Reg. 648/2012
Art. 9(1).
\104\ The Commission discusses removing state data reporting in
section II.D.2 above.
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The Commission received three comments supporting extending the
deadline for reporting required swap continuation data in Sec.
45.4(b).\105\ In particular, GFXD believes T+1 will create a more
harmonized global regulatory framework.\106\ The Commission agrees with
commenters that the proposal extending the deadline for reporting
required swap continuation data will streamline reporting and be
consistent with the deadlines set by other regulators.
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\105\ GFXD at 22; Chatham at 2; ISDA-SIFMA at 5.
\106\ GFXD at 22.
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DTCC requests clarification on when ``each business day'' begins
for Sec. 45.4(b) reporting.\107\ The Commission believes the
definitions of ``required swap creation data'' and ``required swap
continuation data'' explain that Sec. 45.4 required swap continuation
data reporting begins when reporting counterparties need to update
information for a swap reported to an SDR under Sec. 45.3. As such,
reporting data required by Sec. 45.4 would begin on the ``business
day'' on which a reporting counterparty needs to begin reporting
according to Sec. 45.4.
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\107\ DTCC at 5.
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Eurex proposes removing the DCO obligation to report terminations
of original swaps for ``off facility swaps.'' \108\ Eurex states that
in Europe clearing members have no automated reporting line to Eurex
and not all multilateral trading facilities (``MTFs'') or Approved
Trade Sources (``ATSs'') transmit USI namespaces and LEIs of the SDR
for ``off-facility swaps'' to the DCO.\109\ Eurex states this would be
burdensome as SDRs' USI namespaces and LEIs would have to be manually
obtained from the MTFs and ATSs.\110\ The Commission is not changing
DCOs' obligations for reporting original swap terminations, as the
Commission does not want to disrupt the reporting workflows for
original and clearing swaps the Commission established in a 2016
rulemaking extensively analyzing the process.\111\ The Commission
declines to adopt Eurex's suggestion at this time.
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\108\ Eurex 2-3.
\109\ Id.
\110\ Id.
\111\ See Amendments to Swap Data Recordkeeping and Reporting
Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016).
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In summary, Sec. 45.4(b) will require that for each original swap,
the DCO shall report required swap continuation data, including
terminations, electronically to the SDR to which the swap that was
accepted for clearing was reported pursuant to Sec. 45.3 in the manner
provided in Sec. 45.13(a), and such required swap continuation data
shall be accepted and recorded by such SDR as provided in Sec. 49.10.
New Sec. 45.4(b)(1) will provide that the DCO that accepted the swap
for clearing shall report all life-cycle-event data electronically to
an SDR in the manner provided in Sec. 45.13(a) not later than the end
of the next business day following the day that any life cycle event
occurs with respect to the swap. New Sec. 45.4(b)(2) will require
that, in addition to all other required swap continuation data, life-
[[Page 75514]]
cycle-event data shall include the LEI of the SDR to which all required
swap creation data for each clearing swap was reported by the DCO
pursuant to Sec. 45.3(b); the UTI of the original swap that was
replaced by the clearing swaps; and the UTI of each clearing swap that
replaces a particular original swap.
4. Sec. 45.4(c)--Continuation Data for Original Swaps
The Commission is making several changes to the Sec. 45.4(c)
regulations for reporting required swap continuation data for original
swaps. The Commission is moving the required swap continuation data
reporting requirements for original swaps from existing Sec. 45.4(c)
to Sec. 45.4(b) as part of structural changes.\112\ The Commission is
also moving the continuation data reporting requirements for clearing
swaps from existing Sec. 45.4(b) to Sec. 45.4(c), and combining them
with the continuation data reporting requirements for uncleared swaps
in existing Sec. 45.4(d). The Commission is retitling Sec. 45.4(c)
``Continuation data reporting for swaps other than original swaps'' to
reflect the combination.
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\112\ The Commission discusses changes to continuation data
requirements for original swaps in section II.D.3 above.
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The Commission is making several changes to the continuation data
reporting regulations for clearing swaps and uncleared swaps in Sec.
45.4(b) and (d), respectively, proposed to be re-designated as Sec.
45.4(c). Existing Sec. 45.4(b) requires that for all clearing swaps,
DCOs report: (i) Life-cycle-event data or state data reporting either
on the same day that any life cycle event occurs with respect to the
swap, or daily for state data reporting; and (ii) daily valuation data.
Existing Sec. 45.4(d) requires that for all uncleared swaps, including
swaps executed on a SEF or DCM, the reporting counterparty report: (i)
All life-cycle-event data on the same day for SD/MSP reporting
counterparties, or the second business day if it relates to a corporate
event of the non-reporting counterparty, or state data daily; (ii) all
life-cycle-event data on the next business day for non-SD/MSP reporting
counterparties, or the end of the second business day if it relates to
a corporate event of the non-reporting counterparty, or state data
daily; (iii) daily valuation data for SD/MSP reporting counterparties;
and (iv) the current daily mark of the transaction as of the last day
of each fiscal quarter, within 30 calendar days of the end of each
fiscal quarter for non-SD/MSP reporting counterparties.\113\
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\113\ If a daily mark of the transaction is not available for
the swap, the reporting counterparty satisfies the requirement by
reporting the current valuation of the swap recorded on its books in
accordance with applicable accounting standards. 17 CFR
45.4(d)(2)(ii).
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First, the Commission is changing the life cycle event reporting
deadlines for these swaps to match other T+1 and T+2 deadlines.\114\
The Commission is changing the life cycle event reporting deadline for
SD/MSP/DCO reporting counterparties from the same day to T+1 following
any life cycle event.\115\ The Commission is changing the exception for
corporate events of the non-reporting counterparty to T+2. For non-SD/
MSP/DCO reporting counterparties, the Commission is changing the life
cycle event reporting deadline to T+2 following the life cycle event.
As explained in section II.C.2.a above, though, the Commission is
removing the references to 11:59 p.m. eastern time from the proposal.
As a result, the deadlines will be either the end of the next business
day or the second business day following the events.
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\114\ The Commission discusses the T+1 and T+2 deadlines in
Sec. 45.3(b) and Sec. 45.4(b) in sections II.C.2.b and II.D.3,
respectively, above.
\115\ The Commission is not extending the valuation data
reporting deadline for SD/MSP/DCO reporting counterparties. The
Commission believes SDs, MSPs, and DCOs are already creating daily
valuations and tracking margin and collateral for reasons
independent of their swap reporting obligations.
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Second, the Commission is removing the references to state data
reporting in new Sec. 45.4(c).\116\ Third, the Commission is
clarifying that required swap continuation data must be reported
``electronically,'' among other non-substantive edits to improve
readability and update cross-references.
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\116\ The Commission discusses the removal of state data
reporting in section II.D.2 above.
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Fourth, the Commission is changing the swap valuation data
reporting requirements for all reporting counterparties. DCOs, SDs, and
MSPs report valuation data daily, while non-SD/MSP reporting
counterparties report the daily mark of transactions quarterly.\117\
For DCO, SD, and MSP reporting counterparties, the Commission is
keeping the daily reporting requirement. However, the Commission is
expanding the requirement to include margin and collateral data.\118\
Conversely, the Commission is eliminating the requirement for non-SD/
MSP/DCO reporting counterparties to report valuation data and is not
requiring them to report margin and collateral data.
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\117\ 17 CFR 45.4(b)(2) and (d)(2).
\118\ The Commission is adding a definition of ``collateral
data'' to Sec. 45.1(a), as discussed in section II.A.1 above.
``Collateral data'' means the data elements necessary to report
information about the money, securities, or other property posted or
received by a swap counterparty to margin, guarantee, or secure a
swap, as specified in appendix 1 to part 45.
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The Commission decided against requiring collateral data reporting
when it adopted part 45 in 2012. At the time, both the Commission and
industry understood collateral data was important for systemic risk
management, but was not yet possible to include in transaction-based
reporting since it was calculated at the portfolio level.\119\ In light
of this limitation, the Commission required the daily mark be reported
for swaps as valuation data, but not collateral.\120\ However, the
Commission noted while the industry had not yet developed data elements
suitable for representing the terms required to report collateral, the
Commission could revisit the issue in the future if and when industry
and SDRs develop ways to represent electronically the terms required
for reporting collateral.\121\
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\119\ See 77 FR 2136, 2153.
\120\ 17 CFR 45.1 (definition of ``valuation data''). The
Commission proposed amending the definition of ``valuation data'' in
Sec. 45.1(a), as discussed in section II.A.2 above. As amended,
``valuation data'' would mean the data elements necessary to report
information about the daily mark of the transaction, pursuant to CEA
section 4s(h)(3)(B)(iii), and to Sec. 23.431 if applicable, as
specified in appendix 1 to part 45.
\121\ See 77 FR 2136, 2154 (Jan. 13, 2012).
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The Commission is concerned not having margin and collateral data
at SDRs impedes its ability to fulfill systemic risk mitigation
objectives. As a result, the Commission revisited this issue in the
Proposal to determine whether it is now feasible.\122\ The Commission
believes margin and collateral data is necessary to monitor risk in the
swaps market. Given that ESMA is already requiring margin and
collateral reporting, and that the Commission is requiring many of the
data elements that ESMA requires, the Commission believes certain
market participants are ready to report this data to SDRs.
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\122\ Other regulators have taken different approaches to margin
and collateral data reporting. ESMA, for instance, requires the
reporting of many of the same collateral and margin swap data
elements the Commission proposed requiring, either on a portfolio
basis or by transaction. Reg. 148/2013 Art. 3(5). With respect to
valuation data, ESMA requires central counterparties to report
valuations for cleared swaps as the Commission does. Reg. 148/2013
Art. 3(4); Reg. 648/2012 Art. 10. EMIR provides an exemption from
valuation reporting, as well as reporting margin and collateral
data, for non-financial counterparties, unless they exceed a
threshold of derivatives activity.
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However, the Commission is concerned valuation, margin, and
collateral data reporting could create a significant burden for non-SD/
MSP/DCO reporting counterparties. These entities include those market
[[Page 75515]]
participants that, by virtue of size and extent of activity in the swap
market, may have fewer resources to devote to reporting this complex
data. The Commission also recognizes the quarterly valuation data these
counterparties report is not integral to the Commission's ability to
monitor systemic risk in the swaps market and may not justify the cost
to these entities to report it.
The Commission received 11 comments on expanding daily valuation
data reporting to include margin and collateral data reporting in Sec.
45.4(c) for SD/MSP/DCO reporting counterparties. Three commenters
support the proposal.\123\ In particular, Markit believes it is more
efficient for reporting counterparties to submit both cleared and
uncleared margin and collateral data together to SDRs, and states that
when it comes to valuation or collateral reporting valuation, some
systems may have limited information (e.g., trade reference
identification but not clearing status), and therefore it is more
complex to split valuation or collateral reporting into cleared versus
uncleared categories.
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\123\ Chris Barnard at 1; Markit at 6; LCH at 2.
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Eight commenters oppose the proposal.\124\ CME, Eurex, ISDA-SIFMA,
and FIA note collateral and margin reporting for DCOs pursuant to part
45 would be redundant for DCOs that have to report similar data to the
Commission pursuant to part 39 of the Commission's regulations, which
could result in burdens on DCOs with questionable benefits to the
Commission.\125\ In particular, CME believes the Commission should
consider consolidating its collateral reporting obligations for DCOs
under part 39.\126\
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\124\ CME at 15-16; CEWG at 8; Eurex at 3; ICE DCOs at 3-4;
ISDA-SIFMA at 8; BP at 3; FXPA at 4-5; FIA at 12.
\125\ CME at 15-16; Eurex at 3; ICE DCOs at 3-4; ISDA-SIFMA at
8; FIA at 12.
\126\ CME at 15-16.
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The Commission received nine comments supporting excluding non-SD/
MSP/DCO reporting counterparties from reporting valuation, margin, and
collateral data in Sec. 45.4(c).\127\ In particular, IECA notes
reporting counterparties contract for third-party services to perform
quarterly valuations of transactions, and the valuation analysis does
not mitigate systemic risk, and offers only tangential value, at best,
to the two parties.\128\ Similarly, ISDA-SIFMA strongly support the
proposal because ISDA-SIFMA do not believe the 2% of swaps reported by
non-SD/MSP/DCO reporting counterparties represent systemic risk.\129\
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\127\ IECA at 3; Chatham at 2-3; Eurex at 3; JBA at 4; NRECA-
APPA at 5; ISDA-SIFMA at 8; FIA at 14; CEWG at 2; COPE at 2.
\128\ IECA at 3.
\129\ ISDA-SIFMA at 8.
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The Commission acknowledges the concerns raised by CME, Eurex, ICE
DCOs, ISDA-SIFMA, and FIA about duplicative reporting for DCOs
regarding cleared swaps. While collateral and margin data is reported
pursuant to part 39 using a different set of data elements than those
contained in appendix 1, and collateral and margin data is reported for
end-of-day positions pursuant to part 39 as opposed to a more granular
transaction-by-transaction basis pursuant to part 45, the Commission
believes the collateral and margin data reported by DCOs pursuant to
part 39 is sufficiently similar to data reported pursuant to part 45 to
meet the Commission's current needs.
However, the Commission is also open to requiring DCO reporting
counterparties to report collateral and margin data on a transaction-
by-transaction basis pursuant to part 45 at a future date if a
Commission need for more granular data emerges in its monitoring of
systemic risk or if granular data is needed as a condition for global
jurisdictions to grant substituted compliance and TR access to one
another. The Commission notes any added costs to DCO reporting
counterparties to comply with any such future Commission requirement
would be substantially mitigated by DCOs' existing and future systems
for transaction-by-transaction reporting of collateral and margin data
developed to comply with the requirements of other jurisdictions,
including Europe.
The Commission received one comment on reporting corporate events.
FIA suggests that for the reporting of corporate events of non-
reporting counterparties, the Commission measure the reporting deadline
from the day the non-reporting counterparty informs the reporting
counterparty of the corporate event.\130\ The Commission believes
corporate events need to be reported in a timely manner, and is
concerned FIA's suggestion of leaving the decision of when to inform
the reporting counterparty could delay the notification for extended
periods of time, resulting in inaccurate or stale data. As such, the
Commission declines to adopt FIA's suggestion.
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\130\ FIA at 11.
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For the reasons discussed above, the Commission is adopting the
changes to Sec. 45.4(c) as proposed, except the Commission is
excluding DCO reporting counterparties from the requirement to report
collateral data. In summary, Sec. 45.4(c) will require that for each
swap that is not an original swap, including clearing swaps and swaps
not cleared by DCOs, the reporting counterparty shall report all
required swap continuation data electronically to an SDR in the manner
provided in Sec. 45.13(a) as provided in Sec. 45.4(c). New Sec.
45.4(c)(1) will require that: (i) If the reporting counterparty is a
SD, MSP, or DCO, the reporting counterparty shall report life-cycle-
event data electronically to an SDR in the manner provided in Sec.
45.13(a) not later than the end of the next business day following the
day that any life cycle event occurred, with the sole exception that
life-cycle-event data relating to a corporate event of the non-
reporting counterparty shall be reported in the manner provided in
Sec. 45.13(a) not later than the end of the second business day
following the day that such corporate event occurred; (ii) if the
reporting counterparty is a non-SD/MSP/DCO counterparty, the reporting
counterparty shall report life-cycle-event data electronically to an
SDR in the manner provided in Sec. 45.13(a) not later than the end of
the second business day following the day that any life cycle event
occurred. New Sec. 45.4(c)(2)(i) will require that if the reporting
counterparty is a SD, MSP, or DCO, swap valuation data shall be
reported electronically to an SDR in the manner provided in Sec.
45.13(b) each business day. New Sec. 45.4(c)(2)(ii) will require that
if the reporting counterparty is a SD or MSP, collateral data shall be
reported electronically to an SDR in the manner provided in Sec.
45.13(b) each business day.
E. Sec. 45.5--Unique Transaction Identifiers
The Commission is amending Sec. 45.5 to adopt requirements for
UTIs, the globally accepted transaction identifier, replacing USIs in
existing Sec. 45.5. In general, the Commission is amending existing
Sec. 45.5(a) through (f) to require each swap to be identified with a
UTI in all recordkeeping and all swap data reporting, and to require
the UTI be comprised of the LEI of the generating entity and a unique
alphanumeric code. Before discussing the specific changes to Sec.
45.5(a) through (f) in sections II.E.1 to II.E.7 below, the Commission
explains the policy behind adopting UTIs.
In general, existing Sec. 45.5 requires: (i) Each swap be
identified with a USI in all recordkeeping and all swap data reporting,
and (ii) the USI be comprised of a unique alphanumeric code and an
identifier the Commission assigns to the generating entity. Each swap
retains its USI from execution until, for instance,
[[Page 75516]]
the swap reaches maturity or the counterparties terminate the contract.
USIs allow the Commission to identify new swaps in SDR data and track
changes to swaps by reviewing all reports associated with a USI.
The Commission implemented the existing USI regulations before
global consensus was reached on the structure and format for a common
swap identifier. For entities reporting swap data to multiple
jurisdictions, this has resulting in conflicting or ambiguous
generation and transmission requirements across jurisdictions.
Practically, the Commission is concerned this has resulted in: (i)
Conflicting responsibilities for generating identifiers and (ii)
entities reporting different identifiers identifying the same swap to
different SDRs and TRs.
The Commission believes amending Sec. 45.5 to require each swap be
identified with a UTI in all recordkeeping and all swap data reporting,
and to require that the UTI be comprised of the LEI of the generating
entity and a unique alphanumeric code, will result in the structure and
format for the swap identifier being consistent with the UTI Technical
Guidance, which will reduce cross-border reporting complexity and
encourage global swap data aggregation.
1. Title and Introductory Text
The Commission proposed several conforming amendments to the Sec.
45.5 title and the introductory text. Existing Sec. 45.5 is titled
``Unique swap identifiers.'' The existing introductory text states that
each swap subject to the jurisdiction of the Commission shall be
identified in all recordkeeping and all swap data reporting pursuant to
part 45 by the use of a USI, which shall be created, transmitted, and
used for each swap as provided in Sec. 45.5(a) through (f).
The Commission proposed replacing ``swap'' in the title with
``transaction'' to reflect the Commission's proposed adoption of the
UTI. Accordingly, the Commission proposed updating the reference to USI
with UTI in the introductory text.
The Commission also proposed updating the reference to paragraphs
(a) through (f) of existing Sec. 45.5 to (a) through (h) of proposed
Sec. 45.5. This would reflect the Commission's addition of proposed
Sec. 45.5(g) and (h), discussed in sections II.E.8 and II.E.9 below.
The Commission received eight general comments on adopting UTIs in
Sec. 45.5. Four commenters generally support adopting UTIs in Sec.
45.5.\131\ In particular, BP also supports using the same UTI across
jurisdictions and recommends SDRs manage UTI generation and identify
and coordinate the use of the earliest regulatory reporting deadline
among jurisdictions.\132\
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\131\ Chatham at 3; LCH at 3; GLEIF at 3; BP at 5.
\132\ BP at 5.
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GFXD supports implementing global UTI standards but is concerned
the Commission will conflict with the global harmonized generation
hierarchy or run on a timeframe that is not coordinated with other
jurisdictions, negating the purpose and benefits of a universal UTI
standard and creating significant extra cost and complexity, as well as
the need to separate UTI systems and logic for each jurisdiction.\133\
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\133\ GFXD at 22-23.
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Eurex supports harmonizing the UTI and believes it would
significantly relieve reporting counterparties. Eurex recommends the
Commission align UTI requirements with ESMA and other global regulators
on the effective date of UTI and phase in UTI to handle existing open
swap positions.\134\ LCH recommends the Commission apply the factors
provided in Table 1 of the UTI Technical Guidance, which contains
specific factors authorities should consider for allocating
responsibility for UTI generation.\135\
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\134\ Eurex suggests, for example, continuing use of the old
identifier for open swaps until positions are modified. Eurex at 3-
4.
\135\ LCH at 3.
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JBA believes not adopting the UTI Technical Guidance precisely
could lead to confusion for the UTI generation responsibility for
cross-border transactions. JBA asks the Commission consider designing
easy-to-implement and flexible rules, such as allowing a change to the
UTI generation responsibility in accordance with a bilateral agreement
or adopting tiebreaker logic similar to the existing ISDA Tie-Breaker
Logic that easily determines the UTI generation responsibility.\136\
---------------------------------------------------------------------------
\136\ JBA at 2-3.
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The Commission did not receive any comments on the proposals to
retitle Sec. 45.5 ``Unique Transaction Identifiers,'' to update the
reference to paragraphs (a) through (f) of Sec. 45.5 to (a) through
(h) of Sec. 45.5, or to update the reference to USI with UTI in the
introductory text and for reasons articulated in the Proposal and
reiterated above, is adopting the changes to those portions of the
introductory text as proposed. For the reasons articulated in the
Proposal and the additional reasons discussed below, the Commission is
adopting the changes to the remainder of the introductory text to Sec.
45.5 as proposed.
The Commission acknowledges the comments supportive of the
Commission's proposal to adopt UTIs. The Commission agrees with Eurex
and GFXD that the promise of UTIs can only be realized if jurisdictions
worldwide adopt the UTI, but the Commission shares the FSB's belief
that it is not feasible for jurisdictions to have one coordinated
global implementation date due to differences in the legislative and
regulatory process across jurisdictions.\137\ However, as discussed in
section VI below, the Commission is adopting an 18-month compliance
date for UTIs in an effort to be closer aligned with the estimated
implementation dates of other jurisdictions and recommends that other
jurisdictions adopt UTIs as expeditiously as possible.
---------------------------------------------------------------------------
\137\ FSB, Governance arrangements for the unique transaction
identifier (UTI) (Dec. 29, 2017) at 16 (``The FSB recognises the
challenges in coordinating a synchronised regulatory and
technological implementation across jurisdictions and registered
entities. As a result, the FSB believes that the most realistic and
feasible implementation plan is that jurisdictions globally
implement the requirements to report UTIs as expeditiously as
possible'').
---------------------------------------------------------------------------
As to the comments from LCH, GFXD, and JBA on the importance of
following the UTI Technical Guidance for assigning UTI generation
responsibilities, the Commission agrees and has cited the specific
steps from the UTI Technical Guidance generation flowchart in sections
II.E.2 to II.E.5 below to demonstrate the conformity of Sec. 45.5(a)
to (d) with the UTI Technical Guidance.
The Commission declines JBA's request for a rule affording
flexibility in UTI generation responsibilities, such as allowing
bilateral agreement between counterparties to override the UTI
generation responsibilities in Sec. 45.5, because it believes clear
rules delineating UTI generation responsibilities provide the best
assurance that only one unique UTI is generated for a trade, a
necessity for swap data reporting integrity. Allowing UTIs to be
generated according to bilateral agreement results in the need to reach
agreement on a trade-by-trade or counterparty-by-counterparty basis, a
scenario the Commission believes will increase the likelihood, due to
miscommunication, that no UTI is generated for a swap if each entity
believes the other agreed to generate or multiple UTIs are generated
for a swap if each entity believes it agreed to generate.
[[Page 75517]]
2. Sec. 45.5(a)--Swaps Executed on or Pursuant to the Rules of a SEF
or DCM
The Commission proposed several conforming amendments to Sec.
45.5(a) for the creation and transmission of UTIs for swaps executed on
or pursuant to the rules of SEFs and DCMs. Existing Sec. 45.5(a)(1)
requires that for swaps executed on or pursuant to the rules of SEFs
and DCMs, the SEFs and DCMs generate and assign USIs at or ASATP
following execution, but prior to the reporting of required swap
creation data, that consist of a single data field.\138\
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\138\ The single data field must contain: (i) The unique
alphanumeric code assigned to the SEF or DCM by the Commission for
the purpose of identifying the SEF or DCM with respect to the USI
creation; and (ii) an alphanumeric code generated and assigned to
that swap by the automated systems of the SEF or DCM, which is
unique with respect to all such codes generated and assigned by that
SEF or DCM. 17 CFR 45.5(a)(1)(i) and (ii).
---------------------------------------------------------------------------
Existing Sec. 45.5(a)(2) requires that the SEF or DCM transmit the
USI electronically (i) to the SDR to which the SEF or DCM reports
required swap creation data for the swap, as part of that report; (ii)
to each counterparty to the swap ASATP after execution of the swap; and
(iii) to the DCO, if any, to which the swap is submitted for clearing,
as part of the required swap creation data transmitted to the DCO for
clearing purposes.\139\
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\139\ 17 CFR 45.5(a)(2)(i) through (iii).
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First, the Commission proposed amendments to conform to the
Commission's proposed adoption of the UTI. The Commission proposed
replacing all references to ``USIs'' with ``UTIs'' in proposed Sec.
45.5(a)(1) and (2). In addition, the Commission proposed updating the
phrase in existing Sec. 45.5(a)(1) that requires the USI to consist of
a single data ``field'' that contains two components to a single data
``element with a maximum length of 52 characters'' so that the length
of the UTI is consistent with the UTI Technical Guidance.\140\
---------------------------------------------------------------------------
\140\ UTI Technical Guidance, Section 3.6.
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The Commission also proposed amending the Sec. 45.5(a)(1)(i)
description of the first component of the UTI's single data element to
replace ``unique alphanumeric code assigned to'' the SEF or DCM with
``legal entity identifier of'' the SEF or DCM so that the identifier
used to identify the UTI generating entity is consistent with the UTI
Technical Guidance.\141\ The Commission proposed to delete the phrase
in the second half of the sentence statin that by the Commission for
the purpose of identifying the SEF or DCM with respect to the USI
creation, because, according to the UTI Technical Guidance, an LEI is
used to identify the UTI generating entity instead of an identifier
assigned by individual regulators.
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\141\ UTI Technical Guidance, Section 3.5.
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The Commission did not receive any comments on the proposed
amendments to the requirements for the creation and transmission of
UTIs for swaps executed on or pursuant to the rules of SEFs and DCMs in
proposed Sec. 45.5(a) and for reasons articulated in the Proposal and
reiterated above, is adopting the changes as proposed. The Commission
notes assigning UTI generation responsibilities for swaps executed on
or pursuant to the rules of SEFs and DCMs to the SEF or DCM adheres to
the generation flowchart in the UTI Technical Guidance.\142\
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\142\ UTI Technical Guidance at 12 (Step 3: ``Was the
transaction executed on a trading platform?'' ``If so, the trading
platform'').
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3. Sec. 45.5(b)--Off-Facility Swaps With an SD or MSP Reporting
Counterparty
The Commission proposed several amendments to existing Sec.
45.5(b) for the creation and transmission of UTIs for off-facility
swaps by SD/MSP reporting counterparties. Existing Sec. 45.5(b)(1)
requires that, for off-facility swaps with SD/MSP reporting
counterparties, the reporting counterparty generate and assign a USI
consisting of a single data field.\143\ The required USI must be
generated and assigned after execution of the swap and prior to the
reporting of required swap creation data and the transmission of data
to a DCO if the swap is to be cleared.
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\143\ The single data field must contain: (i) The unique
alphanumeric code assigned to the SD or MSP by the Commission at the
time of its registration for the purpose of identifying the SD or
MSP with respect to USI creation; and (ii) an alphanumeric code
generated and assigned to that swap by the automated systems of the
SD or MSP, which shall be unique with respect to all such codes
generated and assigned by that SD or MSP. 17 CFR 45.5(b)(1).
---------------------------------------------------------------------------
Existing Sec. 45.5(b)(2) requires that the reporting counterparty
transmit the USI electronically: (i) To the SDR to which the reporting
counterparty reports required swap creation data for the swap, as part
of that report; and (ii) to the non-reporting counterparty to the swap,
ASATP after execution of the swap; and (iii) to the DCO, if any, to
which the swap is submitted for clearing, as part of the required swap
creation data transmitted to the DCO for clearing purposes.
First, the Commission proposed expanding the UTI creation and
transmission requirements for SD/MSP reporting counterparties to
include reporting counterparties that are financial entities.\144\ The
Commission explained that it believed extending the responsibility for
generating off-facility swap UTIs to reporting counterparties that are
financial entities would reduce the UTI generation burden on non-
financial entities. The Commission also proposed conforming changes.
These changes replaced ``swap dealer or major swap participant
reporting counterparty'' in the title to proposed Sec. 45.5(b) with
``financial entity reporting counterparty'' and replaced ``swap dealer
or major swap participant'' in the first sentence of Sec. 45.5(b) with
``financial entity.'' As proposed, the new title of Sec. 45.5(b) would
be ``Off-facility swaps with a financial entity reporting
counterparty'' and the first sentence of proposed Sec. 45.5(b) would
begin with ``For each off-facility swap where the reporting
counterparty is a financial entity. . . .'' \145\ The Commission
similarly proposed to replace references to ``swap dealer or major swap
participant'' in Sec. 45.5(b)(1)(i) and (ii) with ``reporting
counterparty.'' \146\
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\144\ 17 CFR 45.1 (definition of ``financial entity'').
\145\ See row ``45.5(b)'' of the table in section VIII.3 below.
\146\ See row ``45.5(b)(1)(ii)'' of the table in section VIII.3
below.
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Second, the Commission proposed amendments to conform to the
Commission's proposed adoption of the UTI. The Commission proposed
replacing all references to ``USIs'' with ``UTIs'' in proposed Sec.
45.5(b)(1) and (2). In addition, the Commission proposed updating the
phrase in proposed Sec. 45.5(b)(1) that requires the USI to consist of
a single data ``field'' that contains two components to a single data
``element with a maximum length of 52 characters'' so that the length
of the UTI is consistent with the UTI Technical Guidance.\147\
---------------------------------------------------------------------------
\147\ UTI Technical Guidance, Section 3.6.
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The Commission proposed amending Sec. 45.5(b)(1)(i) to describe
the first component of the UTI's single data element by replacing
``unique alphanumeric code assigned to'' the SD or MSP with ``legal
entity identifier of'' the reporting counterparty so that the
identifier used to identify the UTI generating entity is consistent
with the UTI Technical Guidance.\148\ The Commission also proposed
deleting the phrase in the second half of the sentence stating ``by the
Commission at the time of its registration as such, for the purpose of
identifying the [SD] or [MSP] with respect to the [USI] creation,''
because, according to the UTI Technical Guidance, an LEI should be used
to identify the UTI generating
[[Page 75518]]
entity instead of an identifier assigned by individual regulators.
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\148\ UTI Technical Guidance, Section 3.5.
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The Commission also believed this would more closely align the UTI
generation hierarchy with the reporting counterparty determination
hierarchy in Sec. 45.8, which incorporates financial entities for
purposes of determining the reporting counterparty.\149\ For example,
in an off-facility swap where neither counterparty is an SD nor an MSP
and only one counterparty is a financial entity, the counterparty that
is a financial entity would be the reporting counterparty,\150\ yet the
SDR would generate the USI under existing Sec. 45.5(c).\151\ The
Commission explained that the proposed changes to Sec. 45.5(b) would
ensure that for such swap, the financial entity would be assigned to
both the reporting counterparty and to generate the UTI and that the
proposal would also reduce the number of swaps for which SDRs would be
required to generate the UTI.
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\149\ 17 CFR 45.8.
\150\ 17 CFR 45.8(c).
\151\ 17 CFR 45.5(c).
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The Commission received two comments on the proposed amendments to
Sec. 45.5(b). ISDA-SIFMA believe the Commission should delay the
requirement to disseminate UTIs to non-reporting counterparties from
ASATP to T+1, because the UTI transmission mechanisms generally align
with the method of confirmation, such as electronic or paper. ISDA-
SIFMA suggest the Commission replace the ASATP requirement for UTI
transmission with a deadline of no later than T+1, to correspond with
the proposed timeline for reporting creation data to the SDR.\152\ DTCC
agrees that the reporting counterparty should be responsible for
generating off-facility swap UTIs.\153\
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\152\ ISDA-SIFMA at 10.
\153\ DTCC at 5.
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The Commission did not receive any comments opposing the proposed
amendments to Sec. 45.5(b) expanding the UTI creation and transmission
requirements for SD/MSP reporting counterparties to include reporting
counterparties that are financial entities, and for reasons articulated
in the Proposal and reiterated above, is adopting the proposal with one
modification relating to transmission. The Commission agrees with ISDA-
SIFMA and believes in light of the proposed changes in Sec. 45.3(b) to
the deadline for reporting required swap creation data, that
transmission of the UTI to the non-reporting counterparty should be
similarly delayed in order to not potentially provide two separate
confirmations to the non-reporting counterparty. The Commission
therefore is adopting the changes as proposed, except it replaces ``To
the non-reporting counterparty to the swap, as soon as technologically
practicable after execution of the swap; and'' with ``To the non-
reporting counterparty to the swap, no later than the applicable
deadline in Sec. 45.3(b) for reporting required swap creation data;
and'' in final Sec. 45.5(b)(2)(ii).
The Commission notes assigning UTI generation responsibilities for
off-facility swaps with a financial entity reporting counterparty to
the reporting counterparty adheres to the generation flowchart in the
UTI Technical Guidance.\154\
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\154\ UTI Technical Guidance at 12 (Step 7: ``Does the
jurisdiction employ a counterparty-status-based approach (e.g., rule
definition or registration status) for determining which entity
should have responsibility for generating the UTI?'' ``If so, see
step 8.'' Step 8: ``Do the counterparties have the same regulatory
status for UTI generation purposes under the relevant
jurisdiction?'' ``Otherwise, see step 9.'' Step 9: ``Do the
applicable rules determine which entity should have responsibility
for generating the UTI?'' ``If so, the assigned entity'').
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4. Sec. 45.5(c)--Off-Facility Swaps With a Non-SD/MSP Reporting
Counterparty
The Commission proposed several amendments to existing Sec.
45.5(c) for the creation and transmission of USIs for off-facility
swaps by non-SD/MSP reporting counterparties. Existing Sec. 45.5(c)(1)
requires that, for off-facility swaps with non-SD/MSP reporting
counterparties, the SDR generates and assigns the USI ASATP after
receiving the first report of PET data, consisting of a single data
field.\155\
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\155\ The single data field must contain: (i) The unique
alphanumeric code assigned to the SDR by the Commission at the time
of its registration for the purpose of identifying the SDR with
respect to USI creation; and (ii) an alphanumeric code generated and
assigned to that swap by the automated systems of the SDR, which
must be unique with respect to all such codes generated and assigned
by that SDR. 17 CFR 45.5(c)(1).
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Existing Sec. 45.5(c)(2) requires that the SDR transmit the USI
electronically: (i) To the counterparties to the swap ASATP after
creation of the USI, and (ii) to the DCO, if any, to which the swap is
submitted for clearing ASATP after creation of the USI.
First, the Commission proposed replacing ``non-SD/MSP reporting
counterparty'' in the title of proposed Sec. 45.5(c) with ``non-SD/
MSP/DCO reporting counterparty that is not a financial entity'' and
replacing ``reporting counterparty is a non-SD/MSP counterparty'' in
the first sentence of proposed Sec. 45.5(c) with ``reporting
counterparty is a non-SD/MSP/DCO counterparty that is not a financial
entity.'' The new title of Sec. 45.5(c) would be ``Off-facility swaps
with a non-SD/MSP/DCO reporting counterparty that is not a financial
entity'' and the first sentence of Sec. 45.5(c) would begin with ``For
each off-facility swap for which the reporting counterparty is a non-
SD/MSP/DCO counterparty that is not a financial entity. . . .'' The
Commission is expanding UTI generation responsibilities to financial
entities,\156\ and believes this amendment will clarify that Sec.
45.5(c) will apply only where a reporting counterparty is a non-SD/MSP/
DCO counterparty that is not a financial entity.
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\156\ 17 CFR 45.1 (definition of ``financial entity''). The
Commission discusses this change in section II.E.3 above.
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Second, the Commission proposed amending existing Sec. 45.5(c) to
provide non-SD/MSP/DCO reporting counterparties that are not financial
entities with the option to generate the UTI for an off-facility swap
or to request the SDR to which required swap creation data will be
reported to generate the UTI. If the non-SD/MSP/DCO reporting
counterparty that is not a financial entity chooses to generate the UTI
for an off-facility swap, the reporting counterparty would follow the
creation and transmission requirements for financial entity reporting
counterparties in final Sec. 45.5(b)(1) and (2). If the non-SD/MSP/DCO
reporting counterparty that is not a financial entity chooses to
request the SDR generates the UTI, the SDR would follow the creation
and transmission requirements for SDRs in proposed Sec. 45.5(c)(1) and
(2). The Commission proposed amendments to the requirements for SDRs in
proposed Sec. 45.5(c)(1), as discussed below.
The Commission participated in the preparation of the UTI Technical
Guidance, which includes guidance to authorities for allocating
responsibility for UTI generation, including a generation flowchart
that places SDRs at the end.\157\ The UTI Technical Guidance also notes
``[n]ot all factors'' in the flowchart for allocating responsibility
for UTI generation ``will be relevant for all jurisdictions.'' \158\
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\157\ UTI Technical Guidance at 12-14.
\158\ UTI Technical Guidance at 12.
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Because the UTI Technical Guidance was produced with the need to
accommodate the different trading patterns and reporting rules in
jurisdictions around the world, the Commission explained certain
factors included in the UTI Technical Guidance generation flowchart are
not applicable for the Commission (e.g., factors relating to the
principal clearing model \159\ or
[[Page 75519]]
electronic confirmation platforms),\160\ and that therefore the
Commission was unable to adopt the UTI Technical Guidance without
modification. However, the Commission explained in the Proposal that
none of the provisions of proposed Sec. 45.5 would conflict with the
UTI Technical Guidance, including maintaining the existing obligations
for SDRs to generate and transmit UTIs. While UTI generation and
transmission responsibilities by SDRs remain in proposed Sec. 45.5(c),
the Commission also believed the proposed alignment of the UTI
generation and reporting counterparty determination for financial
entities in final Sec. 45.5(b) and the proposed reporting option for
reporting counterparties that are neither DCOs nor financial entities
in proposed Sec. 45.5(c) would result in reduced overall UTI
generation and transmission burdens for SDRs.
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\159\ UTI Technical Guidance at 12 (Step 2: ``Is a counterparty
to this transaction a clearing member of a CCP, and if so is that
clearing member acting in its clearing member capacity for this
transaction?'').
\160\ UTI Technical Guidance at 12 (Step 6: ``Has the
transaction been electronically confirmed or will it be and, if so,
is the confirmation platform able, willing and permitted to generate
a UTI within the required time frame under the applicable rules?'').
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The Commission explained in the Proposal that amending Sec.
45.5(c) to provide the reporting counterparty with the option to
generate the UTI for an off-facility swap where the reporting
counterparty is neither a DCO nor financial entity or, if the reporting
counterparty elects not to generate the UTI, to request the SDR to
which required swap creation data will be reported generate the UTI
would provide a reporting counterparty that is neither a DCO nor
financial entity with the flexibility to generate the UTI should it
choose to do so. Simultaneously, the Commission believed the proposal
would reduce the number of swaps where an SDR is assigned UTI
generation responsibilities, while also maintaining the existing SDR
role as a guarantee that every off-facility swap will be identified
with a UTI.
Third, the Commission proposed amendments to conform to the
Commission's proposed adoption of the UTI.\161\ The Commission also
proposed deleting the phrase in the second half of the sentence stating
``by the Commission at the time of its registration as such, for the
purpose of identifying the [SDR] with respect to the [USI] creation,''
because, according to the UTI Technical Guidance, an LEI should be used
to identify the UTI generating entity instead of an identifier assigned
by individual regulators.
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\161\ The Commission proposed replacing all references to
``USIs'' with ``UTIs'' in proposed Sec. 45.5(c)(1) and (2). In
addition, the Commission proposed updating the phrase in proposed
Sec. 45.5(c)(1) that required the USI to consist of a single data
``field'' that contains two components to a single data ``element
with a maximum length of 52 characters'' so that the length of the
UTI is consistent with the UTI Technical Guidance. UTI Technical
Guidance, Section 3.6. The Commission proposed amending the Sec.
45.5(c)(1)(i) description of the first component of the UTI's single
data element to replace ``unique alphanumeric code assigned to'' the
SDR with ``legal entity identifier of'' the SDR so that the
identifier used to identify the UTI generating entity is consistent
with the UTI Technical Guidance. UTI Technical Guidance, Section
3.5.
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The Commission received four comments supporting expansion of the
ability to generate UTIs. CME supports expanding the ability to
generate UTIs to non-SD/MSP/DCO reporting counterparties that are not
financial entities, because the internal reference identifier used in
bookkeeping systems is different than the transaction identifier used
in swap data reporting.\162\ DTCC agrees that the reporting
counterparty should be responsible for generating off-facility swap
UTIs, because reporting counterparties are in the best position to
collect information from a non-reporting counterparty necessary to
generate a UTI, such as LEI.\163\ Chatham believes all non-SD/MSP/DCO
reporting counterparties should have the option to have the SDR
continue to generate the UTI for them, because it is efficient and
requires the fewest changes to the current practice.\164\ BP supports
SDRs continuing to manage UTI generation.\165\
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\162\ CME at 15.
\163\ DTCC at 5.
\164\ Chatham at 3.
\165\ BP at 5.
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The Commission received four comments opposing the requirement for
SDRs to generate UTIs. CME believes the rule changes appear to require
SDRs to offer separate parts 43 and 45 messages because of the
different reporting deadlines, and that SDRs would not be able to link
the parts 43 and 45 messages, necessitating the reporting counterparty
to include the UTI from the first message in the second message. CME
believes SDRs should not generate UTIs to avoid this situation. CME
also notes some reporting counterparties who currently rely on SDRs to
generate USIs have swaps with multiple USIs because of an issue when
reporting counterparties submit swaps to the SDR in batches but the
swaps fail some validations.\166\
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\166\ CME at 16-17.
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DTCC opposes SDRs generating and transmitting UTIs because it would
not enable early and automated generation in the transaction's life-
cycle, which may be necessary for counterparties.\167\ ICE SDR suggests
the Commission instead let non-SD/MSP/DCO reporting counterparties
choose which counterparty generates the UTI, and highlights that non-
SD/MSP/DCOs may have more flexibility with extended reporting timelines
by electing to have a third-party service provider or confirmation
platform generate and assign the UTI. ICE SDR believes allowing a
confirmation platform to assign UTIs aligns with the UTI Technical
Guidance.\168\ ICE SDR recommends that the Commission revise proposed
Sec. 45.5(c) to remove the requirement that the SDR transmit the UTI
to both counterparties to a swap. ICE SDR contends that, if the
reporting counterparty chooses to have the SDR generate the UTI, the
SDR should be responsible only for transmitting the UTI to the
reporting counterparty requesting UTI generation, because SDRs often
has no relationship with the non-reporting counterparties who are not
participants of the SDR.\169\
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\167\ DTCC at 5.
\168\ ICE SDR at 5.
\169\ ICE SDR at 5.
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ISDA-SIFMA believe each jurisdiction must align to a global UTI
waterfall to the maximum extent possible. ISDA-SIFMA also believe the
Commission deviates from the UTI Technical Guidance by assigning SDRs
the obligation to generate UTIs for non-SD/MSP/DCOs superior in the
hierarchy than the UTI Technical Guidance. As non-SD reporting
counterparties can conduct trade reporting and must transmit the UTI to
their counterparties, ISDA-SIFMA question whether there is sufficient
demand for UTI generation by the SDR to substantiate this deviation
from the UTI Technical Guidance.\170\
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\170\ ISDA-SIFMA at 9.
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For reasons articulated in the Proposal and informed by comments
and analysis as further discussed below, the Commission is adopting the
proposed changes to the Sec. 45.5(c) regulations for the creation and
transmission of UTIs for off-facility swaps with a non-SD/MSP/DCO
reporting counterparty that is not a financial entity as proposed. The
Commission notes SDRs have been required to generate USIs pursuant to
existing Sec. 45.5(c) since the adoption of part 45 in 2012 and
further notes assigning UTI generation responsibility for off-facility
swaps with a non-SD/MSP/DCO reporting counterparty that is not a
financial entity to the SDR adheres
[[Page 75520]]
to the generation flowchart in the UTI Technical Guidance.\171\
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\171\ UTI Technical Guidance at 12-13 (Step 7: ``Does the
jurisdiction employ a counterparty-status-based approach . . . for
determining which entity should have responsibility for generating
the UTI?'' ``If so, see step 8.'' Step 8: ``Do the counterparties
have the same regulatory status for UTI generation purposes[ ]?''
``If so, see step 11.'' Step 11: ``Do the counterparties have an
agreement governing which entity should have responsibility for
generating the UTI for this transaction?'' ``Otherwise, see step
12.'' Step 12 ``Has the transaction been electronically confirmed or
will it be and, if so, is the confirmation platform able, willing
and permitted to generate a UTI within the required time frame under
the applicable rules?'' ``Otherwise, see step 13.'' Step 13: ``Is
there a single TR to which reports relating to the transaction have
to be made, and is that TR able, willing and permitted to generate
UTIs under the applicable rules?'' ``If so, the TR'').
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In addition to adhering to the UTI Technical Guidance, the
Commission also believes the adopted rule appropriately balances the
burdens between reporting counterparties and SDRs by providing
optionality to a non-SD/MSP/DCO reporting counterparty that is not a
financial entity to elect to generate a UTI if it so chooses, and
lowers costs for both SDRs and non-SD/MSP/DCO reporting counterparties.
SDR costs would be lowered due to fewer transaction identifiers that
SDRs would be required to generate under final Sec. 45.5(c) compared
to existing Sec. 45.5(c). Costs on non-SD/MSP/DCO reporting
counterparties who choose not to generate UTIs would be lowered due to
their ability to leverage the existing transaction identifier
generation infrastructure of SDRs rather than expenditures to develop
their own UTI generation systems.
In response to the several comments indicating that the proposed
amendments to Sec. 45.5(c) do not follow the UTI Technical Guidance,
the Commission notes Commission staff was heavily involved in the
preparation of the UTI Technical Guidance generation flowchart, and
disagrees that assigning UTI generation to SDRs contravenes the UTI
Technical Guidance for the following reasons. Section 45.5(c) would
apply only for off-facility trades where both counterparties are of
equal status (i.e., non-financial entities), and in this scenario, UTI
Technical Guidance flowchart step 8 directs to step 11, which instructs
inquiring about whether the counterparties have an agreement as to UTI
generation. Since no agreement exists, the flowchart leads to step 12,
which instructs inquiring about whether electronic confirmation
platforms are able, willing, and permitted to generate UTIs, the step
ICE SDR suggests the Commission set as the last step in assigning UTI
generation responsibilities. However, the Commission is unable to
assign electronic confirmation platforms with UTI generation
responsibilities, as it has no jurisdiction over such platforms, nor
does the Commission deem it desirable to require counterparties who do
not use such platforms to specifically contract with platforms or other
third parties solely for the purpose of UTI generation. As a result,
step 12 is not applicable, leading to step 13 where the SDR is the
entity responsible for generating UTIs. As demonstrated above, the
Commission believes each step of the UTI Technical Guidance generation
flowchart leading up to step 13 matches the conditions under which an
SDR is required to generate UTIs pursuant to Sec. 45.5(c).
While the optionality to generate UTIs for non-SD/MSP/DCO reporting
counterparties that are not financial entities is not a step in the UTI
Technical Guidance generation flowchart, the Commission does not
believe the optionality conflicts with an SDR's responsibility for
serving as UTI generator of last resort. Under the optionality, an SDR
continues to be the entity that has legal responsibility for UTI
generation for this type of off-facility trade should the non-SD/MSP/
DCO reporting counterparty that is not a financial entity elect not to,
and at no point would a non-SD/MSP/DCO reporting counterparty that is
not a financial entity that is unwilling or unable to generate the UTI
be forced to generate the UTI. Additionally, no commenters oppose
providing non-SD/MSP/DCO reporting counterparties that are not
financial entities with the ability to generate UTIs.
The Commission acknowledges ICE SDR's request to remove the
requirement to transmit the UTI to the non-reporting counterparty due
to a potential lack of relationship between an SDR and the non-
reporting counterparty, but declines to adopt the suggestion for two
reasons. First, the Commission notes the requirement for an SDR
generator to transmit USIs to both counterparties has been in existing
Sec. 45.5(c)(2)(i) that SDRs have complied with since part 45 was
adopted in 2012, and based on experience with compliance by SDRs since
2012, the Commission has seen no evidence that lack of relationship
presents a problem in need of being addressed. In addition, the
Commission is adopting three amendments to Sec. 45.5 that will result
in SDRs generating fewer UTIs than USIs and mitigate any burden placed
on SDRs to transmit the UTIs they generate to non-reporting
counterparties, including: (i) All financial entities, not just SD/
MSPs, being required to generate UTIs pursuant to final Sec. 45.5(b);
(ii) the optionality provided to non-SD/MSP/DCO reporting
counterparties that are not financial entities to generate UTIs in
final Sec. 45.5(c); and (iii) as described in section II.E.8 below,
the requirement in final Sec. 45.5(g) for entities using third-party
service providers to ensure that the third-party service providers
generate UTIs.
Finally, the Commission declines to adopt the SDRs' suggestion to
end the UTI generation responsibilities with the reporting counterparty
as the last step of the hierarchy, since this would result in
incomplete UTI generation logic. A natural person reporting
counterparty, who by definition is a non-SD/MSP/DCO reporting
counterparty that is not a financial entity, will highly likely be
unable to generate UTIs due to the inability of most natural persons to
obtain an LEI \172\ that is necessary to generate UTIs. As a result,
the SDRs' suggestion would not ensure that an entity capable of
generating UTIs is assigned with the responsibility to generate the UTI
for every swap.
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\172\ CME itself notes the inability of natural person reporting
counterparties to obtain LEIs in a separate portion of its comment
letter. See CME at 25 (``For individuals that qualify as an Eligible
Contract Participant, they will not be able to obtain an LEI and
hence will be unable to report if [counterparty 1] allowable value
is an LEI'').
---------------------------------------------------------------------------
The Commission also acknowledges--but does not find persuasive--
DTCC's comment that reporting counterparties should be the entity
responsible for generating UTIs because they are in the best position
to collect information such as LEI from a non-reporting counterparty
necessary to generate a UTI. The Commission notes no information about
the non-reporting counterparty is necessary for an entity to generate
UTIs, as the UTI is composed using the LEI of the UTI generating
entity, not the LEI of the non-reporting counterparty. Accordingly,
because proposed Sec. 45.5(c)(1)(i) requires the UTI to be composed of
the ``legal entity identifier of the swap data repository'' and SDRs do
not need the LEI of any other entity to generate the UTI, the
Commission does not believe DTCC's reasoning supports its request for
the Commission not to assign UTI generation responsibilities to SDRs.
5. Sec. 45.5(d)--Clearing Swaps
The Commission proposed several amendments to the existing Sec.
45.5(d) regulations for the creation and transmission of USIs for
clearing swaps. Existing Sec. 45.5(d) requires that for each clearing
swap, the DCO that is a
[[Page 75521]]
reporting counterparty to such swap shall create and transmit a USI
upon, or ASATP after, acceptance of an original swap for clearing, or
execution of a clearing swap that does not replace an original swap,
and prior to the reporting of required swap creation data for the
clearing swap. Existing Sec. 45.5(d)(1) requires that the USI consist
of a single data field.\173\
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\173\ The single data field must contain: (i) The unique
alphanumeric code assigned to the DCO by the Commission for the
purpose of identifying the DCO with respect to USI creation; and
(ii) an alphanumeric code generated and assigned to that clearing
swap by the automated systems of the DCO, which shall be unique with
respect to all such codes generated and assigned by that DCO. 17 CFR
45.5(d)(1).
---------------------------------------------------------------------------
Existing Sec. 45.5(d)(2) requires that the DCO transmit the USI
electronically to: (i) The SDR to which the DCO reports required swap
creation data for the clearing swap; and (ii) to the counterparty to
the clearing swap, ASATP after accepting the swap for clearing or
executing the swap, if the swap does not replace an original swap.
First, the Commission proposed to retitle proposed Sec. 45.5(d) as
``Off-facility swaps with a [DCO] reporting counterparty.'' The
Commission also proposed rephrasing the introductory text in Sec.
45.5(d) to reflect this shift in terminology.
Second, the Commission proposed amendments to conform to the
Commission's proposed adoption of the UTI.\174\ The Commission also
proposed deleting the phrase in the second half of the sentence stating
``by the Commission at the time of its registration as such, for the
purpose of identifying the [DCO] with respect to the [USI] creation,''
because, according to the UTI Technical Guidance, an LEI should be used
to identify the UTI generating entity instead of an identifier assigned
by individual regulators.
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\174\ The Commission proposed replacing all references to
``USIs'' with ``UTIs'' in proposed Sec. 45.5(d)(1) and (2). In
addition, the Commission proposed updating the phrase in proposed
Sec. 45.5(d)(1) that requires that the USI shall consist of a
single data ``field'' that contains two components to a single data
``element with a maximum length of 52 characters,'' so that the
length of the UTI is consistent with the UTI Technical Guidance. UTI
Technical Guidance, Section 3.6. The Commission proposed amending
Sec. 45.5(d)(1)(i) to describe the first component of the UTI's
single data element to replace ``unique alphanumeric code assigned''
to the DCO reporting counterparty with ``legal entity identifier
of'' the DCO reporting counterparty so that the identifier used to
identify the UTI generating entity is consistent with the UTI
Technical Guidance. UTI Technical Guidance, Sec. 3.5.
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The Commission received two comments regarding DCOs in Sec.
45.5(d). LCH supports the proposal that DCOs generate the UTIs for
cleared swaps, as it is in line with the UTI Technical Guidance.\175\
ISDA-SIFMA suggest that the Commission cover exempt DCOs, SEFs, and
DCMs in Sec. 45.5, because it is unclear which entities have part 45
reporting obligations. ISDA-SIFMA recommend that parts 43 and 45 rules
specify that the entities with individual exemptive orders assigning
reporting obligations have the same reporting and UTI generation
responsibilities as their non-exempt equivalents.\176\
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\175\ LCH at 3.
\176\ ISDA-SIFMA at 9.
---------------------------------------------------------------------------
The Commission received one supportive comment on the proposed
amendments to the Sec. 45.5(d) regulations for the creation and
transmission of UTIs for clearing swaps and for reasons articulated in
the Proposal and reiterated above, is adopting the changes as proposed.
The Commission notes assigning UTI generation responsibilities for
clearing swaps to the DCO adheres to the generation flowchart in the
UTI Technical Guidance.\177\
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\177\ UTI Technical Guidance at 12 (Step 1: ``Is a CCP a
counterparty to this transaction?'' ``If so, the CCP'').
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The Commission appreciates the comment from ISDA-SIFMA recommending
that the Commission issue a clarification that exempt DCOs, SEFs, and
DCMs have the same reporting and UTI generation responsibilities as
their non-exempt equivalents. The Commission did not propose including
exempt DCOs, SEFs, and DCMs in Sec. 45.5 and has not had enough time
to study the range of effects that any inclusion of these exempt
entities in Sec. 45.5 would have on other provisions of the Act and
the Commission's regulations, and as a result, the Commission declines
to adopt alternative amendments relating to UTI generation for exempt
entities such as exempt DCOs, SEFs, and DCMs at this time. However, the
Commission notes despite exempt DCOs, SEFs, and DCMs not being assigned
with formal UTI generation responsibilities in Sec. 45.5, exempt
entities wishing to generate UTIs on behalf of their clients could do
so voluntarily by entering into agreements with their clients to act as
their third-party service provider pursuant to Sec. 45.5(g).
6. Sec. 45.5(e)--Allocations
The Commission proposed several amendments to the existing Sec.
45.5(e) regulations for the creation and transmission of USIs for
allocations. The Commission proposed replacing references to USIs with
UTI throughout proposed Sec. 45.5(e) to conform to the Commission's
proposed adoption of the UTI. The Commission also proposed non-
substantive technical and language edits to update cross-references and
improve readability.
The Commission did not receive any comments on the proposed changes
to existing Sec. 45.5(e) is adopting the changes to Sec. 45.5(e) as
proposed.
7. Sec. 45.5(f)--Use
The Commission proposed several amendments to the existing Sec.
45.5(f) regulations for the use of UTIs by registered entities and swap
counterparties. Existing Sec. 45.5(f) requires that registered
entities and swap counterparties subject to the jurisdiction of the
Commission include the USI for a swap in all of their records and all
of their swap data reporting concerning that swap, from the time they
create or receive the USI, throughout the existence of the swap, and
for as long as any records concerning the swap are required to be kept
by the CEA or Commission regulations, regardless of any life cycle
events or any changes to state data concerning the swap, including,
without limitation, any changes with respect to the counterparties to
or the ownership of the swap.
Existing Sec. 45.5(f) also specifies that this requirement shall
not prohibit the use by a registered entity or swap counterparty in its
own records of any additional identifier or identifiers internally
generated by the automated systems of the registered entity or swap
counterparty, or the reporting to an SDR, the Commission, or another
regulator of such internally generated identifiers in addition to the
reporting of the USI.
First, the Commission proposed amendments to conform proposed Sec.
45.5(f) to the Commission's proposed adoption of the UTI. The
Commission proposed replacing all references to ``USIs'' with ``UTIs''
in proposed Sec. 45.5(f). The Commission also proposed removing the
reference to state data in part 45, and to make minor technical
language edits, including removing reference to ownership of the swap,
which is not needed given the reference to counterparties.
Second, the Commission proposed removing the existing Sec. 45.5(f)
provision permitting the reporting of any additional identifier or
identifiers internally generated by the automated systems of the
registered entity or swap counterparty to an SDR, the Commission, or
another regulator. The Commission explained this amendment would
improve consistency in the swap data reported to SDRs, and further the
goal of harmonization of SDR data across FSB member jurisdictions.
[[Page 75522]]
Proposed Sec. 45.5(f) would therefore require that registered
entities and swap counterparties include the UTI for a swap in all of
their records and all of their swap data reporting concerning that
swap, from the time they create or receive the UTI, throughout the
existence of the swap, and for as long as any records are required to
be kept concerning the swap by the CEA or Commission regulations,
regardless of any life cycle events concerning the swap, including,
without limitation, any changes to the counterparties to the swap.
The Commission received one request for clarification on the
proposal. ISDA-SIFMA believe, due to the requirement for a UTI to
persist through ``changes with respect to the counterparty,'' the
Commission should be clearer that these counterparty changes, when
related to corporate events such as name change, are not considered
novations or assignments, as current market practice is to create a new
USI for a swap created through the novation process.\178\ The
Commission declines to adopt the suggestion, as the Commission notes,
in light of the Commission's adoption of the new definition of
``novation'' in Sec. 45.1(a) described in section II.A above, market
participants should refer to the newly adopted definition as to what
constitutes a novation.
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\178\ ISDA-SIFMA at 7.
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The Commission received no additional comments on proposed Sec.
45.5(f) and for reasons articulated in the Proposal and reiterated
above in this section, is adopting Sec. 45.5(f) as proposed.
8. Sec. 45.5(g)--Third-Party Service Provider
The Commission proposed adding new Sec. 45.5(g) to its
regulations, titled ``Third-party service provider.'' Proposed Sec.
45.5(g) would create requirements for registered entities and reporting
counterparties--when contracting with third-party service providers to
facilitate reporting under Sec. 45.9--to ensure that the third-party
service providers create and transmit UTIs.\179\
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\179\ See generally 17 CFR 45.9.
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The Commission explained in the Proposal that it had encountered
inconsistencies in the format and standard of USIs for swaps reported
using third-party service providers, which is detrimental to the
Commission's ability to use swap data for its regulatory purposes. The
Commission believed proposed Sec. 45.5(g) would help ensure
consistency with the UTI Technical Guidance in the format and standard
of UTIs for swaps reported by third-party service providers. The
Commission further explained that proposed Sec. 45.5(g) would also
reinforce that a registered entity or reporting counterparty is
responsible for the data reported on its behalf by a third-party
service provider.
The Commission received one comment supporting the proposal. Markit
supports Sec. 45.5(g) UTI generation by third-party service providers
and believes this is an important clarification, but advises the
Commission to monitor SDRs' implementation of this requirement as some
SDRs have struggled to capture third-party service provider LEIs as
part of the transaction record, especially when reporting on behalf of
SEFs.\180\
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\180\ Markit at 3.
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The Commission received no additional comments on proposed Sec.
45.5(g) and for reasons articulated in the Proposal and reiterated
above in this section, is adopting Sec. 45.5(g) as proposed.
9. Sec. 45.5(h)--Cross-Jurisdictional Swaps
The Commission proposed adding new Sec. 45.5(h) to its
regulations, titled ``Cross-jurisdictional swaps.'' Proposed Sec.
45.5(h) would clarify that, notwithstanding Sec. Sec. 45.5(a) through
(g), if a swap is also reportable to one or more other jurisdictions
with a regulatory reporting deadline earlier than the deadline set
forth in Sec. 45.3, the same UTI generated according to the rules of
the jurisdiction with the earliest regulatory reporting deadline is to
be transmitted pursuant to Sec. Sec. 45.5(a) through (g) and used in
all recordkeeping and all swap data reporting pursuant to part 45.
The Commission explained in the Proposal that the benefits
resulting from global swap data aggregation and harmonization are
realizable only if each swap is identified in all regulatory reporting
worldwide with a single UTI to avoid double- or triple-counting of the
swap. While the existing requirement in part 45 (for swap creation data
to be reported ASATP after execution) results in the Commission having
the earliest reporting deadline, changes to the reporting deadline in
proposed amendments to Sec. 45.3 may result in the reporting of a
cross-jurisdictional swap to another jurisdiction earlier than to the
Commission. Further, given the critical importance of a unique UTI used
to identify each swap, the Commission proposed that, if a cross-
jurisdictional swap is reportable to another jurisdiction earlier than
required under part 45, the UTI for such swap reported pursuant to part
45 be generated according to the rules of the jurisdiction with the
earliest regulatory reporting deadline.
The Commission explained in the Proposal that the new proposed
provision would: (i) Ensure consistency with the UTI Technical
Guidance; \181\ (ii) assist the Commission, SDRs, and swap
counterparties to avoid potentially identifying a single cross-
jurisdictional trade with multiple UTIs; and (iii) eliminate the
potential for market participants to be faced with a situation of
attempting to comply with conflicting UTI generation rules.
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\181\ UTI Technical Guidance at 13 (Step 10: ``UTI generation
rules of the jurisdiction with the sooner reporting deadline should
be followed'').
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The Commission received three comments on cross-jurisdictional
swaps. Specifically, ISDA-SIFMA highlight several implementation
issues.\182\ ISDA-SIFMA believe counterparties may not come to the same
conclusions regarding each other's jurisdictions, which could cause
differing conclusions about who generates the UTI. In this regard,
ISDA-SIFMA believe each counterparty's jurisdictional hierarchy would
need to readjust each time new reporting jurisdictions go live.
Separately, ISDA-SIFMA state that the UTI generating party should be
determined separately from any nexus obligations, because nexus
reporting (i.e., reporting requirements depending on the location of
personnel) is treated differently according to jurisdiction, and it
would be challenging for counterparties to communicate nexus
obligations on a swap-by-swap basis.\183\ Lastly, ISDA-SIFMA note it is
important for each reporting jurisdiction to follow a global UTI
waterfall.\184\
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\182\ ISDA-SIFMA at 10-11.
\183\ Id.
\184\ Id.
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JBA believes it would be difficult for a counterparty in a
jurisdiction to generate a UTI if other jurisdictions with a regulatory
reporting deadline earlier than the Commission's do not mandate the UTI
or use an identifier different from the UTI required under Commission
or global rules.\185\ In addition, BP supports imparting responsibility
on SDRs to coordinate identification of the jurisdiction with the
earliest regulatory reporting deadline and conform to that
jurisdiction's UTI requirements.\186\
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\185\ JBA at 2-3.
\186\ BP at 5.
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The Commission is adopting the proposed provisions relating to
cross-jurisdictional swaps in Sec. 45.5(h) as proposed, with one
clarification relating
[[Page 75523]]
to the CFTC reporting deadlines to be considered for cross-
jurisdictional swaps, as discussed below. In the technical
specification, UTIs are required to be reported (but are not publicly
disseminated) pursuant to parts 43 and 45 to allow the Commission to
link and reconcile the two reports for each swap, requiring the
deadline to be measured in terms of both parts 43 and 45. Therefore,
the Commission is adopting, in Sec. 45.5(h), the requirement that,
notwithstanding Sec. Sec. 45.5(a) through (g), if a swap is also
reportable to one or more other jurisdictions with a regulatory
reporting deadline earlier than the deadline set forth in Sec. 45.3 or
in part 43, the same UTI generated according to the rules of the
jurisdiction with the earliest regulatory reporting deadline is to be
transmitted pursuant to Sec. Sec. 45.5(a) through (g) and used in all
recordkeeping and all swap data reporting pursuant to part 45, a
modification from the proposal's consideration of only the deadline
outlined in Sec. 45.3.
The Commission declines to adopt ISDA-SIFMA's suggestion regarding
nexus obligations, as the Commission has no requirements for nexus
reporting and how the jurisdictions requiring nexus reporting mandate
UTI generation is outside of the Commission's jurisdiction. As
discussed above, the Commission expects the vast majority of cross-
jurisdictional swaps reportable to both the CFTC and one or more
additional jurisdictions will result in the CFTC having the earliest
regulatory reporting deadline due to the CFTC being one of the few
jurisdictions with real-time reporting requirement and UTIs being
required to be generated ASATP for part 43 reporting. However, the
Commission recognizes the potential concern that market participants
may have in complying with similar rules that other jurisdictions may
adopt to ensure consistency with the UTI Technical Guidance, and
recommends that market participants and the LEI ROC work
collaboratively on additional guidance relating to cross-jurisdictional
swaps. The Commission also recognizes that the UTI Technical Guidance
did not address which jurisdiction's UTI generation rules to follow if
two jurisdictions hypothetically have the same reporting deadline, and
similarly recommends that market participants and the LEI ROC work
collaboratively on guidance to address this scenario.
The Commission appreciates JBA's comment regarding the potential
difficulties if other jurisdictions with a regulatory reporting
deadline earlier than the Commission's do not mandate the UTI, but the
Commission does not believe this hypothetical is likely to occur. As
discussed above, the Commission's ASATP reporting deadline under part
43 will result in the UTIs for most, if not all, swaps reportable to
the Commission and another jurisdiction being generated according to
Sec. 45.5. Furthermore, the Commission also acknowledges JBA's concern
that other jurisdictions may require an identifier different from the
UTI, but the Commission notes authorities in the major swap markets
have all indicated through the FSB and CPMI-IOSCO harmonization
initiatives of their intention to adopt the UTI and the other
harmonized identifiers, and the Commission does not believe inaction by
a holdout authority should hinder the Commission's fulfillment of its
commitments on UTI.
The Commission also acknowledges BP's desire for SDRs to coordinate
identification of the jurisdiction with the earliest regulatory
reporting deadline and conform to that jurisdiction's UTI requirements,
but the Commission declines to adopt the suggestion. SDRs lack
information to determine on their own the jurisdiction(s) that a SEF,
DCM, DCO, or counterparty for each swap is subject to, and therefore
the Commission believes requiring entities without such information
such as SDRs to serve as the entity responsible for determining the
earliest regulatory reporting deadline would not serve the Commission's
interest in seeing that each swap is identified in all regulatory
reporting worldwide with a single UTI.
F. Sec. 45.6--Legal Entity Identifiers \187\
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\187\ The Commission is re-numbering the requirements of
existing Sec. 45.6 to correct extensive numbering errors.
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Existing Sec. 45.6 requires counterparties to be identified in all
recordkeeping and swap data reporting under part 45 by an LEI. As
discussed in the sections below, the Commission is revising the Sec.
45.6 LEI regulations in two ways: (i) Cleanup changes removing
unnecessary outdated regulatory text concerning LEIs and (ii) changes
to the LEI regulations for SEFs, DCMs, DCOs, SDRs, and reporting and
non-reporting counterparties.
1. Introductory Text
The Commission proposed amending the introductory text of the Sec.
45.6 regulations for LEIs. The existing introductory text states that
each counterparty to any swap subject to the jurisdiction of the
Commission shall be identified in all recordkeeping and all swap data
reporting under part 45 through a single LEI as specified in Sec.
45.6.
First, to improve the section's precision, the Commission proposed
replacing ``each counterparty'' with each SEF, DCM, DCO, SDR, entity
reporting pursuant to Sec. 45.9, and counterparty to any swap. Second,
the Commission proposed revising the introductory text to require each
relevant entity (SEF, DCM, DCO, SDR, entity reporting pursuant to Sec.
45.9, and counterparty to any swap that is eligible to receive an LEI)
to ``obtain,'' as well as be identified in, all recordkeeping and swap
data reporting by a single LEI.
The Commission received two comments on proposed Sec. 45.6. ISDA-
SIFMA, while recognizing that SEF trades are not specifically addressed
in Sec. 45.6, suggest clarifying that SEFs must require any entity
allowed to execute a trade on a SEF under part 45 to obtain an LEI
prior to reporting by the SEF.\188\ The Commission appreciates ISDA-
SIFMA's comment; however, the Commission did not propose substantive
amendments to regulations relating to SEF trading and has not had
enough time to study the range of effects that ISDA-SIFMA's proposal
would have on SEF trading or market liquidity. Accordingly, it would be
inappropriate to finalize such an amendment at this time.
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\188\ ISDA-SIFMA at 13.
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XBRL agrees with the proposed requirement that counterparties must
be identified, not only with their own LEI, but that they must obtain
an LEI if they do not have one.\189\ The Commission agrees with XBRL.
The Commission is aware of uncertainty as to whether the requirement to
identify each counterparty with an LEI in existing Sec. 45.6 also
included a requirement for the counterparty to obtain an LEI, and the
Commission believes clarifying in Sec. 45.6 that a person or entity
required to be identified with an LEI in recordkeeping and swap data
reporting also has an associated affirmative requirement to obtain an
LEI would clarify that identification using LEI necessarily requires
the identified person or entity, if eligible to receive an LEI, to
obtain an LEI.
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\189\ XBRL at 2.
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The Commission believes extending the requirement for each
counterparty to any swap to be identified in all recordkeeping and swap
data reporting by a single LEI to all SEFs, DCMs, DCOs, entities
reporting under Sec. 45.9, and SDRs will ensure consistency with the
CDE Technical Guidance, allow for standardization in the identification
in recordkeeping and swap data reporting,
[[Page 75524]]
and encourage global swap data aggregation.
For reasons discussed above, the Commission is adopting the
proposed changes to the introductory text of the Sec. 45.6 regulations
for LEIs as proposed, with one clarification relating to the
maintenance of LEI reference data. As discussed in section II.F.8
below, the Commission is adding ``maintain'' to the introductory text
of final Sec. 45.6 to clarify that each SEF, DCM, DCO, SDR, entity
reporting under Sec. 45.9, and counterparty to any swap that is
eligible to receive an LEI is required to ``maintain,'' as well as
obtain and be identified in, all recordkeeping and swap data reporting
by a single LEI.
2. Sec. 45.6(a)--Definitions
a. Proposal
The Commission proposed several changes to the definitions for the
LEI regulations in Sec. 45.6(a). As background, existing Sec. 45.6(a)
provides definitions for ``control,'' ``legal identifier system,''
``level one reference data,'' ``level two reference data,'' ``parent,''
``self-registration,'' ``third-party registration,'' and ``ultimate
parent.''
The Commission proposed moving certain definitions pertaining to
LEIs to Sec. 45.1(a). The Commission explained in the Proposal these
definitions should be in Sec. 45.1(a) because they are used in
regulations outside of Sec. 45.6. These definitions were: ``Global
Legal Entity Identifier System,'' \190\ ``legal entity identifier'' or
``LEI,'' and ``Legal Entity Identifier Regulatory Oversight
Committee.'' These definitions are discussed in section II.A.1 above.
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\190\ ``Global Legal Entity Identifier System'' and ``local
operating unit'' would be updated versions of the existing
definition of ``legal identifier system.''
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The Commission proposed removing certain definitions pertaining to
LEIs from Sec. 45.6(a). The Commission explained that these
definitions would no longer be necessary in light of the proposed
amendments to the LEI regulations, discussed in sections II.F.3 to
II.F.8 below. These definitions were: ``control,'' ``level one
reference data,'' ``level two reference data,'' ``parent,'' and
``ultimate parent.''
The Commission proposed amending certain definitions pertaining to
LEIs in Sec. 45.6(a). Specifically, the Commission proposed amending
the definition of ``self-registration'' in several respects. First, the
Commission proposed removing the specific reference to ``level one or
level two'' reference data, and the accompanying specifier ``as
applicable.'' The amendment reflected the Commission's proposal to
remove the definitions of ``level one reference data'' and ``level two
reference data.'' \191\
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\191\ Instead, as discussed below, the Commission proposed
adding a definition of ``reference data.'' The proposed amendment to
``self-registration'' would be consistent with the new definition.
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Second, the Commission proposed adding a reference to
``individuals,'' to reflect the fact that swap counterparties may be
individuals who need to obtain LEIs. As amended, ``self-registration''
would mean submission by a legal entity or individual of its own
reference data.
Separately, the Commission proposed amending the definition of
``third-party registration.'' In this regard, the Commission proposed
removing the specific references to ``level one or level two''
reference data, and the accompanying specifier ``as applicable.'' This
amendment reflected the Commission's proposal to remove the definitions
of ``level one reference data'' and ``level two reference data.'' \192\
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\192\ Instead, as discussed below, the Commission proposed
adding a definition of ``reference data.'' The proposed amendment to
``self-registration'' would be consistent with the new definition.
---------------------------------------------------------------------------
Further, the Commission proposed adding references to
``individuals,'' to reflect that swap counterparties may be individuals
who need to obtain LEIs. As amended, ``third-party registration'' would
mean submission of reference data for a legal entity or individual that
is or may become a swap counterparty, made by an entity or organization
other than the legal entity or individual identified by the submitted
reference data. Examples of third-party registration include, without
limitation, submission by an SD or MSP of reference data for its swap
counterparties, and submission by a national numbering agency, national
registration agency, or data service provider of reference data
concerning legal entities or individuals with respect to which the
agency or service provider maintains information.
Finally, the Commission proposed adding two definitions pertaining
to LEIs to Sec. 45.6(a). First, the Commission proposed adding a
definition of ``local operating unit.'' As proposed, ``local operating
unit'' would mean an entity authorized under the standards of the
Global Legal Entity Identifier System to issue legal entity
identifiers. Second, the Commission proposed adding a definition of
``reference data.'' As proposed, ``reference data'' would mean all
identification and relationship information, as outlined in the
standards of the Global Legal Entity Identifier System, of the legal
entity or individual to which an LEI is assigned. The terms ``local
operating unit'' and ``reference data'' are explained in a discussion
of the proposed amendments to Sec. 45.6(e) in section II.F.7 below.
b. Comments on the Proposal
As also noted in section II.A.1 above, GLIEF suggests moving
proposed definitions to Sec. 45.1(a) from Sec. 45.6(a) for ``local
operating unit'' and ``legal entity reference data.'' \193\
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\193\ Id. The Commission notes the term proposed is ``reference
data,'' not ``legal entity reference data.'' See 85 FR at 21632.
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i. Definition: ``Reference data''
The Commission received one comment on the proposed definition of
``reference data.'' GLEIF suggests an alternative definition: ``data as
defined by the currently valid common data file formats in the Global
[Legal Entity Identifier] System describing business card and
relationship information related to corresponding [Legal Entity
Identifier] Regulatory Oversight Committee policies.'' GLEIF, however,
does not explain why it believes its suggested alternative is
preferable to the Commission's proposal.\194\
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\194\ GLEIF at 2.
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ii. Definition: ``Self-registration''
The Commission received one comment on the definition of ``self-
registration.'' GLEIF supports the proposed definition revisions in
Sec. 45.6(a), including removal of references to ``level one'' and
``level two.'' \195\
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\195\ Id.
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c. Final Rule
The Commission did not receive any comments on the proposed
definitions for ``local operating unit'' and ``third-party
registration'' and for reasons articulated in the Proposal and
reiterated in section II.F.2.a above, is adopting those two definitions
as proposed. The only comment submitted on the proposed definition of
``self-registration'' supports the proposal and for reasons articulated
in the Proposal and reiterated in section II.F.2.a above, the
Commission is adopting the definition as proposed.
GLEIF does not explain why its suggested alternative for
``reference data'' is preferred to the Commission's proposal. Based on
the analysis of the proposed text, the Commission believes the GLEIF
definition's references to ``data as defined by the currently valid
common data file formats'' and ``related to corresponding [LEI ROC]
policies'' are unnecessarily detailed, and may not account for
potential future changes to the Global Legal Entity Identifier System.
The Commission believes
[[Page 75525]]
references in its proposed definition to ``all identification and
relationship information'' and ``the standards of the Global Legal
Entity Identifier System'' are more general and better-suited to
account for potential future changes in the Global Legal Entity
Identifier System (e.g., a hypothetical future shift away from common
data files in setting reference data standards) and is adopting the
definition as proposed, rather than the more-specific GLEIF suggestion.
As the four definitions proposed in Sec. 45.6(a) are only used in
Sec. 45.6, the Commission declines to adopt GLEIF's suggestion to move
the proposed definitions to Sec. 45.1(a).
3. Sec. 45.6(b)--International Standard for the Legal Entity
Identifier
The Commission proposed several changes to Sec. 45.6(b)
regulations for the international standards for LEIs. The amendments
would reflect changes that have taken place since the Commission
adopted the existing LEI regulations in Sec. 45.6 in 2012. Existing
Sec. 45.6(b) states that the LEI used in all recordkeeping and all
swap data reporting required by part 45, following designation of the
legal entity identifier system as provided in Sec. 45.6(c)(2), shall
be issued under, and shall conform to, International Organization for
Standardization (``ISO'') Standard 17442, Legal Entity Identifier
(LEI), issued by the ISO.
The Commission proposed removing the phrase ``following designation
of the [LEI] system as provided in [Sec. 45.6(c)(2)].'' The Commission
explained in the Proposal that governance of the Global Legal Entity
Identifier System was designed by the FSB with the contribution of
private sector participants and was fully in place.\196\ The Commission
further explained that LEI ROC establishes policy standards, such as
the definition of the eligibility to obtain an LEI and conditions for
obtaining an LEI; the definition of reference data and any extension
thereof, such as the addition of information on relationships between
entities; the frequency of update for some or all of the reference
data; the nature of due diligence and other standards necessary for
sufficient data quality; or high-level principles governing data and
information access.\197\
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\196\ While at the beginning of the Global Legal Entity
Identifier System, LEI issuers were operating under a temporary
endorsement of the LEI ROC, all active LEI issuers have now been
accredited. Progress report by the LEI ROC, The Global LEI System
and regulatory uses of the LEI, 2 (Apr. 30, 2018), available at
https://www.leiroc.org/publications/gls/roc_20180502-1.pdf.
\197\ Id.
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The Commission did not receive any comments on the proposed changes
to Sec. 45.6(b) and for reasons articulated in the Proposal and
reiterated above, is adopting the changes to Sec. 45.6(b) as proposed.
4. Sec. 45.6(b)--Technical Principles for the Legal Entity Identifier
The Commission proposed removing this redundantly-numbered Sec.
45.6(b) for the technical principles for the LEI.\198\ Regulations for
LEI reference data are currently located in Sec. 45.6(e), which the
Commission proposed moving to Sec. 45.6(c). The Commission discusses
revisions to the existing Sec. 45.6(e) reference data regulations in
section II.F.7 below.
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\198\ This Sec. 45.6(b) was numbered in error, as there is
already a Sec. 45.6(b), discussed in section II.F.3 above.
---------------------------------------------------------------------------
Existing Sec. 45.6(b) enumerates the six technical principles for
the legal entity identifier to be used in all recordkeeping and all
swap data reporting: (i) Uniqueness; (ii) neutrality; (iii)
reliability; (iv) open source; (v) extensibility; and (vi) persistence.
The Commission proposed removing the technical principles from
Sec. 45.6(b). The Commission explained in the Proposal that it adopted
Sec. 45.6(b) before global technical principles for the LEI were
developed. The Commission further explained that it has participated in
the Global Legal Entity Identifier System and the LEI ROC since their
establishment in 2013, through which global technical principles have
been developed and a functioning LEI system introduced. The Commission
believed removing the technical principles from Sec. 45.6(b) for the
LEI to be used in all recordkeeping and all swap data reporting was
warranted because the global technical principles that have been
developed and adopted by the Global Legal Entity Identifier System
already conform to the technical principles in Sec. 45.6(b).
The Commission did not receive any comments on the changes to Sec.
45.6(b) and for reasons articulated in the Proposal and reiterated
above, is adopting the changes to Sec. 45.6(b) as proposed.
5. Sec. 45.6(c)--Governance Principles for the Legal Entity Identifier
The Commission proposed removing the existing Sec. 45.6(c)
regulations for the governance principles for the LEI.\199\ Regulations
for the use of the LEI are currently located in Sec. 45.6(f), which
the Commission proposed moving to Sec. 45.6(d), which would be
correctly renumbered as Sec. 45.6(d). The Commission discusses the
revisions to existing Sec. 45.6(f) section II.F.8 below.
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\199\ Existing Sec. 45.6(c) was also numbered in error because
of the duplicate Sec. 45.6(b) sections.
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Existing Sec. 45.6(c) enumerates the five governance principles
for the LEI to be used in all recordkeeping and all swap data
reporting: International governance; reference data access; non-profit
operation and funding; unbundling and non-restricted use; and
commercial advantage prohibition.
The Commission proposed removing the governance principles from
Sec. 45.6(c). The Commission explained in the Proposal that it adopted
Sec. 45.6(c) before global governance principles for the LEI were
developed. The Commission further explained that it has participated in
the Global Legal Entity Identifier System and the LEI ROC since their
establishment in 2013, through which global governance principles have
been developed and a functioning LEI system introduced. The Commission
believed deleting existing Sec. 45.6(c) to remove the governance
principles for the legal entity identifier to be used in all
recordkeeping and all swap data reporting was warranted because the
global governance principles that have been developed and adopted by
the Global Legal Entity Identifier System already conform to the
governance principles in Sec. 45.6(c).
The Commission did not receive any comments on the proposed changes
to Sec. 45.6(c) and for reasons articulated in the Proposal and
reiterated above, is adopting the changes to Sec. 45.6(c) as proposed.
6. Sec. 45.6(e)--Designation of the Legal Entity Identifier System
The Commission proposed removing the Sec. 45.6(e) regulations for
the designation of the legal entity identifier system. Existing Sec.
45.6(e) enumerates the procedures for determining whether a legal
entity identifier system meets the Commission's requirements and the
procedures for designating the legal entity identifier system as the
provider of LEIs to be used in all recordkeeping and all swap data
reporting.
The Commission explained in the Proposal that it adopted Sec.
45.6(e) before a global legal entity identifier system was developed.
The Commission further explained that it has participated in the Global
Legal Entity Identifier System and the LEI ROC since their
establishment in 2013, through which a functioning LEI system has been
introduced, overseeing the issuance of LEIs by local operating units.
The Commission believed deleting existing
[[Page 75526]]
Sec. 45.6(e) to remove the procedures for designating a legal entity
identifier system was warranted because such determination and
designation procedures were no longer needed due to the establishment
of the Global Legal Entity Identifier System and the standards adopted
by the Global Legal Entity Identifier System under which a local
operating unit is authorized to issue LEIs.
The Commission did not receive any comments on the proposed changes
to Sec. 45.6(e) and for reasons articulated in the Proposal and
reiterated above, is adopting the changes to Sec. 45.6(e) as proposed.
7. Sec. 45.6(e)--Reference Data Reporting (Re-Designated as Sec.
45.6(c))
The Commission proposed changes to the Sec. 45.6(e) regulations
for LEI reference data reporting.\200\ First, the Commission proposed
moving the requirements for reporting LEI reference data in Sec.
45.6(e) to correctly renumbered Sec. 45.5(c).
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\200\ This Sec. 45.6(e) was numbered in error, as there is
already a Sec. 45.6(e) directly preceding it.
---------------------------------------------------------------------------
Second, the Commission proposed changing the requirements for
reporting LEI reference data in existing Sec. 45.6(e) to be moved to
Sec. 45.6(c). Existing Sec. 45.6(e)(1) requires level one reference
data for each counterparty to be reported via self-registration, third-
party registration, or both, and details the procedures for doing so,
including the requirement to update level one reference data in the
event of a change or discovery of the need for a correction. Existing
Sec. 45.6(e)(2) contains the requirement, once the Commission has
determined the location of the level two reference database, for level
two reference data for each counterparty to be reported via self-
registration, third-party registration, or both, and the procedures for
doing so, including the requirement to update level two reference data
in the event of a change or discovery of the need for a correction.
The Commission proposed removing the distinction between level one
and level two reference data now found in Sec. 45.6(e). Instead,
proposed new Sec. 45.6(c) would require that all reference data for
each SEF, DCM, DCO, SDR, entity reporting under Sec. 45.9, and
counterparty to any swap be reported via self-registration, third-party
registration, or both, to a local operating unit in accordance with the
standards set by the Global Legal Entity Identifier System. Proposed
new Sec. 45.6(c) would retain the requirement in existing Sec.
45.6(e) to update the reference data in the event of a change or
discovery of the need for a correction.
The Commission explained in the Proposal that it adopted Sec.
45.6(e) before a global legal entity identifier system was developed.
The Commission further explained that it has participated in the Global
Legal Entity Identifier System and the LEI ROC since their
establishment in 2013, through which a functioning LEI system has been
introduced that sets, and updates as needed, the standards governing
the identification and relationship reference data required to be
provided to obtain an LEI. The Commission believed amending existing
Sec. 45.6(e) to remove the distinction between level one and level two
reference data, and proposed a new Sec. 45.6(c) to require that all
reference data is reported to a local operating unit in accordance with
the standards set by the Global Legal Entity Identifier System was
warranted because the establishment of Global Legal Entity Identifier
System removes the role of individual authorities in determining the
standards governing LEI reference data.
The Commission explained in the Proposal that while existing Sec.
45.6(e) requires that reference data for only the counterparties to a
swap be reported, the extension of the requirement to be identified in
all recordkeeping and swap data reporting by a single LEI to all SEFs,
DCMs, DCOs, entities reporting pursuant to Sec. 45.9, and SDRs
described in section II.F.1 above also necessarily requires that all
SEFs, DCMs, DCOs, entities reporting pursuant to Sec. 45.9, and SDRs
report their LEI reference data.
The Commission did not receive any comments on the proposed changes
to Sec. 45.6(e) and for reasons articulated in the Proposal and
reiterated above in this section, is adopting the changes to Sec.
45.6(e) as proposed.
8. Sec. 45.6(f)--Use of the Legal Entity Identifier System by
Registered Entities and Swap Counterparties (Re-designated as Sec.
45.6(d))
The Commission proposed changing the Sec. 45.6(f) regulations for
the use of LEIs by registered entities and swap counterparties.
Existing Sec. 45.6(f)(1) requires that when a legal entity identifier
system has been designated by the Commission pursuant to Sec. 45.6(e),
each registered entity and swap counterparty shall use the LEI provided
by that system in all recordkeeping and swap data reporting pursuant to
part 45. Existing Sec. 45.6(f)(2) requires that before a legal entity
identifier system has been designated by the Commission, each
registered entity and swap counterparty shall use a substitute
counterparty identifier created and assigned by an SDR in all
recordkeeping and swap data reporting pursuant to part 45.\201\
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\201\ The requirements for the substitute identifier were set
forth in Sec. 45.6(f)(2)(i) through (iv). As the Global Legal
Entity Identifier System has been introduced that oversees the
issuance of LEIs by local operating units, these requirements are no
longer applicable, and the Commission will limit the detail of their
discussion in this release.
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Existing Sec. 45.6(f)(3) requires that for swaps reported pursuant
to part 45 prior to Commission designation of a legal entity identifier
system, after such designation each SDR shall map the LEIs for the
counterparties to the substitute counterparty identifiers in the record
for each such swap. Existing Sec. 45.6(f)(4) requires that prior to
October 15, 2012, if an LEI has been designated by the Commission as
provided in Sec. 45.6, but a reporting counterparty's automated
systems are not yet prepared to include LEIs in recordkeeping and swap
data reporting pursuant to part 45, the counterparty shall be excused
from complying with Sec. 45.6(f)(1), and shall instead comply with
Sec. 45.6(f)(2), until its automated systems are prepared with respect
to LEIs, at which time it must commence compliance with Sec.
45.6(f)(1).\202\
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\202\ The regulation specified that this paragraph would have no
effect on or after October 15, 2012. 17 CFR 45.6(f)(4).
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The Commission proposed retitling the section ``Use of the legal
entity identifier,'' because, as discussed below, the LEI will no
longer be used only by registered entities and swap counterparties. The
Commission proposed moving the requirements for the use of LEIs from
existing Sec. 45.6(f) to correctly renumbered Sec. 45.6(d),\203\ as a
result, the Commission's proposed amendments to the requirements for
the use of LEIs in existing Sec. 45.6(f) discussed below will be
captured in new Sec. 45.6(d).
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\203\ As previously noted, existing Sec. 45.6(c) was numbered
in error because of the duplicate Sec. 45.6(b) sections.
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The Commission proposed removing the sections of existing Sec.
45.6(f) that are no longer operative, either because the Commission has
designated a legal entity identifier system, or the provisions have
expired. For these reasons, the Commission proposed removing existing
Sec. 45.6(f)(2) and (4). As a result, the substantive requirements of
existing Sec. 45.6(f)(2) and (4) were not proposed to be moved to
Sec. 45.6(d).
The Commission explained in the Proposal that while the provisions
of existing Sec. 45.6(f)(3) relating to substitute counterparty
identifiers are no longer applicable for new swaps, the substantive
requirements in Sec. 45.6(f)(3), which are still applicable for swaps
[[Page 75527]]
previously reported pursuant to part 45 using substitute counterparty
identifiers assigned by an SDR before Commission designation of a legal
entity identifier system, would be moved to final Sec. 45.6(d)(4). The
Commission considered this change to be non-substantive.
The Commission proposed the following substantive changes to the
regulations requiring the use of LEIs. First, the Commission proposed
revisions to the existing Sec. 45.6(f)(1) regulations for the use of
LEIs. The revised regulations would be moved to final Sec. 45.6(d)(1),
as discussed below.
The Commission proposed deleting the introductory clause ``[w]hen a
legal entity identifier system has been designated by the Commission
pursuant to paragraph (e) of this section'' in existing Sec.
45.6(f)(1) because it was no longer relevant due to the establishment
of the Global Legal Entity Identifier System and the LEI ROC in 2013.
In addition, while existing Sec. 45.6(f)(1) requires ``each registered
entity and swap counterparty'' to use LEIs in all recordkeeping and
swap data reporting pursuant to part 45, the Commission proposed to
replace ``each registered entity and swap counterparty'' with ``[e]ach
[SEF], [DCM], [DCO], [SDR], entity reporting pursuant to Sec. 45.9,
and swap counterparty'' to, as described in section II.F.1 above,
ensure consistency with the CDE Technical Guidance, allow for
standardization in the identification in recordkeeping and swap data
reporting, and encourage global swap data aggregation. The Commission
also proposed to add ``to identify itself and swap counterparties''
immediately after ``use [LEIs]'' in this section to clarify the
intended use of LEIs. Finally, the Commission proposed to add a new
sentence in this section to clarify that if a swap counterparty is not
eligible to receive an LEI, such counterparty should be identified in
all recordkeeping and all swap data reporting pursuant to part 45 with
an alternate identifier pursuant to Sec. 45.13(a). Because some
counterparties, including many individuals, are currently ineligible to
receive an LEI based on the standards of the Global Legal Entity
Identifier System, the Commission believed this sentence would provide
clarity as to how LEI-ineligible counterparties should be identified.
Second, the Commission proposed Sec. 45.6(d)(2) to require each
SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in
accordance with the standards set by the Global Legal Entity Identifier
System (as opposed to the requirement for other entities to only
maintain its LEI). Existing Sec. 45.6(e) requires that reference data
be updated in the event of a change or discovery of the need for a
correction, which will continue to be required under final Sec.
45.6(c).
The Commission explained in the Proposal that pursuant to the
Global Legal Entity Identifier System, established in 2013, a person or
entity is issued an LEI after: (1) Providing its identification and
relationship reference data to a local operating unit and (2) paying a
fee, currently as low as approximately $65, to the local operating unit
to validate the provided reference data. After initial issuance, an LEI
holder is asked to certify the continuing accuracy of, or provide
updates to, its reference data annually, and pay a fee, currently as
low as approximately $50, to the local operating unit. LEIs that are
not renewed annually are marked as lapsed. Existing Sec. 45.6 does not
require annual LEI renewal because part 45 was drafted and implemented
before the establishment of the Global Legal Entity Identifier System.
The Commission further explained that since the implementation of
existing Sec. 45.6, the Commission has received consistent feedback
from certain market participants and industry groups that the
Commission should require at least some LEI holders to annually renew
their LEIs.
The Commission explained in the Proposal that it was aware that
some LEI holders have not updated reference data as required by
existing Sec. 45.6(e), and imposing an annual renewal requirement may
increase the accuracy of their reference data. The Commission also
recognized that other LEI holders comply with the continuing
requirement to update reference data, and imposing an annual renewal
requirement may impose costs on those LEI holders without necessarily
increasing the accuracy of their reference data. The Commission further
explained that it has participated in the Global Legal Entity
Identifier System since its inception, and values the functionality of
the LEI reference data collected, including the introduction of level
two reference data.
The Commission explained in the Proposal that it considers the
activities of SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to have the most
systemic impact affecting the Commission's ability to fulfill its
regulatory mandates. Accordingly, in light of the introduction of LEI
level two reference data, the Commission believed requiring each SD,
MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance
with the standards set by the Global Legal Entity Identifier System in
Sec. 45.6(d)(2) struck the appropriate balance between the
Commission's interest in accurate LEI reference data and cost to LEI
holders.
Third, the Commission proposed a new Sec. 45.6(d)(3) that would
obligate each DCO and each financial entity reporting counterparty
executing a swap with a counterparty that does not have an LEI but is
eligible for one to cause, before reporting any required swap creation
data for such swap, an LEI to be assigned to the counterparty,
including if necessary, through third-party registration.
The Commission explained in the Proposal that it was aware that
some counterparties have not obtained an LEI. While proposed amendments
to Sec. 45.6 clarify the requirement that a counterparty required to
be identified with an LEI in swap data reporting also has an associated
affirmative requirement to obtain an LEI, the Commission explained that
it anticipates a small percentage of counterparties nonetheless will
not have obtained an LEI before executing a swap. The Commission
further explained that swap data that does not identify eligible
counterparties with an LEI hinders the Commission's fulfillment of its
regulatory mandates, including monitoring systemic risk, market
monitoring, and market abuse prevention. The Commission believed new
Sec. 45.6(d)(3) to require each DCO and each financial entity
reporting counterparty executing a swap with a counterparty that does
not have an LEI to cause an LEI to be assigned to the non-reporting
counterparty would further the objective of identifying each
counterparty to a swap with an LEI.
Proposed Sec. 45.6(d)(3) did not prescribe the initial manner in
which a DCO or financial entity reporting counterparty causes an LEI to
be assigned to the non-reporting counterparty, though if initial
efforts are unsuccessful, proposed Sec. 45.6(d)(3) required the DCO or
financial entity reporting counterparty to obtain an LEI for the non-
reporting counterparty. The Commission explained in the Proposal that
having a DCO or financial entity reporting counterparty serving as a
backstop under new Sec. 45.6(d)(3) to ensure the identification of the
non-reporting counterparty with an LEI was appropriate because: (i)
Each DCO and financial entity reporting counterparty already had
obtained, via its ``know your customer'' and anti-money laundering
compliance processes, all identification and relationship reference
data of the non-reporting counterparty
[[Page 75528]]
required by a local operating unit to issue an LEI for the non-
reporting counterparty; (ii) multiple local operating units offered
expedited issuance of LEI in sufficient time to allow reporting
counterparties to meet their new extended deadline in Sec. 45.3(a)
through (b) for reporting required swap creation data; and (iii) the
Commission anticipated that third-party registration in these instances
would be infrequent, as the Commission expected most non-reporting
counterparties to be mindful of their direct obligation to obtain their
own LEIs pursuant to Sec. 45.6.\204\
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\204\ ESMA also issued temporary relief to investment firms
transacting with a client without an LEI on the condition that they
``[obtain] the necessary documentation from this client to apply for
an LEI code on his behalf,'' available at https://www.esma.europa.eu/press-news/esma-news/esma-issues-statement-lei-implementation-under-mifid-ii.
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The Commission received two comments on the proposed provision
relating to use of the LEI in proposed Sec. 45.6(f)(1) and moved to
Sec. 45.6(d)(1). CME suggests that the Commission revise the proposal
to require a DCO to record the LEIs of all of its swap counterparties
in its books and records, instead of ``in all recordkeeping'' and swap
data reporting, to avoid DCOs identifying a swap counterparty by its
LEI every time the name of that counterparty is in its records.\205\
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\205\ CME at 17-18.
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GLEIF suggests that, in the interest of clarity, the Commission
reformulate Sec. 45.6(d)(1) to state that alternative identifiers
pursuant to Sec. 45.13(a) can only be used for natural persons who are
not eligible for an LEI, though no explanation was provided as to why
it believes the alternative formulation is clearer than the
Commission's proposal.\206\
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\206\ GLEIF at 3.
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The Commission received six comments, all supporting the LEI
maintenance and renewal requirements for SDs, MSPs, SEFs, DCMs, DCOs,
and SDRs under proposed Sec. 45.6(d)(2),\207\ with two of those
commenters supporting additional expansion of the LEI renewal
requirement and one commenter opposing additional expansion of the LEI
renewal requirement. In particular, GFXD believes reporting
counterparties should be required only to renew their LEI and that
reporting counterparties should not be responsible for ensuring
counterparties renew their LEI.\208\ LCH is concerned about the
treatment of swap data that contains lapsed LEIs, specifically if that
data is rejected by an SDR and recommends language be included to
clarify that SDRs would not reject data in an LEI lapse.\209\ GLEIF
believes the Commission should expand the requirement to include all
swap counterparties.\210\
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\207\ DTCC at 6; Eurex at 4; LCH at 3; GFXD at 23-24; GLEIF at
1-2; Chatham at 3.
\208\ GFXD at 23-24.
\209\ LCH at 3.
\210\ GLEIF at 1-2. GLEIF mentions that costs related to LEIs
continue to decline and today average $60 versus $150 five years
ago, and its ``validation agent'' framework pilot program provides a
new operating model where financial institutions, and not
registrants, have the responsibility of obtaining and maintaining an
LEI, but that the program could take 1-2 years to complete.
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Chatham opposes expanding the requirement to renew LEIs annually
beyond SDs, MSPs, SEFs, DCMs, DCOs, and SDRs.\211\ Chatham notes many
LEI applicants may not have problems with the insignificant cost of
application, but often experience significant difficulty with the
documentation requirements for some renewals.\212\ Chatham also
requests clarification on whether Sec. 45.6(d) requires counterparties
to obtain an LEI to report for trades that have already been reported
using a substitute identifier.\213\
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\211\ Chatham at 3.
\212\ Id.
\213\ Id.
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The Commission received four comments supporting obtaining an LEI
for a counterparty that does not have one under proposed Sec.
45.6(d)(3).\214\ GLEIF notes performing an LEI registration on behalf
of a third-party is considered to satisfy the requirements of self-
registration only if the registrant has provided explicit permission
for such a registration to be performed.\215\ In particular, Chatham
believes requiring each DCO and financial entity reporting counterparty
to obtain an LEI on behalf of the counterparty through third-party
registration is the most logical method to implement requiring an LEI
instead of a temporary identifier.\216\
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\214\ GLEIF at 2; Data Coalition at 2; Chatham at 3; Eurex at 4.
\215\ GLEIF at 2.
\216\ Chatham at 3.
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The Commission received four comments opposing obtaining an LEI for
a counterparty that does not have one, under proposed Sec. 45.6(d)(3).
GFXD believes the proposal disincentivizes smaller counterparties from
obtaining their own LEI and places an administrative and financial
burden on reporting counterparties.\217\ GFXD believes the requirement
would ``likely'' cause unintended operational issues, such as reporting
counterparties simultaneously creating an LEI for a counterparty.\218\
GFXD recommends following the EU approach, where all counterparties
must obtain and maintain their own LEI (``no LEI, no trade''), with a
sufficient implementation period and significant education effort for
smaller counterparties.\219\
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\217\ GFXD at 23-24.
\218\ Id.
\219\ Id.
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JBA believes obtaining an LEI on behalf of the counterparty is
impractical and costly.\220\ JBA requests changing this requirement and
suggests that DCO and financial entities ``recommend'' the counterparty
to obtain an LEI, or take other similar actions.\221\
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\220\ JBA at 5-6.
\221\ Id.
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ISDA-SIFMA have concerns about a reporting counterparty's ability
to comply with such a requirement because a DCO or financial entity
reporting counterparty cannot obtain an LEI on behalf of a non-
reporting counterparty without the non-reporting counterparty's
permission, and ISDA-SIFMA anticipate that some counterparties would be
resistant to obtaining an LEI.\222\ ISDA-SIFMA request clarification
that a DCO or financial entity reporting counterparty may act as an
agent for third-party registration to obtain LEIs on a counterparty's
behalf only if it chooses to do so, instead of being mandated to do
so.\223\ ISDA-SIFMA suggest adding a clarification that the LEI
registrant (i.e., the non-reporting counterparty), has the regulatory
obligation to obtain and maintain its own LEI, and that the maintenance
obligation be placed on the entity to whom the LEI is issued, instead
of a third-party.\224\ ISDA-SIFMA consider a non-reporting counterparty
to include an investment manager executing a transaction for, and on
behalf of, a swap counterparty (e.g., funds), and wants the Commission
to clarify that an investment manager executing a transaction on behalf
of a counterparty is required to obtain and maintain its own LEI and
that an investment manager is required to obtain its own LEI
sufficiently in advance of executing pre-allocation swaps, so that the
reporting counterparty can report the investment manager LEI within the
reporting counterparty's part 45 timing obligations.\225\
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\222\ ISDA-SIFMA at 14-15.
\223\ Id.
\224\ Id.
\225\ Id.
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ICE DCOs believe it is inappropriate for DCOs to backstop the
compliance functions of other participants, especially since this may
include clients of clearing members with which a DCO has no
relationship, requests the
[[Page 75529]]
Commission to either remove the LEI backstop entirely or exempt DCOs
from the backstop.\226\
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\226\ ICE DCOs at 4-5.
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For reasons articulated in the Proposal and informed by comments
and analysis as further discussed below, the Commission is adopting the
changes to Sec. 45.6(f), re-designated as Sec. 45.6(d), largely as
proposed, with certain modifications in response to commenters and
other considerations.
The Commission did not receive any comments on the proposals to
retitle Sec. 45.6(f) ``Use of the legal entity identifier'' or to
remove Sec. 45.6(f)(2) and (4) and for reasons articulated in the
Proposal and reiterated above, is adopting the changes as proposed. The
Commission also did not receive any comments on the proposals to move
the requirements for the use of LEIs from Sec. 45.6(f) to renumbered
Sec. 45.6(d) or to move the substantive requirements in Sec.
45.6(f)(3) relating to substitute counterparty identifiers to Sec.
45.6(d)(4) and for reasons articulated in the Proposal and reiterated
above, is adopting the changes as proposed.
The Commission is adopting the changes to the Sec. 45.6(f)(1)
regulations for the use of LEIs as proposed and the move to Sec.
45.6(d)(1) as proposed. The Commission believes a change to the ``all
recordkeeping and all swap data reporting'' language in Sec.
45.6(f)(1) would only lead to confusion due to the term being used
extensively elsewhere in Sec. 45.6 and other sections of part 45, and
therefore declines to adopt CME's suggestion. The Commission notes the
requirement to identify entities using an LEI in ``all recordkeeping
and swap data reporting'' has existed in Sec. 45.6(f)(1) that all
entities have complied with since part 45 was adopted in 2012, and the
Commission has seen no evidence that any entity has encountered
difficulty complying with this provision. The Commission notes nothing
prevents an entity from supplementing the LEI with a human-readable
alternative in its records.
The Commission also declines to adopt GLEIF's suggestion to
rephrase the second sentence of Sec. 45.6(f)(1) to state that
alternative identifiers may only be used for natural persons who are
not eligible for an LEI, as the Commission lacks sufficient knowledge
of all entity structures and legal systems worldwide to know for
certain that every non-natural person is eligible for an LEI.\227\ Even
though the legal entities that have faced questions regarding their
eligibility for LEIs are admittedly very small in number, GLEIF's
suggested rephrasing of Sec. 45.6(f)(1) would result in those few
legal entities currently ineligible for LEIs to also not be allowed to
be identified using alternative identifiers, and the resulting lack of
acceptable identifier would hinder the Commission's ability to
aggregate the total exposure of those entities.
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\227\ For example, the Commission is aware that certain European
banking groups with unconventional legal structures have encountered
difficulties obtaining LEIs. The Commission also notes a recent LEI
ROC consultation covered, among other topics, ``[p]otential
difficulties for identification of general government entities in
the [Global Legal Entity Identifier System] current framework''; see
LEI ROC, LEI Eligibility for General Government Entities (Oct. 25,
2019), available at https://www.leiroc.org/publications/gls/roc_20191025-1.pdf.
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The Commission did not receive any comments opposing the proposed
requirements in Sec. 45.6(d)(2) for each SD, MSP, SEF, DCM, DCO, and
SDR to maintain and renew its LEI in accordance with the standards set
by the Global Legal Entity Identifier System and for reasons
articulated in the Proposal and reiterated above, is adopting Sec.
45.6(d)(2) as proposed.
The Commission acknowledges LCH's request to clarify in Sec. 45.6
that SDRs should not reject LEIs that have not been renewed, but
declines to adopt this suggestion in the text of Sec. 45.6, as the
Commission has delegated to the DMO Director in Sec. 45.15 to issue
guidance on the form and manner of the technical specification
governing reporting to SDRs. Nevertheless, the Commission notes DMO has
not asked SDRs to validate the renewal status of LEIs in the technical
specification being published concurrent with adoption of the revisions
to part 45.
The Commission acknowledges GFXD's comment regarding the duty to
renew should apply to a reporting counterparty's own LEIs and not that
of the non-reporting counterparty, but believes GFXD conflates two
separate requirements: The LEI renewal requirement for SDs, MSPs, SEFs,
DCMs, DCOs, and SDRs in Sec. 45.6(d)(2) and the requirements described
in Sec. 45.6(d)(3) below regarding efforts to obtain LEIs for
counterparties without LEIs. The Commission believes Sec. 45.6(d)(2)
is clear that the renewal requirement applies only to an entity's own
LEI. By definition, an LEI has to be issued before it can be renewed,
so Sec. 45.6(d)(3) would not apply to LEI renewals.
The Commission also acknowledges the alternative suggestions of
expanding the LEI renewal requirement to either all reporting
counterparties or all counterparties, but declines to adopt an
expansion of the LEI renewal requirement, as the Commission continues
to believe requiring each SD, MSP, SEF, DCM, DCO, and SDR to maintain
and renew its LEI strikes the appropriate balance between the
Commission's interest in accurate LEI reference data and the current
cost to LEI holders. The Commission acknowledges and appreciates the
reduction in the cost to LEI holders to obtain and renew LEIs since the
start of the Global Legal Entity Identifier System, but does not
believe further expansion of the renewal requirement and the resulting
increased costs on LEI holders now premised solely on GLEIF's promises
of future cost reductions and/or shifts of the LEI renewal fee to
financial institutions resulting from Global Legal Entity Identifier
System operating model changes is appropriate. Before the Commission
mandates such a requirement, it will seek additional information to
gain a better understanding what the benefits or costs of such a
requirement will be. While the Commission declines to expand the
renewal mandate in this release, it is open to considering expansions
of the LEI renewal requirement in future releases upon further
enhancements in LEI reference data or realized reductions in cost to
LEI holders.
In response to Chatham's request for clarification, the Commission
notes the requirements of Sec. 45.6 would not apply retroactively to
swap data reports previously reported before the adoption of the
amendments to part 45, but do apply to creation data and continuation
data submitted after the adoption of the amendments to part 45.
For reasons articulated in the Proposal and informed by comments
and analysis as further discussed below, the Commission is adopting
Sec. 45.6(d)(3) largely as proposed, with certain modifications in
response to commenters and other considerations.
Section 45.6(d)(3) of the final rule removes DCOs from the
obligation, as DCOs may not have information regarding customers
clearing trades through futures commission merchants. Section
45.6(d)(3) of the final rule also reflects the addition of ``use best
efforts to'' before ``cause a legal entity identifier to be assigned to
the counterparty'' to clarify that the obligation relates to actions
within a financial entity reporting counterparty's control, instead of
the obligation to ensure an outcome that may be outside of a financial
entity reporting counterparty's control. Section 45.6(d)(3) of the
final rule also removes the phrase ``including if necessary, through
third-party registration.'' Finally, as the Commission still has a need
to know the identity of the non-
[[Page 75530]]
reporting counterparty despite the non-reporting counterparty's failure
to obtain its own LEI pursuant to Sec. 45.6, the Commission is
adopting in Sec. 45.6(d)(3) of the final rule a requirement for the
financial entity reporting counterparty to promptly provide to the
Commission the identity and contact information of the counterparty for
whom the financial entity reporting counterparty's efforts to cause an
LEI to be issued were unsuccessful.\228\
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\228\ The Commission recognizes that if the non-reporting
counterparty refuses to obtain an LEI or refuses to provide
permission for the reporting counterparty to obtain an LEI on its
behalf, the lack of LEI may cause the swap data report to fail an
SDR's validations for the ``Counterparty 2'' data element. To the
extent a swap data report would otherwise pass an SDR's validations
but for the refusal by an LEI-eligible non-reporting counterparty to
obtain an LEI, the Commission will take appropriate steps to address
such refusal by the LEI-eligible non-reporting counterparty. The
Commission expects this to be an infrequent situation.
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As discussed in the Proposal, swap data that does not identify
eligible counterparties with an LEI hinders the Commission's
fulfillment of its regulatory mandates. However, the Commissioner
declines to adopt a ``no LEI, no trade'' requirement that GFXD suggests
due to concerns of the potential impact of such a requirement may have
on market liquidity, as a ``no LEI, no trade'' rule would result in
market participants without an LEI not being permitted to transact in
the market. The Commission also notes part 45 relates to the reporting
of swaps that already have been executed, whereas ``no LEI, no trade''
relates to who is eligible to engage in swap transactions, a completely
different topic than the reporting of executed swaps and outside of the
scope of the part 45 swap data reporting rule. With regards to GFXD's
operational concerns, the Commission does not believe operational
issues such as multiple LEI being issued to a counterparty are likely
to arise, as checks in the Global Legal Entity Identifier System
prohibit multiple LEIs being issued to an entity. The Commission also
does not believe GFXD's concerns that the provision will result in a
material shifting of costs for obtaining an LEI onto reporting
counterparties are particularly realistic due to: (i) Most
counterparties having already obtained an LEI due to significant LEI
adoption by other authorities whose jurisdictions the counterparties
may be subject to, (ii) the relatively sophisticated nature of
counterparties in the swaps market, (iii) the financial due diligence
that reporting counterparties such as GFXD's members perform on their
counterparties, and (iv) the unlikelihood that those relatively
sophisticated counterparties with adequate financial resources would
willingly and knowingly disregard their own separate obligation to
obtain their own LEIs pursuant to Sec. 45.6 just so they may realize a
one-time savings of $65.
The Commission also recognizes the concerns noted by commenters
that obtaining an LEI for a counterparty via third-party registration
requires the consent of the counterparty, consent that may potentially
not be obtained despite a financial entity reporting counterparty's
best efforts. The Commission believes Sec. 45.6(d)(3) of the final
rule addresses those concerns, as financial entities will only be
required to ``use best efforts to cause [an LEI] to be assigned to the
counterparty,'' so financial entities would not be required to obtain
an LEI for a non-consenting counterparty. It was never the Commission's
intent for anyone other than the entity to which an LEI is issued to be
responsible for maintaining the reference data for that LEI, and the
Commission has, in response to ISDA-SIFMA's suggestion, added a
clarification in the introductory text of Sec. 45.6 that each entity
is responsible for maintaining its LEI, in addition to obtaining and
being identified with an LEI.
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\229\ The Commission proposed minor, non-substantive amendments
to Sec. 45.7.
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G. Sec. 45.8 229 --Determination of Which Counterparty
Shall Report
The Commission is changing the introductory text to the Sec. 45.8
reporting counterparty determination regulations. The existing
introductory text states the determination of which counterparty is the
reporting counterparty for all swaps, except clearing swaps, shall be
made as provided in Sec. 45.8(a) through (h), and that the
determination of which counterparty is the reporting counterparty for
all clearing swaps shall be made as provided in Sec. 45.8(i).
The Commission is changing the introductory text to state that the
determination of which counterparty is the reporting counterparty for
each swap shall be made as provided in Sec. 45.8. The Commission
believes this language is clearer, as much of the introductory text is
superfluous given that the scope of what Sec. 45.8 covers is clear
from the operative provisions of Sec. 45.8. The Commission is making
non-substantive amendments to the rest of existing Sec. 45.8.
The Commission received two comments beyond the non-substantive
changes the Commission proposed. ICE SDR recommends the Commission
allow swap counterparties to determine which entity is best suited to
report swap data where both counterparties are non-SDs/MSPs and only
one counterparty is a financial entity and where both counterparties
are non-SDs/MSPs and only one counterparty is a U.S. person.\230\ The
Commission declines to adopt ICE SDR's recommendation, as financial
entities, being more active in the swaps market, are better suited to
report swap data to SDRs than non-SD/MSP counterparties. In addition,
between two non-SD/MSP/DCO reporting counterparties, the U.S. person
counterparty should report swap data to SDRs given their stronger
connection to the U.S.
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\230\ ICE SDR at 6.
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ISDA-SIFMA propose deleting language that seems to address cross-
border matters that do not fully align with Commission guidance or no-
action letters and request the Commission confirm that, so long as both
counterparties incorporate a widely accepted industry practice into
their internal policies and procedures, they will have met the
requirements of Sec. 45.8.\231\ The Commission did not propose any
amendments to reflect cross-border guidance or no-action letters, and
believes the substantive amendments advocated by ISDA-SIFMA, are beyond
the scope of this rulemaking and thus not amenable for adoption absent
an notice and an opportunity for comment. The Commission believes the
requirements of Sec. 45.8 are clear from their operative provisions,
and declines to comment on widely-accepted industry practices in this
rulemaking.
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\231\ ISDA-SIFMA at 15-16.
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For the reasons discussed above, the Commission is adopting the
changes to Sec. 45.8 as proposed.
H. Sec. 45.10 232 - Reporting to a Single Swap Data
Repository
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\232\ The Commission is making minor, non-substantive amendments
to Sec. 45.9.
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The Commission is changing the Sec. 45.10 regulations for
reporting swap data to a single SDR. The Commission is amending and
removing existing regulations, and adding new regulations to Sec.
45.10. In particular, new Sec. 45.10(d) will permit reporting
counterparties to change the SDR to which they report swap data and
swap transaction and pricing data.
1. Introductory Text
The Commission is amending the introductory text to Sec. 45.10.
The existing
[[Page 75531]]
introductory text states that all swap data for a given swap, which
includes all swap data required to be reported pursuant to parts 43 and
45, must be reported to a single SDR, which must be the SDR to which
the first report of required swap creation data is made pursuant to
part 45.
First, the Commission is clarifying all ``swap transaction and
pricing data and swap data'' (both terms that the Commission proposed
to newly define and add to Sec. 45.1(a)) \233\ for a given swap must
be reported. As newly defined, ``swap transaction and pricing data''
and ``swap data'' would expressly refer, respectively, to data subject
to parts 43 and 45, making the existing Sec. 45.10 introductory text's
reference to the two parts redundant. Second, the Commission is adding
a qualifier to the end of the introductory text specifying that all
swap data and swap transaction and pricing data for a swap must be
reported to a single SDR ``unless the reporting counterparty changes
the [SDR] to which such data is reported'' pursuant to the new
regulations proposed in Sec. 45.10(d).\234\ Third, the Commission is
making non-substantive changes in the introductory text to improve
readability.
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\233\ The Commission's addition of terms for ``swap data'' and
``swap transaction and pricing data'' to Sec. 45.1(a) is discussed
in section II.A.1 above.
\234\ The Commission discusses Sec. 45.10(d) in section II.H.5
below.
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The Commission did not receive any comments on the changes to the
introductory text in Sec. 45.10. The Commission is adopting the
changes as proposed.
2. Sec. 45.10(a)--Swaps Executed On or Pursuant to the Rules of a SEF
or DCM
The Commission is amending the Sec. 45.10(a) regulations for
reporting swaps executed on or pursuant to the rules of a SEF or DCM to
a single SDR. Existing Sec. 45.10(a) requires that to ensure all swap
data, including all swap data required to be reported pursuant to parts
43 and 45, for a swap executed on or pursuant to the rules of a SEF or
DCM is reported to a single SDR: (i) The SEF or DCM that reports
required swap creation data as required by Sec. 45.3 shall report all
such data to a single SDR, and ASATP after execution shall transmit to
both counterparties to the swap, and to any DCO, the identity of the
SDR and the USI for the swap; and (ii) thereafter, all required swap
creation data and all required swap continuation data reported for the
swap reported by any registered entity or counterparty must be reported
to that same SDR (or to its successor in the event that it ceases to
operate, as provided in existing part 49).
First, the Commission is removing the phrase ``(or to its successor
in the event that it ceases to operate, as provided in part 49)'' from
Sec. 45.10(a)(2).\235\ Second, the Commission is updating all
references to swap data throughout proposed Sec. 45.10(a) with ``swap
transaction and pricing data and swap data.'' The Commission believes
using the new defined terms for ``swap data'' and ``swap transaction
and pricing data'' will provide clarity for market participants.
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\235\ This change is due to the new regulations the Commission
is adding for changing SDRs in Sec. 45.10(d). The Commission
discusses Sec. 45.10(d) in section II.H.5 below.
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Third, the Commission is removing Sec. 45.10(a)(1)(ii) and
combining the text of Sec. 45.10(a) and (a)(i) into a single provision
Sec. 45.10(a) to provide clarity as the requirement in Sec.
45.10(a)(1)(ii) is already located in Sec. 45.5(a)(2). Fourth, the
Commission is adding the qualifier to the end of Sec. 45.10(a)(2) that
all swap data and swap transaction and pricing data for a swap must be
reported to a single SDR ``unless the reporting counterparty changes
the [SDR] to which such data is reported'' pursuant to the new
regulations in proposed Sec. 45.10(d).\236\
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\236\ Id.
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The Commission did not receive any comments on the changes to Sec.
45.10(a). For the reasons discussed above, the Commission is adopting
the changes as proposed.
3. Sec. 45.10(b)--Off-Facility Swaps with an SD or MSP Reporting
Counterparty
The Commission is amending the Sec. 45.10(b) regulations for
reporting swaps executed off-facility with an SD/MSP reporting
counterparty to a single SDR. Existing Sec. 45.10(b)(1) requires that
to ensure that all swap data, including all swap data required to be
reported pursuant to parts 43 and 45, for off-facility swaps with an SD
or MSP reporting counterparty is reported to a single SDR: (i) If the
reporting counterparty reports PET data to an SDR as required by Sec.
45.3, the reporting counterparty shall report PET data to a single SDR
and ASATP after execution, but no later than as required pursuant to
Sec. 45.3, shall transmit to the other counterparty to the swap both
the identity of the SDR to which PET data is reported by the reporting
counterparty, and the USI for the swap created pursuant to Sec. 45.5;
and (ii) if the swap will be cleared, the reporting counterparty shall
transmit to the DCO at the time the swap is submitted for clearing both
the identity of the SDR to which PET data is reported by the reporting
counterparty, and the USI for the swap created under Sec. 45.5.
Thereafter, Sec. 45.10(b)(2) requires that all required swap
creation data and all required swap continuation data reported for the
swap, by any registered entity or counterparty, shall be reported to
the SDR to which swap data has been reported pursuant to Sec.
45.10(b)(1) or (2) (or to its successor in the event that it ceases to
operate, as provided in part 49).
First, the Commission is combining the requirements for SD/MSP
reporting counterparties in Sec. 45.10(b) for off-facility swaps with
the requirements for non-SD/MSP reporting counterparties in Sec.
45.10(c) for off-facility swaps. The Commission believes combining the
requirements for SD/MSP reporting counterparties and non-SD/MSP
reporting counterparties in Sec. 49.10(b) and (c) will simplify the
regulations in Sec. 45.10. The Commission is re-titling Sec. 45.10(b)
``Off-facility swaps that are not clearing swaps.'' \237\
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\237\ The Commission discusses the requirements of existing
Sec. 45.10(c) in section II.H.4 below.
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Second, the Commission is removing the phrase ``(or to its
successor in the event that it ceases to operate, as provided in part
49)'' from Sec. 45.10(b)(2).\238\ Third, the Commission is updating
all references to swap data throughout Sec. 45.10(b) by replacing all
references to ``swap data'' with ``swap transaction and pricing data
and swap data.''
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\238\ This change is due to the new regulations the Commission
is adopting for changing SDRs in Sec. 45.10(d). The Commission
discusses Sec. 45.10(d) in section II.H.5 below.
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Fourth, the Commission is removing existing Sec. 45.10(b)(1) and
combining the regulations in existing Sec. 45.10(b)(1)(i) through
(iii) into Sec. 45.10(b)(1). The Commission believes existing Sec.
45.10(b)(1) is unnecessary, as all reporting counterparties must report
required swap creation data to an SDR pursuant to Sec. 45.3 for off-
facility swaps. Fifth, the Commission is removing the requirement in
existing Sec. 45.10(b)(1)(ii) for the reporting counterparty to
transmit the USI to the non-reporting counterparty to the swap. The
requirement in Sec. 45.10(b)(1) is unnecessary, as it is already
located in Sec. 45.5(b)(2) and (c)(2), depending on the type of
counterparty.
Finally, the Commission is adding the qualifier to the end of Sec.
45.10(b)(2) that all swap data and swap transaction and pricing data
for a swap must be reported to a single SDR ``unless the reporting
counterparty changes the [SDR] to
[[Page 75532]]
which such data is reported'' pursuant to proposed Sec. 45.10(d).\239\
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\239\ The Commission discusses new Sec. 45.10(d) in section
II.H.5 below.
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The Commission did not receive any comments on the proposed changes
to Sec. 45.10(b). For the reasons discussed above, the Commission is
adopting the changes as proposed.
4. Sec. 45.10(c)--Off-Facility Swaps With a Non-SD/MSP Reporting
Counterparty
The Commission is moving the requirements in Sec. 45.10(d) to
Sec. 45.10(c). The Commission discusses the requirements of existing
Sec. 45.10(d) in the following section, II.H.5. The Commission
discusses the requirements of existing Sec. 45.10(c) that it proposed
moving to Sec. 45.10(b) in section II.H.3 above.
5. Sec. 45.10(d)--Clearing Swaps
a. Amendments to Existing Sec. 45.10(d) \240\
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\240\ The Commission is moving the requirements for reporting
clearing swaps to a single SDR from Sec. 45.10(d) to Sec.
45.10(c). The Commission is replacing Sec. 45.10(d) with new
requirements for reporting counterparties to change SDRs. This
section discusses the changes to the requirements for reporting
clearing swaps to a single SDR in newly re-designated Sec. 45.10(c)
(existing Sec. 45.10(d)), followed by a discussion of the new
regulations permitting reporting counterparties to change SDRs.
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Existing Sec. 45.10(d)(1) requires that to ensure that all swap
data for a given clearing swap, and for clearing swaps that replace a
particular original swap or that are created upon execution of the same
transaction and that do not replace an original swap, is reported to a
single SDR the DCO that is a counterparty to the clearing swap report
all required swap creation data for that clearing swap to a single SDR,
and ASATP after acceptance of an original swap by a DCO for clearing or
execution of a clearing swap that does not replace an original swap,
the DCO transmit to the counterparty to each clearing swap the LEI of
the SDR to which the DCO reported the required swap creation data for
that clearing swap.
Thereafter, existing Sec. 45.10(d)(2) requires the DCO report all
required swap creation data and all required swap continuation data
reported for that clearing swap to the SDR to which swap data has been
reported pursuant to Sec. 45.10(d)(1) (or to its successor in the
event that it ceases to operate, as provided in part 49). Existing
Sec. 45.10(d)(3) requires that for clearing swaps that replace a
particular original swap, and for equal and opposite clearing swaps
that are created upon execution of the same transaction and that do not
replace an original swap, the DCO report all required swap creation
data and all required swap continuation data for such clearing swaps to
a single SDR.
Newly re-designated Sec. 45.10(c) would include several changes to
the requirements in existing Sec. 45.10(d). First, the Commission is
removing the phrase ``(or to its successor in the event that it ceases
to operate, as provided in part 49)'' in existing Sec. 45.10(d)(2)
from re-designated Sec. 49.10(c)(2).\241\
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\241\ This change is due to the new regulations the Commission
is adopting for changing SDRs in Sec. 45.10(d). The Commission
discusses Sec. 45.10(d) in section II.H.5.b below.
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Second, the Commission is updating all references to swap data now
found throughout existing Sec. 45.10(d) with references to ``swap
transaction and pricing data and swap data.'' Third, the Commission is
adding the following qualifier: ``unless the reporting counterparty
changes the [SDR] to which such data is reported'' pursuant to the new
regulations in Sec. 45.10(d). Finally, the Commission is making
numerous language edits to improve readability and to update certain
cross-references.
The Commission did not receive any comments on the proposed changes
to Sec. 45.10(d), as moved to Sec. 45.10(c). For the reasons
discussed above, the Commission is adopting the changes as proposed.
b. New Regulations for Changing SDRs
The Commission is adding new Sec. 45.10(d) to permit reporting
counterparties to change the SDR to which they report swap data and
swap transaction and pricing data. Existing Sec. 45.10 provides all
swaps must be reported to a ``single [SDR].'' \242\
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\242\ 17 CFR 45.10(a) through (d).
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The Commission is titling new Sec. 45.10(d) ``Change of [SDR] for
swap transaction and pricing data and swap data reporting.'' The
introductory text to Sec. 45.10(d) states a reporting counterparty may
change the SDR to which swap transaction and pricing data and swap data
is reported as outlined in Sec. 45.10(d).
New Sec. 45.10(d)(1) will require that at least five business days
prior to changing the SDR to which the reporting counterparty reports
swap transaction and pricing data and swap data for a swap, the
reporting counterparty provide notice of such change to the other
counterparty to the swap, the SDR to which swap transaction and pricing
data and swap data is currently reported, and the SDR to which swap
transaction and pricing data and swap data will be reported going
forward. Such notification will include the UTI of the swap and the
date on which the reporting counterparty will begin reporting such swap
transaction and pricing data and swap data to a different SDR.
New Sec. 45.10(d)(2) will require that after providing
notification, the reporting counterparty: (i) Report the change of SDR
to the SDR to which the reporting counterparty is currently reporting
swap transaction and pricing data and swap data as a life cycle event
for such swap pursuant to Sec. 45.4; (ii) on the same day that the
reporting counterparty reports required swap continuation data as
required by Sec. 45.10(d)(2)(i), the reporting counterparty also
report the change of SDR to the SDR to which swap transaction and
pricing data and swap data will be reported going forward, as a life
cycle event for such swap pursuant to Sec. 45.4, and the report
identify the swap using the same UTI used to identify the swap at the
previous SDR; (iii) thereafter, all swap transaction and pricing data,
required swap creation data, and required swap continuation data for
the swap be reported to the new SDR, unless the reporting counterparty
for the swap makes another change to the SDR to which such data is
reported pursuant to Sec. 45.10(d).
When the Commission adopted Sec. 45.10 in 2012, it believed
regulators' ability to see necessary information concerning swaps could
be impeded if data concerning a swap was spread over multiple
SDRs.\243\ However, since then, the Commission has come to recognize it
can aggregate swap data from different SDRs, and the Commission has
received requests to permit reporting counterparties to change
SDRs.\244\
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\243\ See 77 FR 2136, 2168 (Jan. 13, 2012).
\244\ See, e.g., Joint letter from Bloomberg SDR LLC, Chicago
Mercantile Exchange Inc., and ICE Trade Vault, LLC (Aug. 21, 2017)
at 15.
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However, the ability to change SDRs cannot frustrate the
Commission's ability to use swap data due to duplicative swap reports
housed at multiple SDRs. For this reason, the Commission is permitting
reporting counterparties to change SDRs in Sec. 49.10(d), subject to
certain notification procedures described below to ensure swaps are
properly transferred between SDRs.
The Commission received five comments supporting new Sec.
45.10(d).\245\ In particular, GFXD does not believe counterparties
changing SDRs raises any operational issues and does not believe any
additional requirements should be adopted.\246\
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\245\ GFXD at 24; Eurex at 4; JBA at 5; DTCC at 7; Markit at 6.
\246\ GFXD at 24.
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[[Page 75533]]
The Commission did not receive any comments opposing Sec.
45.10(d), but did receive comments seeking clarification or commenting
on some aspects of the new regulation. Markit supports Sec. 45.10(d),
but does not believe the notice period and other formal procedures are
necessary, and notes a swap transaction that has been moved will be
evident from the ``Events'' data elements in appendix 1.\247\ The
Commission agrees with Markit that data elements showing a swap has
been moved to a different SDR will be beneficial, but as explained
above, the Commission needs to ensure swaps are properly transferred.
The Commission believes it has kept the notification requirements
simple enough to provide the Commission the notification it needs
without placing an unreasonable burden on the parties involved in the
transfer.
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\247\ Markit at 6.
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ISDA-SIFMA suggest the Sec. 45.10(d)(1) notification obligation
could be satisfied via an email notification, reporting counterparty
portal, or the reporting counterparty's public-facing website.\248\ The
Commission agrees with ISDA-SIFMA and clarifies the aforementioned
methods could satisfy the notification requirements in Sec. 49.10(d).
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\248\ ISDA-SIFMA at 16.
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ISDA-SIFMA and DTCC have questions relating to transferring
historical swap data. ISDA-SIFMA believe, where a reporting
counterparty elects to transfer from an SDR due to the deregistration
of the SDR, the deregistering SDR should be required to bear the
reporting counterparty's costs of porting.\249\ DTCC requests
confirmation that the transferability requirement will only apply to
trades that are live at the time of the transfer, not historical
trades.\250\ Transferring historical data in the context of SDR
withdrawals from registration is covered by Sec. 49.4 regulations
(Withdrawal from registration). New Sec. 45.10(d) does not apply to
that process, with respect to costs or the process itself, among other
things. The Commission believes ISDA-SIFMA and DTCC's comments are
addressed by Sec. 49.4.
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\249\ Id.
\250\ DTCC at 7.
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I. Sec. 45.11--Data Reporting for Swaps in a Swap Asset Class Not
Accepted by Any Swap Data Repository
The Commission is making non-substantive changes to the Sec. 45.11
regulations for reporting swaps in an asset class not accepted by any
SDR. Existing Sec. 45.11(a) requires that, should there be a swap
asset class for which no SDR registered with the Commission currently
accepts swap data, each registered entity or counterparty required by
part 45 to report any required swap creation data or required swap
continuation data with respect to a swap in that asset class report
that same data to the Commission.
For instance, the Commission is removing the phrase ``registered
with the Commission'' following the term SDR. The Commission believes
this phrase is confusing, as the three SDRs are provisionally
registered with the Commission pursuant to Sec. 49.4(b) of the
Commission's regulations. The Commission also believes this phrase is
unnecessary, as provisionally registered SDRs and fully registered SDRs
are subject to the same requirements in the CEA and the Commission's
regulations. The Commission is also replacing ``each registered entity
or counterparty'' with a reference to SEFs, DCMs, and DCOs, and the
term ``reporting counterparty.'' The list of entities is more precise
and does not modify the types of entities to which the requirements of
Sec. 49.11 would apply.
Existing Sec. 45.11(c) and (d) contain a delegation of authority
to the Chief Information Officer of the Commission concerning the
requirements in Sec. 45.11(a) and (b). The Commission is moving this
delegation to a new section, Sec. 45.15, for delegations of authority.
The Commission discusses Sec. 45.15 in section II.L below.
The Commission did not receive any comments on the proposed changes
to existing Sec. 45.11. For the reasons discussed above, the
Commission is adopting the changes as proposed.
J. Sec. 45.12--Voluntary Supplemental Reporting
The Commission is removing the Sec. 45.12 regulations for
voluntary supplemental reporting from part 45. Existing Sec. 45.12
permits the submission of voluntary supplemental swap data reports by
swap counterparties.\251\ Voluntary supplemental swap data reports are
defined as any report of swap data to a [SDR] that is not required to
be made pursuant to part 45 or any other part in this chapter.\252\
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\251\ 17 CFR 45.12(b) through (e). Existing Sec. 45.12(d)
requires voluntary supplemental reports contain an indication the
report is voluntary, a USI, the identity of the SDR to which
required swap creation data and required swap continuation data were
reported, if different from the SDR to which the voluntary
supplemental report was reported, the LEI of the counterparty making
the voluntary supplemental report, and an indication the report is
made pursuant to laws of another jurisdiction, if applicable.
\252\ 17 CFR 45.12(a).
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When it adopted Sec. 45.12 in 2012, the Commission believed
voluntary supplemental reporting could have benefits for data accuracy
and counterparty business processes, especially for counterparties that
were not the reporting counterparty to a swap.\253\ The Commission
recognized Sec. 45.12 would lead to the submission of duplicative
reports for the same swap,\254\ but believed an indication voluntary
supplemental reports were voluntary would prevent double-counting of
the same swaps within SDRs.\255\
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\253\ 77 FR at 2169 (Jan. 13, 2012).
\254\ Id.
\255\ Id.
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In practice, the Commission is concerned voluntary supplemental
reports compromise data quality and provide no clear regulatory
benefit. In analyzing reports that have been marked as ``voluntary
reports,'' it is not immediately apparent to the Commission why
reporting counterparties mark the reports as voluntary. In some cases,
it appears these reports can be related to products outside the
Commission's jurisdiction. The Commission believes it should not accept
duplicative or non-jurisdictional reports at the expense of the
Commission's technical and staffing resources with no clear regulatory
benefit. The Commission adopted existing Sec. 45.12 in 2012 without
the benefit of having swap data available to consider the practical
implications of existing Sec. 45.12. However, after years of use by
Commission staff, the Commission now believes existing Sec. 45.12 has
led to swap data reporting that inhibits the Commission's use of the
swap data. The Commission believes eliminating Sec. 45.12 will help
improve data quality.
The Commission received three comments on the removal of Sec.
45.12. NRECA-APPA and ISDA-SIFMA support removing Sec. 45.12.\256\
Eurex believes this removal would lead non-U.S. DCOs to only report
part 45 data for swap transactions involving SDs, MSPs, and other U.S.
counterparties.\257\ Furthermore, Eurex agrees that this removal would
significantly lessen the operational cost currently incurred from
reporting data for all cleared swaps.\258\ However, Eurex requests a
list of SDs, MSPs, and other U.S. counterparties so, as a non-U.S. DCO,
Eurex can appropriately filter out swap transactions that do not fall
under the jurisdiction of the Commission.\259\ The Commission believes
Eurex is confusing
[[Page 75534]]
voluntary supplemental reporting with cross-border reporting, possibly
due to the Commission's example of some voluntary reports being non-
jurisdictional. The Commission clarifies that removing the regulations
for voluntary supplemental reporting does not impact cross-border
reporting requirements, and non-U.S. DCOs should continue reporting
swap data to SDRs, to the extent the Commission's cross-border rules
and guidance require it.
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\256\ NRECA-APPA at 5; ISDA-SIFMA at 16.
\257\ Eurex at 5.
\258\ Id.
\259\ Id.
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K. Sec. 45.13--Required Data Standards
1. Sec. 45.13(a)--Data Maintained and Furnished to the Commission by
SDRs
The Commission is changing the Sec. 45.13(a) regulations for data
maintained and furnished to the Commission by SDRs. Existing Sec.
45.13(a) requires each SDR maintain all swap data reported to it in a
format acceptable to the Commission, and transmit all swap data
requested by the Commission to the Commission in an electronic file in
a format acceptable to the Commission.
The Commission is removing existing Sec. 45.13(a), and moving
existing Sec. 45.13(b) to Sec. 45.13(a)(3). The May 2019 notice of
proposed rulemaking relating to the Commission's SDR regulations in
parts 23, 43, 45, and 49 (the ``2019 Part 49 NPRM'') \260\ proposed
moving the requirements of Sec. 45.13(a) to Sec. 49.17(c).\261\ The
Commission did not propose corresponding modifications to Sec. 45.13
in that release.\262\ Therefore, the Commission is changing Sec.
45.13(a) in this release by removing language that the 2019 Part 49
NPRM proposed incorporating in Sec. 49.17(c). The Commission discusses
the changes to Sec. 45.13(b), including moving the requirement to
Sec. 45.13(a)(3), in this section.
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\260\ See Certain Swap Data Repository and Data Reporting
Requirements, 84 FR 21044 (May 13, 2019).
\261\ 84 FR at 21060 (May 13, 2019).
\262\ Id. at n.132 (noting the Commission's expectation to
modify Sec. 45.13 in a subsequent Roadmap rulemaking).
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Existing Sec. 45.13(b) requires that in reporting swap data to an
SDR as required by part 45, each reporting entity or counterparty shall
use the facilities, methods, or data standards provided or required by
the SDR to which the entity or counterparty reports the data. Existing
Sec. 45.13(b) further provides that an SDR may permit reporting
entities and counterparties to use various facilities, methods, or data
standards, provided that its requirements in this regard enable it to
meet the requirements of Sec. 45.13(a) with respect to maintenance and
transmission of swap data.
In new Sec. 43.13(a)(1), the Commission is requiring that in
reporting required swap creation data and required swap continuation
data to an SDR, each reporting counterparty, SEF, DCM, and DCO shall
report the swap data elements in appendix 1 in the form and manner
provided in the technical specifications published by the Commission
pursuant to Sec. 45.15. This requirement is implied in the current
regulations through the requirements in the introductory text to Sec.
45.3 and Sec. 45.4, the definitions of ``required swap creation data''
and ``required swap continuation data,'' and Sec. 45.13(b) and (c),
but new Sec. 45.13(a)(1) would make the existing requirement explicit.
In new Sec. 45.13(a)(2), the Commission is requiring that in
reporting required swap creation data and required swap continuation
data to an SDR, each reporting counterparty, SEF, DCM, and DCO making
such report satisfy the swap data validation procedures of the SDR
receiving the swap data. The Commission is adopting companion
requirements for SDRs to validate swap data in Sec. 49.10.\263\ New
Sec. 45.13(a)(2) will establish the regulatory requirement for
reporting counterparties, SEFs, DCMs, and DCOs to satisfy the data
validation procedures established by SDRs pursuant to Sec. 49.10. The
Commission is specifying the requirements for the validation messages
in Sec. 45.13(b). The Commission discusses these requirements, and
comments received, in section IV.C.3 below.
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\263\ The Commission discusses Sec. 49.10 in section IV.C
below.
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Finally, the Commission is moving existing Sec. 45.13(b) to Sec.
45.13(a)(3) and changing the regulatory requirements. Existing Sec.
45.13(b) requires that in reporting swap data to an SDR as required by
part 45, each reporting entity or counterparty use the facilities,
methods, or data standards provided or required by the SDR to which the
entity or counterparty reports the data. An SDR may permit reporting
entities and counterparties to use various facilities, methods, or data
standards, provided its requirements in this regard enable it to meet
the requirements of Sec. 45.13(a) with respect to maintenance and
transmission of swap data.
First, the Commission is replacing ``each reporting entity or
counterparty'' with ``each reporting counterparty [SEF, DCM, and DCO]''
to be more precise. Second, the Commission is removing the second
sentence in existing Sec. 45.13(b) because it pertains to the
requirements of Sec. 45.13(a), which the Commission is moving to part
49.
The Commission did not receive any comments on the changes to Sec.
45.13(a) and (b). For the reasons discussed above, the Commission is
adopting the changes as proposed.
2. New Regulations for Data Validation Messages
The Commission is specifying the requirements for data validation
acceptance messages for SDRs, SEFs, DCMs, DCOs, and reporting
counterparties. New Sec. 45.13(b)(1) will require that for each
required swap creation data or required swap continuation data report
submitted to an SDR, an SDR notify the reporting counterparty, SEF,
DCM, DCO, or third-party service provider submitting the report whether
the report satisfied the swap data validation procedures of the SDR.
The SDR will have to provide such notification ASATP after accepting
the required swap creation data or required swap continuation data
report. An SDR satisfies these requirements by transmitting data
validation acceptance messages as required by proposed Sec. 49.10.
New Sec. 45.13(b)(2) will require that if a required swap creation
data or required swap continuation data report to an SDR does not
satisfy the data validation procedures of the SDR, the reporting
counterparty, SEF, DCM, or DCO required to submit the report has not
yet satisfied its obligation to report required swap creation or
continuation data in the manner provided by paragraph (a) within the
timelines set forth in Sec. Sec. 45.3 and 45.4. The reporting
counterparty, SEF, DCM, or DCO has not satisfied its obligation until
it submits the required swap data report in the manner provided by
paragraph (a), which includes the requirement to satisfy the data
validation procedures of the SDR, within the applicable time deadline
outlined in Sec. Sec. 45.3 and 45.4.
The Commission did not receive any comments on the new validations
requirements in Sec. 45.13(b). As the new regulations for data
validations in Sec. 45.13(b) are analogous to new regulations for SDRs
to validate data in Sec. 49.10, the Commission discusses its reasoning
behind requiring validations in one section in section IV.C.3, below.
3. Sec. 45.13(c)--Delegation of Authority to the Chief Information
Officer
Existing Sec. 45.13(c) and (d) contain a delegation of authority
to the Chief Information Officer of the Commission concerning the
requirements in existing Sec. 45.13(a) and (b). The Commission is
deleting Sec. 45.13(c) and (d) and moving
[[Page 75535]]
the delegation to new Sec. 45.15 and delegating authority to the DMO
Director. The Commission believes the updated delegation will enhance
efficiency by including DMO. The Commission discusses new Sec. 45.15
in the next section.
L. Sec. 45.15 264 - Delegation of Authority
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\264\ The Commission proposed amendments to Sec. 45.14 in the
2019 Part 49 NPRM. Therefore, Sec. 45.14 will not be discussed in
this release. See 84 FR at 21067 (May 13, 2019).
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1. New Regulation for Delegations of Authority
The Commission is adding a new regulation to part 45 for
delegations of authority. New Sec. 45.15 is titled ``Delegation of
authority'' and contains the delegation of authority in existing Sec.
45.11(c) and (d) and Sec. 45.13(c) and (d) with a new delegation to
the DMO Director regarding reporting under Sec. 45.13.
Existing Sec. 45.11(c) delegates to the Chief Information Officer
of the Commission, or another such employee he or she designates, with
respect to swaps in an asset class not accepted by any SDR, the
authority to determine the manner, format, coding structure, and
electronic data transmission standards and procedures acceptable to the
Commission; whether the Commission may permit or require use by
reporting entities or counterparties in reporting pursuant to Sec.
45.11 of one or more particular data standards (such as FIX, FpML, ISO
20022, or some other standard), in order to accommodate the needs of
different communities of users; and the dates and times at which
required swap creation data or required swap continuation data must be
reported to the Commission.
Existing Sec. 45.11(d) requires the Chief Information Officer to
publish from time to time in the Federal Register and on the website of
the Commission, the format, data schema, electronic data transmission
methods and procedures, and dates and times for reporting acceptable to
the Commission with respect to swap data reporting pursuant to Sec.
45.11.
Separately, existing Sec. 45.13(c) delegates to the Chief
Information Officer, until the Commission orders otherwise, the
authority to establish the format by which SDRs maintain swap data
reported to them, and the format by which SDRs transmit the data to the
Commission. The authority includes the authority to determine the
manner, format, coding structure, and electronic data transmission
standards and procedures acceptable to the Commission for Sec.
45.13(a); and the authority to determine whether the Commission may
permit or require use by reporting entities or counterparties, or by
SDRs, of one or more particular data standards (such as FIX, FpML, ISO
20022, or some other standard), to accommodate the needs of different
communities of users, or to enable SDRs to comply with Sec. 45.13(a).
Existing Sec. 45.13(d) requires the Chief Information Officer to
publish from time to time in the Federal Register and on the website of
the Commission the format, data schema, and electronic data
transmission methods and procedures acceptable to the Commission.
The Commission is moving the delegations in existing Sec. Sec.
45.11(c) and (d) and 45.13(c) and (d) to new Sec. 45.15(a) and (b).
The Commission is also updating the delegations to reflect the changes
to the cross-references resulting from the Commission's other proposed
amendments to part 45, and changing the delegation in Sec. 45.13 from
the Chief Information Officer to the Director of the Division of Market
Oversight due to different responsibilities over swap data within the
Commission.
The Commission received one comment on new Sec. 45.15. NRECA-APPA
support the delegation to DMO.\265\ The Commission agrees with NRECA-
APPA and believes delegation to DMO will benefit data element
harmonization. The Commission did not receive any other comments on new
Sec. 45.15. The Commission is adopting the regulation as proposed.
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\265\ NRECA-APPA at 6.
---------------------------------------------------------------------------
2. Request for Comment on Data Standards
The Proposal solicited comment on whether the Commission should
mandate a specific data standard for reporting swap data to SDRs, and
whether that standard should be ISO 20022. Existing Sec. 45.13(c)
delegates to the Commission's Chief Information Officer the authority
to determine whether the Commission may permit or require use by
reporting entities or counterparties, or by SDRs, of one or more
particular data standards, including ISO 20022, in order to accommodate
the needs of different communities of users. The Commission is
retaining this delegation but moving the authority to Sec. 45.15(b)(2)
and transferring it to the DMO Director.
While the Commission would mandate any standards via the delegated
authority in Sec. 45.15(b)(2), the Commission took the opportunity
presented by the Proposal to solicit public comment on the topic.\266\
As explained in the Proposal, the Commission is currently part of an
effort to develop a standardized ISO message for the data elements in
the CDE Technical Guidance. The Commission sought comment on whether
market participants believe mandating ISO 20022 would be beneficial.
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\266\ The Commission last solicited comment on the topic in 2012
when it adopted Sec. 45.13. 77 FR 2136 at 2169-70.
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The Commission received five comments supporting mandating data
standards for swap data reporting.\267\ In particular, GFXD encourages
the Commission to harmonize with the CPMI-IOSCO reporting standards to
the extent the Commission chooses to implement those data
elements.\268\ Similarly, XBRL ``strongly'' recommends the Commission
``require all SDRs to adopt a single data standard.'' XBRL believes
allowing SDRs to choose any data standard will lead to inconsistencies
in the data, and unnecessary spending by counterparties, SDRs, data
users, and the Commission, to accommodate multiple data sets that are
standardized in different ways.'' \269\
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\267\ GFXD at 25; Chatham at 3-4; Eurex at 5; Data Coalition at
2; XBRL at 2.
\268\ GFXD at 25.
\269\ XBRL at 2.
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The Commission received two comments opposing mandating standards
for SDR reporting. ISDA-SIFMA state that, even if the Commission
mandates that certain messaging formats (e.g., XML, FpML, CSV) for
reporting from the SDR to the Commission, ISDA-SIFMA do not believe
this should result in a mandate that the same message format type be
required from the reporting counterparty to the SDRs, as not all
reporting counterparties are built uniformly with respect to messaging
formats and technology.\270\
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\270\ ISDA-SIFMA at 16-18.
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ICE SDR believes SDRs need flexibility to determine how to
implement the requirement. For example, an SDR may choose to provide
notifications through a graphical user interface so that less-
sophisticated reporting entities are not forced to write an application
programming interface.\271\
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\271\ ICE SDR at 6, 10.
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The Commission received four comments supporting mandating the ISO
20022 standard specifically.\272\ In particular, GFXD believes
including the CDE data elements in the ISO 20022 data dictionary would
reduce the
[[Page 75536]]
mapping required by market participants and third parties, but believes
the Commission should coordinate with fellow international regulators
to coordinate the adoption of CDE data elements.\273\ GFXD also
believes it is ``extremely advisable'' for the Commission and ESMA to
come to the same determination on the adoption of the ISO 20022
messaging scheme and coordinate on implementation to reduce operational
complexity and risk to data quality from mapping different message
schemes in the interim.\274\ DTCC also encourages the Commission to
``adopt a messaging methodology that is broadly consistent and aligned
with the methodology adopted and used in other jurisdictions'' and
notes ESMA has proposed ISO 20022 in its EMIR REFIT consultation
published in March 2020.\275\
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\272\ GFXD at 25; Eurex at 5-6; JBA at 5; DTCC at 7.
\273\ GFXD at 25.
\274\ Id.
\275\ DTCC at 7. See Regulation (EU) 2019/834 of the European
Parliament and of the Council of 20 May 2019 amending Regulation
(EU) No 648/2012 as regards the clearing obligation, the suspension
of the clearing obligation, the reporting requirements, the risk-
mitigation techniques for OTC derivative contracts not cleared by a
central counterparty, the registration and supervision of trade
repositories and the requirements for trade repositories (``EMIR
REFIT'').
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The Commission received three comments opposing mandating ISO
20022. CME questions the value of using ISO 20022 values for reporting
certain data elements given the significant implementation cost.\276\
ISDA-SIFMA oppose mandating ISO 20022 due to costs imposed on market
participants without benefits to regulatory oversight.\277\ ICE SDR
does not support prescribed facilities and methods for SDRs to
communicate with and take in data from participants.\278\ According to
ICE SDR, the Commission should not consider mandating the ISO 20022
message scheme for reporting to SDRs as non-SD/MSP reporting entities
often are not as sophisticated as SDs/MSPs and cannot follow such a
standard.\279\
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\276\ CME at 21.
\277\ ISDA-SIFMA at 18-20.
\278\ ICE SDR at 10.
\279\ Id.
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The Commission agrees with some commenters that mandating one
standard for reporting swap data to SDRs is necessary to ensure data
quality. The Commission believes if the data is reported using
different standards or protocols, the data is then subject to
interpretation by the SDRs, as it is transformed or translated into the
SDRs' systems and further transformed when it is reported to the
Commission. These successive layers of transformation inject ambiguity
and data quality issues into the life cycle of the data. Such layers of
transformation are unnecessary if the reporting solution is straight
through processing. Consistency of data from the source, in a common
format, regardless of SDR, will lead to better quality data.
Several commenters note aligning with other jurisdictions will help
reduce burden on market participants. Staff supports the idea that
having a consistent standard for reporting, such as ISO 20022, across
the globe would reduce reporting burden, streamline processing and
allow industry to leverage scaled solutions bringing down the cost of
changes and updates. As previously noted by a commenter, ESMA has
proposed ISO 20022 in its EMIR REFIT consultation published in March
2020 and has implemented ISO 20022 for other reporting regimes,
including SFTR.
As discussed in the Proposal, CPMI-IOSCO assigned ISO to execute
the maintenance functions for the CDE Technical Guidance because ISO
has significant experience maintaining financial data standards and
almost half of the CDE data elements in the CDE Technical Guidance are
already tied to an ISO standard. CPMI-IOSCO also decided that the CDE
data elements should be included in the ISO 20022 data dictionary and
the development of an ISO 20022-compliant message for CDE data elements
is in progress. Further, a majority of the data elements in the
technical specification are from the CDE Technical Guidance. For these
reasons, and because comprehensive and unambiguous rules regarding
reporting format will ensure the quality and usefulness of the data,
the Commission will mandate ISO 20022 for reporting to SDRs according
to Sec. 45.15(b)(2) when the standard is developed.
III. Amendments to Part 46
CEA sections 4r(a)(2)(A) and 2(h)(5) provide for the reporting of
pre-enactment and transition swaps.\280\ Part 46 of the Commission's
regulations establishes the requirements for reporting pre-enactment
and transition swaps to SDRs. In some instances, the revisions to part
45 necessitate corresponding amendments to the regulations in part 46.
The Commission describes any substantive amendments in this section.
However, the Commission does not repeat the reasoning for changes if
the Commission has discussed the reasoning for analogous part 45
provisions above.
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\280\ See 7 U.S.C. 6r(a)(2)(A) and 7 U.S.C. 2(h)(5); see also 17
CFR 46.1 (defining ``pre-enactment swap'' as any swap entered into
prior to enactment of the Dodd-Frank Act of 2010 (July 21, 2010),
the terms of which have not expired as of the date of enactment of
that Act, and ``transition swap'' as any swap entered into on or
after the enactment of the Dodd-Frank Act of 2010 (July 21, 2010)
and prior to the applicable compliance date on which a registered
entity or swap counterparty subject to the jurisdiction of the
Commission is required to commence full compliance with all
provisions of part 46).
---------------------------------------------------------------------------
A. Sec. 46.1--Definitions
Existing Sec. 46.1 contains the definitions for terms used
throughout the regulations in part 46. The Commission is separating
Sec. 46.1 into two paragraphs: Sec. 46.1(a) for definitions and Sec.
46.1(b), which would state that terms not defined in part 46 have the
meanings assigned to the terms in Sec. 1.3, to be consistent with the
same change in Sec. 45.1.
The Commission is adding a definition of ``historical swaps'' to
Sec. 46.1(a). ``Historical swaps'' means pre-enactment swaps or
transition swaps. This term will provide clarity as it is already used
in part 46.
The Commission is adding a definition of ``substitute counterparty
identifier'' to Sec. 46.1(a). ``Substitute counterparty identifier''
means a unique alphanumeric code assigned by an SDR to a swap
counterparty prior to the Commission designation of an LEI identifier
system on July 23, 2012. The term ``substitute counterparty
identifier'' is already used throughout Sec. 46.4.
The Commission is making non-substantive minor technical changes to
``asset class'' and ``required swap continuation data.''
The Commission is amending the definition of ``non-SD/MSP
counterparty'' in Sec. 46.1(a) to conform to the amendments proposed
to the corresponding term in Sec. 45.1(a).\281\ The Commission is
updating the term throughout part 46.
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\281\ The Commission discusses the changes to the term in Sec.
45.1(a) in section II.A.2 above.
---------------------------------------------------------------------------
The Commission is amending the definition of ``reporting
counterparty'' to update the reference to ``swap data.'' Currently,
``reporting counterparty'' means the counterparty required to report
swap data pursuant to part 46, selected as provided in Sec. 46.5. As
discussed in section II.A.1 above, the Commission is defining ``swap
data'' to mean swap data reported pursuant to part 45. As a result, the
Commission is changing the reference to ``data for a pre-enactment swap
or transition swap'' to reflect the reference is to part 46 data.
The Commission is removing the following definitions from Sec.
46.1. The Commission has determined that the
[[Page 75537]]
following definitions are redundant because the terms are already
defined in either Commission regulation Sec. 1.3 or CEA section 1a:
``credit swap;'' ``foreign exchange forward;'' ``foreign exchange
instrument;'' ``foreign exchange swap;'' ``interest rate swap;''
``major swap participant;'' ``other commodity swap;'' ``swap data
repository;'' and ``swap dealer.''
The Commission is removing the definition of ``international
swap,'' as there are no regulations for international swaps in part 46.
The Commission did not receive any comments on the changes to Sec.
46.1.
B. Sec. 46.3--Data Reporting for Pre-Enactment Swaps and Transition
Swaps
Existing Sec. 46.3(a)(2)(i) \282\ requires that for each uncleared
pre-enactment or transition swap in existence on or after April 25,
2011, throughout the existence of the swap following the compliance
date, the reporting counterparty must report all required swap
continuation data required to be reported pursuant to part 45, with the
exception that when a reporting counterparty reports changes to minimum
PET data for a pre-enactment or transition swap, the reporting
counterparty is required to report only changes to the minimum PET data
listed in appendix 1 to part 46 and reported in the initial data report
made pursuant to Sec. 46(a)(1), rather than changes to all minimum PET
data listed in appendix 1 to part 45.
---------------------------------------------------------------------------
\282\ The Commission is not making substantive amendments
outside of Sec. 46.3(a)(2)(i).
---------------------------------------------------------------------------
The Commission is amending Sec. 46.3(a)(2)(i) to remove the
exception from PET data reporting for pre-enactment and transition
swaps to specify that reporting counterparties would report updates to
pre-enactment and transition swaps according to part 45. The Commission
believes this is current practice and would not result in any
significant change for the entities reporting updates to historical
swaps.
The Commission received one comment supporting the proposal. ISDA-
SIFMA believe SDs should benefit from more limited part 46 reporting
obligations. The Commission is adopting the changes as proposed.
C. Sec. 46.10--Required Data Standards
Existing Sec. 46.10 requires that in reporting swap data to an SDR
as required by part 46, each reporting counterparty use the facilities,
methods, or data standards provided or required by the SDR to which
counterparty reports the data.
The Commission is adding a provision that in reporting required
swap continuation data as required by this part, each reporting
counterparty shall comply with the required data standards outlined in
part 45 of this chapter, including those set forth in Sec. 45.13(a) of
this chapter. As discussed above in the previous section, the
Commission believes this is current practice for reporting
counterparties and should not result in any significant change for
reporting counterparties. The Commission did not receive any comments
on the changes to Sec. 46.10. The Commission is adopting the changes
as proposed.
D. Sec. 46.11--Reporting of Errors and Omissions in Previously
Reported Data
Consistent with the Commission's removal of the option to report
required swap continuation data by the state data reporting method,
discussed in section II.D.2 above, the Commission is removing the
option in Sec. 46.11(b) for pre-enactment/transition swaps reporting.
Specifically, existing Sec. 46.11(b) provides that for pre-enactment
or transition swaps for which part 46 requires reporting of
continuation data, reporting counterparties reporting state data as
provided in part 45 may fulfill the requirement to report errors or
omissions by making appropriate corrections in their next daily report
of state data pursuant to part 45. Further to the removal of existing
Sec. 46.11(b), the Commission is re-designating existing Sec.
46.11(c) and (d) as new Sec. 46.11(b) and (c), respectively.
The Commission received two comments supporting the proposal.
Consistent with its position supporting removing state data reporting
in Sec. 45.4, Chatham believes this will significantly reduce the
number of reports as life cycle data reporting provides the same
critical information as state data reporting.\283\ CEWG believes the
proposal will improve the effectiveness and efficiency of
reporting.\284\ The Commission agrees removing state data reporting
from part 46 will be beneficial for the reasons described above
relating to Sec. 45.4. The Commission did not receive any other
comments on the proposed changes to Sec. 46.11. The Commission is
adopting the changes as proposed.
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\283\ Chatham at 2.
\284\ CEWG at 3.
---------------------------------------------------------------------------
IV. Amendments to Part 49
A. Sec. 49.2--Definitions
The Commission is adding four definitions to Sec. 49.2(a): ``data
validation acceptance message,'' ``data validation error,'' ``Data
validation error message,'' and ``data validation procedures.'' \285\
The Commission discusses the impact of the four definitions in section
IV.C below. The four definitions encompass the messages and validations
reports SDRs would be required to send reporting counterparties under
new regulations in Sec. 49.10(c).
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\285\ The Commission also proposed defining ``SDR data'' in the
2019 Part 49 NPRM. As proposed, ``SDR data'' would mean the specific
data elements and information required to be reported to an SDR or
disseminated by an SDR, pursuant to two or more of parts 43, 45, 46,
and/or 49, as applicable. See 84 FR at 21047. The term ``SDR data''
is also used in the amendments to Sec. 49.10 in this release.
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``Data validation acceptance message'' means a notification that
SDR data satisfied the data validation procedures applied by a SDR.
``Data validation error'' means that a specific data element of SDR
data did not satisfy the data validation procedures applied by a SDR.
``Data validation error message'' means a notification SDR data
contained one or more data validation error(s). ``Data validation
procedures'' means procedures established by a SDR pursuant to Sec.
49.10 to validate SDR data reported to the SDR.
B. Sec. 49.4--Withdrawal From Registration
The Commission is amending the Sec. 49.4 regulations for SDR
withdrawals from registration. Existing Sec. 49.4(a)(1)(iv) requires
that a request to withdraw filed pursuant to Sec. 49.4(a)(1) shall
specify, among other items, a statement that the custodial SDR is
authorized to make such data and records available in accordance with
Sec. 1.44.\286\
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\286\ The Commission is not making substantive amendments to
Sec. 49.4(a)(1)(i) through (iii). The Commission is limiting the
discussion in this release to Sec. 49.4(a)(1)(iv).
---------------------------------------------------------------------------
Existing Sec. 49.4(a)(2) requires that before filing a request to
withdraw, a registered SDR shall file an amended Form SDR to update any
inaccurate information. A withdrawal of registration shall not affect
any action taken or to be taken by the Commission based upon actions,
activities, or events occurring during the time that the facility was
designated by the Commission.
First, the Commission is removing the Sec. 49.4(a)(1)(iv)
requirement for SDRs to submit a statement to the Commission that the
custodial SDR is authorized to make the withdrawing SDR's data and
records available in accordance with Sec. 1.44. The reference to Sec.
1.44 is erroneous. Existing Sec. 1.44 requires ``depositories'' to
maintain all books, records, papers, and memoranda relating to the
storage and warehousing of commodities in such warehouse,
[[Page 75538]]
depository or other similar entity for a period of 5 years from the
date thereof.\287\ The recordkeeping requirements for SDRs are located
in Sec. 49.12.\288\ The Commission is removing erroneous Sec.
49.4(a)(1)(iv) to avoid confusion.
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\287\ 17 CFR 1.44(d).
\288\ The Commission proposed amendments to Sec. 49.12 in the
2019 Part 49 NPRM. However, these amendments do not impact the
substance of the SDR recordkeeping requirements. See 84 FR at 21055
(May 13, 2019). Pursuant to Sec. 49.12(b), SDRs must maintain swap
data, including historical positions, throughout the existence of
the swap and for five years following final termination of the swap,
during which time the records must be readily accessible to the
Commission via real-time electronic access; and in archival storage
for which the swap data is retrievable by the SDR within three
business days.
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Second, the Commission is removing the Sec. 49.4(a)(2) requirement
that prior to filing a request to withdraw, a registered SDR file an
amended Form SDR to update any inaccurate information.\289\ The
Commission is adding a new requirement in Sec. 49.4(a)(2) for SDRs to
execute an agreement with the custodial SDR governing the custody of
the withdrawing SDR's data and records prior to filing a request to
withdraw with the Commission. New Sec. 49.4(a)(2) will also specify
that the custodial SDR retain such records for at least as long as the
remaining period of time the SDR withdrawing from registration would
have been required to retain such records pursuant to part 49.
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\289\ Existing Sec. 49.4(a)(2) further provides that a
withdrawal of registration shall not affect any action taken or to
be taken by the Commission based upon actions, activities or events
occurring during the time that the facility was designated by the
Commission. The Commission is removing this part of Sec. 49.4(a)(2)
as well.
---------------------------------------------------------------------------
The Commission did not receive any comments on the changes to Sec.
49.4. The Commission believes the existing Sec. 49.4(a)(2) requirement
is unnecessary and does not help the Commission confirm the successful
transfer of data and records to a custodial SDR. The Commission has a
significant interest in ensuring that the data and records of an SDR
withdrawing from registration are successfully transferred to a
custodial SDR. In addition, the Commission needs confirmation that the
custodial SDR will retain the data and records for at least the
remainder of the time that records are required to be retained
according to the Commission's recordkeeping rules. When an SDR is
withdrawing from registration, the Commission would no longer have a
regulatory need for the information in Form SDR to be updated. The
Commission believes Sec. 49.4(a)(2) will better address the
Commission's primary concerns in an SDR withdrawal from registration.
The Commission is adopting the changes to Sec. 49.4 as proposed.
C. Sec. 49.10--Acceptance and Validation of Data
The Commission is changing the Sec. 49.10(a) through (d) \290\ and
(f) requirements for the acceptance of data. As part of these changes,
the Commission is re-titling the section to reflect new requirements
for SDRs to validate data proposed in Sec. 49.10(c) as ``Acceptance
and validation of data.''
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\290\ The Commission proposed amendments to the Sec. 49.10(e)
requirements for correction of errors and omissions in SDR data in
the 2019 Part 49 NPRM. See 84 FR at 21050.
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1. Sec. 49.10(a)--General Requirements
The Commission is making non-substantive amendments to the general
requirements in existing Sec. 49.10(a) for SDRs to have policies and
procedures to accept swap data and swap transaction and pricing data.
Existing Sec. 49.10(a) requires that registered SDRs establish,
maintain, and enforce policies and procedures for the reporting of swap
data to the registered SDR and shall accept and promptly record all
swap data in its selected asset class and other regulatory information
that is required to be reported pursuant to parts 43 and 45 by DCMs,
DCOs, SEFs, SDs, MSPs, or non-SD/MSP counterparties.
The non-substantive amendments include titling Sec. 49.10(a)
``General requirements'' to distinguish it from the rest of Sec. 49.10
and renumbering the sections. The Commission is revising the first
sentence to specify that SDRs shall maintain and enforce policies and
procedures reasonably designed to facilitate the complete and accurate
reporting of SDR data. The Commission is removing the last phrase of
Sec. 49.10(a) beginning with ``all swap data in its selected asset
class'' and create a second sentence requiring SDRs to promptly accept,
validate, and record SDR data. Finally, the Commission is correcting
references to defined terms.
Together, the amendments to Sec. 49.10(a)(1) through (2) will
improve the readability of Sec. 49.10(a) while updating the
terminology to use the proposed ``SDR data'' term for the data SDRs are
required to accept, validate, and record pursuant to Sec. 49.10.\291\
---------------------------------------------------------------------------
\291\ The background for the validations is discussed in section
IV.C.3 below.
---------------------------------------------------------------------------
The Commission did not receive any comments on the proposed changes
to Sec. 49.10(a). For reasons discussed above, the Commission is
adopting the changes as proposed.
2. Sec. 49.10(b)--Duty To Accept SDR Data
The Commission is adopting non-substantive amendments to the Sec.
49.10(b) requirements for SDRs to accept SDR data. Existing Sec.
49.10(b) requires a registered SDR set forth in its application for
registration as described in Sec. 49.3 the specific asset class or
classes for which it will accept swaps data. If an SDR accepts swap
data of a particular asset class, then it shall accept data from all
swaps of that asset class, unless otherwise prescribed by the
Commission.
The non-substantive changes include titling Sec. 49.10(b) ``Duty
to accept SDR data'' and updating references to data in Sec. 49.10(b)
to ``SDR data'' to use the correct defined term. The Commission did not
receive any comments on the changes. For the reasons discussed above,
the Commission is adopting the changes as proposed.
3. Sec. 49.10(c)--Duty To Validate SDR Data
The Commission is adding new regulations for the SDR validation of
SDR data in Sec. 49.10(c). The Commission is moving the requirements
in existing Sec. 49.10(c) to Sec. 49.10(d).\292\ In Sec. 49.10(c),
the Commission is requiring SDRs to apply validations and inform the
entity submitting the swap report of any associated rejections. SDRs
will be required to apply the validations approved in writing by the
Commission. The Commission is also adopting regulations for SDRs to
send validation messages to SEFs, DCMs, and reporting counterparties in
Sec. 45.13(b).\293\ The Commission discusses Sec. 49.10(c) and Sec.
45.13(b) together in this section.
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\292\ The amendments to the existing requirements of Sec.
49.10(c), to be moved to Sec. 49.10(d), are discussed in section
IV.C.4 below.
\293\ The Commission is adopting regulations for reporting
counterparties, SEFs, and DCMs to address the validations messages
sent by SDRs and to resubmit any rejected swap reports in time to
meet their obligations to report creation and continuation data. The
requirements for reporting counterparties, SEFs, and DCMs to comply
with SDR validations are proposed in Sec. 45.13(b).
---------------------------------------------------------------------------
The Commission believes the consistent application of validation
rules across SDRs will lead to an improvement in the quality of swap
data maintained at SDRs. SDRs currently check each swap report for
compliance with a list of rules specific to each SDR. However, the
Commission is concerned SDRs apply different validation rules that
could be making it difficult for SDR data to either be reported to the
SDR or the SDRs' real-time public data feeds. The SDRs applying
different validations to swap reports creates numerous challenges for
the Commission and
[[Page 75539]]
market participants. While one SDR may reject a report based on an
incorrect value in a particular data element, another SDR may accept
reports containing the same erroneous value in the same data element.
Further, the Commission is concerned responses to SDR validation
messages vary across reporting counterparties, given the lack of
current standards.
ESMA has published specific validations for TRs to perform to
ensure that derivatives data meets the requirements set out in their
technical standards pursuant to EMIR.\294\ ESMA's validations, for
instance, set forth when data elements are mandatory, conditional,
optional, or must be left blank, and specify conditions for data
elements along with the format and content of allowable values for
almost 130 data elements.\295\ The Commission believes similarly
consistent SDR validations will help improve data quality.
---------------------------------------------------------------------------
\294\ See ``EMIR Reporting'' at https://www.esma.europa.eu/policy-rules/post-trading/trade-reporting.
\295\ See id.
---------------------------------------------------------------------------
The Commission received two comments supporting data validations
regulations in Sec. 45.13. FIA believes the validations should
strengthen data accuracy and appreciates using the SDRs' current
processes.\296\ Markit believes validation requirements will enable
third-party service providers to develop data validation mechanisms
that will substantially reduce the cost of complying with new SDR data
validation procedures.\297\
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\296\ FIA at 7.
\297\ Markit at 3.
---------------------------------------------------------------------------
The Commission received two comments on the new validations
requirements in Sec. 49.10(c) and Sec. 45.13(b). NRECA-APPA request
the Commission provide evidence that the validation process will
achieve a specific regulatory benefit to offset the significant
additional burden on non-SD/MSP/DCO counterparties to off-facility
swaps.\298\ As discussed above, the Commission believes consistent SDR
validations will improve data quality without placing unnecessary
burdens on any swap counterparties as SDRs validate data today.
---------------------------------------------------------------------------
\298\ NRECA-APPA at 5.
---------------------------------------------------------------------------
GFXD believes limited exceptions to the validation requirements
should be in place but believes such exceptions may have limited
use.\299\ The Commission agrees, and believes the regulations, along
with the existing delegations of authority that the Commission is
moving to Sec. 45.15, give the Commission the discretion to specify
validations exceptions in the case of new products or changes that
require flexibility.
---------------------------------------------------------------------------
\299\ GFXD at 25.
---------------------------------------------------------------------------
The Commission did not receive any additional comments on Sec.
49.10(c) or Sec. 45.13(b). The Commission is adopting the regulations
as proposed.
4. Sec. 49.10(d)--Policies and Procedures To Prevent Invalidation or
Modification
As described above, the Commission is moving the requirement in
Sec. 49.10(c) for SDRs to have policies and procedures to prevent
invalidations or modifications of swaps to Sec. 49.10(d). As a result,
the Commission is re-designating Sec. 49.10(d) as new Sec.
49.10(f).\300\ Existing Sec. 49.10(c) requires registered SDRs to
establish policies and procedures reasonably designed to prevent any
provision in a valid swap from being invalidated or modified through
the confirmation or recording process of the SDR.\301\
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\300\ The amendments to the existing requirements of Sec.
49.10(d), re-designated as Sec. 49.10(f), are discussed in section
IV.C.5 below.
\301\ Existing Sec. 49.10(c) further provides that the policies
and procedures must ensure that the SDR's user agreements must be
designed to prevent any such invalidation or modification. 17 CFR
49.10(c).
---------------------------------------------------------------------------
The Commission is making non-substantive amendments to existing
Sec. 49.10(c), moved to Sec. 49.10(d). For instance, the Commission
is titling Sec. 49.10(c) ``Policies and procedures to prevent
invalidation or modification'' to distinguish it from the other
requirements in Sec. 49.10.
The Commission did not receive any comments on the non-substantive
changes to Sec. 49.10(d). For the reasons discussed above, the
Commission is adopting the changes as proposed.
5. Sec. 49.10(f)--Policies and Procedures for Resolving Disputes
Regarding Data Accuracy
As described above, the Commission is re-designating Sec. 49.10(d)
as Sec. 49.10(f).\302\ The Commission is making non-substantive
amendments to the requirements in existing Sec. 49.10(d), re-
designated as Sec. 49.10(f). Existing Sec. 49.10(d) requires that
registered SDRs establish procedures and provide facilities for
effectively resolving disputes over the accuracy of the swap data and
positions that are recorded in the SDR.
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\302\ The Commission's proposed revisions to Sec. 49.10(e) are
discussed in the 2019 Part 49 NPRM. See 84 FR at 21050 (May 13,
2019).
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The Commission is re-titling Sec. 49.10(f) ``Policies and
procedures for resolving disputes regarding data accuracy'' and
updating terminology in the regulation. The Commission did not receive
any comments on the amendments to Sec. 49.10(f). For the reasons
discussed above, the Commission is adopting the changes as proposed.
V. Swap Data Elements Reported to Swap Data Repositories
A. Proposal
The Commission is updating and standardizing the data elements in
appendix 1 to part 45. The Commission's minimum PET for swaps in each
swap asset class are found in existing appendix 1 to part 45. The
existing PET for swaps contain a set of ``data categories and fields''
followed by ``comments'' instead of specifications such as allowable
values, formats, and conditions.\303\ In some cases, these comments
include directions, such as to use ``yes/no'' indicators for certain
data elements.\304\ In others, the comments reference Commission
regulations (e.g., to report the LEI of the non-reporting counterparty
``[a]s provided in Sec. 45.6'').\305\
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\303\ See generally 17 CFR part 45 appendix 1.
\304\ Id.
\305\ Id.
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In adopting part 45, the Commission intended the PET would ensure
uniformity in ``essential data'' concerning swaps across all of the
asset classes and across SDRs to ensure the Commission had the
necessary information to characterize and understand the nature of
reported swaps.\306\ However, in practice, this approach permitted a
degree of discretion in reporting swap data that led to a lack of
standardization which makes it more difficult for the Commission to
analyze and aggregate swap data. Each SDR has worked to standardize the
data within each SDR over recent years, and Commission staff has noted
the improvement in data quality. However, the Commission believes a
significant effort must be made to standardize swap data across SDRs.
As a result, the Commission is revisiting the data currently required
to be reported to SDRs in appendix 1.
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\306\ See 77 FR at 2149 (Jan. 13, 2012).
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In the course of revisiting which swap data elements should be
reported to SDRs, the Commission reviewed the swap data elements
currently in appendix 1 to part 45 to determine if any currently
required data elements should be eliminated and if any additional data
elements should be added. The Commission then reviewed the CDE
Technical Guidance to determine which data elements the Commission
could adopt according to the CDE Technical Guidance.
As a general matter, the Commission believes the implementation of
the CDE Technical Guidance will further
[[Page 75540]]
improve the harmonization of SDR data across FSB member jurisdictions.
This international harmonization, when widely implemented, would allow
market participants to report swap data to several jurisdictions in the
same format, allowing for potential cost-savings. This harmonization,
when widely implemented, would also allow the Commission to potentially
receive more standardized information regarding swaps reported to TRs
regulated by other authorities. For instance, such standardization
across SDRs and TRs could support data aggregation for the analysis of
global systemic risk in swaps markets.
As part of this process, the Commission also reviewed the part 43
swap transaction and pricing data and part 45 swap data elements to
determine whether any differences could be reconciled.\307\ Having
completed this assessment, the Commission proposed listing the swap
data elements required to be reported to SDRs pursuant to part 45 in
appendix 1 to part 45. In a separate proposal, the Commission proposed
listing the swap transaction and pricing data elements required to be
reported to, and then publicly disseminated by, SDRs pursuant to part
43 in appendix A to part 43. The swap transaction and pricing data
elements will be a harmonized subset of the swap data elements in
appendix 1 to part 45.
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\307\ The Commission intended the data elements in appendix A to
part 43 would be harmonized with the data elements required to be
reported to an SDR for regulatory purposes pursuant to part 45. See
77 FR at 1226 (Jan. 9, 2012) (noting that it is important that the
data fields for both the real-time and regulatory reporting
requirements work together). However, there is no existing
regulatory requirement linking the two sets of data elements.
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At the same time as the Commission proposed updating the swap data
elements in appendix 1, DMO published draft technical specifications
for reporting the swap data elements in appendix 1 to part 45 to SDRs,
and for reporting and publicly disseminating the swap transaction and
pricing data elements in appendix A to part 43 described in a separate
proposal. Once finalized, DMO would then publish the technical
specification in the Federal Register pursuant to the delegation of
authority proposed in Sec. 45.15(b). Overall, DMO is establishing a
technical specification for certain swap data elements according to the
CDE Technical Guidance, where possible.
The swap data elements to be reported to SDRs will therefore
consist of: (i) The data elements implemented in the CDE Technical
Guidance; and (ii) additional CFTC-specific data elements that support
the Commission's regulatory responsibilities.\308\ While much of this
swap data is already being reported to SDRs according to each SDR's
technical specifications, as explained below, the technical
specification and validation conditions will be new. A discussion of
the swap data elements and comments on the technical specification
follows below. Data elements specific to part 43 are discussed in a
separate part 43 final rule.
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\308\ The update of appendix 1 and the technical specification
are expected to represent a significant reduction in the number of
swap data elements that could be reported to an SDR by market
participants.
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DMO's technical specification contains an extensive introduction to
help reviewers. As a preliminary matter, the Commission notes the swap
data elements in appendix 1 do not include swap data elements specific
to swap product terms. The Commission is currently heavily involved in
separate international efforts to introduce UPIs.\309\ The Commission
expects UPIs will be available within the next two years.\310\ Until
the Commission designates a UPI pursuant to Sec. 45.7, SDRs will
continue to accept, and reporting counterparties will continue to
report, the product-related data elements unique to each SDR. The
Commission believes this temporary solution will have SDRs change their
systems only once when UPI becomes available, instead of twice if the
Commission adopted standardized product data elements in this release
before UPIs are available and then later designates UPIs pursuant to
Sec. 45.7.
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\309\ See FSB, Governance arrangements for the UPI: Conclusions,
implementation plan and next steps to establish the International
Governance Body (Oct. 9, 2019), available at https://www.fsb.org/2019/10/governance-arrangements-for-the-upi/.
\310\ See id. The FSB recommends that jurisdictions undertake
necessary actions to implement the UPI Technical Guidance and that
these take effect no later than the third quarter of 2022.
---------------------------------------------------------------------------
In addition, the Commission is adopting the CDE Technical Guidance
data elements as closely as possible. Where the Commission adopts a CDE
Technical Guidance data element, the Commission adopts the terms used
in the CDE Technical Guidance. This means that some terms may be
different for certain concepts. For instance, ``derivatives clearing
organization'' is the Commission's term for registered entities that
clear swap transactions, but the CDE Technical Guidance uses the term
``central counterparty.''
To help clarify, DMO includes footnotes in the technical
specification to explain these differences as well as provide examples
and jurisdiction-specific requirements. However, the Commission is not
including these footnotes in appendix 1. In addition, the definitions
from CDE Technical Guidance data elements included in appendix 1
sometimes include references to allowable values in the CDE Technical
Guidance, which may not be included in appendix 1, but are in the
technical specification.
Finally, the CDE Technical Guidance did not harmonize many data
elements that would be particularly relevant for commodity and equity
swap asset classes (e.g., unit of measurement for commodity swaps).
CPMI and IOSCO, in the CDE Governance Arrangements, address both
implementation and maintenance of CDE, together with their oversight.
One area of the CDE Governance Arrangements includes updating the CDE
Technical Guidance, including the harmonization of certain data
elements and allowable values that were not included in the CDE
Technical Guidance (e.g., data elements related to events and allowable
values for the following data elements: Price unit of measure, Quantity
unit of measure, and Custom basket constituents' unit of measure).
The Commission anticipates addressing implementation issues through
the international working groups to help ensure that authorities follow
the established processes for doing so. In addition, the Commission
anticipates updating its rules to adopt any new or updated CDE
Technical Guidance, as necessary.
B. Comments on the Proposal and Commission Determination
1. Category: Clearing
The Commission proposed requiring reporting counterparties report
12 clearing data elements.\311\ The Commission received two comments on
whether it should require a data element for indicating whether a swap
is subject to the Commission's clearing requirement in Sec. 50.4 and
the trade execution requirement in CEA section 2(h)(8). ISDA-SIFMA do
not believe the Commission should add these data elements because it is
static data and the Commission already gets all the data elements
necessary to determine whether a swap is subject to the clearing
requirement or trade execution
[[Page 75541]]
requirement.\312\ They believe the data elements would be burdensome
due to their granularity and the prescriptiveness of the clearing
mandates under Sec. 50.4, and that the Commission will ultimately be
able to use the global UPI to analyze data related to swaps subject to
clearing.\313\ Chatham believes the Commission can determine whether a
product is subject to the clearing requirement or the trade execution
requirement by other related data elements in the report.\314\ The
Commission agrees with Chatham and ISDA-SIFMA and is declining to add
the mandatory clearing and trade execution indicators in appendix 1 at
this time.\315\
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\311\ In appendix 1, these data elements are: Cleared (1);
Central counterparty (2); Clearing account origin (3); Clearing
member (4); Clearing swap USIs (5); Clearing swap UTIs (6); Original
swap USI (7); Original swap UTI (8); Original swap SDR identifier
(9); Clearing receipt timestamp (10); Clearing exceptions and
exemptions--Counterparty 1 (11); and Clearing exceptions and
exemptions--Counterparty 2 (12).
\312\ ISDA-SIFMA at 21.
\313\ Id.
\314\ Chatham at 4.
\315\ The Commission acknowledges that it can determine which
swaps are subject to the clearing requirement or the trade execution
requirement, but notes there have been certain difficulties with
obtaining all of the necessary information in the past due to data
quality concerns. The Commission expects significant data quality
improvements in response to this final rule to make that process
easier.
---------------------------------------------------------------------------
The Commission is adopting the clearing data elements for clearing
in appendix 1 as proposed. Nearly all of this information is currently
being reported to SDRs. Three of these data elements are consistent
with the CDE Technical Guidance. Four of these data elements would
transition clearing swap and original swap USIs to UTIs. All of these
data elements help the Commission monitor the cleared swaps market.
2. Category: Counterparty
The Commission proposed requiring reporting counterparties to
report ten counterparty data elements.\316\ The Commission received
eight comments on whether it should require an ultimate parent data
element. GLEIF support the proposed addition of ultimate parent data
elements, but acknowledges that the Commission could instead retrieve
this information through its LEI data search engine.\317\ GFXD, ISDA-
SIFMA, BP, CEWG, DTCC, Chatham, and FIA all oppose requiring this
information at a transaction level, with most commenters pointing out
that the Commission could obtain this information from the Global Legal
Entity Identifier System.\318\ The Commission agrees with GFXD, ISDA-
SIFMA, BP, CEWG, DTCC, Chatham, and FIA that the Commission can obtain
this information outside of SDR data. As a result, the Commission is
declining to adopt any parent/ultimate parent swap data elements.
---------------------------------------------------------------------------
\316\ In appendix 1, these data elements are: Counterparty 1
(reporting counterparty) (13); Counterparty 2 (14); Counterparty 2
identifier source (15); Counterparty 1 financial entity indicator
(16); Counterparty 2 financial entity indicator (17); Buyer
identifier (18); Seller identifier (19); Payer identifier (20);
Receiver identifier (21); and Submitter identifier (22).
\317\ GLEIF at 3.
\318\ GFXD at 27; ISDA-SIFMA at 23; BP at 5-6; CEWG at 8; DTCC
at 6; Chatham at 4; FIA at 4-6.
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Reflecting input received from the Department of Treasury, the
Commission is adopting two counterparty swap data elements that were
not in the Proposal: Counterparty 1 federal entity indicator and
Counterparty 2 federal entity indicator.\319\ The Commission believes
these swap data elements will help identify swaps use by federal
entities. The Commission is adopting the rest of the counterparty data
elements in appendix 1 as proposed. Nearly all of this information is
currently being reported to SDRs. Six of these data elements are
consistent with the CDE Technical Guidance.
---------------------------------------------------------------------------
\319\ https://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/dfmeeting_060320_1568.
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3. Category: Events
The Commission proposed requiring reporting counterparties to
report four event data elements.\320\ The Commission received four
comments on the event model generally. GFXD encourages the Commission
harmonize the event model with ESMA.\321\ CME and DTCC point out the
differences between the Commission's event model and ESMA's.\322\ The
Commission has worked to harmonize its event model with ESMA's as much
as possible. Any remaining differences between its and ESMA's event
models reflect differences in regulations referenced by the event model
in the two jurisdictions.
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\320\ In appendix 1, these data elements are: Action type (26);
Event type (27); Event identifier (29); Event timestamp (30);
\321\ GFXD at 28.
\322\ CME at 18; DTCC at 3.
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The Commission is adopting the event data elements as proposed,
with one modification. The Commission is adding an Amendment indicator
data element to flag changes to a previously submitted transaction due
to a newly negotiated modification. The Amendment indicator will notify
the public a swap is being amended on the public tape pursuant to part
43, to indicate that the change to the previously disseminated swap
transaction is price-forming.
The Commission is adopting the rest of the events swap data
elements as proposed. Nearly all of this information is currently being
reported to SDRs. Event data elements were not included in the CDE
Technical Guidance. This information is, however, critical for the
Commission to be able to properly utilize swap data. Without it, the
Commission would be unable to discern why each swap event is reported
following the initial required swap creation data report.
4. Category: Notional Amounts and Quantities
The Commission proposed requiring reporting counterparties report
12 notional data elements.\323\ The Commission requested comment on
whether it should adopt the CDE Technical Guidance data elements for
notional schedules. ISDA-SIFMA support the inclusion of ``Notional
Amount Schedule'' data elements.\324\ They explain that the Notional
amount data element does not provide a way to report changes (if
applicable) in notional amounts, such as for amortizing swaps.\325\ The
Commission agrees with ISDA-SIFMA that the Notional amount schedule
data elements would remedy an issue with reporting changing notionals.
As such, the Commission is adding the notional amount schedule data
elements to appendix 1.
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\323\ In appendix 1, these data elements are: Notional amount
(31); Notional currency (32); Delta (109); Call amount (36); Call
currency (37); Put amount (38); Put currency (39); Notional quantity
(40); Quantity frequency (41); Quantity frequency multiplier (42);
Quantity unit of measure (43); and Total notional quantity (44).
\324\ Notional amount schedule is three data elements in the CDE
Technical Guidance.
\325\ ISDA-SIFMA at 25.
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The Commission also requested comment on whether it should require
the reporting of a USD equivalent notional amount data element. Four
commenters oppose the data element on the grounds it would impose an
unnecessary burden on reporting counterparties.\326\ The Commission
agrees with commenters that the USD equivalent notional amount data
element would be burdensome to compute and is declining to add the swap
data element to appendix 1.
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\326\ CME at 19-20; GFXD at 29; ISDA-SIFMA at 25-26; FIA at 4-6.
---------------------------------------------------------------------------
The Commission is adopting the notional data elements as proposed,
with the modification described above for Notional amount schedule data
elements and the data element Delta (109) which will be moved and
included with valuation data elements. Nearly all of this information
is currently being reported to SDRs. Eleven of the data elements are
consistent with the CDE Technical Guidance. Exposure information, in
conjunction with valuation information, is critical for, and currently
used
[[Page 75542]]
extensively by, the Commission to monitor activity and risk in the
swaps market.
5. Category: Packages
The Commission proposed requiring reporting counterparties report
four package transaction data elements.\327\ The Commission received
three comments related to package data elements. GFXD supports the
decision to implement package transaction elements, but GFXD requests
the Commission coordinate with ESMA to ensure that implementation is
consistent across jurisdictions.\328\ ISDA-SIFMA do not support
additional package data elements because they are exceptionally complex
and there is no consistent approach to decomposing a package
transaction or their associated definitions.\329\ Markit opposes
package transaction data elements because it believes they are too
complex to provide a benefit to the Commission.\330\
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\327\ In appendix 1, these data elements are: Package identifier
(46); Package transaction price (47); Package transaction price
currency (48); and Package transaction price notation (49).
\328\ GFXD at 29.
\329\ ISDA-SIFMA at 26.
\330\ Markit at 5.
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The Commission believes package transaction data is necessary for
the Commission to monitor the exposure of its registrants to these
complex transactions. As a result, despite the objections of ISDA-SIFMA
and Markit, the Commission is adding three package transaction swap
data elements to appendix 1 from the CDE Technical Guidance: Package
transaction spread; Package transaction spread currency; and Package
transaction spread notation. The Commission is also adding Package
indicator data element to appendix 1. The Commission agrees with GFXD
that it should harmonize with ESMA to ensure consistent implementation
across jurisdictions, and that is why the Commission adopted the
package data elements according to the CDE Technical Guidance where
possible. The Package indicator will alert the public on the part 43
tape that the swap is part of a package, so the public will know the
price is impacted by factors beyond the swap.
The Commission is adopting the rest of the package data elements as
proposed. Some of this information is currently being reported to SDRs.
Seven of these data elements are consistent with the CDE Technical
Guidance. The Commission anticipates using this information to better
understand risk in the swaps market, as the Commission understands that
many swaps are executed as part of packages.
6. Category: Payments
The Commission proposed requiring reporting counterparties to
report 12 data elements related to payments.\331\ The Commission did
not receive any comments on adding or removing the payments data
elements in appendix 1 and is adopting the data elements as proposed.
Nine of these data elements are consistent with the CDE Technical
Guidance. Nearly all of this information is currently being reported to
SDRs.
---------------------------------------------------------------------------
\331\ In appendix 1, these data elements are: Day count
convention (53); Fixing date (54); Floating rate reset frequency
period (55); Floating rate reset frequency period multiplier (56);
Other payment type (57); Other payment amount (58); Other payment
currency (59); Other payment date (60); Other payment payer (61);
Other payment receiver (62); Payment frequency period (63); and
Payment frequency period multiplier (64).
---------------------------------------------------------------------------
7. Category: Prices
The Commission proposed requiring reporting counterparties to
report 18 data elements related to swap prices.\332\ The Commission
received two comments on whether the Commission should continue to
require the reporting of the Non-standardized pricing indicator. ISDA-
SIFMA and GFXD oppose the indicator \333\ and raise a concern that it
could lead to reporting counterparties reporting additional terms to
address the vague direction the data element provides. The Commission
disagrees with ISDA-SIFMA and GFXD and is declining to remove this data
element from appendix 1. While broad, the Non-standardized term
indicator alerts the public a price may be due to unique terms when
SDRs disseminate it to the public. The Commission does not share ISDA-
SIFMA's concerns about additional terms, as the data element is just an
indicator to flag terms of the swap that may not be reported to an SDR.
---------------------------------------------------------------------------
\332\ In appendix 1, these data elements are: Exchange rate
(65); Exchange rate basis (66); Fixed rate (67); Post-priced swap
indicator (68); Price (69); Price currency (70); Price notation
(71); Price unit of measure (72); Spread (73); Spread currency (74);
Spread notation (75); Strike price (76); Strike price currency/
currency pair (77); Strike price notation (78); Option premium
amount (79); Option premium currency (80); Option premium payment
date (81); and First exercise date (82).
\333\ GFXD at 31; ISDA-SIFMA at 29.
---------------------------------------------------------------------------
The Commission is adopting the price data elements in appendix 1 as
proposed. Nearly all of this information is currently being reported to
SDRs. Seventeen of these data elements are consistent with the CDE
Technical Guidance. This information is critical for, and used by, the
Commission in understanding pricing in the swaps market.
8. Category: Product
The Commission proposed requiring reporting counterparties to
report five product-related data elements.\334\ The Commission received
two comments on its approach to product data elements until the UPI is
available. GFXD and ISDA-SIFMA support the Commission's approach.\335\
---------------------------------------------------------------------------
\334\ In appendix 1, these data elements are: CDS index
attachment point (83); CDS index detachment point (84); Index factor
(85); Embedded option type (86); and Unique product identifier (87).
\335\ ISDA-SIFMA at 26-27; GFXD at 30.
---------------------------------------------------------------------------
The Commission is adopting the product data elements in appendix 1
as proposed. Product data elements are currently being reported to
SDRs. The Commission has determined these data elements are critical
for monitoring risk in the swaps market, even though the Commission
expects any additional product data elements to remain unstandardized
until the UPI is introduced.
9. Category: Settlement
The Commission proposed requiring reporting counterparties to
report two settlement data elements.\336\ The Commission received two
comments on additional settlement data elements. GFXD and ISDA-SIFMA
recommend the Commission consider including the Settlement location
data element in the CDE Technical Guidance, as it would be an efficient
option to collect additional information on trades involving offshore
currencies.\337\ The Commission agrees with GFXD and ISDA-SIFMA that
the Settlement location data element would help the Commission collect
information on trades involving offshore currencies. As a result, the
Commission is adding the CDE Technical Guidance data element for
Settlement location to appendix 1. For reasons articulated in the
Proposal and reiterated above, the Commission is adopting the rest of
the settlement data elements in appendix 1 as proposed.
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\336\ In appendix 1, these data elements are: Final contractual
settlement date (88) and Settlement currency (89).
\337\ GFXD at 30; ISDA-SIFMA at 27.
---------------------------------------------------------------------------
10. Category: Transaction-Related
The Commission proposed requiring reporting counterparties to
report 15 data elements that provide information about each swap
transaction.\338\ The
[[Page 75543]]
Commission received one comment on whether the Commission should
include the data element for Jurisdiction indicator. ISDA-SIFMA oppose
the indicator as the reporting counterparty would need to reach out to
each of its counterparties for each transaction at or shortly after
execution.\339\ They also question whether and how the list of
jurisdictions could change and whether they would be subject to the
public rulemaking process, and note this is not a CDE data
element.\340\ The Commission is adopting the data element with one
change to address ISDA-SIFMA's concerns about complicated
implementation: the data element will be named Jurisdiction and will
include limited allowable values.
---------------------------------------------------------------------------
\338\ In appendix 1, these data elements are: Allocation
indicator (91); Non-standardized term indicator (92); Block trade
election indicator (93); Effective date (94); Expiration date (95);
Execution timestamp (96); Reporting timestamp (97); Platform
identifier (98); Prime brokerage transaction identifier (89 in the
Proposal); Prime brokerage transaction indicator (99); Prior USI
(for one-to-one and one-to-many relations between transactions)
(100); Prior UTI (for one-to-one and one-to-many relations between
transactions) (101); Unique swap identifier (USI) (102); Unique
transaction identifier (UTI) (103); and Jurisdiction (104).
\339\ ISDA-SIFMA at 28.
\340\ Id.
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The Commission received one comment on whether the Commission
should add a Prime brokerage transaction identifier data element in
appendix 1. ISDA-SIFMA have significant concerns with the Prime
brokerage transaction identifier data element and opposes its
adoption.\341\ ISDA-SIFMA point out that the Commission can require any
SD to provide any information relating to a swap, including asking any
prime broker to map swaps that result from a trigger swap and to which
such SD is a party.\342\ In addition, the Prime brokerage transaction
indicator data element should help identify prime broker intermediated
transactions in SDR data.\343\ The Commission agrees with ISDA-SIFMA
that the identifier would be too complex to implement at this time. As
such, the Commission is declining to add Prime brokerage transaction
identifier to appendix 1.
---------------------------------------------------------------------------
\341\ ISDA-SIFMA at 27-28.
\342\ Id.
\343\ Id.
---------------------------------------------------------------------------
The Commission is adopting the rest of the transaction data
elements in appendix 1 as proposed. Most of this information is
currently being reported to SDRs and the Commission requires data
elements like transaction identifiers to properly track new and amended
swaps.
11. Category: Transfer
The Commission proposed requiring reporting counterparties to
report one data element related to changing SDRs.\344\ The Commission
did not receive any comments on the New SDR identifier data element and
is adopting the data element as proposed. This data element is
necessary as the Commission is adopting Sec. 45.10(d) permitting
reporting counterparties to change the SDR to which they report data
for a given swap. Without this data element, the Commission is
concerned there would be swaps in the SDR that would appear open but
not updated because the reporting counterparty reports to a different
SDR.
---------------------------------------------------------------------------
\344\ In appendix 1, this data element is: New SDR identifier
(105).
---------------------------------------------------------------------------
12. Category: Valuation
The Commission proposed requiring reporting counterparties to
report six valuation data elements.\345\ The Commission received
several comments on the valuation data elements. ISDA-SIFMA, GFXD, and
Markit generally oppose the valuation data elements. GFXD and ISDA-
SIFMA do not support any valuation data elements outside of those
required by the CDE Technical Guidance.\346\ Markit opposes the
valuation data elements as it would be difficult for firms to report
them each day because (i) valuation data comes from systems separate
from risk management systems that hold the transaction information; and
(ii) daily valuation reporting that is prepared for other jurisdictions
only involves minimum transaction information (trade reference, USI or
UTI) that are used to link the valuation to the right trade.\347\
---------------------------------------------------------------------------
\345\ In appendix 1, these data elements are: Last floating
reference value (107); Last floating reference reset date (108);
Valuation amount (110); Valuation currency (111); Valuation method
(112); and Valuation timestamp (113).
\346\ ISDA-SIFMA at 30-31; GFXD at 31-32.
\347\ Markit at 7.
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The Commission is adopting Next floating reference reset date,
along with the other valuation data elements in appendix 1. Nearly all
of this information is currently being reported to SDRs. Five data
elements are consistent with the CDE Technical Guidance. Valuation
information is critical for, and currently used by, the Commission to
monitor risk in the swaps market.
13. Category: Collateral and Margins
The Commission proposed requiring reporting counterparties to
report 14 collateral and margins data elements.\348\ In light of the
importance of this information, the Commission is adopting the margin
and collateral data elements as proposed, with one change. The proposed
Collateral portfolio code is now two separate data elements, Initial
margin collateral portfolio code and Variation margin collateral
portfolio code. This information is not currently being reported to
SDRs. Eleven of these data elements are consistent with the CDE
Technical Guidance. One data element, Affiliated counterparty for
margin and capital indicator (114), will help the Commission monitor
compliance with the uncleared margin requirements. The three remaining
CFTC-specific data elements are indicators and codes that will help the
Commission understand how the margin and collateral data is being
reported by reporting counterparties. Margin and collateral information
is critical for the Commission to monitor risk in the swaps market.
When other jurisdictions implement the CDE Technical Guidance, sharing
this information with other regulators will permit regulators to create
a global picture of swaps risk.
---------------------------------------------------------------------------
\348\ In appendix 1, these data elements are: Affiliated
counterparty for margin and capital indicator (114);
Collateralisation category (115); collateral portfolio code (105 in
the Proposal); Portfolio containing non-reportable component
indicator (117); Initial margin posted by the reporting counterparty
(post-haircut) (118); Initial margin posted by the reporting
counterparty (pre-haircut) (119); Currency of initial margin posted
(120); Initial margin collected by the reporting counterparty (post-
haircut) (121); Initial margin collected by the reporting
counterparty (pre-haircut) (122); Currency of initial margin
collected (123); Variation margin posted by the reporting
counterparty (pre-haircut) (125); Currency of variation margin
posted (126); Variation margin collected by the reporting
counterparty (pre-haircut) (127); and Currency of variation margin
collected (128).
---------------------------------------------------------------------------
14. Category: Miscellaneous
CME requests clarification on whether SDRs can add proprietary data
elements to its technical specification or whether an SDR can reject
submissions due to validation failures of these data elements, and gave
two examples of certain data elements for internal processing purposes
(e.g., billing) and data elements to satisfy its regulatory obligations
(e.g., implementation of certain data elements at the leg level).\349\
The Commission understands SDRs may have data elements for internal
processing, and the Commission does not want to interrupt an SDR's
ability to efficiently function. Beyond that, the Commission opposes
SDRs adding data elements outside of those mandated by the Commission
to satisfy the Commission's rules to avoid creating the issue SDRs and
the Commission currently face of each SDR creating their own data
elements according to different standards and thus inhibiting data
quality.
---------------------------------------------------------------------------
\349\ CME at 20.
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ISDA-SIFMA request the Commission follows EMIR's process on the
data elements in the future: ESMA publishes the data validation table
on an ``EMIR Reporting'' web landing page, while
[[Page 75544]]
only the data elements required to be reported, format and applicable
types of derivatives contracts appear in the rule text.\350\ The
approach would allow for public comment on any future changes to the
data required to be reported to the SDRs, but would provide greater
flexibility to make adjustments (e.g., due to industry feedback or
completion of developing the ISO message for example) that do not
change the data elements required to be reported.\351\ The Commission
has endeavored to follow ESMA's approach as reflected by the steps
taken to solicit public comment on the data elements and have DMO
publish its technical specification.
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\350\ ISDA-SIFMA at 34-35.
\351\ Id.
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VI. Compliance Date
In the Proposal, the Commission acknowledged that market
participants will need a sufficient implementation period to
accommodate the changes proposed in the three Roadmap proposals that
would be adopted by the Commission. The Commission expected to finalize
all rules at the same time, even though the three Roadmap proposals
were approved separately. The Commission also expected that the
compliance date for the Roadmap rules that the Commission adopts other
than the rules on UTIs in Sec. 45.5 would be one year from the date
the final rulemakings are published in the Federal Register.
The Commission expected that the compliance date for the rules on
UTIs in Sec. 45.5 would be December 31, 2020, according to the UTI
implementation deadline recommended by the FSB.\352\
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\352\ See Financial Stability Board, Governance Arrangements for
the Unique Transaction Identifier (UTI), Conclusions and
Implementation Plan (Dec. 2017), section 5.2.
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The Commission received three comments supporting the proposed one-
year compliance period. ISDMA-SIFMA support a single compliance date
for parts 43, 45, and 49 at a minimum of 12 months from the date the
final rules are published in the Federal Register. If the Commission
does not implement all rules at the same time, ISDA-SIFMA support a
compliance date a minimum of 12 months from the date the last rule of
the final set of rules is published in the Federal Register.\353\
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\353\ ISDSA-SIFMA at 36.
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Similarly, LCH recommends the Commission set the compliance date
for all requirements under the proposal to 12 months from publication
to comply with all aspects of the rules, as LCH believes the current
date of December 31, 2020, related to UTI implementation does not allow
enough time for market participants to comply.\354\
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\354\ LCH at 2 and 4.
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ICE SDR suggests the Commission allow voluntary early
implementation before the compliance effective date, and points out
that having SDRs and market participants implement immediately after
publication would be advantageous to the market and would eliminate the
need for reporting counterparties to report valuation data.\355\
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\355\ ICE SDR at 2 and 5.
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The Commission received five comments opposing the proposed
implementation period. GFXD suggests 12 months from publication of
final rules should be the minimum implementation period and that GFXD
believes the changes to the technical specification in parts 43 and 45
should be implemented and allowed to imbed before the validation
changes under part 49 are implemented.\356\
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\356\ GFXD at 35.
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CME believes SDRs will need an extra six months beyond the
Commission's proposal because the Commission expects SDRs to implement
all changes simultaneously. CME notes this timing assumes the technical
specification would be finalized at the same time and would not be
modified in any material respect prior. CME's DCO also believes the
Commission underestimated the number of man-hours that it will take
reporting entities, including CME's DCO, to implement the Commission's
proposed changes to the reporting requirements.\357\
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\357\ CME at 22-23.
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DTCC requests clarification regarding the implementation period for
any proposed changes to the reporting requirements in Sec. 45.15(a)(1)
through (3) and in Sec. 45.15(b)(1) through (3), because certain
changes, including the potential use and ingestion of prescribed
message standards, may take significant time to implement.\358\
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\358\ DTCC at 8.
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ICE DCOs believe the Commission should adopt a realistic compliance
period that allows for industry coordination.\359\ FIA suggests
extending the compliance date for all aspects of the proposals to the
later of two years following the effective date of the final rules or
one year following finalization of the required data elements and
validation processes of the reporting counterparty's SDR. FIA is
concerned the proposed dates do not provide enough time for market
participants to undertake the extensive system developments necessary
for compliance.\360\
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\359\ ICE DCOs at 1-2.
\360\ FIA at 10-11.
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The Commission received six comments opposing the UTI compliance
date proposal. GFXD believes the December 31, 2020 compliance date for
UTIs is ``extremely ambitious,'' and that there should be a later
implementation period for UTI that is coordinated with the EU.\361\ CME
requests the Commission align the UTI transition with the main
compliance date to reduce the potential for unnecessary duplication of
effort and to allow for potential project implementation
synergies.\362\
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\361\ GFXD at 34-35.
\362\ CME at 22.
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JBA believes aligning the UTI implementation timeline across
jurisdictions will be more beneficial, and that deadlines should
coincide with those of the UPI and CDE, in light of proposals offered
in the ESMA consultation.\363\ ISDA-SIFMA note the proposed date would
give only two months for entities to complete builds and test systems,
accounting for year-end code freezes and the exacerbation of budgeting
and resource constraints caused by the COVID-19 pandemic. ISDMA-SIFMA
want Sec. 45.5 to be implemented at least at the same time as the rest
of part 45 but would prefer the Commission wait until closer to the
Australian Securities and Investments Commission's or ESMA's compliance
dates in 2022.
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\363\ JBA at 1-2.
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CS recommends the Commission not separate the Proposal's compliance
dates. If the Commission does keep them separate, CS suggests working
closely with fellow IOSCO members in considering an extended
implementation timeline for the UTI. In light of other initiatives for
global SDs, the operationalizing requirements and operational hurdles
present challenges for SDs. CS requests the Commission continue to
weigh concerns related to data fragmentation in evaluating a bifurcated
implementation of the proposals. CS also suggests the Commission
continue to engage in dialogue with the Harmonisation Group and could
suggest a timeframe that takes into account the Commission's proposals
and other data reform efforts in other IOSCO jurisdictions.\364\
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\364\ CS at 2.
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FIA believes the USI and UTI compliance changes will have to be
addressed and should occur in tandem with the rest of the reporting
rule requirements. It recommends eliminating the December 30, 2020
[[Page 75545]]
compliance date for UTIs and instead imposing one date for compliance
for all final rules.\365\
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\365\ FIA at 10-11.
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The Commission received two questions on going-forward amendments
for UTIs. ISDA-SIFMA request the amendments to the Commission's swap
reporting rules clarify that requirements should be applied on a
``going forward'' basis and only apply to swaps and events occurring on
or after the compliance date of the amended rules, including the
clarification that UTI requirements only apply to new swap transactions
and not to swaps prior to the compliance date that have a USI.\366\
DTCC requests clarification on implementing UTI versus USI. It
questions whether swaps that were reported using a USI prior to the end
of the compliance period can continue being reported using the USI and
only events requiring the creation of new UTIs will be reported using
the UTI.\367\
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\366\ ISDA-SIFMA at 36.
\367\ DTCC at 5.
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Based on the many comments that requested one compliance date for
all aspects of the Proposal and all of the Roadmap proposals, including
final Sec. 45.5, and the many comments that requested a compliance
date that is more than one year from the date the proposals are
finalized, the Commission has determined to adopt a unified compliance
date that is 18 months from the date of publication of the final rule
amendments in the Federal Register. The Commission agrees with the
suggestion from ICE SDR that market participants should be able to
adopt the rule changes ahead of the compliance date.
Regarding the UTI implementation, the Commission clarifies that UTI
implementation should be on a going-forward basis. This means that all
new swaps entered into after the compliance date should have UTIs
according to final Sec. 45.5. As a result, SDRs will need to
accommodate both USIs and UTIs for a certain amount of time after the
compliance date, but the Commission anticipates SDRs would be able to
phase it out at a certain point after swaps using USIs are terminated
or reach maturity.
Part 20 of the Commission's regulations governing large trader
reporting for physical commodity swaps contains a ``sunset provision''
in Sec. 20.9 that would take effect upon a Commission finding that,
through the issuance of an order, operating SDRs are processing
positional data and that such processing will enable the Commission to
effectively surveil trading in paired swaps and swaptions and paired
swap and swaption markets.\368\ In the Proposal, the Commission asked
whether in conjunction with the Commission's proposals to update its
swap reporting regulations, should the Commission review part 20 to
determine whether it would be appropriate to sunset part 20 reporting
according to the Sec. 20.9? \369\
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\368\ 17 CFR 20.9.
\369\ Swap Data Recordkeeping and Reporting Requirements, 85 FR
21578, 21614 (Apr. 17, 2020).
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The Commission received three comments on the appropriateness of
sunsetting part 20. BP supports sunsetting part 20 since SDRs have been
collecting and processing data for several years, Commission and
industry resources should no longer be expended on part 20.\370\ CEWG
believes once the improvements in the proposed rules are implemented,
CFTC should look towards ending part 20.\371\ FIA believes the
provisions in Sec. 20.9 have been met and recommends CFTC sunset the
part 20 reporting requirements.\372\
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\370\ BP at 6.
\371\ CEWG at 9.
\372\ FIA at 14.
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Since part 20 data is reported directly to the Commission and not
to SDRs, the Commission did not propose any changes to part 20 in the
Roadmap or in the Proposal, and therefore, the Commission is taking no
action on part 20 in this release. The Commission nonetheless
acknowledges the commenters' responses to the question. The Commission
may address part 20 reporting at a future date after implementation of
the Roadmap rules.
VII. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires federal agencies,
in promulgating rules, to consider the impact of those rules on small
entities.\373\ The Commission has previously established certain
definitions of ``small entities'' to be used by the Commission in
evaluating the impact of its rules on small entities under the
RFA.\374\ The changes to parts 45, 46, and 49 adopted herein would have
a direct effect on the operations of DCMs, DCOs, MSPs, reporting
counterparties, SDs, SDRs, and SEFs. The Commission has previously
certified that DCMs,\375\ DCOs,\376\ MSPs,\377\ SDs,\378\ SDRs, \379\
and SEFs \380\ are not small entities for purpose of the RFA.
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\373\ See 5 U.S.C. 601-604.
\374\ See Policy Statement and Establishment of ``Small
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR
18618 (Apr. 30, 1982).
\375\ See id.
\376\ See Derivatives Clearing Organization General Provisions
and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011).
\377\ See 77 FR at 20194 (basing determination in part on
minimum capital requirements).
\378\ See Swap Trading Relationship Documentation Requirements
for Swap Dealers and Major Swap Participants, 76 FR 6715 (Feb. 8,
2011).
\379\ See Swap Data Repositories; Proposed Rule, 75 FR 80898,
80926 (Dec. 23, 2010) (basing determination in part on the central
role of SDRs in swaps reporting regime, and on the financial
resource obligations imposed on SDRs).
\380\ Core Principles and Other Requirements for Swap Execution
Facilities, 78 FR 33476, 33548 (June 4, 2013).
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Various changes to parts 45, 46, and 49 would have a direct impact
on all reporting counterparties. These reporting counterparties may
include SDs, MSPs, DCOs, and non-SD/MSP/DCO counterparties. Regarding
whether non-SD/MSP/DCO reporting counterparties are small entities for
RFA purposes, the Commission notes CEA section 2(e) prohibits a person
from entering into a swap unless the person is an eligible contract
participant (``ECP''), except for swaps executed on or under the rules
of a DCM.\381\ The Commission has previously certified that ECPs are
not small entities for purposes of the RFA.\382\
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\381\ See 7 U.S.C. 2(e).
\382\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr.
25, 2001). The Commission also notes this determination was based on
the definition of ECP as provided in the Commodity Futures
Modernization Act of 2000. The Dodd-Frank Act amended the definition
of ECP as to the threshold for individuals to qualify as ECPs,
changing ``an individual who has total assets in an amount in excess
of'' to ``an individual who has amounts invested on a discretionary
basis, the aggregate of which is in excess of. . . .'' Therefore,
the threshold for ECP status is currently higher than was in place
when the Commission certified that ECPs are not small entities for
RFA purposes, meaning that there are likely fewer entities that
could qualify as ECPs than when the Commission first made the
determination.
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The Commission has analyzed swap data reported to each SDR \383\
across all five asset classes to determine the number and identities of
non-SD/MSP/DCOs that are reporting counterparties to swaps under the
Commission's jurisdiction. A recent Commission staff review of swap
data, including swaps executed on or under the rules of a DCM,
identified nearly 1,600 non-SD/MSP/DCO reporting counterparties.
[[Page 75546]]
Based on its review of publicly available data, the Commission believes
the overwhelming majority of these non-SD/MSP/DCO reporting
counterparties are either ECPs or do not meet the definition of ``small
entity'' established in the RFA. Accordingly, the Commission does not
believe the rules would affect a substantial number of small entities.
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\383\ The sample data sets varied across SDRs and asset classes
based on relative trade volumes. The sample represents data
available to the Commission for swaps executed over a period of one
month. These sample data sets captured 2,551,907 FX swaps, 98,145
credit swaps, 357,851 commodities swaps, 603,864 equities swaps, and
276,052 interest rate swaps.
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Based on the above analysis, the Commission does not believe this
Final Rule will have a significant economic impact on a substantial
number of small entities. Therefore, the Chairman, on behalf of the
Commission, pursuant to 5 U.S.C. 605(b), hereby certifies that the
Final Rule will not have a significant economic impact on a substantial
number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') \384\ imposes certain
requirements on federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. The rule amendments adopted herein
will result in the revision of three information collections, as
discussed below. The Commission has previously received control numbers
from the Office of Management and Budget (``OMB'') for each of the
collections impacted by this rulemaking: OMB Control Numbers 3038-0096
(relating to part 45 swap data recordkeeping and reporting); 3038-0089
(relating to part 46 pre-enactment swaps and transition swaps); and
3038-0086 (relating to part 49 SDR regulations).
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\384\ See 44 U.S.C. 3501.
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The Commission did not receive any comments regarding its PRA
burden analysis in the preamble to the Proposal. The Commission is
revising the three information collections to reflect the adoption of
amendments to parts 45, 46, and 49, as discussed below, including
changes to reflect adjustments that were made to the final rules in
response to comments on the Proposal (not relating to the PRA). In
addition, the Commission is revising the information collections for
part 45 to include estimates of the burden hours that SDRs, SEFs, DCMs,
and reporting counterparties could incur to report updated swap data
elements in appendix 1 to part 45 in the form and manner provided in
the technical specification published by the Commission, as discussed
below, which were not included in the Proposal. The Commission has re-
evaluated its analysis of the one-time costs that SDRs, SEFs, DCMs, and
reporting counterparties could incur to modify their systems for part
45. These estimates have been updated to include software developer
labor costs for amended Sec. 45.3 related to the technical
specification, as developed by staff in its Offices of the Chief
Economist and Data and Technology. The Commission does not expect any
ongoing costs after the initial builds. Further, the Commission
previously included estimates for proposed Sec. 45.4 of costs for SDRs
and reporting counterparties to update systems for reporting required
swap continuation data. However, after further analysis, the Commission
is removing the estimates for Sec. 45.4 to avoid double-counting,
since the costs relate to reporting certain swap data elements that are
included in the estimated one-time start-up costs for Sec. 45.3. The
Commission does not believe the rule amendments as adopted impose any
other new collections of information that require the approval of OMB
under the PRA.
Under the PRA, Federal agencies must obtain approval from OMB for
each collection of information they collect or sponsor. ``Collection of
information'' is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3 and
includes agency requests or requirements that members of the public
submit reports, keep records, or provide information to a third party.
Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires
Federal agencies to provide a 60-day notice in the Federal Register for
each proposed collection of information before submitting the
collection to OMB for approval. The Commission is publishing a 60-day
notice (``60-day Notice'') in the Federal Register concurrently with
the publication of this final rule in order to solicit comment on
burden estimates for part 45 that were not included in the Proposal.
1. Part 45: Revisions to Collection 3038-0096 (Swap Data Recordkeeping
and Reporting Requirements)
a. Sec. 45.3--Swap Creation Data Reports
Existing Sec. 45.3 requires SEFs, DCMs, and reporting
counterparties to report confirmation data reports and PET data reports
when entering into new swaps. The Commission is adopting changes that
will remove the requirement for SEFs, DCMs, and reporting
counterparties \385\ to report confirmation data reports, and instead
report a single swap creation data report. Commission staff estimates
that for these entities, the change will reduce the number of swap
creation data reports sent to SDRs from 10,000 reports per 1,732
respondents to 7,000 reports per 1,732 respondents, or 12,124,000
reports in the aggregate. The annual hourly burden is estimated to
remain .01 average hours per report for the remaining reports, and the
gross annual reporting burden is estimated to be 121,240 hours.
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\385\ The current requirement for SEFs and DCMs is in Sec.
45.3(a), and the current requirement for off-facility swaps is in
Sec. Sec. 45.3(b) through (d).
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The Commission is also adopting changes that will remove the Sec.
45.3(i) requirement for SEFs, DCMs, and reporting counterparties to
report TR identifiers and swap identifiers for international swaps. The
changes remove the requirement to report two pieces of information
within a required swap creation data report without impacting the
number of reports themselves. The requirement to report swap
identifiers is duplicative, and will not change the burden estimate, as
SEFs, DCMs, and reporting counterparties are required to report swap
identifiers for all swaps pursuant to Sec. 45.5. However, the removal
of the requirement to report TR identifiers will slightly reduce the
amount of time required to make each report, as SEFs, DCMs, and
reporting counterparties will not need to report this information
anymore.
The Commission estimates the removal of this requirement will lower
the burden hours by .01 hour per report. However, at the same time, as
discussed further below in section VII.B.1.c, the Commission is
adopting changes to require the reporting of UTIs instead of USIs,
which are currently reported in every required swap creation data
report. The Commission estimates the new rules requiring SEFs, DCMs,
and reporting counterparties to report UTIs will impact the burden
calculations for Sec. 45.3 by increasing the burden hours by .01 hour
per report. As a result, the Commission estimates there will be no net
change to the .01 burden hours per report for Sec. 45.3 required swap
creation data reporting resulting from the amendments to Sec. 45.3(i).
The aggregate burden estimate for Sec. 45.3 required swap creation
data reports is as follows:
Estimated number of respondents: 1,732.
Estimated number of reports per respondent: 7,000.
Average number of hours per report: .01.
Estimated gross annual reporting burden: 121,240.
In addition, the Commission estimates SDRs, SEFs, DCMs, and
reporting counterparties will incur capital/start-up costs related to
adopting the changes proposed in Sec. 45.3. The Commission
[[Page 75547]]
estimates that SDRs will incur one-time initial costs in a range of
$144,000 to $1,010,000 per SDR to update their systems, with each SDR
spending approximately 3,000 to 5,000 hours on the updates. The
Commission estimates SEFs, DCMs, and reporting counterparties will
incur one-time initial costs in a range of $24,000 to $73,225 per
reporting entity, with each reporting entity spending approximately 500
to 725 hours per reporting entity on the updates.\386\ The cost per
entity is estimated to be $28,923 for a total cost across entities of
$50,094,636.
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\386\ The Commission is updating its estimates of the capital/
start-up costs that SDRs, SEFs, DCMs, and reporting counterparties
will incur related to adopting the changes in Sec. 45.3 to provide
a more-accurate range of expected costs. In doing so, the Commission
includes the costs associated with updates to Sec. 45.4, discussed
below, as they would be captured in the costs of updating systems to
adopt the updated data elements in appendix 1 to part 45.
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b. Sec. 45.4--Swap Continuation Data Reports
Existing Sec. 45.4 requires reporting counterparties to report
data to SDRs when swap terms change, as well as daily and quarterly
swap valuation data, depending on the type of reporting counterparty.
As a preliminary matter, the Commission is correcting the estimated
number of respondents for Sec. 45.4 from 1,732 SDRs, SEFs, DCMs, and
reporting counterparties to 1,705 SDRs and reporting counterparties to
reflect that SEFs and DCMs do not report required swap continuation
data.
Existing Sec. 45.4(a) permits reporting counterparties to report
changes to swap terms when they occur (life cycle reporting), or to
provide a daily report of all of the swap terms (state data reporting).
The Commission is adopting changes that will remove the option for
state data reporting for reporting counterparties. The Commission
estimates that this will reduce the number of Sec. 45.4 continuation
data reports that reporting counterparties report from 207,543 reports
per respondent to 103,772 reports per respondent.
The Commission is also adopting changes to remove the requirement
for non-SD/MSP/DCO reporting counterparties to report quarterly
valuation data. For the 1,585 non-SD/MSP/DCO reporting counterparties,
the Commission estimates this will further reduce the number of Sec.
45.4 swap continuation data reports they send to SDRs by four quarterly
reports per 1,585 non-SD/MSP/DCO reporting counterparties. This is
estimated to reduce the number of Sec. 45.4 continuation data reports
sent by reporting counterparties from 103,772 reports per respondent to
97,431 reports per respondent.
Separately, the Commission is adopting changes to expand the daily
valuation data reporting requirement for SD/MSP reporting
counterparties to report margin and collateral data in addition to
valuation data. This is a change from the Proposal, in which the
Commission proposed requiring DCO counterparties to report the
information as well. The frequency of the report will not change for
SD/MSP reporting counterparties, but the Commission estimated SD/MSP/
DCO reporting counterparties would require more time to prepare each
report. However, since all of this information is reported
electronically, the Commission expected the increase per report to be
small, from .003 to .004 hours per report. Since the Commission is not
requiring DCO reporting counterparties to report the information, the
Commission is revising its estimate to .0035 hours per report. The
reduction in this estimate from .004 hours in the Proposal reflects the
Commission adopting a less burdensome rule than was proposed.
The aggregate burden estimate for Sec. 45.4 required swap
continuation data is as follows:
Estimated number of respondents: 1,705.
Estimated number of reports per respondent: 97,431.
Average number of hours per report: .0035.
Estimated gross annual reporting burden: 581,419.
In addition, in the Proposal, the Commission estimated SDRs and
reporting counterparties would incur capital/start-up costs and ongoing
operational/maintenance costs related to adopting the changes proposed
in Sec. 45.4. In reevaluating its analysis in the Proposal, the
Commission recognizes the reporting costs created by the changes to
Sec. 43.4 relate to reporting swap data elements, which the Commission
has included in the estimated costs for Sec. 45.3. To avoid double-
counting costs, the Commission is not estimating separate initial and
ongoing costs for Sec. 43.4 and removing the estimate that was
included in the Proposal.
c. Sec. 45.5--Unique Swap Identifier Reporting
Existing Sec. 45.5 requires SEFs, DCMs, reporting counterparties,
and SDRs to generate and transmit USIs, and include USIs in all of
their Sec. 45.3 creation data and Sec. 45.4 continuation data reports
to SDRs. As a preliminary matter, the Commission is correcting the
estimated number of respondents and the estimated number of reports per
each respondent. Currently, SDRs, SDs, MSPs, SEFs, and DCMs are
required to generate USIs, but the Commission inadvertently had
included the 1,585 non-SD/MSP/DCO reporting counterparties in the
current estimated number of respondents. The Commission is updating the
number of respondents to 147 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs.
However, these entities generate USIs on behalf of non-SD/MSP/DCO
reporting counterparties for all swaps, so the estimated number of
reports per each respondent will increase proportionately to 115,646
reports per 147 respondents to account for the 17,000,000 new swaps
reported each year with USIs.
Existing Sec. 45.5 requires SDRs to generate and transmit USIs for
off-facility swaps with a non-SD/MSP reporting counterparty. The
Commission is adopting changes that will require non-SD/MSP/DCO
reporting counterparties that are financial entities to generate and
transmit UTIs for off-facility swaps. The Commission estimates that
approximately half of non-SD/MSP/DCO reporting counterparties are
financial entities. Therefore, the Commission estimates that the number
of respondents will increase from 147 SDs, MSPs, SEFs, DCMs, DCOs, and
SDRs to 940 respondents with the addition of financial entities. At the
same time, however, this will lower the number of UTIs generated per
respondent to account for the increase in the number of respondents
generating UTIs. The Commission estimates the estimated number of
reports per respondent will decrease from 115,646 reports per 147
respondents to 18,085 reports per 940 respondents.
The aggregate burden estimate for Sec. 45.5 is as follows:
Estimated number of respondents: 940.
Estimated number of reports per respondent: 18,085.
Average number of hours per report: .01.
Estimated gross annual reporting burden: 169,999.
In addition, the Commission estimates that Sec. 45.5 will create
costs for entities required to generate USIs to update their systems to
generate UTIs. The Commission estimates that SDRs and reporting
counterparties required to generate UTIs will incur a one-time initial
burden of one hour per entity to modify their systems to adopt the
changes described below, for a total estimated hours burden of 940
hours. The cost per entity is estimated to be
[[Page 75548]]
$72.23 for a total cost across entities of $67,896. The Commission
additionally estimates one hour per entity annually to perform any
needed maintenance or adjustments to reporting systems, at a cost of
$72.23 per entity and $67,896 across entities.
d. Sec. 45.6--Legal Entity Identifier Reporting
Existing Sec. 45.6 requires reporting entities to have LEIs and
report them to SDRs as part of their Sec. 45.3 creation data and Sec.
45.4 continuation data reports. As a preliminary matter, the Commission
is revising the burden estimate for Sec. 45.6. LEIs are reported in
required swap creation data and required swap continuation data
reports, which are separately accounted for in the estimates for
Sec. Sec. 45.3 and 45.4. The current estimate for Sec. 45.6 double-
counts the estimates for Sec. Sec. 45.3 and 45.4 by calculating the
burden per data report. Instead, the burden for Sec. 45.6 should be
based on the requirement for each counterparty to obtain an LEI. The
Commission is revising the estimate to state that there are 1,732
entities required to have one LEI per respondent, and revise the burden
hours based on this change.\387\
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\387\ The Commission is similarly revising the estimate for
Sec. 45.7, which requires reporting counterparties to use UPIs.
Until the Commission designates a UPI, reporting counterparties use
the product fields unique to each SDR. As a result, until the
Commission designates a UPI, the burden estimates for the product
fields are accounted for in Sec. Sec. 45.3 and 45.4. To avoid
double-counting until there is a UPI, the Commission is removing the
burden estimate for Sec. 45.7 until the Commission designates a
UPI.
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The Commission is also adopting amendments to Sec. 45.6 to require
SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to renew their LEIs annually. The
change will increase the burden estimates for these entities, but will
not affect the burden for the majority of entities required to have
LEIs. Nonetheless, the Commission expects the burden associated with
these changes to increase from .01 to .02 hours per report, and 17
hours in the aggregate.
The aggregate burden estimate for Sec. 45.6 is as follows:
Estimated number of respondents: 1,732.
Estimated number of reports per respondent: 1.
Average number of hours per report: .02.
Estimated gross annual reporting burden: 35.
e. Sec. 45.10--Reporting Changing SDRs
The Commission is adopting new regulations in Sec. 45.10(d) that
require reporting counterparties to send SDRs and non-reporting
counterparties notifications if they change the SDR to which they
report swap data and swap transaction and pricing data. This is a new
reporting burden that is not covered in the current collection.
The Commission estimates that no more than 15 reporting
counterparties will choose to change the SDR to which they report data.
As a result, the Commission estimates these 15 reporting counterparties
will each send one report annually, with an average response time of
.01 hours per report and a gross annual burden of .15 hours.
The aggregate burden estimate for Sec. 45.10 is as follows:
Estimated number of respondents: 15.
Estimated number of reports per respondent: 1.
Average number of hours per report: .01.
Estimated gross annual reporting burden: .15.
2. Revisions to Collection 3038-0086 (Swap Data Repositories:
Registration and Regulatory Requirements)
a. SDR Withdrawal from Registration Amendments
Existing Sec. 49.4 requires SDRs to follow certain requirements
when withdrawing from registration with the Commission. These
requirements involve filing paperwork with the Commission. The
Commission does not believe any of the changes the Commission is
adopting will require any one-time or ongoing system updates for SDRs.
In addition, the Commission notes it had not previously provided a
burden estimate for Sec. 49.4, so the Commission provided an estimate
with the Proposal.
Existing Sec. 49.4(a)(1)(iv) requires that an SDR's request to the
Commission to withdraw from SDR registration specify, among other
items, a statement that the custodial SDR is authorized to make such
data and records available in accordance with Sec. 1.44. The
Commission is adopting changes to remove this requirement from Sec.
49.4(a)(1)(iv).
Existing Sec. 49.4(a)(2) requires that before filing a request to
withdraw, a registered SDR shall file an amended Form SDR to update any
inaccurate information. The Commission is adopting changes that
eliminate the requirement for SDRs to file an amended Form SDR prior to
filing a request to withdraw.
Separately, the Commission is adopting new Sec. 49.4(a)(2) to
require SDRs to execute an agreement with the custodial SDR governing
the custody of the withdrawing SDR's data and records prior to filing a
request to withdraw with the Commission.
The Commission estimates that at most one SDR will request to
withdraw from registration each year pursuant to amended Sec. 49.4.
The Commission estimates that the SDR will provide one notification to
the CFTC, which will take an estimated 40 hours for the SDR to
complete.
The aggregate burden estimate for Sec. 49.4 is as follows:
Estimated number of respondents: 1.
Estimated number of reports per respondent: 1.
Average number of hours per report: 40.
Estimated gross annual reporting burden: 40.
b. SDR Data Validation Requirement Amendments
Existing Sec. 49.10 provides the requirements for SDRs in
accepting SDR data. As an initial matter, the Commission is correcting
the estimates for Sec. 49.10 in the Proposal. In the Proposal, the
Commission misstated the current burden estimate for Sec. 49.10 as
5,652,000 messages per SDR respondent, for a total of almost 17,000,000
messages across SDRs. The correct current estimate for Sec. 49.10 is
2,652,000 messages per SDR, for a total of almost 8,000,000 messages.
The Commission will discuss the changes to the estimate for Sec. 49.10
resulting from this rulemaking below according to the corrected
estimate for Sec. 49.10.
Existing Sec. 49.10(a) requires SDRs to accept and promptly record
all swap data. In the 2019 Part 49 NPRM, the Commission proposed
amending the requirements in Sec. 49.10 by detailing separate Sec.
49.10(e) requirements for correcting swap errors. The Commission is
adopting those changes in a separate release. In this release, the
Commission is adopting separate Sec. 49.10(c) requirements for
validating swap messages. These changes further specify that SDRs must
send validation acceptance and rejection messages after validating SDR
data. The Commission estimates that this will increase the number of
reports SDRs will need to send reporting entities.
The Commission estimates that the new requirement to send
validation messages in Sec. 49.10(c) will add 3,000,000 messages to
each SDR's current burden estimate, at .00055 hours per message, or
4,950 aggregate burden hours for all three SDRs.
When added to the current estimate for Sec. 49.10, the aggregate
burden estimate for Sec. 49.10 is as follows:
Estimated number of respondents: 3.
[[Page 75549]]
Estimated number of reports per respondent: 5,652,000.
Average number of hours per report: .00055.
Estimated gross annual reporting burden: 9,326. \388\
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\388\ The Commission is correcting an incorrect estimate from
the Proposal of 9,750 hours, due to an error in another Supporting
Statement accompanying a different rulemaking.
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In addition, the Commission estimates that SDRs will incur capital/
start-up costs and ongoing operational/maintenance costs related to
adopting the changes proposed in Sec. 49.10(c). The Commission
estimates that SDRs will incur a one-time initial burden of 100 hours
per entity to modify their systems to adopt the changes described
above, for a total estimated hours burden of 300 hours, and that SDRs
will additionally spend 100 hours per entity annually to perform any
needed maintenance or adjustments to reporting systems. Based on a
labor cost of $72.23 per hour, the total cost of the one-time initial
burden is estimated at $21,669 across all three SDRs, and the total
cost to perform any additional needed maintenance or adjustments to
reporting systems annually is estimated at $21,669 across all three
SDRs.
3. Revisions to Collection 3038-0089 (Pre-Enactment Swaps and
Transition Swaps)
Existing Sec. 46.11 provides that for pre-enactment or transition
swaps for which part 46 requires reporting of continuation data,
reporting counterparties reporting state data as provided in part 45
may fulfill the requirement to report errors or omissions by making
appropriate corrections in their next daily report of state data
pursuant to part 45. Since the Commission is adopting changes to remove
the option for state data reporting from Sec. 45.4, the Commission is
also adopting changes to remove the option for state data reporting
from Sec. 46.11.
Because reporting counterparties will no longer be able to send
daily state data reports for their part 46 historical swaps, the
Commission estimates the changes adopted in Sec. 46.11 will reduce the
number of continuation data reports reporting counterparties send SDRs
for historical swaps by 50%. As a result, the Commission estimates that
the 125 \389\ SD/MSP reporting counterparties that the Commission
estimates are reporting historical swaps will each spend five hours on
these reports annually instead of the previous estimate of 10 hours,
and the 500 non-SD/MSP reporting counterparties will spend .64 hours on
these reports annually, instead of the previous estimate of 1.275
hours.
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\389\ The Commission had erroneously stated there were 500 SD,
MSP, and non-SD/MSP reporting counterparties in the Proposal.
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The aggregate burden estimate for reporting historical swaps to
SDRs under part 46 is as follows:
Estimated number of respondents: 625.
Estimated number of reports per respondent: 151.
Average number of hours per report: .01.
Estimated gross annual reporting burden: 945. \390\
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\390\ In the Proposal, the Commission estimated that to comply
with proposed amended Sec. 46.11, 500 SD, MSP, and non-SD/MSP
reporting counterparties that the Commission estimated are reporting
historical swaps would each submit 200 reports under part 46 with an
average burden of .01 hours per report, for a burden of 2 hours per
respondent or 1,000 burden hours in the aggregate. The correct
aggregate burden hours estimate, which was reflected in the
supporting statement filed with OMB in connection with the Proposal,
is 945 (consisting of 625 aggregate annual burden hours for the 125
SD/MSP reporting counterparties and 320 aggregate burden hours for
the 500 non-SD/MSP reporting counterparties). The Commission is also
revising the estimated number of reports filed per respondent under
part 46 from 200 reports to 151.
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The Commission does not believe the changes to Sec. 46.11 being
adopted will require SDRs or reporting counterparties to make any one-
time or ongoing updates to their systems.
C. Cost-Benefit Considerations
1. Introduction
Since issuing the first swap reporting rules in 2012, the
Commission has gained a significant amount of experience with swaps
markets and products based on studying and monitoring swap data.\391\
As a result of this work, the Commission has identified ways to improve
the existing swap data reporting rules. Limitations with the
regulations have, in some cases, encouraged the reporting of swap data
in a way that has made it difficult for the Commission to aggregate and
analyze. As a result, the Commission is amending its rules to improve
data quality and standardization to achieve the Group of Twenty
(``G20'') goal for trade reporting to improve transparency, mitigate
systemic risk, and prevent market abuse.\392\
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\391\ The Commission has used swap data in various rulemakings,
research, and reports. See, e.g., ``Introducing ENNs: A Measure of
the Size of Interest Rate Swap Markets,'' Haynes R., Roberts J.
Sharma R., and Tuckman B., January 2018; CFTC Weekly Swaps Report,
available at www.cftc.gov/MarketReports/SwapsReports/index.htm.
\392\ See G20, Leader's Statement Pittsburgh Summit September
24-25, 2009, (Sept. 2009), available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
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While the Commission believes the amendments will meaningfully
benefit market participants and the public, some costs could result as
well. Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating rules under the
CEA.\393\ Section 15(a) specifies that the Commission evaluates costs
and benefits in light of five broad areas of market and public concern:
(1) Protection of market participants and the public; (2) the
efficiency, competitiveness, and financial integrity of markets; (3)
price discovery; (4) sound risk management practices; and (5) other
public interest considerations.\394\ The Commission considers the costs
and benefits resulting from its discretionary determinations concerning
the section 15(a) factors.
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\393\ 7 U.S.C. 19(a)(1).
\394\ 7 U.S.C. 19(a)(2).
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In this release, the Commission is adopting revisions to existing
regulations in parts 45, 46, and 49. The Commission is also adopting
new requirements in parts 45, 46, and 49. Together, these revisions and
additions should further specify and streamline swap data reporting and
improve the quality of swap data reporting. The Commission is making
most of the changes to existing systems and processes, so nearly all
costs considered are incremental additions or updates to systems
already in place. The Commission believes many of the amendments, which
are non-substantive or technical, will not have material cost-benefits
implications.\395\
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\395\ The Commission believes there are no cost-benefit
implications for amendments to Sec. Sec. 45.1, 45.2, 45.7, 45.8,
45.9, 45.11, 45.15, 46.1, 46.2, 46.4, 46.5, 46.8, 46.9, and 49.2.
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The Commission is adopting multiple changes to harmonize the
Commission's reporting regulations with those of other regulators as
part of the FSB and CPMI-IOSCO harmonization efforts. As these efforts
have incorporated industry feedback, and the Commission has been vocal
about its support and participation,\396\ the Commission expects many
market participants have been planning and preparing for updates to
accommodate these
[[Page 75550]]
important changes in efficient, cost-effective manners.
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\396\ See, e.g., Testimony of Chairman J. Christopher Giancarlo
before the House Committee on Agriculture, Washington, DC, July 25,
2018, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo50 (``I believe the CFTC needs to be a leading
participant in IOSCO and other international bodies. The CFTC
currently chairs the following international committees and groups
and serves as a member of many other ones: . . . Co-Chair, CPMI-
IOSCO Data Harmonization Group[, and] Co-Chair, FSB Working Group on
UTI and UPI Governance'').
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Many jurisdictions have committed to these harmonization efforts
for which the Commission is adopting standards. If the Commission did
not adopt these standards, but other jurisdictions--consistent with the
technical guidance and implementation deadlines recommended by the
FSB--did, SDRs and reporting entities could experience unnecessary
costs due to unharmonized reporting infrastructures for CFTC reporting,
while market participants in other jurisdictions enjoyed harmonization
efficiencies.
The Commission discusses reasonably quantifiable costs and benefits
in this section; the Commission discusses them qualitatively if they
are not reasonably quantifiable. Throughout this release, the
Commission estimates the cost-benefit impact of its changes using swap
data, such as the prevalence of state data reporting and duplicative
required swap creation data reports. Most of the changes affect
reporting requirements for reporting counterparties, SDRs, SEFs, and
DCMs. As a result, there will likely be some reasonably quantifiable
costs related to either: (a) Creating new data reporting systems; (b)
reprogramming existing data reporting systems to meet the new reporting
requirements; or (c) canceling data streams, which might lead to
archiving data and maintaining legacy systems. These estimates focus on
the costs and benefits of the amended rules market participants are
likely to encounter with an emphasis on technical details,
implementation, and market-level impacts. Where software changes are
expected, these costs reflect software developer labor costs only, not
a blend of different occupations. Costs and benefits quantified at the
respondent level are estimated in the PRA section in section VII.B
above. Those costs are not repeated in this section, but where
appropriate, quantified costs reflected in the PRA are noted below to
reflect PRA costs have been taken into account in the cost-benefit
analysis.
These costs are quantifiable if entities covered by the final
regulations can price-out the changes to the information technology
architecture to adopt the reporting requirement changes. These
quantifiable costs, however, will likely vary because the
sophistication of reporting entities varies. For example, some
reporting entities operate their own data reporting systems and employ
in-house developers and analysts to plan, design, code, test,
establish, and monitor systems. Other reporting entities pay fees to
third-party vendors. The quantitative costs associated with the
reporting rules in this release will vary depending on the reporting
entities' operations and number of swaps they execute. The Commission
provides a monetary range for quantifiable costs as they relate to each
change discussed below where possible.
This consideration of costs and benefits is based on the
understanding that the swaps market functions internationally. Many
swaps transactions involving U.S. firms occur across international
borders and some Commission registrants are organized outside of the
U.S., including many SDs. Many of the largest market participants often
conduct operations both within and outside the U.S. Where the
Commission does not always refer to location, the discussion of costs
and benefits refers to the rules' effects on all swaps activity,
whether by virtue of the activity's physical location in the U.S. or by
virtue of the activity's connection with or effect on U.S. commerce
under CEA section 2(i).\397\
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\397\ See 7 U.S.C. 2(i). CEA section 2(i) provides that the swap
provisions enacted by the Dodd-Frank Act, and Commission regulations
promulgated under those provisions, shall not apply to activities
outside the U.S., unless the activities have a direct and
significant connection with activities in, or effect on, commerce of
the U.S.; or contravene such rules or regulations as the Commission
may prescribe or promulgate as are necessary or appropriate to
prevent the evasion of any provision of the CEA enacted by the Dodd-
Frank Act.
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2. Background
The Commission has issued several rulemakings related to swaps
reporting where it has considered the benefits and costs.\398\ Among
others, the Commission has identified benefits such as increased
transparency to both market participants and regulators; improved
regulatory understanding of risk distributions and concentrations in
derivatives markets; more effective monitoring of risk profiles by
regulators and regulated entities through the use of unique
identifiers; and improved regulatory oversight and more robust data
management systems.\399\ The Commission also identified two main areas
where costs may be incurred: recordkeeping and reporting.\400\
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\398\ In 2012, the Commission provided a detailed cost-benefit
discussion on its final swap reporting rules to ensure that market
participants reported cleared and uncleared swaps to SDRs. See 77 FR
at 2176-2193 (Jan. 13, 2012). In 2012, the Commission also issued
final rules for reporting pre-enactment and transition swaps. See
generally Swap Data Recordkeeping and Reporting Requirements: Pre-
Enactment and Transition Swaps, 77 FR 35200 (June 12, 2012). In
2016, the Commission amended its regulations to clarify the
reporting obligations for DCOs and swap counterparties with respect
to cleared swaps. See generally Amendments to Swap Data
Recordkeeping and Reporting Requirements for Cleared Swaps, 81 FR
41736 (June 27, 2016).
\399\ See, e.g., 77 FR at 2176-2193 (Jan. 13, 2012); 77 FR at
35217-35225 (June 12, 2012); 81 FR at 41758-41770 (June 27, 2016).
\400\ See, e.g., id.
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Based on its experience with swap data and extensive feedback from
market participants, the Commission believes improving data quality
will significantly enhance the utility of the swap data while also
reducing burdens on reporting entities and SDRs through harmonizing,
streamlining, and clarifying data requirements. In this release, the
Commission focuses on the swap data reporting workflows, the swap data
elements reporting counterparties report to SDRs, and the validations
SDRs apply to help ensure the swap data they receive is accurate. The
Commission is also modifying several other regulations for clarity and
consistency.
Three SDRs are currently provisionally registered with the
Commission: CME, DTCC, and ICE. The changes the Commission is adopting
should apply equally to all three SDRs. The current reporting
environment also involves third-party service providers that help
market participants fulfill their reporting requirements, though the
reporting requirements do not apply directly to them. The Commission
estimates that third-party service providers do not account for a large
portion of the overall record submissions to SDRs, but provide an
important service for entities that use them.
Finally, the current reporting environment depends on reporting
counterparties. The Commission estimates reporting counterparties
include 107 provisionally registered SDs, 24 SEFs, 3 DCMs, 13 DCOs, and
approximately 1,585 non-SD/MSP/DCO reporting counterparties. Each of
these reporting counterparty types varies as to size and activity. The
Commission believes most SDs and nearly all SEFs, DCMs, DCOs, and SDRs
have sophisticated technology dedicated to data reporting because of
the frequency with which they enter into or facilitate swaps execution
or accept swap data from reporting entities. The Commission also
believes these entities have greater access to resources to update
these systems as regulatory requirements change. Further, the
Commission estimates that SDs will incur much of the costs and benefits
associated with the Commission's changes, given they are the most
sophisticated participants with the most experience reporting under the
EU and U.S. reporting regimes. For instance, SDs accounted for
[[Page 75551]]
over 70% of records submitted to SDRs in December 2019.\401\
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\401\ Analyzing SDR data from December 2019, CFTC staff found
over 70% of all records submitted to the SDRs came from SDs. Between
15% and 20% came from DCOs, 4% came from SEFs, and the remaining
came from non-SD reporting counterparties.
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Non-SD/MSP/DCO reporting counterparties account for a small
fraction of SDR reports. The Commission believes there is a wide
variation in the reporting systems maintained by these entities and the
resources available to them. These reporting counterparties can be
large, sophisticated financial entities, including banks, hedge funds,
and asset management firms, but a significant number are smaller, less-
sophisticated swap end-users entering into swaps less frequently to
hedge commercial risk.
The Commission has a significant interest in ensuring these
smaller, less-sophisticated entities can access the U.S. swaps market
without unnecessary costs or burdens, but the Commission has difficulty
accurately estimating the cost impact of the changes on them. The
challenge stems from the wide range of complexity of firms in this
group: A large asset manager with billions of dollars in assets under
management and a large swaps portfolio could have a reporting system as
complex and sophisticated as an SD while a small hedge fund with a
limited swaps portfolio might rely on third-party service providers to
handle its reporting obligations. Commenters did not provide
information to help the Commission quantify the costs to these smaller
entities, notwithstanding the Proposal's request for data and other
information to assist the Commission's quantification effort.\402\
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\402\ 85 FR at 21628 (Apr. 17, 2020).
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Swap data reports submitted under the existing regulations have
posed data quality challenges. For example, the existing appendix 1 to
part 45 provides no standards, formats, or allowable values for the
swap data that reporting counterparties report to SDRs and there is no
technical specification or other guidance associated with the existing
rule. Since the industry has not identified a standard for all market
participants to use, market participants have reported information in
many different ways, often creating difficulties in data harmonization,
or even identification, within and across SDRs.
It is not uncommon for Commission staff to find discrepancies
between open swaps information available to the Commission and swap
transaction data reported for the same swaps. In the processing of swap
data to generate the CFTC's Weekly Swaps Report,\403\ for example,
there are instances when the notional amount differs between the
Commission's open swaps information and the swap transaction data
reported for the same swap. While infrequent errors can be expected,
the wide variation in standards among SDRs has increased the challenge
of swap data analysis and often has required significant data cleaning
and data validation prior to any data analysis effort. This has meant
that the Commission has, in some but not all cases, determined that
certain data analyses were not feasible, harming its ability to oversee
market activity.
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\403\ See CFTC's Weekly Swaps Report, available at https://www.cftc.gov/MarketReports/SwapsReports/index.htm.
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In addition to the lack of standardization across SDRs, the
Commission is concerned the current timeframes for reporting swap data
may have contributed to the prevalence of errors. Common examples of
errors include incorrect references to underlying currencies, such as a
notional value incorrectly linked to U.S. dollars instead of Japanese
Yen. Among others, these examples strongly suggest a need for
standardized, validated swap data as well as additional time to review
the accuracy of the data report.
Based on its experience with data reporting, the Commission is
amending certain regulations, particularly in parts 45, 46, and 49, to
improve swap data accuracy and completeness. This release also adopts
one amendment to part 49 to improve the process for an SDR's withdrawal
from registration. Many of the final regulations have costs and
benefits that must be considered. The Commission discusses these below.
The Commission summarizes the amendments \404\ and identifies and
discusses the costs and benefits attributable to the amendments below.
Where significant software development costs are expected, CFTC staff
estimated the hourly wages market participants will likely pay software
developers to implement each change to be between $48 and $101 per
hour.\405\ Relevant amendments below will list a low-to-high range of
potential cost as determined by the number of developer hours estimated
by technical subject matter experts (``SMEs'') in the Commission's
Office of Data and Technology. The Commission did not receive any
comments on its hourly wage estimates. Finally, the Commission
considers the costs and benefits of all of the amendments jointly in
light of the five public interest considerations in CEA section 15(a).
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\404\ As described throughout this release, the Commission is
adopting a number of non-substantive changes, such as renumbering
provisions and modifying the wording of existing provisions. The
Commission may acknowledge these non-substantive amendments, but
they present no costs or benefits to consider.
\405\ Hourly wage rates came from the Software Developers and
Programmers category of the May 2019 National Occupational
Employment and Wage Estimates Report produced by the U.S. Bureau of
Labor Statistics, available at https://www.bls.gov/oes/current/oes_nat.htm. The 25th percentile was used for the low range and the
90th percentile was used for the upper range ($36.89 and $78.06,
respectively). Each number was multiplied by an adjustment factor of
1.3 for overhead and benefits (rounded to the nearest whole dollar)
which is in line with adjustment factors the CFTC has used for
similar purposes in other final rules adopted under the Dodd-Frank
Act. See, e.g., 77 FR at 2173 (using an adjustment factor of 1.3 for
overhead and other benefits). These estimates are intended to
capture and reflect U.S. developer hourly rates market participants
are likely to pay when complying with the changes. Individual
entities may, based on their circumstances, incur costs
substantially greater or less than the estimated averages.
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3. Baselines
There are multiple baselines for the costs and benefits that might
arise from the regulations in this release. The Commission believes the
baseline for measurement of costs and benefits attributable to the
amendments to Sec. Sec. 45.3, 45.4, 45.5, 45.6, 45.10, 45.12, 46.3,
46.10, 46.11, and 49.4 are the costs and benefits realized under
current regulations, as discussed above in sections II, III, and IV.
The baseline for Sec. 49.10 is current practice, which is that SDRs
may be performing validations according to their own specifications, as
discussed above in section IV.C.
4. General Cost-Benefit Comments
The Commission received no comments on the general costs and
benefits of the Proposal overall. The Commission received a few
comments on the costs and benefits of the proposed amendments to
individual sections, which are discussed in the relevant sections
below. To the extent the Commission did not receive comments objecting
to the Proposal's general cost-benefit consideration, or to its cost-
benefit consideration of specific sections, the Commission views the
absence of comment as affirmation that the Proposal's consideration of
costs and benefits was sound, unless otherwise stated below.
The Commission also notes, with one exception discussed in section
VII.C.5.a below, it did not receive specific data or information
regarding costs and benefits from commenters in response to its
requests for such information in the Proposal.\406\ The Commission
therefore did not receive additional information
[[Page 75552]]
making it reasonably feasible for the Commission to quantify overall
costs and benefits, or costs and benefits for specific proposed
amendments, to a degree beyond that presented in the Proposal, except
as otherwise noted below.
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\406\ See 85 FR at 21628 (Apr. 17, 2020).
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5. Costs and Benefits of Amendments to Part 45
a. Sec. 45.3--Swap Data Reporting: Creation Data
The Commission is changing Sec. 45.3 to (i) remove the requirement
for SEFs, DCMs, and reporting counterparties to report separate PET and
confirmation data reports; (ii) extend the deadline for reporting
required swap creation data and allocations to T+1 or T+2, depending on
the reporting counterparty; (iii) remove the requirement for SDRs to
map allocations; and (iv) remove the international swap reporting
requirements.
The Commission believes: (i) Single required creation data report
will reduce complexity for reporting counterparties, as well as for the
Commission; (ii) extending the deadline to report required swap
creation data and allocations will improve data quality without
impacting the Commission's ability to perform its regulatory
responsibilities; (iii) the requirements for SDRs to map allocations
and the international swap requirements are unnecessary.
The Commission is also updating the swap data elements in appendix
1, which existing and amended Sec. 45.3 require SEFs, DCMs, and
reporting counterparties report to SDRs in the manner provided in Sec.
45.13(b).\407\ The Commission believes this will improve data quality
at SDRs and help market participants by removing ambiguity around what
data they need to report to SDRs.
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\407\ The Commission is moving Sec. 45.13(b) to Sec.
45.13(a)(3) and updating the reference in Sec. 45.3.
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i. Benefits
Requiring a single confirmation data report for SEFs, DCMs, and
reporting counterparties will benefit SDRs, SEFs, DCMs, and reporting
counterparties by reducing the number of swap data reports being sent
to and stored by SDRs. An analysis of SDR data by Commission staff
found this change is likely to significantly reduce reported messages,
which benefits the reporting parties sending data, and the SDRs who
ingest, validate and store the data. The analysis showed 26% of all
swap messages received by the Commission from DTCC, ICE, and CME in
December of 2019 (48 million records in total) were separate PET and
confirm messages, which means this amendment could reduce overall
messages reported to and stored by SDRs by approximately 13% overall.
Extending the deadline to report required swap creation data will
benefit SDRs, SEFs, DCMs, and reporting counterparties by giving SEFs,
DCMs, and reporting counterparties more time to report swap data to
SDRs, likely reducing the number of errors SDRs would need to follow-up
on with reporting entities. Since reporting data ASATP requires
reporting systems to monitor activity and report in real-time, the new
deadline will also benefit SDRs, SEFs, DCMs, and reporting
counterparties by allowing them to implement a simpler data reporting
workflow that assembles and submits data once per day.
Removing the requirements to map allocations and international
swaps will benefit SDRs by removing the need to manage separate
processes to maintain this information. SEFs, DCMs, and reporting
counterparties will benefit from reporting allocations directly via
swap data reporting, and no longer reporting information about
international swaps that will be rendered unnecessary given the UTI
standards.
Through updating and further specifying the swap data elements
required to be reported to SDRs, the Commission will benefit from
having swap data that is more standardized, accurate, and complete
across SDRs. As discussed in section V above, the Commission's use of
the data to fulfill its regulatory responsibilities has been
complicated by varying degrees of compliance with swap data standards
both within and across SDRs.
ii. Costs
The Commission expects the initial cost of updating systems to
adopt the changes in Sec. 45.3--outside of updating the data elements
in appendix 1--to be small.\408\ Most SEFs, DCMs, and reporting
counterparties should have systems to report swap data to SDRs ASATP
after execution, as well as systems that report separate PET and
confirmation swap reports and information about international swaps.
SDRs likewise have systems to accept both PET data and confirmation
data reports, possibly separately or combined, as well as systems to
map allocations and ingest information about international swaps.
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\408\ The Commission estimates for PRA purposes that there would
be a decrease in the burden incurred by reporting counterparties, as
discussed in the PRA estimates.
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In both cases, the changes will reduce complexity and software
functionality. Reporting entities will no longer have to generate and
submit multiple messages, which will require limited cost and effort to
implement. SDRs will also require few, if any, updates to ingest fewer
messages and will see data storage costs decline over time.
The Commission expects market participants to further mitigate
costs by the fact they involve updates to current systems, rather than
having to create new systems as most firms had to do when the CFTC
first required swaps reporting. CFTC SMEs estimate the cost of these
changes to be small, but not zero, for large reporting entities and
SDRs due to the reduction in complexity and system features. However,
over time, after entities implement these one-time system updates, the
Commission expects SDRs, SEFs, DCMs, and reporting counterparties will
recognize significant benefits through reduced costs and complexity
associated with reporting streamlined data to SDRs.
The Commission received comments supporting its expectation that
the changes to Sec. 45.3 will improve data quality and reduce
compliance and cost burdens. Specifically, DTCC believes these changes
will improve data quality by reducing the number of corrections sent to
the SDRs and streamline reporting for market participants.\409\ ISDA-
SIFMA believe the extended timeline for reporting swap data will
improve data quality \410\ and CEWG comments that these changes will
reduce the compliance burden on market participants.\411\ The
Commission requested comments on the proposed cost-benefit analysis for
Sec. 45.3, but did not receive any providing data, significant cost-
benefit alternatives, or opposing views on the costs and benefits.
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\409\ DTCC at 5.
\410\ ISDA-SIFMA 5-7.
\411\ CEWG at 2.
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Conversely, the Commission expects SEFs, DCMs, SDRs, and reporting
counterparties will incur greater costs in response to the changes to
the appendix 1 data elements in order to comply with Sec. 45.3. Beyond
the changes to appendix 1, the Commission expects SEFs, DCMs, SDRs, and
reporting counterparties will update systems according to DMO's
technical specification on website at www.cftc.gov, resulting in
additional costs, even though the technical specifications help these
entities
[[Page 75553]]
implement reporting for the data elements in appendix 1.
The three SDRs will need to update their systems to accept the
updated swap data elements in appendix 1. SEFs, DCMs, and reporting
counterparties will need to update systems to report the swap data
elements in appendix 1 to SDRs. SDRs will also need to update systems
to validate swap data pursuant to the validations requirements in Sec.
49.10(c). The costs are likely to differ across entities but, depending
on current systems, as indicated in the estimates detailed below, could
be significant, before accounting for likely mitigating factors, also
discussed below.
The Commission believes some factors will mitigate the costs to
these entities. First, most of the swap data the Commission is further
standardizing with updated appendix 1 is currently being reported to
SDRs. Commission staff recognizes that data quality has improved over
the past years as SDRs adopted more technical standards on their own.
However, for certain assets classes, the Commission expects the changes
from current practice could be more pronounced. Costs to standardize
data elements that had not previously been standardized in certain
asset classes like commodities, or adding new data elements would be
costlier; although the reporting entity could mitigate costs if it
already saves this information but either does not currently send it to
an SDR or sends it in a non-standard format.
To the extent SDRs operate in multiple jurisdictions, ESMA already
requires many of the swap data elements the Commission is adopting. An
SDR presumably will spend fewer resources updating its systems for the
changes in appendix 1 if it has already made these changes for European
markets. Similarly, SEFs, DCMs, and reporting counterparties reporting
to European TRs may have to spend fewer resources.
Additionally, after the updates are made, the Commission expects
SDRs, SEFs, DCMs, and reporting counterparties will see an offsetting
reduction in costs through reporting a more streamlined data set than
what is currently being reported to SDRs. In addition, entities
reporting in multiple jurisdictions will be able to report more
efficiently as jurisdictions adopt the CDE Technical Guidance data
elements.
Finally, the changes adopted to the swap data elements makes the
part 43 swap transaction and pricing data elements a subset of the part
45 swap data elements. This means the changes to parts 43 and 45 will
require technological changes that could merge two different data
streams into one. For example, SDRs will have to adjust their
extraction, transformation, and loading (``ETL'') process to accept
feeds that comply with the new technical specification and validation
conditions, but these changes will apply to data elements in both parts
43 and 45.
Because many of the changes SDRs will make to comply with part 45
will likely also help them comply with part 43, the Commission
anticipates significantly lower aggregate costs for complying with both
rules relative to the costs for parts 43 and 45 separately. For this
reason, the costs described below may most accurately represent the
full technological cost of satisfying the requirements for both final
rules but for purposes of this section focus on the part 45 swap data
elements.
Based on conversations with ODT SMEs experienced in designing data
reporting, ingestion, and validation systems, Commission staff
estimates the cost per SDR to be in a range of $144,000 to
$505,000.\412\ Staff based this estimate on several assumptions and
covers the set of tasks required for an SDR to design, test, and
implement a data system based on the list of swap data elements in
appendix 1 and the technical specification.\413\ These numbers assume
that each SDR will spend approximately 3,000-5,000 hours to establish
ETL processes into a relational database on such a data stream.\414\
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\412\ To generate the included estimates, a bottom-up estimation
method was used based on internal CFTC expertise. In brief, and as
seen in the estimates, staff anticipates the task for the SDRs will
be significantly more complex than it is for reporters. On several
occasions, the CFTC has developed an ETL data stream similar to the
parts 43 and 45 data streams. These data sets consist of 100-200
data elements, similar to the number of data elements in appendix 1.
This past Commission experience has been used to derive the included
estimates.
\413\ These assumptions include: (1) At a minimum, the SDRs will
be required to establish a data extraction transformation and
loading (ETL) process. This implies that either the SDR is using a
sophisticated ETL tool, or will be implementing a data staging
process from which the transformation can be implemented. (2) The
SDR would require implementation of a new database or other data
storage vehicle from which their business processes can be executed.
(3) While the record structure is straight forward, the
implementation of a database representing the different asset
classes may be complex. (4) The SDR would need to implement a data
validation regime typical of data sets of this size and magnitude.
(5) The cost to operate the stream would be lower due to the
standardization of incoming data, and the opportunity to
automatically validate the data may make it less labor intensive.
\414\ The lower estimate of $144,000 represents 3,000 working
hours at the $48 rate. The higher estimate of $505,000 represents
5,000 working hours at the $101 rate.
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For reporting entities, the Commission estimates the cost per
reporting entity to be in a range of $24,000 to $73,225.\415\ This cost
estimate is based on several assumptions and covers a number of tasks
required by the reporting entities to design, test, and implement an
updated data system based on the swap data elements, technical
specification, and validation conditions.\416\ These tasks include
defining requirements, developing an extraction query, developing an
interim extraction format (e.g., comma-separated values (``CSV'')),
developing validations, developing formatting conversions, developing a
framework to execute tasks on a repeatable basis, and finally,
integration and testing. Staff estimates it would take a reporting
entity 200 to 325 hours to implement the extraction. Including
validations and conversions would add another 300 to 400 hours,
resulting in an estimated total of 500 to 725 hours per reporting
entity.\417\
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\415\ To generate the included estimates, a bottom-up estimation
method was used based on internal CFTC expertise. On several
occasions, the CFTC has created data sets transmitted to outside
organizations. These data sets consist of 100-200 data elements,
similar to the number of data elements in appendix 1. This past
experience has been used to derive the included estimates.
\416\ These assumptions include: (1) The data that will be
provided to the SDRs from this group of reporters largely exists in
their environment. The back end data is currently available; (2) the
data transmission connection from the firms that provide the data to
the SDR currently exists. The assumption for the purposes of this
estimate is that reporting firms do not need to set up
infrastructure components such as FTP servers, routers, switches, or
other hardware; it is already in place; (3) implementing the
requirement does not cause reporting firms to create back end
systems to collect their data in preparation for submission. It is
assumed that firms that submit this information have the data
available on a query-able environment today; (4) reporting firms are
provided with clear direction and guidance regarding form and manner
of submission. A lack of clear guidance will significantly increase
costs for each reporter; and (5) there is no cost to disable
reporting streams that will be made for obsolete by the change in
part 43.
\417\ The lower estimate of $24,000 represents 500 working hours
at the $48 rate. The higher estimate of $73,225 represent 725
working hours at the $101 rate.
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The Commission received one comment, from CME, addressing these
estimates.\418\ CME notes it expects the costs for its organization to
be 8,000 to 10,000 developer hours, which is approximately double the
3,000 to 5,000 developer-hour estimate listed above. The costs CME
references are specific to its organization. The costs may not directly
apply to other SDRs and do not apply to the reporting counterparties,
but provide useful information on the level of effort needed to comply
with these amendments. Accordingly, the
[[Page 75554]]
Commission deems it appropriate to expand the range of potential costs
per SDR before mitigation upwards to between $144,000 and $1,010,000
for purposes of its cost-benefit assessment. Additionally, CME
acknowledges they expect maintenance costs to decline over time due to
the streamlined reporting requirements. The Commission did not receive
any other comments related to the amendments to the data elements in
appendix 1 that provided additional data, significant cost-benefit
alternatives, or other opposing or critical views.
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\418\ CME at 22.
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In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the final rule amendments notwithstanding their expected
mitigated costs.\419\
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\419\ Note the costs associated with reporting daily collateral
and margin information required by Sec. 45.4 for SD/MSP/DCO
reporting counterparties as detailed in section VII.C.5.b.ii are
fully reflected in the costs detailed in this section.
---------------------------------------------------------------------------
b. Sec. 45.4--Swap Data Reporting: Continuation Data
The Commission is amending Sec. 45.4 to (i) remove the option for
state data reporting; (ii) extend the deadline for reporting required
swap continuation data to T+1 or T+2; (iii) remove the requirement for
non-SD/MSP/DCO reporting counterparties to report valuation data
quarterly; and (iv) require SD/MSP reporting counterparties to report
margin and collateral data daily.
The Commission believes: (i) Removing state data reporting will
reduce the number of messages being sent to and stored by SDRs; (ii)
extending the deadline to report required swap continuation data will
improve data quality without impacting the Commission's ability to
perform its regulatory responsibilities; (iii) removing the valuation
data reporting for non-SD/MSP/DCO reporting counterparties will reduce
burdens for these counterparties, which tend to be smaller and less
active in the swaps market; and (iv) requiring SD/MSP reporting
counterparties to report margin and collateral daily is reasonable
given the sophistication of their trading and reporting systems,
especially on a T+1 timeline, and essential for the Commission to
monitor risk.
i. Benefits
Removing state data reporting will benefit reporting counterparties
by reducing the number of messages they report to SDRs. This will also
benefit SDRs by reducing the number of messages they need to ingest,
validate, process, and store. In 2019, CFTC staff estimates the
Commission received over 557 million swap messages from CME, DTCC, and
ICE. Staff analysis from December 2019 shows over 50% of all records
submitted were state data messages.
Extending the deadline to report required swap continuation data
will benefit SDRs and reporting counterparties by reducing the number
of validation errors SDRs must notify reporting counterparties about.
Removing the requirement for non-SD/MSP/DCO reporting counterparties to
report quarterly valuation data will reduce reporting costs for these
estimated 1,585 counterparties, which tend to be smaller and less
active in the swaps market. Because of their size, the Commission does
not expect the lack of valuation data to inhibit the Commission's
market oversight responsibilities.
ISDA-SIFMA note approximately 98% of uncleared swaps involve at
least one SD. As such, this change will affect 2% of reported swaps,
which they agree do not present systemic risk issues.\420\ Requiring
SD/MSP reporting counterparties to report margin and collateral daily
will benefit the swaps market by improving the Commission's ability to
monitor swap markets and systemic risk within and across markets,
particularly for uncleared swaps. In contrast, because existing part 45
reports do not include collateral information, while the Commission is
often able to identify the level of risk inherent to a swap (or set of
swaps), it may not fully understand the amount of collateral protection
a counterparty holds to mitigate this risk.
---------------------------------------------------------------------------
\420\ ISDA-SIFMA at 8.
---------------------------------------------------------------------------
ii. Costs
The Commission expects the initial costs of updating systems to
adopt the changes in Sec. 45.4 to range from low to moderate, offset
by the decreased reporting burden for all reporting entities.\421\ For
instance, the Commission understands many reporting counterparties have
systems to report swap data, including snapshot data, to SDRs according
to the current timelines. Extending the deadline reduces some of this
complexity and removes a message type that accounts for over 50% of the
existing message traffic, which will significantly reduce reporting
burdens. Based on CFTC SME experience with similar systems, SDRs should
require minimal updates to their systems that accept snapshot data and
should ultimately experience reduced data storage costs.
---------------------------------------------------------------------------
\421\ The Commission estimates for PRA purposes that there would
be a moderate increase in the burden incurred by market
participants, as discussed in the PRA section.
---------------------------------------------------------------------------
Non-SD/MSP/DCO reporting counterparties will need to update their
systems to stop sending valuation data to SDRs. In contrast, SD/MSP
reporting counterparties will need to program systems to begin
reporting margin and collateral data in addition to valuation data. The
T+1 reporting timeline mitigates this by allowing end-of-day data
integration and validation processes as opposed to near-real-time
integration, which, according to CFTC SMEs and staff conversations with
industry participants, provides flexibility in how and when system
resources are used to produce the reports and better aligns trade and
collateral and margin data reporting streams. The Commission
understands SD/MSP reporting counterparties currently have access to
the data they need to report collateral and margin data and the costs
lie in integrating that information with the swap data reporting
stream. The cost of implementing these changes is expected to be fully
contained in and a subset of the costs associated with implementing the
updated data elements in appendix 1 detailed in section VII.C.5.a
above. As a result, the Commission expects the cost of reporting daily
collateral and margin data for SD/MSP reporting counterparties on a T+1
basis to be fully encapsulated by the effort to implement the updated
data elements in appendix 1.
Additionally, over time, after these one-time system updates, the
Commission expects SDRs, SEFs, DCMs, and reporting counterparties will
recognize the full benefits of the reduced costs associated with
reporting streamlined data to SDRs in a more reasonable time frame.
While the Commission understands reporting margin and collateral data
to SDRs will likely involve costs for the estimated 107 SD/MSP
reporting counterparties, it is unlikely to occasion significant, if
any material, additional costs for the SDRs serving EU jurisdictions.
This is because ESMA currently requires the reporting of much of the
same information to EU-registered TRs.
The Commission expects this could also mitigate the costs for most
of the 107 SD/MSP reporting counterparties given that they are likely
active in European swap markets and thus already comply with similar
requirements. The Commission also expects, for the smaller remaining
group of reporting entities not active in European swaps markets, each
entity already has access to the collateral and margin information.
Accordingly, for
[[Page 75555]]
them, the primary cost will be in integrating existing collateral data
streams into SDR reporting workflows, which is less costly and
burdensome than acquiring additional or outside data to integrate. CFTC
SMEs estimate the cost of these changes to be small to moderate for
large reporting entities and SDRs due to the reduction in complexity
and system features, as well as the extended timeline to integrate
potentially disparate data streams.
The Commission received comments supporting its expectation these
amendments will benefit the market and mitigate costs incurred. FIA
agrees the quarterly valuation data reported by non-SD/MSP/DCO
reporting counterparties is not integral to the CFTC's systemic risk
monitoring and the benefit of collecting this data do not justify the
cost incurred by the impacted market participants.\422\ CEWG believes
the burden of collecting the quarterly valuation data is not
proportional to the limited value the data provides.\423\ Additionally,
IECA notes many small counterparties contract with third-party
reporting services to report the required quarterly valuations and the
value derived from the data does not justify the cost.\424\
---------------------------------------------------------------------------
\422\ FIA at 14.
\423\ CEWG at 2.
\424\ IECA at 3.
---------------------------------------------------------------------------
The Commission received 12 comments related to the daily collection
of collateral and margin data from SD/MSP/DCO counterparties, with four
in favor and eight opposed. Of the supportive comments, Markit
addresses the expected costs by noting the daily submission of both
cleared and uncleared collateral and margin data is more streamlined
and efficient (and therefore cost-effective) than making reporting for
cleared trades optional.\425\ Other supportive commenters emphasize the
need to harmonize collateral and margin data elements to the greatest
extent possible across jurisdictions in order to not create unnecessary
costs for market participants.\426\ Several of the opposing comments
note the additional regulatory costs associated with reporting
collateral and margin data,\427\ which as noted above is mitigated by
the T+1 reporting deadline.
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\425\ Markit at 6.
\426\ FXPA at 4-5.
\427\ See, e.g., CEWG at 8 and Eurex at 3.
---------------------------------------------------------------------------
CME, Eurex, ICE DCOs, ISDA-SIFMA, and FIA raise concerns about
duplicative reporting for DCOs regarding cleared swaps. Further, as
noted in section II.D.4 above, the Commission acknowledges these
concerns but believes the costs are warranted for uncleared swaps
reported by SD/MSP reporting counterparties, as this information is not
available elsewhere and is critical for monitoring systemic risk. For
cleared swaps reported by DCOs, however, the Commission acknowledges
the potential duplication with collateral and margin data reported by
DCOs pursuant to part 39. While collateral and margin data is reported
pursuant to part 39 using a different set of data elements than those
contained in appendix 1, and collateral and margin data is reported for
end-of-day positions pursuant to part 39 as opposed to a more granular
transaction-by-transaction basis pursuant to part 45, the Commission
believes the collateral and margin data reported by DCOs pursuant to
part 39 is sufficiently similar to data reported pursuant to part 45 to
meet the Commission's current needs.
In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the final rule amendments notwithstanding their expected
mitigated costs.
c. Sec. 45.5--Unique Swap Identifiers
The Commission is amending Sec. 45.5 to (i) require reporting
parties use UTIs instead of USIs for new swaps; (ii) require financial
entities to generate UTIs for off-facility swaps; and (iii) permit non-
SD/MSP/DCO reporting counterparties that are not financial entities to
generate UTIs themselves or ask their SDR to generate UTIs for off-
facility swaps. In general, the Commission believes transitioning to
the globally standardized UTI system will benefit SDRs, SEFs, DCMs, and
reporting counterparties by reducing the complexity associated with
reporting swaps to multiple jurisdictions.
i. Benefits
The Commission believes amending Sec. 45.5 will benefit SDRs by
providing one identifier for multiple regulators to adopt to reduce the
burdens associated with multiple jurisdictions requiring different, and
possibly conflicting, identifiers. The Commission believes requiring
SD/MSP and other financial entity reporting counterparties to generate
UTIs for off-facility swaps will benefit SDRs by reducing the frequency
with which they would be responsible for UTI generation, as compared to
the current frequency with which they generate USIs.
The Commission believes permitting non-SD/MSP/DCO reporting
counterparties that are not financial entities to either generate UTIs
or ask their SDR to generate UTIs for off-facility swaps will benefit
smaller, less-active swaps market participants by relieving them of the
burden to generate UTIs unless they choose to do so. Non-financial
entities may include end-users more likely to not maintain systems that
automatically generate UTIs. Therefore, this group will benefit
proportionally more from this change.
Permitting these entities to ask the SDRs to generate UTIs will
maintain, but lower, an ancillary cost for the three SDRs that are
currently required to generate USIs for off-facility swaps with non-SD/
MSP reporting counterparties. The Commission believes giving these
reporting counterparties the option, rather than a mandate, strikes the
appropriate balance between avoiding undue costs for SDRs and
significant burdens for the least-sophisticated market participants.
ii. Costs
In general, the Commission expects the initial costs of updating
systems to adopt UTIs will be small to moderate for most reporting
entities and SDRs.\428\ For instance, the Commission expects reporting
counterparties and SDRs have systems that generate, report, accept,
validate, process, and store USIs. CFTC SMEs estimate the cost of these
changes to be small for large reporting entities and small to moderate
for SDRs. However, over time, the Commission expects market
participants will recognize the reduced costs associated with reporting
a globally-standardized UTI.
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\428\ The Commission estimates for PRA purposes that there would
be a moderate increase in the burden incurred by market
participants, as discussed in the PRA section.
---------------------------------------------------------------------------
In addition, the Commission understands ESMA mandates UTIs. The
Commission views this as a significant mitigating factor when assessing
what, if any, additional burden SDRs serving multiple jurisdictions as
well as reporting counterparties active in the European markets, will
experience, since they have likely already updated their systems to
meet the European standards.
Commenters support the Commission's expectation implementing the
global standard would streamline reporting across jurisdictions, reduce
costs overall, and benefit markets by facilitating more accurate global
swap data aggregation.\429\ LCH notes implementing the UTI will reduce
cross-border reporting complexity, further
[[Page 75556]]
encouraging global aggregation.\430\ Many commenters also support
expanding the ability to generate UTIs to non-SD/MSP/DCO reporting
counterparties that are not financial entities for off-facility swaps
since they are in the best position to collect the required information
(such as the LEI) from the non-reporting counterparty \431\ and it
removes a disparity between trade identifiers used by internal record-
keeping systems and data reported to SDRs.\432\
---------------------------------------------------------------------------
\429\ GLEIF at 3; see also GFXD at 22-23.
\430\ LCH at 3.
\431\ DTCC at 5.
\432\ CME at 16.
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Some commenters disagree with keeping SDRs as the UTI ``generator
of last resort.'' \433\ However, other commenters recognize the need
for it in some cases.\434\ Further, keeping SDRs at the bottom of the
UTI generation hierarchy is consistent with the UTI Technical Guidance
and is currently required by the Commission's regulations.
---------------------------------------------------------------------------
\433\ CME at 16-17, DTCC at 5, and ICE SDR at 5.
\434\ Chatham at 3.
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In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the final rule amendments notwithstanding their expected
mitigated costs.
d. Sec. 45.6--Legal Entity Identifiers
The Commission is amending Sec. 45.6 to (i) require SDs, MSPs,
DCOs, SEFs, DCMs, and SDRs to maintain and renew LEIs; (ii) require
financial entity reporting counterparties to use best efforts to cause
LEIs to be issued for swap counterparties that do not have one and if
those efforts fail, to promptly provide the identity and contact
information of the counterparty to the Commission; and (iii) update
unnecessary and outdated regulatory text. The Commission believes
accurate LEIs are essential for the Commission to use swap data to
fulfill its regulatory responsibilities.
i. Benefits
Mandating LEI renewal will benefit the swaps market by improving
the Commission's ability to analyze activity in the swaps market.
Reference data provide valuable identification and relationship
information about swap counterparties. Accurate reference data allow
for robust analysis of risk concentration within and across entities,
as well as a way to identify the distribution or transfer of risk
across different legal entities under the same parent. The Commission
believes accurate reference data is essential for it to satisfy its
regulatory responsibilities because it clearly identify entities
involved in the swaps market, as well as how these entities relate to
one another--both key requirements for monitoring systemic risk and
promoting fair and efficient markets. In addition, LEIs have already
been broadly adopted in swaps markets and have reduced ambiguity for
market participants previously using various unstandardized
identifiers.
ii. Costs
LEI renewals will impose some costs.\435\ Currently, the Commission
understands registering a new LEI costs $65 and renewals cost each
holder $50 per year.\436\ One comment notes the mitigating fact these
costs have fallen by more than 50% over the last 5 years due to
increased efficiency as market adoption increased.\437\ To limit
burdens, the Commission is limiting the renewal requirement to the
estimated 150 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs, resulting in an
aggregate cost of approximately $7,500 for this requirement. The
Commission believes these entities have the most systemic impact on the
Commission's ability to fulfill its regulatory mandates and thus
warrant this small additional cost. The Commission will consider
expanding the renewal requirement in future releases upon further
enhancements in LEI reference data or realized reductions in cost to
LEI holders.
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\435\ The Commission estimates for PRA purposes that there would
be a slight increase in the burden incurred by market participants,
as discussed in the PRA section.
\436\ LEI registration and renewal costs from Bloomberg LLP,
retrieved on September 16, 2020. https://lei.bloomberg.com/docs/faq#what-fees-are-involved.
\437\ GLEIF at 1-2.
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Requiring financial entities to endeavor to cause LEIs to be issued
for swap counterparties that do not have one (and, if those efforts
fail, to report the identity and contact information of the
counterparty to the Commission) will both further the Commission's
objective of monitoring risk in the swaps market and incentivize LEI
registration for counterparties that have not yet obtained LEIs.
However, the Commission recognizes this requirement imposes some costs
on both the entity encouraged to obtain an LEI and the financial entity
in verifying that its counterparties have valid LEIs and encouraging
them to obtain one (or obtaining an LEI for them) if they do not and
informing the Commission if the financial entity's efforts fail. As
mentioned above, the cost to an entity to obtain an LEI is minor, and
has trended down over time. Further, financial entities collect the
same information during the onboarding process when entering into a
swap contract with a new counterparty that is needed to obtain an LEI
for the counterparty, a mitigating factor for the financial entities to
the extent they must be required to encourage their counterparties to
obtain LEIs (or obtain an LEI for them). The cost to notify the
Commission if the financial entity's efforts fail is also expected to
be low. The Commission expects both cases to impose a limited burden on
swaps markets as the widespread adoption of the LEI standard continues.
The number of current swap counterparties without LEIs is difficult
to estimate because of the lack of standardization of non-LEI
identifiers. The Commission cannot determine whether non-LEI
identifiers represent an entity that has already been assigned an LEI
or whether two non-LEI identifiers are two different representations of
the same entity. However, the Commission expects the number of
counterparties currently without LEIs to be small, given the results of
an analysis from December 2019 that showed 90% of all records reported
had LEIs for both counterparties. More generally, any swap data that
does not identify eligible counterparties with an LEI hinders the
Commission's fulfillment of its regulatory mandates, including systemic
risk monitoring. Given the low cost of registering for a new LEI listed
above, the small number of remaining entities engaging in swap
transactions without an LEI, and the limited amount of additional
effort financial entities need to exert so that every LEI-eligible
counterparty has an LEI, the Commission expects the overall cost of
this amendment to be minimal.
The Commission received comments supporting its expectation that
requiring the most systemically important swaps market participants to
maintain and renew their LEIs will facilitate better aggregation of
entities and more accurate analysis of swaps market activity, market
concentration, risk transfer, and systemic risk. Commenters, including
DTCC, GLEIF, XBRL, LCH, Chatham, and Eurex, all support the requirement
for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs to maintain and renew their
LEIs to ensure their accuracy noting this improves transparency and
aligns with the global adoption of LEIs.\438\ While the existing
requirement for all LEI holders to update their LEI reference data
remains, the Commission believes the confirmation of the
[[Page 75557]]
accuracy of their reference data provided by LEI holders during LEI
renewal serves as an additional assurance of data quality for the most
systematically important entities, and therefore warrants the annual
renewal requirement for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs.
---------------------------------------------------------------------------
\438\ DTCC at 6, GLEIF at 1-2, XBRL at 2, LCH at 3, Chatham at
3, Eurex at 4.
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In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the final rule amendments notwithstanding their expected
mitigated costs.
e. Sec. 45.10--Reporting to a Single SDR
The Commission is amending Sec. 45.10 to permit reporting
counterparties to transfer swap data and swap transaction and pricing
data between SDRs in revised Sec. 45.10(d). To do so, reporting
counterparties will need to notify the current SDR, new SDR, and non-
reporting counterparty of the UTIs for the swaps being transferred and
the date of transfer at least five business days before the transfer.
Reporting counterparties will then need to report the change of SDR to
the current SDR and the new SDR, and then begin reporting to the new
SDR. The Commission believes the ability to change SDRs will benefit
reporting counterparties by permitting them to choose the SDR that best
fits their business needs.
i. Benefits
The amendments to Sec. 45.10(d) will benefit reporting
counterparties by giving them the freedom to select the SDR that
provides the best services, pricing, and functionality to serve their
business needs instead of having to use the same SDR for the entire
life of the swap. The Commission believes reporting counterparties
could benefit through reduced costs if they had the ability to change
to an SDR that provided services better calibrated to their business
needs.
ii. Costs
The amendments will impose costs on the three SDRs. SDRs will need
to update their systems to permit reporting counterparties to transfer
swap data and swap transaction pricing data in the middle of a swap's
life cycle, rather than at the point of swap initiation. However, the
Commission believes SDRs will be able to accommodate these changes
after initial system updates since they are only slightly more
burdensome than current onboarding practices for new clients at
SDRs.\439\
---------------------------------------------------------------------------
\439\ The Commission estimates for PRA purposes that there would
be a minimal increase in the burden incurred by reporting
counterparties, as discussed in the PRA section.
---------------------------------------------------------------------------
The Commission received comments supporting its expectation that
market participants will benefit from the flexibility to change SDRs
and the SDRs themselves will be able to accommodate the changes with
minimal additional burden.\440\ The Commission requested comments on
the costs and benefits of the amendments to Sec. 45.10, but did not
receive any comments that provided additional data, significant cost-
benefit alternatives, or other opposing or critical views on the costs
and benefits.
---------------------------------------------------------------------------
\440\ GFXD at 24, DTCC at 7.
---------------------------------------------------------------------------
In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the rule amendments notwithstanding their expected mitigated
costs.
f. Sec. 45.12--Data Reporting for Swaps in a Swap Asset Class Not
Accepted by Any SDR
The Commission is removing the Sec. 45.12 regulations permitting
voluntary supplemental reporting. Existing Sec. 45.12 permits
voluntary supplemental reporting to SDRs and specifies counterparties
must report USIs, LEIs, and an indication of jurisdiction as part of
the supplementary report. Existing Sec. 45.12 also requires
counterparties correct errors in voluntary supplemental reports. The
Commission believes removing voluntary supplemental reports will reduce
unnecessary messages at SDRs that do not provide a clear regulatory
benefit to the Commission.
i. Benefits
Removing the option for voluntary supplemental reporting will
benefit SDRs that will no longer need to take in, process, validate,
and store the reports. This should reduce costs and any unnecessary
complexities for SDRs concerning these reports that provide little
benefit to the Commission.
ii. Costs
The change could impose initial costs on SDRs. SDRs may need to
update their systems to stop accepting these reports. However, the
Commission expects these costs will be minimal and after the initial
system updates, SDRs should see reduced costs by not having to
accommodate these reports. CFTC SMEs estimate the cost of these changes
to be small for large reporting entities and SDRs.
The Commission received comments from Eurex, ISDA-SIFMA, and NRECA-
APPA in support of this amendment.\441\ The Commission did not receive
any comments providing additional data, significant cost-benefit
alternatives, or other opposing or critical views on the costs and
benefits. In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the final rule amendments notwithstanding their expected
mitigated costs.
---------------------------------------------------------------------------
\441\ Eurex at 5, ISDA-SIFMA at 16, NRECA-APPA at 5.
---------------------------------------------------------------------------
6. Costs and Benefits of Amendments to Part 46
a. Sec. 46.3--Swap Data Reporting for Pre-Enactment Swaps and
Transition Swaps
The Commission is amending Sec. 46.3 to remove an exception for
required swap continuation data reporting for pre-enactment and
transition swaps. Existing Sec. 46.3(a)(2) provides that reporting
counterparties need to report only a subset of part 45 swap data
elements when reporting updates to pre-enactment and transition swaps.
The Commission is removing that exception to specify that reporting
counterparties would report updates to pre-enactment and transition
swaps according to part 45.
The Commission believes this is current practice for SDRs and
reporting counterparties, and therefore should not impact costs or
benefits to SDRs and reporting counterparties. The Commission did not
receive any comments on the cost-benefit considerations for the
proposed changes to Sec. 46.3.
b. Sec. 46.10--Required Data Standards
The Commission is updating Sec. 46.10 to require reporting
counterparties to use the required data standards outlined in Sec.
45.13(a) and data elements in appendix 1 for reporting historical swaps
to SDRs. The Commission believes reporting counterparties currently use
the same data standards for both parts 45 and 46 reporting. This change
will ensure that reporting counterparties continue to do so under the
updated list of swap data elements in appendix 1 and the new technical
specification.
SDRs and reporting counterparties will both incur costs in updating
their part 46 reporting systems to report according to any of the
changes to part 45 reporting. However, given the diminishing number of
historical swaps that have not yet matured or been terminated, the
Commission expects these costs will be negligible compared to the costs
associated with complying with new data elements in appendix 1.
[[Page 75558]]
In addition, since the data elements are the same, any costs or
benefits are captured in the Commission's analysis for Sec. 45.3. The
Commission did not receive any comments on the cost-benefit
considerations for the proposed changes to Sec. 46.10.
c. Sec. 46.11--Reporting of Errors and Omissions in Previously Omitted
Data
The Commission is removing Sec. 46.11(b) to remove the option for
state data reporting. This is consistent with the Commission's
elimination of state data reporting in Sec. 45.4. While the number of
historical swaps that have not yet matured or been terminated is
dwindling, SD/MSP and non-SD/MSP reporting counterparties would see a
reduction in costs due to no longer having to submit daily reports for
any open swaps.\442\ The Commission did not receive any comments on the
cost-benefit considerations for the proposed removal of Sec. 46.11(b).
---------------------------------------------------------------------------
\442\ For instance, in reviewing credit default swap data, the
Commission found that there were 153,563 open pre-enactment swaps
and transition swaps in 2013. In 2019, that number had decreased to
2,048.
---------------------------------------------------------------------------
7. Costs and Benefits of Amendments to Part 49
a. Sec. 49.4--Withdrawal From Registration
The Commission is amending Sec. 49.4 to (i) remove the erroneous
requirement for SDRs to submit a statement to the Commission that the
custodial SDR is authorized to make the withdrawing SDR's data and
records available in accordance with Sec. 1.44; and (ii) remove the
Sec. 49.4(a)(2) requirement that prior to filing a request to
withdraw, a registered SDR file an amended Form SDR to update any
inaccurate information and replace it with a new requirement for SDRs
to execute an agreement with the custodial SDR governing the custody of
the withdrawing SDR's data and records prior to filing a request to
withdraw with the Commission. The Commission believes the amendments
will simplify the regulations and help ensure that swap data is
properly transferred to a different SDR when one SDR withdraws from
registration.
i. Benefits
The Commission believes SDRs will benefit from the removal of the
unnecessary requirement to update Form SDR prior to withdrawing from
registration. The swaps market will benefit from having an explicit
regulatory requirement for an SDR withdrawing from registration to have
an agreement with the custodial SDR regarding the withdrawing SDR's
data and records. This will also benefit market participants by
ensuring the preservation of historical swap data which will improve
the Commission's oversight abilities and promote the health and
integrity of swaps markets.
ii. Costs
The Commission believes SDRs will not incur any material costs
associated with the changes.\443\ SDRs will execute a custodial
agreement to transfer the data as a matter of due course. The changes
concerning timing and removing the erroneous reference will not result
in costs for the SDRs. The Commission did not receive any comments on
the cost-benefit considerations for the proposed changes to Sec. 49.4.
In the absence of material costs, the Commission believes the expected
benefits justify this amendment.
---------------------------------------------------------------------------
\443\ The Commission estimates for PRA purposes that there would
be a minimal change in the burden incurred by reporting
counterparties, as discussed in the PRA section.
---------------------------------------------------------------------------
b. Sec. 49.10--Acceptance of Data
Most of the amendments to Sec. 49.10 are non-substantive technical
amendments. However, the Commission is adding new Sec. 49.10(c) to
require SDRs to validate SDR data. New Sec. 49.10(c) will require that
SDRs establish data validations. SDRs will also be required to send
SEFs, DCMs, and reporting counterparties data validation acceptance and
error messages that identify the validation errors. The Commission is
prohibiting SDRs from rejecting a swap transaction and pricing data
message if it was submitted jointly with a swap data message that
contained a validation error.
i. Benefits
SDRs, SEFs, DCMs, and reporting counterparties will benefit by
having a single set of validation rules in the technical specification
instead of the current environment where each SDR applies different
validations they designed independently. A common set of validations
specified in the technical data standards will also benefit market
participants by streamlining the data reporting process for market
participants and ensuring more accurate data which facilitates more
effective market oversight by the Commission.
ii. Costs
SDRs, SEFs, DCMs, and reporting counterparties will incur costs in
updating their reporting systems to apply these validation rules.\444\
To the extent SDRs operate in multiple jurisdictions, ESMA already
requires many data validations similar to those in the DMO technical
specification to be published on cftc.gov. An SDR may have to spend
fewer resources updating its systems for the changes in Sec. 49.10(c)
if it has already made these changes for European market participants.
Similarly, SEFs, DCMs, and reporting counterparties reporting to
European TRs may have to spend fewer resources making these updates. In
both cases, the cost of implementing these changes is expected to be
fully contained in the costs associated with implementing the data
standards detailed in section VII.C.5.a above, since the validations
are part of the data standards. As a result, the Commission expects the
cost of implementing data validations to be fully encapsulated by the
effort to implement the data standards.
---------------------------------------------------------------------------
\444\ The Commission estimates for PRA purposes that there would
be an increase in the burden incurred by reporting counterparties
and SDRs, as discussed in the PRA section.
---------------------------------------------------------------------------
The Commission received comments from FIA that they believe
validations will improve data accuracy.\445\ Markit supports
validations notes they will allow third-party service providers to
develop data validation solutions for reporting parties that will
substantially reduce the cost of complying with them.\446\ NRECA-APPA
note these validations burden swap market participants and requests
evidence of regulatory benefits that would offset their costs.\447\ In
response, the Commission maintains the critical regulatory benefits of
more accurate swap data noted multiple times throughout section VII.C
of this final rule and consistent with Congressional goals reflected in
the Dodd-Frank Act--including more effective market oversight by the
Commission and streamlined reporting processes for market
participants--provide the necessary degree of justifying benefits. The
Commission did not receive any comments that provided additional data,
significant cost-benefit alternatives, or other opposing or critical
views on the costs and benefits.
---------------------------------------------------------------------------
\445\ FIA at 7.
\446\ Markit at 3.
\447\ NRECA-APPA at 5.
---------------------------------------------------------------------------
In sum, for reasons discussed above and taking into account
relevant comments, the Commission believes the expected benefits
justify the final rule amendments notwithstanding their expected
mitigated costs.
8. Consideration of CEA Section 15(a) Factors
The Dodd-Frank Act sought to promote the financial stability of the
U.S., in part, by improving financial system accountability and
transparency.
[[Page 75559]]
More specifically, Title VII of the Dodd-Frank Act directs the
Commission to promulgate regulations to increase swaps markets'
transparency and thereby reduce the potential for counterparty and
systemic risk.\448\ Transaction-based reporting is a fundamental
component of the legislation's objectives to increase transparency,
reduce risk, and promote market integrity within the financial system
generally, and the swaps market in particular. SDRs and SEFs, DCMs, and
other reporting entities that submit data to SDRs are central to
achieving the legislation's objectives related to swap reporting.
---------------------------------------------------------------------------
\448\ See Congressional Research Service Report for Congress,
The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title
VII, Derivatives, by Mark Jickling and Kathleen Ann Ruane (August
30, 2010); Department of the Treasury, Financial Regulatory Reform:
A New Foundation: Rebuilding Financial Supervision and Regulation
(June 17, 2009) at 47-48.
---------------------------------------------------------------------------
CEA section 15(a) requires the Commission to consider the costs and
benefits of the proposed amendments to parts 45, 46, and 49 with
respect to the following factors:
Protection of market participants and the public;
Efficiency, competitiveness, and financial integrity of
markets;
Price discovery;
Sound risk management practices; and
Other public interest considerations.
The Commission discusses the CEA section 15(a) factors below.
a. Protection of Market Participants and the Public
The Commission believes the reporting changes under parts 45, 46,
and 49 will enhance protections already in place for market
participants and the public. By lengthening reporting timeframes and
standardizing data formats, the Commission believes it will receive
more cohesive, more standardized, and, ultimately, more accurate data
without sacrificing the ability to oversee the markets robustly.
Higher-quality swap data will improve the Commission's oversight and
enforcement capabilities, and, in turn, will aid it in protecting
markets, participants, and the public in general.
b. Efficiency, Competitiveness, and Financial Integrity
The Commission believes the final rules will streamline reporting
and improve efficiencies given the improved data standardization. By
identifying reporting entities and more sharply defining reporting
responsibilities by making DCO reporting duties clearer, the final
rules strive to improve the reliability and consistency of swap data.
This enhanced reliability, in turn, is an added support that might
further lead to bolstering the financial integrity of swaps markets.
Finally, the validation of swap data will improve the accuracy and
completeness of swap data available to the Commission and will assist
the Commission with, among other things, improved monitoring of risk
exposures of individual counterparties, monitoring concentrations of
risk exposure, and evaluating systemic risk.
c. Price Discovery
The Commission does not believe the final rules will have a
significant impact on price discovery.
d. Risk Management Practices
The Commission believes the final rules will improve the quality of
swap data reported to SDRs and, hence, improve the Commission's ability
to monitor the swaps market, react to changes in market conditions, and
fulfill its regulatory responsibilities generally. The Commission
believes regulator access to high-quality swap data is essential for
regulators to monitor the swaps market for systemic risk or unusually
large concentrations of risk in individual swaps markets or asset
classes.
e. Other Public Interest Considerations
The Commission believes the improved accuracy resulting from
improvements to data entry by market participants and validation
efforts by SDRs via the final rules has other public interest impacts
including:
Increased understanding for the public, market
participants, and the Commission of the interaction between the swaps
market, other financial markets, and the overall economy;
Improved regulatory oversight and enforcement
capabilities; and
Enhanced information for the Commission and other
regulators so that they may establish more effective public policies to
monitor and, where necessary, reduce overall systemic risk.
D. Antitrust Considerations
CEA section 15(b) requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA, in issuing any order or adopting any Commission
rule or regulation.
The Commission does not believe the changes to part 45 would result
in anti-competitive behavior. The Commission believes the amendments to
Sec. 45.10(d) that would permit reporting counterparties to change
SDRs would promote competition by encouraging SDRs to offer competitive
pricing and services to encourage reporting counterparties to either
stay customers or come to their SDR. The Commission did not receive any
comments on the antitrust considerations in the Proposal.
List of Subjects
17 CFR Part 45
Data recordkeeping requirements, Data reporting requirements,
Swaps.
17 CFR Part 46
Data recordkeeping requirements, Data reporting requirements,
Swaps.
17 CFR Part 49
Registration and regulatory requirements, Swap data repositories.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR chapter I as follows:
PART 45--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS
0
1. The authority citation for part 45 continues to read as follows:
Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a, and 24a, as amended
by Title VII of the Wall Street Reform and Consumer Protection Act
of 2010, Pub. L. 111-203, 124 Stat. 1376 (2010), unless otherwise
noted.
0
2. Revise Sec. 45.1 to read as follows:
Sec. 45.1 Definitions.
(a) As used in this part:
Allocation means the process by which an agent, having facilitated
a single swap transaction on behalf of several clients, allocates a
portion of the executed swap to the clients.
As soon as technologically practicable means as soon as possible,
taking into consideration the prevalence, implementation, and use of
technology by comparable market participants.
Asset class means a broad category of commodities, including,
without limitation, any ``excluded commodity'' as defined in section
1a(19) of the Act, with common characteristics underlying a swap. The
asset classes include interest rate, foreign exchange, credit, equity,
other commodity, and such other asset classes as may be determined by
the Commission.
Business day means the twenty-four-hour day, on all days except
Saturdays, Sundays, and legal holidays, in the location of the swap
execution facility, designated contract market, or reporting
[[Page 75560]]
counterparty reporting data for the swap.
Business hours means consecutive hours during one or more
consecutive business days.
Clearing swap means a swap created pursuant to the rules of a
derivatives clearing organization that has a derivatives clearing
organization as a counterparty, including any swap that replaces an
original swap that was extinguished upon acceptance of such original
swap by the derivatives clearing organization for clearing.
Collateral data means the data elements necessary to report
information about the money, securities, or other property posted or
received by a swap counterparty to margin, guarantee, or secure a swap,
as specified in appendix 1 to this part.
Derivatives clearing organization means a derivatives clearing
organization, as defined by Sec. 1.3 of this chapter, that is
registered with the Commission.
Electronic reporting (``report electronically'') means the
reporting of data normalized in data elements as required by the data
standard or standards used by the swap data repository to which the
data is reported. Except where specifically otherwise provided in this
chapter, electronic reporting does not include submission of an image
of a document or text file.
Execution means an agreement by the parties, by any method, to the
terms of a swap that legally binds the parties to such swap terms under
applicable law.
Execution date means the date of execution of a particular swap.
The execution date for a clearing swap that replaces an original swap
is the date on which the original swap has been accepted for clearing.
Financial entity has the meaning set forth in CEA section
2(h)(7)(C).
Global Legal Entity Identifier System means the system established
and overseen by the Legal Entity Identifier Regulatory Oversight
Committee for the unique identification of legal entities and
individuals.
Legal entity identifier or LEI means a unique code assigned to swap
counterparties and entities in accordance with the standards set by the
Global Legal Entity Identifier System.
Legal Entity Identifier Regulatory Oversight Committee means the
group charged with the oversight of the Global Legal Entity Identifier
System that was established by the Finance Ministers and the Central
Bank Governors of the Group of Twenty nations and the Financial
Stability Board, under the Charter of the Regulatory Oversight
Committee for the Global Legal Entity Identifier System dated November
5, 2012, or any successor thereof.
Life-cycle event means any event that would result in a change to
required swap creation data previously reported to a swap data
repository in connection with a swap. Examples of such events include,
without limitation, a counterparty change resulting from an assignment
or novation; a partial or full termination of the swap; a change to the
end date for the swap; a change in the cash flows or rates originally
reported; availability of a legal entity identifier for a swap
counterparty previously identified by some other identifier; or a
corporate action affecting a security or securities on which the swap
is based (e.g., a merger, dividend, stock split, or bankruptcy).
Life-cycle-event data means all of the data elements necessary to
fully report any life cycle event.
Mixed swap has the meaning set forth in CEA section 1a(47)(D), and
refers to an instrument that is in part a swap subject to the
jurisdiction of the Commission, and in part a security-based swap
subject to the jurisdiction of the Securities and Exchange Commission.
Multi-asset swap means a swap that does not have one easily
identifiable primary underlying notional item, but instead involves
multiple underlying notional items within the Commission's jurisdiction
that belong to different asset classes.
Non-SD/MSP/DCO counterparty means a swap counterparty that is not a
swap dealer, major swap participant, or derivatives clearing
organization.
Non-SD/MSP/DCO reporting counterparty means a reporting
counterparty that is not a swap dealer, major swap participant, or
derivatives clearing organization.
Novation means the process by which a party to a swap legally
transfers all or part of its rights, liabilities, duties, and
obligations under the swap to a new legal party other than the
counterparty to the swap under applicable law.
Off-facility swap means any swap transaction that is not executed
on or pursuant to the rules of a swap execution facility or designated
contract market.
Original swap means a swap that has been accepted for clearing by a
derivatives clearing organization.
Reporting counterparty means the counterparty required to report
swap data pursuant to this part, selected as provided in Sec. 45.8.
Required swap continuation data means all of the data elements that
must be reported during the existence of a swap to ensure that all swap
data concerning the swap in the swap data repository remains current
and accurate, and includes all changes to the required swap creation
data occurring during the existence of the swap. For this purpose,
required swap continuation data includes:
(i) All life-cycle-event data for the swap; and
(ii) All swap valuation, margin, and collateral data for the swap.
Required swap creation data means all data for a swap required to
be reported pursuant to Sec. 45.3 for the swap data elements in
appendix 1 to this part.
Swap means any swap, as defined by Sec. 1.3 of this chapter, as
well as any foreign exchange forward, as defined by section 1a(24) of
the Act, or foreign exchange swap, as defined by section 1a(25) of the
Act.
Swap data means the specific data elements in appendix 1 to this
part required to be reported to a swap data repository pursuant to this
part or made available to the Commission pursuant to part 49 of this
chapter, as applicable.
Swap data validation procedures means procedures established by a
swap data repository pursuant to Sec. 49.10 of this chapter to accept,
validate, and process swap data reported to the swap data repository
pursuant to part 45 of this chapter.
Swap execution facility means a trading system or platform that is
a swap execution facility as defined in CEA section 1a(50) and in Sec.
1.3 of this chapter and that is registered with the Commission pursuant
to CEA section 5h and part 37 of this chapter.
Swap transaction and pricing data means all data elements for a
swap in appendix A to part 43 of this chapter that are required to be
reported or publicly disseminated pursuant to part 43 of this chapter.
Unique transaction identifier means a unique alphanumeric
identifier with a maximum length of 52 characters constructed solely
from the upper-case alphabetic characters A to Z or the digits 0 to 9,
inclusive in both cases, generated for each swap pursuant to Sec.
45.5.
Valuation data means the data elements necessary to report
information about the daily mark of the transaction, pursuant to
section 4s(h)(3)(B)(iii) of the Act, and to Sec. 23.431 of this
chapter, if applicable, as specified in appendix 1 to this part.
(b) Other defined terms. Terms not defined in this part have the
meanings assigned to the terms in Sec. 1.3 of this chapter.
Sec. 45.2 [Amended]
0
3. In Sec. 45.2:
[[Page 75561]]
0
a. Remove all instances of ``non-SD/MSP'' and add in its place ``non-
SD/MSP/DCO''; and
0
b. For each paragraph indicated in the left column of the table below,
remove the text indicated in the middle column from wherever it
appears, and add in its place the text indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
(a) introductory text....... major swap major swap
participant subject participant.
to the jurisdiction
of the Commission.
(b)......................... counterparties counterparties.
subject to the
jurisdiction of the
Commission.
(b)......................... the clearing any clearing
requirement requirement
exception in CEA exception or
section 2(h)(7). exemption pursuant
to section 2(h)(7)
of the Act or part
50 of this chapter.
(h)......................... counterparty subject counterparty.
to the jurisdiction
of the Commission.
------------------------------------------------------------------------
0
4. Revise Sec. 45.3 to read as follows:
Sec. 45.3 Swap data reporting: Creation data.
(a) Swaps executed on or pursuant to the rules of a swap execution
facility or designated contract market. For each swap executed on or
pursuant to the rules of a swap execution facility or designated
contract market, the swap execution facility or designated contract
market shall report required swap creation data electronically to a
swap data repository in the manner provided in Sec. 45.13(a) not later
than the end of the next business day following the execution date.
(b) Off-facility swaps. For each off-facility swap, the reporting
counterparty shall report required swap creation data electronically to
a swap data repository as provided by paragraph (b)(1) or (2) of this
section, as applicable.
(1) If the reporting counterparty is a swap dealer, major swap
participant, or derivatives clearing organization, the reporting
counterparty shall report required swap creation data electronically to
a swap data repository in the manner provided in Sec. 45.13(a) not
later than the end of the next business day following the execution
date.
(2) If the reporting counterparty is a non-SD/MSP/DCO counterparty,
the reporting counterparty shall report required swap creation data
electronically to a swap data repository in the manner provided in
Sec. 45.13(a) not later than the end of the second business day
following the execution date.
(c) Allocations. For swaps involving allocation, required swap
creation data shall be reported electronically to a single swap data
repository as follows.
(1) Initial swap between reporting counterparty and agent. The
initial swap transaction between the reporting counterparty and the
agent shall be reported as required by paragraph (a) or (b) of this
section, as applicable. A unique transaction identifier for the initial
swap transaction shall be created as provided in Sec. 45.5.
(2) Post-allocation swaps--(i) Duties of the agent. In accordance
with this section, the agent shall inform the reporting counterparty of
the identities of the reporting counterparty's actual counterparties
resulting from allocation, as soon as technologically practicable after
execution, but no later than eight business hours after execution.
(ii) Duties of the reporting counterparty. The reporting
counterparty shall report required swap creation data, as required by
paragraph (b) of this section, for each swap resulting from allocation
to the same swap data repository to which the initial swap transaction
is reported. The reporting counterparty shall create a unique
transaction identifier for each such swap as required in Sec. 45.5.
(d) Multi-asset swaps. For each multi-asset swap, required swap
creation data and required swap continuation data shall be reported to
a single swap data repository that accepts swaps in the asset class
treated as the primary asset class involved in the swap by the swap
execution facility, designated contract market, or reporting
counterparty reporting required swap creation data pursuant to this
section.
(e) Mixed swaps. (1) For each mixed swap, required swap creation
data and required swap continuation data shall be reported to a swap
data repository and to a security-based swap data repository registered
with the Securities and Exchange Commission. This requirement may be
satisfied by reporting the mixed swap to a swap data repository or
security-based swap data repository registered with both Commissions.
(2) The registered entity or reporting counterparty reporting
required swap creation data pursuant to this section shall ensure that
the same unique transaction identifier is recorded for the swap in both
the swap data repository and the security-based swap data repository.
(f) Choice of swap data repository. The entity with the obligation
to choose the swap data repository to which all required swap creation
data for the swap is reported shall be the entity that is required to
make the first report of all data pursuant to this section, as follows:
(1) For swaps executed on or pursuant to the rules of a swap
execution facility or designated contract market, the swap execution
facility or designated contract market shall choose the swap data
repository;
(2) For all other swaps, the reporting counterparty, as determined
in Sec. 45.8, shall choose the swap data repository.
0
5. Revise Sec. 45.4 to read as follows:
Sec. 45.4 Swap data reporting: Continuation data.
(a) Continuation data reporting method generally. For each swap,
regardless of asset class, reporting counterparties and derivatives
clearing organizations required to report required swap continuation
data shall report life-cycle-event data for the swap electronically to
a swap data repository in the manner provided in Sec. 45.13(a) within
the applicable deadlines set forth in this section.
(b) Continuation data reporting for original swaps. For each
original swap, the derivatives clearing organization shall report
required swap continuation data, including terminations, electronically
to the swap data repository to which the swap that was accepted for
clearing was reported pursuant to Sec. 45.3 in the manner provided in
Sec. 45.13(a) and in this section, and such required swap continuation
data shall be accepted and recorded by such swap data repository as
provided in Sec. 49.10 of this chapter.
(1) The derivatives clearing organization that accepted the swap
for clearing shall report all life-cycle-event data electronically to a
swap data repository in the manner provided in Sec. 45.13(a) not later
than the end of the next business day following the day that
[[Page 75562]]
any life cycle event occurs with respect to the swap.
(2) In addition to all other required swap continuation data, life-
cycle-event data shall include all of the following:
(i) The legal entity identifier of the swap data repository to
which all required swap creation data for each clearing swap was
reported by the derivatives clearing organization pursuant to Sec.
45.3(b);
(ii) The unique transaction identifier of the original swap that
was replaced by the clearing swaps; and
(iii) The unique transaction identifier of each clearing swap that
replaces a particular original swap.
(c) Continuation data reporting for swaps other than original
swaps. For each swap that is not an original swap, including clearing
swaps and swaps not cleared by a derivatives clearing organization, the
reporting counterparty shall report all required swap continuation data
electronically to a swap data repository in the manner provided in
Sec. 45.13(a) as provided in this paragraph (c).
(1) Life-cycle-event data reporting. (i) If the reporting
counterparty is a swap dealer, major swap participant, or derivatives
clearing organization, the reporting counterparty shall report life-
cycle-event data electronically to a swap data repository in the manner
provided in Sec. 45.13(a) not later than the end of the next business
day following the day that any life cycle event occurred, with the sole
exception that life-cycle-event data relating to a corporate event of
the non-reporting counterparty shall be reported in the manner provided
in Sec. 45.13(a) not later than the end of the second business day
following the day that such corporate event occurred.
(ii) If the reporting counterparty is a non-SD/MSP/DCO
counterparty, the reporting counterparty shall report life-cycle-event
data electronically to a swap data repository in the manner provided in
Sec. 45.13(a) not later than the end of the second business day
following the day that any life cycle event occurred.
(2) Valuation, margin, and collateral data reporting. (i) If the
reporting counterparty is a swap dealer, major swap participant, or
derivatives clearing organization, swap valuation data shall be
reported electronically to a swap data repository in the manner
provided in Sec. 45.13(b) each business day.
(ii) If the reporting counterparty is a swap dealer or major swap
participant, collateral data shall be reported electronically to a swap
data repository in the manner provided in Sec. 45.13(b) each business
day.
0
6. Amend Sec. 45.5 by:
0
a. Revising the section heading and paragraphs (a)(1)(i); (b)(1)(i);
(b)(2)(ii); (c) introductory text; (c)(1) introductory text; (c)(1)(i);
(d) introductory text; (d)(1)(i);
0
b. In the table below, for each paragraph indicated in the left column,
remove the text indicated in the middle column from wherever it
appears, and add in its place the text indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
introductory text........... swap subject to the swap.
jurisdiction of the
Commission.
introductory text........... (a) through (f)..... (a) through (h).
(a)(1) introductory text.... single data field... single data element
with a maximum
length of 52
characters.
(b) paragraph heading and swap dealer or major financial entity.
introductory text. swap participant.
(b)(1) introductory text.... transmission of data transmission of swap
data.
(b)(1) introductory text.... single data field... single data element
with a maximum
length of 52
characters.
(b)(1)(ii).................. swap dealer or major reporting
swap participant. counterparty.
(d)(1) introductory text.... single data field... single data element
with a maximum
length of 52
characters.
(e)(1) introductory text.... (a) through (c) of (a) through (d) of
this section. this section, as
applicable.
(e)(2)(i)................... question............ question.
(e)(2)(ii).................. agent............... agent; and.
------------------------------------------------------------------------
0
c. Revising paragraph (f) and adding paragraphs (g) and (h); and
0
d. Removing all instances of ``unique swap identifier'' and ``unique
swap identifiers'' and adding in their place ``unique transaction
identifier'' and ``unique transaction identifiers'', respectively.
The revisions and additions read as follows:
Sec. 45.5 Unique transaction identifiers.
* * * * *
(a) * * *
(1) * * *
(i) The legal entity identifier of the swap execution facility or
designated contract market; and
* * * * *
(b) * * *
(1) * * *
(i) The legal entity identifier of the reporting counterparty; and
* * * * *
(2) * * *
(ii) To the non-reporting counterparty to the swap, no later than
the applicable deadline in Sec. 45.3(b) for reporting required swap
creation data; and
* * * * *
(c) Off-facility swaps with a non-SD/MSP/DCO reporting counterparty
that is not a financial entity. For each off-facility swap for which
the reporting counterparty is a non-SD/MSP/DCO counterparty that is not
a financial entity, the reporting counterparty shall either: Create and
transmit a unique transaction identifier as provided in paragraphs
(b)(1) and (2) of this section; or request that the swap data
repository to which required swap creation data will be reported create
and transmit a unique transaction identifier as provided in paragraphs
(c)(1) and (2) of this section.
(1) Creation. The swap data repository shall generate and assign a
unique transaction identifier as soon as technologically practicable
following receipt of the request from the reporting counterparty. The
unique transaction identifier shall consist of a single data element
with a maximum length of 52 characters that contains two components:
(i) The legal entity identifier of the swap data repository; and
* * * * *
(d) Off-facility swaps with a derivatives clearing organization
reporting counterparty. For each off-facility swap where the reporting
counterparty is a derivatives clearing organization, the reporting
counterparty shall create and transmit a unique
[[Page 75563]]
transaction identifier as provided in paragraphs (d)(1) and (2) of this
section.
(1) * * *
(i) The legal entity identifier of the derivatives clearing
organization; and
* * * * *
(f) Use. Each registered entity and swap counterparty shall include
the unique transaction identifier for a swap in all of its records and
all of its swap data reporting concerning that swap, from the time it
creates or receives the unique transaction identifier as provided in
this section, throughout the existence of the swap and for as long as
any records are required by the Act or Commission regulations to be
kept concerning the swap, regardless of any life cycle events
concerning the swap, including, without limitation, any changes with
respect to the counterparties to the swap.
(g) Third-party service provider. If a registered entity or
reporting counterparty required by this part to report required swap
creation data or required swap continuation data contracts with a
third-party service provider to facilitate reporting pursuant to Sec.
45.9, the registered entity or reporting counterparty shall ensure that
such third-party service provider creates and transmits the unique
transaction identifier as otherwise required for such category of swap
by paragraphs (a) through (e) of this section. The unique transaction
identifier shall consist of a single data element with a maximum length
of 52 characters that contains two components:
(1) The legal entity identifier of the third-party service
provider; and
(2) An alphanumeric code generated and assigned to that swap by the
automated systems of the third-party service provider, which shall be
unique with respect to all such codes generated and assigned by that
third-party service provider.
(h) Cross-jurisdictional swaps. Notwithstanding the provisions of
paragraphs (a) through (g) of this section, if a swap is also
reportable to one or more other jurisdictions with a regulatory
reporting deadline earlier than the deadline set forth in Sec. 45.3 or
in part 43 of this chapter, the same unique transaction identifier
generated according to the rules of the jurisdiction with the earliest
regulatory reporting deadline shall be transmitted pursuant to
paragraphs (a) through (g) of this section and used in all
recordkeeping and all swap data reporting pursuant to this part.
0
7. Revise Sec. 45.6 to read as follows:
Sec. 45.6 Legal entity identifiers.
Each swap execution facility, designated contract market,
derivatives clearing organization, swap data repository, entity
reporting pursuant to Sec. 45.9, and counterparty to any swap that is
eligible to receive a legal entity identifier shall obtain, maintain,
and be identified in all recordkeeping and all swap data reporting
pursuant to this part by a single legal entity identifier as specified
in this section.
(a) Definitions. As used in this section:
Local operating unit means an entity authorized under the standards
of the Global Legal Entity Identifier System to issue legal entity
identifiers.
Reference data means all identification and relationship
information, as set forth in the standards of the Global Legal Entity
Identifier System, of the legal entity or individual to which a legal
entity identifier is assigned.
Self-registration means submission by a legal entity or individual
of its own reference data.
Third-party registration means submission of reference data for a
legal entity or individual that is or may become a swap counterparty,
made by an entity or organization other than the legal entity or
individual identified by the submitted reference data. Examples of
third-party registration include, without limitation, submission by a
swap dealer or major swap participant of reference data for its swap
counterparties, and submission by a national numbering agency, national
registration agency, or data service provider of reference data
concerning legal entities or individuals with respect to which the
agency or service provider maintains information.
(b) International standard for the legal entity identifier. The
legal entity identifier used in all recordkeeping and all swap data
reporting required by this part shall be issued under, and shall
conform to, ISO Standard 17442, Legal Entity Identifier (LEI), issued
by the International Organization for Standardization.
(c) Reference data reporting. Reference data for each swap
execution facility, designated contract market, derivatives clearing
organization, swap data repository, entity reporting pursuant to Sec.
45.9, and counterparty to any swap shall be reported, by self-
registration, third-party registration, or both, to a local operating
unit in accordance with the standards set by the Global Legal Entity
Identifier System. All subsequent changes and corrections to reference
data previously reported shall be reported, by self-registration,
third-party registration, or both, to a local operating unit as soon as
technologically practicable following occurrence of any such change or
discovery of the need for a correction.
(d) Use of the legal entity identifier. (1) Each swap execution
facility, designated contract market, derivatives clearing
organization, swap data repository, entity reporting pursuant to Sec.
45.9, and swap counterparty shall use legal entity identifiers to
identify itself and swap counterparties in all recordkeeping and all
swap data reporting pursuant to this part. If a swap counterparty is
not eligible to receive a legal entity identifier as determined by the
Global Legal Entity Identifier System, such counterparty shall be
identified in all recordkeeping and all swap data reporting pursuant to
this part with an alternate identifier as prescribed by the Commission
pursuant to Sec. 45.13(a) of this chapter.
(2) Each swap dealer, major swap participant, swap execution
facility, designated contract market, derivatives clearing
organization, and swap data repository shall maintain and renew its
legal identity identifier in accordance with the standards set by the
Global Legal Entity Identifier System.
(3) Each financial entity reporting counterparty executing a swap
with a counterparty that is eligible to receive a legal entity
identifier, but has not been assigned a legal entity identifier, shall,
prior to reporting any required swap creation data for such swap, use
best efforts to cause a legal entity identifier to be assigned to the
counterparty. If these efforts do not result in a legal entity
identifier being assigned to the counterparty prior to the reporting of
required swap creation data, the financial entity reporting
counterparty shall promptly provide the identity and contact
information of the counterparty to the Commission.
(4) For swaps previously reported pursuant to this part using
substitute counterparty identifiers assigned by a swap data repository
prior to Commission designation of a legal entity identifier system,
each swap data repository shall map the legal entity identifiers for
the counterparties to the substitute counterparty identifiers in the
record for each such swap.
Sec. 45.7 [Amended]
0
8. Amend Sec. 45.7 introductory text by removing ``subject to the
jurisdiction of the Commission''.
0
9. In Sec. 45.8:
0
a. Revise the section heading and the introductory text;
[[Page 75564]]
0
b. Remove ``non-SD/MSP'' wherever it appears and add in its place
``non-SD/MSP/DCO''; and
0
c. In the table below, for each paragraph indicated in the left column,
remove the text indicated in the middle column from wherever it
appears, and add in its place the text indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
(h) introductory text....... swap creation data.. required swap
creation data.
(h)(1) introductory text.... achieve this........ comply with
paragraph (h) of
this section.
(h)(1)(vii)(D).............. unique swap unique transaction
identifier. identifier.
(h)(2)...................... achieve this........ comply with
paragraph (h) of
this section.
------------------------------------------------------------------------
The revisions read as follows:
Sec. 45.8 Determination of which counterparty shall report.
The determination of which counterparty is the reporting
counterparty for each swap shall be made as provided in this section.
* * * * *
Sec. 45.9 [Amended]
0
10. Amend Sec. 45.9 by removing ``swap counterparties'' and adding in
its place ``reporting counterparties''.
0
11. Revise Sec. 45.10 to read as follows:
Sec. 45.10 Reporting to a single swap data repository.
All swap transaction and pricing data and swap data for a given
swap shall be reported to a single swap data repository, which shall be
the swap data repository to which the first report of such data is
made, unless the reporting counterparty changes the swap data
repository to which such data is reported pursuant to paragraph (d) of
this section.
(a) Swaps executed on or pursuant to the rules of a swap execution
facility or designated contract market. To ensure that all swap
transaction and pricing data and swap data for a swap executed on or
pursuant to the rules of a swap execution facility or designated
contract market is reported to a single swap data repository:
(1) The swap execution facility or designated contract market shall
report all swap transaction and pricing data and required swap creation
data for a swap to a single swap data repository. As soon as
technologically practicable after execution of the swap, the swap
execution facility or designated contract market shall transmit to both
counterparties to the swap, and to the derivatives clearing
organization, if any, that will clear the swap, the identity of the
swap data repository to which such data is reported.
(2) Thereafter, all swap transaction and pricing data, required
swap creation data, and required swap continuation data for the swap
shall be reported to that same swap data repository, unless the
reporting counterparty changes the swap data repository to which such
data is reported pursuant to paragraph (d) of this section.
(b) Off-facility swaps that are not clearing swaps. To ensure that
all swap transaction and pricing data and swap data for an off-facility
swap that is not a clearing swap is reported to a single swap data
repository:
(1) The reporting counterparty shall report all swap transaction
and pricing data and required swap creation data to a single swap data
repository. As soon as technologically practicable after execution, the
reporting counterparty shall transmit to the other counterparty to the
swap, and to the derivatives clearing organization, if any, that will
clear the swap, the identity of the swap data repository to which such
data is reported.
(2) Thereafter, all swap transaction and pricing data, required
swap creation data, and required swap continuation data for the swap
shall be reported to the same swap data repository, unless the
reporting counterparty changes the swap data repository to which such
data is reported pursuant to paragraph (d) of this section.
(c) Clearing swaps. To ensure that all swap transaction and pricing
data and swap data for a given clearing swap, including clearing swaps
that replace a particular original swap or that are created upon
execution of the same transaction and that do not replace an original
swap, is reported to a single swap data repository:
(1) The derivatives clearing organization that is a counterparty to
such clearing swap shall report all swap transaction and pricing data
and required swap creation data for that clearing swap to a single swap
data repository. As soon as technologically practicable after
acceptance of an original swap for clearing, or execution of a clearing
swap that does not replace an original swap, the derivatives clearing
organization shall transmit to the counterparty to each clearing swap
the identity of the swap data repository to which such data is
reported.
(2) Thereafter, all swap transaction and pricing data, required
swap creation data and required swap continuation data for that
clearing swap shall be reported by the derivatives clearing
organization to the same swap data repository to which swap data has
been reported pursuant to paragraph (c)(1) of this section, unless the
reporting counterparty changes the swap data repository to which such
data is reported pursuant to paragraph (d) of this section.
(3) For clearing swaps that replace a particular original swap, and
for equal and opposite clearing swaps that are created upon execution
of the same transaction and that do not replace an original swap, the
derivatives clearing organization shall report all swap transaction and
pricing data, required swap creation data, and required swap
continuation data for such clearing swaps to a single swap data
repository.
(d) Change of swap data repository for swap transaction and pricing
data and swap data reporting. A reporting counterparty may change the
swap data repository to which swap transaction and pricing data and
swap data is reported as set forth in this paragraph.
(1) Notifications. At least five business days prior to changing
the swap data repository to which the reporting counterparty reports
swap transaction and pricing data and swap data for a swap, the
reporting counterparty shall provide notice of such change to the other
counterparty to the swap, the swap data repository to which swap
transaction and pricing data and swap data is currently reported, and
the swap data repository to which swap transaction and pricing data and
swap data will be reported going forward. Such notification shall
include the unique transaction identifier of the swap and the date on
which the reporting counterparty will begin reporting such swap
transaction and pricing data and swap data to a different swap data
repository.
(2) Procedure. After providing the notifications required in
paragraph (d)(1) of this section, the reporting counterparty shall
follow paragraphs (d)(2)(i) through (iii) of this section to complete
the change of swap data repository.
[[Page 75565]]
(i) The reporting counterparty shall report the change of swap data
repository to the swap data repository to which the reporting
counterparty is currently reporting swap transaction and pricing data
and swap data as a life cycle event for such swap pursuant to Sec.
45.4.
(ii) On the same day that the reporting counterparty reports
required swap continuation data as required by paragraph (d)(2)(i) of
this section, the reporting counterparty shall also report the change
of swap data repository to the swap data repository to which swap
transaction and pricing data and swap data will be reported going
forward as a life cycle event for such swap pursuant to Sec. 45.4. The
required swap continuation data report shall identify the swap using
the same unique transaction identifier used to identify the swap at the
previous swap data repository.
(iii) Thereafter, all swap transaction and pricing data, required
swap creation data, and required swap continuation data for the swap
shall be reported to the same swap data repository, unless the
reporting counterparty for the swap makes another change to the swap
data repository to which such data is reported pursuant to paragraph
(d) of this section.
0
12. Revise Sec. 45.11 to read as follows:
Sec. 45.11 Data reporting for swaps in a swap asset class not
accepted by any swap data repository.
(a) Should there be a swap asset class for which no swap data
repository currently accepts swap data, each swap execution facility,
designated contract market, derivatives clearing organization, or
reporting counterparty required by this part to report any required
swap creation data or required swap continuation data with respect to a
swap in that asset class must report that same data to the Commission.
(b) Data subject to this section shall be reported at times
announced by the Commission and in an electronic file in a format
acceptable to the Commission.
Sec. 45.12 [Removed and reserved]
0
13. Remove and reserve Sec. 45.12.
0
14. Revise Sec. 45.13 to read as follows:
Sec. 45.13 Required data standards.
(a) Data reported to swap data repositories. (1) In reporting
required swap creation data and required swap continuation data to a
swap data repository, each reporting counterparty, swap execution
facility, designated contract market, and derivatives clearing
organization shall report the swap data elements in appendix 1 to this
part in the form and manner provided in the technical specifications
published by the Commission pursuant to Sec. 45.15.
(2) In reporting required swap creation data and required swap
continuation data to a swap data repository, each reporting
counterparty, swap execution facility, designated contract market, and
derivatives clearing organization making such report shall satisfy the
swap data validation procedures of the swap data repository.
(3) In reporting swap data to a swap data repository as required by
this part, each reporting counterparty, swap execution facility,
designated contract market, and derivatives clearing organization shall
use the facilities, methods, or data standards provided or required by
the swap data repository to which the entity or counterparty reports
the data.
(b) Data validation acceptance message. (1) For each required swap
creation data or required swap continuation data report submitted to a
swap data repository, a swap data repository shall notify the reporting
counterparty, swap execution facility, designated contract market,
derivatives clearing organization, or third-party service provider
submitting the report whether the report satisfied the swap data
validation procedures of the swap data repository. The swap data
repository shall provide such notification as soon as technologically
practicable after accepting the required swap creation data or required
swap continuation data report. A swap data repository may satisfy the
requirements of this paragraph by transmitting data validation
acceptance messages as required by Sec. 49.10 of this chapter.
(2) If a required swap creation data or required swap continuation
data report to a swap data repository does not satisfy the data
validation procedures of the swap data repository, the reporting
counterparty, swap execution facility, designated contract market, or
derivatives clearing organization required to submit the report has not
yet satisfied its obligation to report required swap creation or
continuation data in the manner provided by paragraph (a) of this
section within the timelines set forth in Sec. Sec. 45.3 and 45.4. The
reporting counterparty, swap execution facility, designated contract
market, or derivatives clearing organization has not satisfied its
obligation until it submits the required swap data report in the manner
provided by paragraph (a) of this section, which includes the
requirement to satisfy the data validation procedures of the swap data
repository, within the applicable time deadline set forth in Sec. Sec.
45.3 and 45.4.
0
15. Add Sec. 45.15 to read as follows:
Sec. 45.15 Delegation of authority.
(a) Delegation of authority to the chief information officer. The
Commission hereby delegates to its chief information officer, until the
Commission orders otherwise, the authority set forth in paragraph (a)
of this section, to be exercised by the chief information officer or by
such other employee or employees of the Commission as may be designated
from time to time by the chief information officer. The chief
information officer may submit to the Commission for its consideration
any matter which has been delegated in this paragraph. Nothing in this
paragraph prohibits the Commission, at its election, from exercising
the authority delegated in this paragraph. The authority delegated to
the chief information officer by this paragraph (a) shall include:
(1) The authority to determine the manner, format, coding
structure, and electronic data transmission standards and procedures
acceptable to the Commission for the purposes of Sec. 45.11;
(2) The authority to determine whether the Commission may permit or
require use by swap execution facilities, designated contract markets,
derivatives clearing organizations, or reporting counterparties in
reporting pursuant to Sec. 45.11 of one or more particular data
standards (such as FIX, FpML, ISO 20022, or some other standard), to
accommodate the needs of different communities of users;
(3) The dates and times at which required swap creation data or
required swap continuation data shall be reported pursuant to Sec.
45.11; and
(4) The chief information officer shall publish from time to time
in the Federal Register and on the website of the Commission the
format, data schema, electronic data transmission methods and
procedures, and dates and times for reporting acceptable to the
Commission with respect to swap data reporting pursuant to Sec. 45.11.
(b) Delegation of authority to the Director of the Division of
Market Oversight. The Commission hereby delegates to the Director of
the Division of Market Oversight, until the Commission orders
otherwise, the authority set forth in Sec. 45.13(a)(1), to be
exercised by the Director of the Division of Market Oversight or by
such other employee or employees of the Commission as may be designated
from time to time by the Director of the Division of Market Oversight.
The Director of the Division of Market
[[Page 75566]]
Oversight may submit to the Commission for its consideration any matter
which has been delegated pursuant to this paragraph. Nothing in this
paragraph prohibits the Commission, at its election, from exercising
the authority delegated in this paragraph. The authority delegated to
the Director of the Division of Market Oversight by this paragraph (b)
shall include:
(1) The authority to publish the technical specifications providing
the form and manner for reporting the swap data elements in appendix 1
to this part to swap data repositories as provided in Sec.
45.13(a)(1);
(2) The authority to determine whether the Commission may permit or
require use by swap execution facilities, designated contract markets,
derivatives clearing organizations, or reporting counterparties in
reporting pursuant to Sec. 45.13(a)(1) of one or more particular data
standards (such as FIX, FpML, ISO 20022, or some other standard), to
accommodate the needs of different communities of users;
(3) The dates and times at which required swap creation data or
required swap continuation data shall be reported pursuant to Sec.
45.13(a)(1); and
(4) The Director of the Division of Market Oversight shall publish
from time to time in the Federal Register and on the website of the
Commission the technical specifications for swap data reporting
pursuant to Sec. 45.13(a)(1).
0
16. Revise appendix 1 to part 45 to read as follows:
Appendix 1 to Part 45--Swap Data Elements
BILLING CODE 6351-01-P
[[Page 75567]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.011
[[Page 75568]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.012
[[Page 75569]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.013
[[Page 75570]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.014
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[GRAPHIC] [TIFF OMITTED] TR25NO20.023
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[GRAPHIC] [TIFF OMITTED] TR25NO20.024
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[[Page 75591]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.035
[[Page 75592]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.036
[[Page 75593]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.037
[[Page 75594]]
BILLING CODE 6351-01-C
PART 46-SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS: PRE-
ENACTMENT AND TRANSITION SWAPS
0
17. The authority citation for part 46 continues to read as follows:
Authority: Title VII, sections 723 and 729, Pub. L. 111-203,
124 Stat. 1738.
0
18. Amend Sec. 46.1 by:
0
a. Revising the introductory text and designating it as paragraph (a)
introductory text;
0
b. Revising the definition of ``Asset class'';
0
c. Removing the definitions of ``Credit swap'', ``Foreign exchange
forward'', ``Foreign exchange instrument'', and ``Foreign exchange
swap'';
0
d. Adding, in alphabetical order, a definition for ``Historical swap''
0
e. Removing the definitions of ``Interest rate swap'', ``International
swap'', and ``Major swap participant'';
0
f. Removing the definition of ``Non-SD/MSP counterparty'' and adding a
definition for ``Non-SD/MSP/DCO counterparty'';
0
g. Removing the definition of ``Other commodity swap'';
0
h. Revising the definitions of ``Reporting counterparty'' and
``Required swap continuation data'';
0
i. Adding, in alphabetical order, a definition for ``Substitute
counterparty identifier'';
0
j. Removing the definitions of ``Swap data repository'' and ``Swap
dealer''; and
0
k. Adding paragraph (b).
The revisions and additions read as follows:
Sec. 46.1 Definitions.
(a) As used in this part:
Asset class means a broad category of commodities, including,
without limitation, any ``excluded commodity'' as defined in section
1a(19) of the Act, with common characteristics underlying a swap. The
asset classes include interest rate, foreign exchange, credit, equity,
other commodity, and such other asset classes as may be determined by
the Commission.
* * * * *
Historical swap means pre-enactment swaps and transition swaps.
* * * * *
Non-SD/MSP/DCO counterparty means a swap counterparty that is not a
swap dealer, major swap participant, or derivatives clearing
organization.
* * * * *
Reporting counterparty means the counterparty required to report
data for a pre-enactment swap or a transition swap pursuant to this
part, selected as provided in Sec. 46.5.
Required swap continuation data means all of the data elements that
shall be reported during the existence of a swap as required by part 45
of this chapter.
Substitute counterparty identifier means a unique alphanumeric code
assigned by a swap data repository to a swap counterparty prior to the
Commission designation of a legal entity identifier system on July 23,
2012.
* * * * *
(b) Other defined terms. Terms not defined in this part have the
meanings assigned to the terms in Sec. 1.3 of this chapter.
Sec. 46.2 [Amended]
0
19. Remove from Sec. 46.2 the text ``non-SD/MSP'' and add in its place
``non-SD/MSP/DCO'' wherever it appears.
0
20. In Sec. 46.3:
0
a. Revise the section heading;
0
b. Remove from the end of paragraph (a)(1)(iii)(A) ``; and'' and add in
its place a period;
0
c. Revise paragraph (a)(2)(i); and
0
d. Remove from paragraph (a)(3)(i) the text ``first report of required
swap creation data'' and add in its place ``first report of such
data''.
The revisions read as follows:
Sec. 46.3 Data reporting for pre-enactment swaps and transition
swaps.
(a) * * *
(2) * * *
(i) For each uncleared pre-enactment or transition swap in
existence on or after April 25, 2011, throughout the existence of the
swap following the compliance date, the reporting counterparty must
report all required swap continuation data as required by part 45 of
this chapter.
* * * * *
Sec. Sec. 46.4, 46.5, 46.6, 46.8, 46.9 [Amended]
0
21. In the table below, for each section and paragraph indicated in the
left column, remove the text indicated in the middle column from
wherever it appears, and add in its place the text indicated in the
right column:
------------------------------------------------------------------------
Section/paragraph Remove Add
------------------------------------------------------------------------
46.4 introductory text...... swap data reporting. data reporting.
46.4(a)..................... substitute substitute
counterparty counterparty
identifier as identifier.
provided in Sec.
45.6(f) of this
chapter.
46.4(d)..................... unique swap unique swap
identifier and identifier, unique
unique product transaction
identifier. identifier, and
unique product
identifier.
46.5(a) introductory text... swap data........... data.
46.5(a)(3), (4), and (5).... non-SD/MSP.......... non-SD/MSP/DCO.
46.5(d)(3).................. non-SD/MSP.......... non-SD/MSP/DCO.
46.6........................ report swap data.... report data.
46.8(a)..................... accepts swap data... accepts data for pre-
enactment and
transition swaps.
46.8(a)..................... required swap such data.
creation data or
required swap
continuation data.
46.8(c)(2)(ii).............. reporting entities.. registered entities.
46.8(d)..................... swap data reporting. reporting data for
pre-enactment and
transition swaps.
46.9(a)..................... any report of swap any report of data.
data.
46.9(f)..................... errors in the swap errors in the data
data. for a pre-enactment
or a transition
swap.
------------------------------------------------------------------------
0
22. In Sec. 46.10:
0
a. Remove the text ``reporting swap data'' and add in its place
``reporting data for a pre-enactment or a transition swap''; and
0
b. Add a second sentence to read as follows:
Sec. 46.10 Required data standards.
* * * In reporting required swap continuation data as required by
this part, each reporting counterparty shall comply with the required
data standards set forth in part 45 of this chapter, including those
set forth in Sec. 45.13(a) of this chapter.
[[Page 75595]]
0
23. Amend Sec. 46.11 by:
0
a. Removing from paragraph (a) the text ``report swap data'' and adding
in its place ``report data for a pre-enactment or a transition swap'';
0
b. Removing paragraph (b);
0
c. Redesignating paragraph (c) as new paragraph (b) and revising it;
and
0
d. Redesignating paragraph (d) as new paragraph (c).
The revision reads as follows:
Sec. 46.11 Reporting of errors and omissions in previously reported
data.
* * * * *
(b) Each counterparty to a pre-enactment or transition swap that is
not the reporting counterparty as determined pursuant to Sec. 46.5,
and that discovers any error or omission with respect to any data for a
pre-enactment or transition swap reported to a swap data repository for
that swap, shall promptly notify the reporting counterparty of each
such error or omission. As soon as technologically practicable after
receiving such notice, the reporting counterparty shall report a
correction of each such error or omission to the swap data repository.
* * * * *
PART 49--SWAP DATA REPOSITORIES
0
24. The authority citation for part 49 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2(a), 6r, 12a, and 24a, as amended by
Title VII of the Wall Street Reform and Consumer Protection Act,
Pub. L. 111-203, 124 Stat. 1376 (Jul. 21, 2010), unless otherwise
noted.
0
25. In Sec. 49.2(a),
0
a. Remove the paragraph designations of the definitions and arrange the
definitions in alphabetical order;
0
b. Add, in alphabetical order, definitions for the terms ``Data
validation acceptance message''; ``Data validation error''; ``Data
validation error message''; and ``Data validation procedures''
0
c. Redesignate paragraphs (i) through (iii) under the definition for
``Non-affiliated third party'' as paragraphs (1) through (3);
0
d. Redesignate paragraphs (i) through (iii) under the definition for
``Person associated with a swap data repository'' as paragraphs (1)
through (3); and
0
e. Redesignate paragraphs (i) through (vi) under the definition for
``Position'' as paragraphs (1) through (6);
The additions read as follows:
Sec. 49.2 Definitions.
(a) * * *
Data validation acceptance message means a notification that SDR
data satisfied the data validation procedures applied by a swap data
repository.
Data validation error means that a specific data element of SDR
data did not satisfy the data validation procedures applied by a swap
data repository.
Data validation error message means a notification that SDR data
contained one or more data validation error(s).
Data validation procedures procedures established by a swap data
repository pursuant to Sec. 49.10 to validate SDR data reported to the
swap data repository.
* * * * *
0
26. In Sec. 49.4:
0
a. For each paragraph indicated in the left column of the table below,
remove the text indicated in the middle column from wherever it
appears, and add in its place the text indicated in the right column:
------------------------------------------------------------------------
Section/paragraph Remove Add
------------------------------------------------------------------------
(a)(1) introductory text.... registered swap data swap data
repository. repository.
(a)(1) introductory text.... withdrawn, which.... withdrawn. Such.
(a)(1) introductory text.... sixty............... 60.
(a)(1) introductory text and registrant.......... swap data
(a)(1)(i). repository.
(a)(1)(ii).................. registrant;......... swap data
repository; and.
(a)(1)(iii)................. located; and........ located.
(c)......................... registered swap data swap data
repository. repository.
------------------------------------------------------------------------
0
b. Remove paragraph (a)(1)(iv) and revise paragraph (a)(2).
The revision reads as follows:
Sec. 49.4 Withdrawal from registration.
(a) * * *
(2) Prior to filing a request to withdraw, a swap data repository
shall execute an agreement with the custodial swap data repository
governing the custody of the withdrawing swap data repository's data
and records. The custodial swap data repository shall retain such
records for at least as long as the remaining period of time the swap
data repository withdrawing from registration would have been required
to retain such records pursuant to this part.
* * * * *
0
27. Revise Sec. 49.10 to read as follows:
Sec. 49.10 Acceptance and validation of data.
(a) General requirements--(1) Generally. A swap data repository
shall establish, maintain, and enforce policies and procedures
reasonably designed to facilitate the complete and accurate reporting
of SDR data. A swap data repository shall promptly accept, validate,
and record SDR data.
(2) Electronic connectivity. For the purpose of accepting SDR data,
the swap data repository shall adopt policies and procedures, including
technological protocols, which provide for electronic connectivity
between the swap data repository and designated contract markets,
derivatives clearing organizations, swap execution facilities, swap
dealers, major swap participants and non-SD/MSP/DCO reporting
counterparties who report such data. The technological protocols
established by a swap data repository shall provide for the receipt of
SDR data. The swap data repository shall ensure that its mechanisms for
SDR data acceptance are reliable and secure.
(b) Duty to accept SDR data. A swap data repository shall set forth
in its application for registration as described in Sec. 49.3 the
specific asset class or classes for which it will accept SDR data. If a
swap data repository accepts SDR data of a particular asset class, then
it shall accept SDR data from all swaps of that asset class, unless
otherwise prescribed by the Commission.
(c) Duty to validate SDR data. A swap data repository shall
validate SDR data as soon as technologically practicable after such
data is accepted according to the validation conditions approved in
writing by the Commission. A swap data repository shall validate SDR
data by providing data validation acceptance messages and data
validation error messages, as provided in this paragraph (c).
(1) Data validation acceptance message. A swap data repository
shall validate each SDR data report submitted to the swap data
repository and notify
[[Page 75596]]
the reporting counterparty, swap execution facility, designated
contract market, or third-party service provider submitting the report
whether the report satisfied the data validation procedures of the swap
data repository as soon as technologically practicable after accepting
the SDR data report.
(2) Data validation error message. If SDR data contains one or more
data validation errors, the swap data repository shall distribute a
data validation error message to the designated contract market, swap
execution facility, reporting counterparty, or third-party service
provider that submitted such SDR data as soon as technologically
practicable after acceptance of such data. Each data validation error
message shall indicate which specific data validation error(s) was
identified in the SDR data.
(3) Swap transaction and pricing data submitted with swap data. If
a swap data repository allows for the joint submission of swap
transaction and pricing data and swap data, the swap data repository
shall validate the swap transaction and pricing data and swap data
separately. Swap transaction and pricing data that satisfies the data
validation procedures applied by a swap data repository shall not be
deemed to contain a data validation error because it was submitted to
the swap data repository jointly with swap data that contained a data
validation error.
(d) Policies and procedures to prevent invalidation or
modification. A swap data repository shall establish policies and
procedures reasonably designed to prevent any provision in a valid swap
from being invalidated or modified through the verification or
recording process of the swap data repository. The policies and
procedures shall ensure that the swap data repository's user agreements
are designed to prevent any such invalidation or modification.
(e) [Reserved]
(f) Policies and procedures for resolving disputes regarding data
accuracy. A swap data repository shall establish procedures and provide
facilities for effectively resolving disputes over the accuracy of the
SDR data and positions that are recorded in the swap data repository.
Issued in Washington, DC, on September 24, 2020, by the
Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Swap Data Recordkeeping and Reporting Requirements--
Commission Voting Summary, Chairman's Statement, and Commissioners'
Statements
Appendix 1--Commission Voting Summary
On this matter, Chairman Tarbert and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Heath P. Tarbert
I am pleased to support today's final swap data reporting rules
under Parts 43, 45, and 49 of the CFTC's regulations, which are
foundational to effective oversight of the derivatives markets. As I
noted when these rules were proposed in February, ``[d]ata is the
lifeblood of our markets.'' \1\ Little did I know just how timely
that statement would prove to be.
---------------------------------------------------------------------------
\1\ Statement of Chairman Heath P. Tarbert in Support of
Proposed Rules on Swap Data Reporting (Feb. 20, 2020), https://www.cftc.gov/PressRoom/SpeechesTestimony/tabertstatement022020
(hereinafter, Tarbert, Proposal Statement).
---------------------------------------------------------------------------
COVID-19 Crisis and Beyond
In the month following our data rule proposals, historic
volatility caused by the coronavirus pandemic rocketed through our
derivatives markets, affecting nearly every asset class.\2\ I said
at the time that while our margin rules acted as ``shock absorbers''
to cushion the impact of volatility, the Commission was also
considering data rules that would expand our insight into potential
systemic risk. In particular, the data rules ``would for the first
time require the reporting of margin and collateral data for
uncleared swaps . . . significantly strengthen[ing] the CFTC's
ability to monitor for systemic risk'' in those markets.\3\ Today we
complete those rules, shoring up the data-based reporting systems
that can help us identify--and quickly respond to--emerging systemic
threats.
---------------------------------------------------------------------------
\2\ See Heath P. Tarbert, Volatility Ain't What it Used to Be,
Wall Street Journal (Mar. 23, 2020), https://www.wsj.com/articles/volatility-aint-what-it-used-to-be-11585004897?mod=searchresults&page=1&pos=1 (hereinafter Tarbert,
Volatility).
\3\ Id.
---------------------------------------------------------------------------
But data reporting is not just about mitigating systemic risk.
Vibrant derivatives markets must be open and free, meaning
transparency is a critical component of any reporting system. Price
discovery requires robust public reporting that supplies market
participants with the information they need to price trades, hedge
risk, and supply liquidity. Today we double down on transparency,
ensuring that public reporting of swap transactions is even more
accurate and timely. In particular, our final rules adjust certain
aspects of the Part 43 proposal's block-trade \4\ reporting rules to
improve transparency in our markets. These changes have been
carefully considered to enhance clarity, one of the CFTC's core
values.\5\
---------------------------------------------------------------------------
\4\ The final rule's definition of ``block trade'' is provided
in regulation 43.2.
\5\ See CFTC Core Values, https://www.cftc.gov/About/Mission/index.htm.
---------------------------------------------------------------------------
Promoting clarity in our markets also demands that we, as an
agency, have clear goals in mind. Today's final swap data reporting
rules reflect a hard look at the data we need and the data we
collect, building on insights gleaned from our own analysis as well
as feedback from market participants. The key point is that more
data does not necessarily mean better information. Instead, the core
of an effective data reporting system is focus.
As Aesop reminds us, ``Beware lest you lose the substance by
grasping at the shadow.'' \6\ Today's final swap data reporting
rules place substance first, carefully tailoring our requirements to
reach the data that really matters, while removing unnecessary
burdens on our market participants. As Bill Gates once remarked,
``My success, part of it certainly, is that I have focused in on a
few things.'' \7\ So too are the final swap data reporting rules
limited in number. The Part 45 Technical Specification, for example,
streamlines hundreds of different data fields currently required by
swap data repositories into 128 that truly advance the CFTC's
regulatory goals. This focus will simplify the data reporting
process without undermining its effectiveness, thus fulfilling the
CFTC's strategic goal of enhancing the regulatory experience for
market participants at home and abroad.\8\
---------------------------------------------------------------------------
\6\ Aesop, ``The Dog and the Shadow,'' The Harvard Classics,
https://www.bartleby.com/17/1/3.html.
\7\ ABC News, One-on-One with Bills Gates (Feb. 21, 2008),
https://abcnews.go.com/WNT/CEOProfiles/story?id=506354&page=1.
\8\ See CFTC Strategic Plan 2020-2024, at 4 (discussing
Strategic Goal 3), https://www.cftc.gov/media/3871/CFTC2020_2024StrategicPlan/download.
---------------------------------------------------------------------------
That last point is worth highlighting: Our final swap data
reporting rules account for market participants both within and
outside the United States. A diversity of market participants, some
of whom reside beyond our borders and are accountable to foreign
regulatory regimes, contribute to vibrant derivatives markets. But
before today, inconsistent international rules meant some swap
dealers were left to navigate what I have called ``a byzantine maze
of disparate data fields and reporting timetables'' for the very
same swap.\9\ While perfect alignment may not be possible or even
desirable, the final rules significantly harmonize reportable data
fields, compliance timetables, and implementation requirements to
advance our global markets. Doing so brings us closer to realizing
the CFTC's vision of being the global standard for sound derivatives
regulation.\10\
---------------------------------------------------------------------------
\9\ Tarbert, Proposal Statement, supra note 1.
\10\ See CFTC Vision Statement, available at https://
www.cftc.gov/About/
AboutTheCommission#:~:text=CFTC%20Vision%20Statement,standard%20for%2
0sound%20derivatives%20regulation.
---------------------------------------------------------------------------
Overview of the Swap Data Reporting Rules
It is important to understand the specific function of each of
the three swap data
[[Page 75597]]
reporting rules, which together form the CFTC's reporting system.
First, Part 43 relates to the real-time public reporting of swap
pricing and transaction data, which appears on the ``public tape.''
Swap dealers and other reporting parties supply Part 43 data to swap
data repositories (SDRs), which then make the data public. Part 43
includes provisions relating to the treatment and public reporting
of large notional trades (blocks), as well as the ``capping'' of
swap trades that reach a certain notional amount.
Second, Part 45 relates to the regulatory reporting of swap data
to the CFTC by swap dealers and other covered entities. Part 45 data
provides the CFTC with insight into the swaps markets to assist with
regulatory oversight. A Technical Specification available on the
CFTC's website \11\ includes data elements that are unique to CFTC
reporting, as well as certain ``Critical Data Elements,'' which
reflect longstanding efforts by the CFTC and other regulators to
develop global guidance for swap data reporting.\12\
---------------------------------------------------------------------------
\11\ See CFTC, Technical Specification Document, https://www.cftc.gov/media/3496/DMO_Part43_45TechnicalSpecification022020/download.
\12\ Since November 2014, the CFTC and regulators in other
jurisdictions have collaborated through the Committee on Payments
and Market Infrastructures (``CPMI'') and the International
Organization of Securities Commissions (``IOSCO'') working group for
the harmonization of key over-the-counter (``OTC'') derivatives data
elements (``Harmonisation Group''). The Harmonisation Group
developed global guidance for key OTC derivatives data elements,
including the Unique Transaction Identifier, the Unique Product
Identifier, and critical data elements other than UTI and UPI.
---------------------------------------------------------------------------
Finally, Part 49 requires data verification to help ensure that
the data reported to SDRs and the CFTC in Parts 43 and 45 is
accurate. The final Part 49 rule will provide enhanced and
streamlined oversight of SDRs and data reporting generally. In
particular, Part 49 will now require SDRs to have a mechanism by
which reporting counterparties can access and verify the data for
their open swaps held at the SDR. A reporting counterparty must
compare the SDR data with the counterparty's own books and records,
correcting any data errors with the SDR.
Systemic Risk Mitigation
Today's final swap data reporting rules are designed to fulfill
our agency's first Strategic Goal: to strengthen the resilience and
integrity of our derivatives markets while fostering the
vibrancy.\13\ The Part 45 rule requires swap dealers to report
uncleared margin data for the first time, enhancing the CFTC's
ability to ``to monitor systemic risk accurately and to act quickly
if cracks begin to appear in the system.'' \14\ As Justice Brandeis
famously wrote in advocating for transparency in organizations,
``sunlight is the best disinfectant.'' \15\ So too it is for
financial markets: the better visibility the CFTC has into the
uncleared swaps markets, the more effectively it can address what
until now has been ``a black box of potential systemic risk.'' \16\
---------------------------------------------------------------------------
\13\ See CFTC Strategic Plan, supra note 7, at 5.
\14\ Tarbert, Proposal Statement, supra note 1, note 2.
\15\ Hon. Louis D. Brandeis, Other People's Money 62 (National
Home Library Foundation ed. 1933).
\16\ Tarbert, Proposal Statement, supra note 1.
---------------------------------------------------------------------------
Doubling Down on Transparency
Justice Brandeis's words also resonate across other areas of the
final swap data reporting rules. The final swap data reporting rules
enhance transparency to the public of pricing and trade data.
1. Blocks and Caps
A critical aspect of the final Part 43 rule is the issue of
block trades and dissemination delays. When the Part 43 proposal was
issued, I noted that ``[o]ne of the issues we are looking at closely
is whether a 48-hour delay for block trade reporting is
appropriate.'' \17\ I encouraged market participants to ``provide
comment letters and feedback concerning the treatment of block
delays.'' \18\ Market participants responded with extensive
feedback, much of which advocated for shorter delays in making block
trade data publicly available. I agree with this view, and support a
key change in the final Part 43 rule. Rather than apply the
proposal's uniform 48-hour dissemination delay on block trade
reporting, the final rule returns to bespoke public reporting
timeframes that consider liquidity, market depth, and other factors
unique to specific categories of swaps. The result is shorter
reporting delays for most block trades.
---------------------------------------------------------------------------
\17\ Tarbert, Proposal Statement, supra note 1, note 14.
\18\ Id.
---------------------------------------------------------------------------
The final Part 43 rule also changes the threshold for block
trade treatment, raising the amount needed from a 50% to 67%
notional calculation. It also increases the threshold for capping
large notional trades from 67% to 75%. These changes will enhance
market transparency by applying a stricter standard for blocks and
caps, thereby enhancing public access to swap trading data. At the
same time, the rule reflects serious consideration of how these
thresholds are calculated, particularly for block trades. In
excluding certain option trades and CDS trades around the roll
months from the 67% notional threshold for blocks, the final rule
helps ensure that dissemination delays have their desired effect of
preventing front-running and similar disruptive activity.
2. Post-Priced and Prime-Broker Swaps
The swaps market is highly complex, reflecting a nearly endless
array of transaction structures. Part 43 takes these differences
into account in setting forth the public reporting requirements for
price and transaction data. For example, post-priced swaps are
valued after an event occurs, such as the ringing of the daily
closing bell in an equity market. As it stands today, post-priced
swaps often appear on the public tape with no corresponding pricing
data--rendering the data largely unusable. The final Part 43 rule
addresses this data quality issue and improves price discovery by
requiring post-priced swaps to appear on the public tape after
pricing occurs.
The final Part 43 rule also resolves an issue involving the
reporting of prime-brokerage swaps. The current rule requires that
offsetting swaps executed with prime brokers--in addition to the
initial swap reflecting the actual terms of trade--be reported on
the public tape. This duplicative reporting obfuscates public
pricing data by including prime-broker costs and fees that are
unrelated to the terms of the swap. As I explained when the rule was
proposed, cluttering the public tape with duplicative or confusing
data can impair price discovery.\19\ The final Part 43 rule
addresses this issue by requiring that only the initial ``trigger''
swap be reported, thereby improving public price information.
---------------------------------------------------------------------------
\19\ Tarbert, Proposal Statement, supra note 1.
---------------------------------------------------------------------------
3. Verification and Error Correction
Data is only as useful as it is accurate. The final Part 49 rule
establishes an efficient framework for verifying SDR data accuracy
and correcting errors, which serves both regulatory oversight and
public price discovery purposes.
Improving the Regulatory Experience
Today's final swap data reporting rules improve the regulatory
experience for market participants at home and abroad in several key
ways, advancing the CFTC's third Strategic Goal.\20\ Key examples
are set forth below.
---------------------------------------------------------------------------
\20\ CFTC Strategic Plan, supra note 7, at 7.
---------------------------------------------------------------------------
1. Streamlined Data Fields
As I stated at the proposal stage, ``[s]implicity should be a
central goal of our swap data reporting rules.'' \21\ This sentiment
still holds true, and a key improvement to our final Part 45
Technical Specification is the streamlining of reportable data
fields. The current system has proven unworkable, leaving swap
dealers and other market participants to wander alone in the digital
wilderness, with little guidance about the data elements that the
CFTC actually needs. This uncertainty has led to ``a proliferation
of reportable data fields'' required by SDRs that ``exceed what
market participants can readily provide and what the [CFTC] can
realistically use.'' \22\
---------------------------------------------------------------------------
\21\ Tarbert, Proposal Statement, supra note 1.
\22\ Id.
---------------------------------------------------------------------------
We resolve this situation today by replacing the sprawling mass
of disparate SDR fields--sometimes running into the hundreds or
thousands--with 128 that are important to the CFTC's oversight of
the swaps markets. These fields reflect an honest look at the data
we are collecting and the data we can use, ensuring that our market
participants are not burdened with swap reporting obligations that
do not advance our statutory mandates.
2. Regulatory Harmonization
The swaps markets are integrated and global; our data rules must
follow suit.\23\ To that end, the final Part 45 rule takes a
sensible approach to aligning the CFTC's data reporting fields with
the standards set by international efforts. Swap data reporting is
an area where harmonization simply makes sense. The costs of failing
to harmonize are high, as swap dealers and other reporting parties
must provide entirely different data sets to multiple regulators for
the very same
[[Page 75598]]
swap.\24\ A better approach is to conform swap data reporting
requirements where possible.
---------------------------------------------------------------------------
\23\ See Tarbert, Proposal Statement, supra note 1.
\24\ See id.
---------------------------------------------------------------------------
Data harmonization is not just good for market participants: it
also advances the CFTC's vision of being the global standard for
sound derivatives regulation.\25\ The CFTC has a long history of
leading international harmonization efforts in data reporting,
including by serving as a co-chair of the Committee on Payments and
Infrastructures and the International Organization of Securities
Commissioners (CPMI-IOSCO) working group on critical data elements
(CDE) in swap reporting.\26\ I am pleased to support a final Part 45
rule that advances these efforts by incorporating CDE fields that
serve our regulatory goals.
---------------------------------------------------------------------------
\25\ See CFTC Vision Statement, https://www.cftc.gov/About/
AboutTheCommission#:~:text=CFTC%20Vision%20Statement,standard%20for%2
0sound%20derivatives%20regulation.
\26\ The CFTC also co-chaired the Financial Stability Board's
working group on UTI and UPI governance.
---------------------------------------------------------------------------
In addition to certain CDE fields, the final Part 45 rule also
adopts other important features of the CPMI-IOSCO Technical
Guidance, such as the use of a Unique Transaction Identifier (UTI)
system in place of today's Unique Swap Identifier (USI) system. This
change will bring the CFTC's swap data reporting system in closer
alignment with those of other regulators, leading to better data
sharing and lower burdens on market participants.
Last, the costs of altering data reporting systems makes
implementation timeframes especially important. To that effect, the
CFTC has worked with ESMA to bring our jurisdictions' swap data
reporting compliance timetables into closer harmony, easing
transitions to new reporting systems.
3. Verification and Error Correction
The final Part 49 rule has changed since the proposal stage to
facilitate easier verification of SDR data by swap dealers. Based on
feedback we received, the final rule now requires SDRs to provide a
mechanism for swap dealers and other reporting counterparties to
access the SDR's data for their open swaps to verify accuracy and
address errors. This approach replaces a message-based system for
error identification and correction, which would have produced
significant implementation costs without improving error
remediation. The final rule achieves the goal--data accuracy--with
fewer costs and burdens.\27\
---------------------------------------------------------------------------
\27\ Limiting error correction to open swaps--versus all swaps
that a reporting counterparty may have entered into at any point in
time--is also a sensible approach to addressing risk in the markets.
The final Part 49 rule limits error correction to errors discovered
prior to the expiration of the five-year recordkeeping period in
regulation 45.2, ensuring that market participants are not tasked
with addressing old or closed transactions that pose no active risk.
---------------------------------------------------------------------------
4. Relief for End Users
I have long said that if our derivatives markets are not working
for agriculture, then they are not working at all.\28\ While swaps
are often the purview of large financial institutions, they also
provide critical risk-management functions for end users like
farmers, ranchers, and manufacturers. Our final Part 45 rule removes
the requirement that end users report swap valuation data, and it
provides them with a longer ``T+2'' timeframe to report the data
that is required. I am pleased to support these changes to end-user
reporting, which will help ensure that our derivatives markets work
for all Americans, advancing another CFTC strategic goal.\29\
---------------------------------------------------------------------------
\28\ Opening Statement of Chairman Heath P. Tarbert Before the
April 22 Agricultural Advisory Committee Meeting (April 22, 2020),
https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbertstatement042220.
\29\ CFTC Strategic Plan, supra note 7, at 6.
---------------------------------------------------------------------------
Conclusion
The derivatives markets run on data. They will be even more
reliant on it in the future, as digitization continues to sweep
through society and industry. I am pleased to support the final
rules under Parts 43, 45, and 49, which will help ensure that the
CFTC's swap data reporting systems are effective, efficient, and
built to last.
Appendix 3--Supporting Statement of Commissioner Brian Quintenz
I am pleased to support these amendments to part 45 regulatory
reporting, which hopefully represent the beginning of the end of
this agency's longstanding efforts to collect and utilize accurate,
reliable swap data to further its regulatory mandates.
There is frequently a trade-off between being first and being
right. That is especially true when it comes to regulation and
specifically true when it comes to the CFTC's historical approach to
data reporting. Although the CFTC was the first regulator in the
world to implement swap data reporting requirements, it did so only
in a partial, non-descriptive, and non-technical fashion, which has
led to the fact that, even today--more than 10 years after Dodd
Frank--the Commission has great difficulty aggregating and analyzing
data for uncleared swaps across swap data repositories (SDRs).
Since the CFTC first implemented its swap data reporting
requirements, the CFTC has continued to lead global efforts to reach
international consensus on those reporting requirements so that
derivatives regulators can finally get a clear picture of the
uncleared swaps landscape. I would like to recognize the diligent
efforts of DMO staff to finally get us over the finish line.
Today's amendments to part 45 regulatory reporting will provide
the Commission with the homogeneous data it needs to readily analyze
swap data for both cleared and uncleared swaps across jurisdictions.
The final rule eliminates unnecessary reporting fields and
implements internationally agreed to ``critical data elements'' (CDE
fields) consistently with the detailed technical standards put forth
by CPMI-IOSCO.\1\
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\1\ See CPMI-IOSCO, Technical Guidance, Harmonization of
Critical OTC Derivatives Data Elements (other than UTI and UPI)
(Apr. 2018), available at https://www.bis.org/cpmi/publ/d175.pdf.
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The final rule also provides reporting counterparties with a
longer time to report trades accurately to an SDR by moving to a
``T+1'' reporting timeframe for swap dealer (SD), derivatives
clearing organization (DCO), and swap execution facility (SEF)
reporting parties, and a ``T+2'' reporting timeframe for non-SD/DCO/
SEF reporting counterparties. I have long supported providing
additional time for market participants to meet their regulatory
reporting obligations given it is a matter of being right, not
first. A later regulatory reporting deadline will help
counterparties report the trade correctly the first time, instead of
reporting an erroneous trade that then needs to be corrected later.
This change also more closely harmonizes the CFTC's and ESMA's
reporting deadlines.
For the first time, the final rule also requires SD reporting
counterparties to report daily margin and collateral information for
uncleared swaps to the Commission. However, the final rule would not
require DCO reporting parties to report margin and collateral
information with respect to cleared swaps. Instead, the Commission
will continue to rely on the comprehensive margin and collateral
data reported by DCOs pursuant to part 39. Importantly, in order to
alleviate burdens on small reporting counterparties, non-SD/MSP
reporting counterparties are not required to report valuation,
margin, or collateral information to the Commission.
Although this final rule implements the lion's share of
regulatory reporting requirements, it is not quite the capstone of
the Commission's reporting efforts. The CDE technical guidance did
not harmonize many data elements that are relevant to the physical
commodity and equity swap asset classes. More work remains to be
done with respect to how certain data elements should be reported,
including how the prices and quantities of physical commodity swaps
should be reported and how swaps on customized equity baskets should
be represented. I know DMO will continue to play an active role
through CPMI-IOSCO's CDE governance process to ensure that
additional guidance and specificity are provided regarding the data
elements for these asset classes.
I support the CFTC's efforts to adopt the CDE fields--the most
basic data elements that are critical to the analysis and
supervision of swaps activities--in a manner identical to other
jurisdictions' reporting fields. Over time and through cooperative
arrangements with other jurisdictions, global aggregation and
measurement of risk, including counterparty credit risk, can become
a reality. However, as the Commission moves closer to achieving its
goal of global data harmonization, in my opinion, it should keep in
mind that the benefits of harmonization should always be balanced
against the burdens and practical realities facing reporting
counterparties. I think the final rule before us today strikes an
appropriate balance on this point.
Appendix 4--Concurring Statement of Commissioner Rostin Behnam
I respectfully concur in the Commission's amendments to its
regulations regarding real-time public reporting, recordkeeping, and
swap data repositories. The three rules being
[[Page 75599]]
finalized together today are the culmination of a multi-year effort
to streamline, simplify, and internationally harmonize the
requirements associated with reporting swaps. Today's actions
represent the end of a long procedural road at the Commission, one
that started with the Commission's 2017 Roadmap to Achieve High
Quality Swap Data.\1\
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\1\ Roadmap to Achieve High Quality Swap Data, available at
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
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But the road really goes back much further than that, to the
time prior to the 2008 financial crisis, when swaps were largely
exempt from regulation and traded exclusively over-the-counter.\2\
Lack of transparency in the over-the-counter swaps market
contributed to the financial crisis because both regulators and
market participants lacked the visibility necessary to identify and
assess swaps market exposures, counterparty relationships, and
counterparty credit risk.\3\
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\2\ See Commodity Futures Modernization Act of 2000, Public Law
106-554, 114 Stat. 2763 (2000).
\3\ See The Financial Crisis Inquiry Commission, The Financial
Crisis Inquiry Report: Final Report of the National Commission on
the Causes of the Financial and Economic Crisis in the United States
(Official Government Edition), at 299, 352, 363-364, 386, 621 n. 56
(2011), available at https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
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In the aftermath of the financial crisis, Congress enacted the
Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010
(Dodd-Frank Act).\4\ The Dodd-Frank Act largely incorporated the
international financial reform initiatives for over-the-counter
derivatives laid out at the 2009 G20 Pittsburgh Summit, which sought
to improve transparency, mitigate systemic risk, and protect against
market abuse.\5\ With respect to data reporting, the policy
initiative developed by the G20 focused on establishing a consistent
and standardized global data set across jurisdictions in order to
support regulatory efforts to timely identify systemic risk. The
critical need and importance of this policy goal given the
consequences of the financial crisis cannot be overstated.
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\4\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\5\ G20, Leaders' Statement, The Pittsburgh Summit (Sept. 24-25,
2009) at 9, available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
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Among many critically important statutory changes, which have
shed light on the over-the-counter derivatives markets, Title VII of
the Dodd-Frank Act amended the Commodity Exchange Act (``CEA'' or
``Act'') and added a new term to the Act: ``real-time public
reporting.'' \6\ The Act defines that term to mean reporting ``data
relating to swap transaction, including price and volume, as soon as
technologically practicable after the time at which the swap
transaction has been executed.'' \7\
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\6\ 7 U.S.C. 2(a)(13)(A).
\7\ Id.
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As we amend these rules, I think it is important that we keep in
mind the Dodd-Frank Act's emphasis on transparency, and what
transpired to necessitate that emphasis. However, the Act is also
clear that its purpose, in regard to transparency and real time
public reporting, is to authorize the Commission to make swap
transaction and pricing data available to the public ``as the
Commission determines appropriate to enhance price discovery.'' \8\
The Act expressly directs the Commission to specify the criteria for
what constitutes a block trade, establish appropriate time delays
for disseminating block trade information to the public, and ``take
into account whether the public disclosure will materially reduce
market liquidity.'' \9\ So, as we keep Congress's directive
regarding public transparency (and the events that necessitated that
directive) in mind as we promulgate rules, we also need to be
cognizant of instances where public disclosure of the details of
large transactions in real time will materially reduce market
liquidity. This is a complex endeavor, and the answers vary across
markets and products. I believe that these final rules strike an
appropriate balance.
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\8\ 7 U.S.C. 2(a)(13)(B).
\9\ 7 U.S.C. 2(a)(13)(C)(ii-iv).
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Today's final rules amending the swap data and recordkeeping and
reporting requirements also culminate a multi-year undertaking by
dedicated Commission staff and our international counterparts
working through the Committee on Payments and Market Infrastructures
and the International Organization of Securities Commissions working
group for the harmonization of key over-the-counter derivatives data
elements. The amendments benefit from substantial public
consultation as well as internal data and regulatory analyses aimed
at determining, among other things, how the Commission can meet its
current data needs in support of its duties under the CEA. These
include ensuring the financial integrity of swap transactions,
monitoring of substantial and systemic risks, formulating bases for
and granting substituted compliance and trade repository access, and
entering information sharing agreements with fellow regulators.
I wish to thank the responsible staff in the Division of Market
Oversight, as well as in the Offices of International Affairs, Chief
Economist, and General Counsel for their efforts and engagement over
the last several years as well as their constructive dialogues with
my office over the last several months. Their timely and fulsome
responsiveness amid the flurry of activity at the Commission as we
continue to work remotely is greatly appreciated.
The final rules should improve data quality by eliminating
duplication, removing alternative or adjunct reporting options,
utilizing universal data elements and identifiers, and focusing on
critical data elements. To the extent the Commission is moving
forward with mandating a specific data standard for reporting swap
data to swap data repositories (``SDRs''), and that the standard
will be ISO 20022, I appreciate the Commission's thorough discussion
of its rationale in support of that decision. I also commend
Commission staff for its demonstrated expertise in incorporating the
mandate into the regulatory text in a manner that provides certainty
while acknowledging that the chosen standard remains in development.
The rules provide clear, reasonable and universally acceptable
reporting deadlines that not only account for the minutiae of local
holidays, but address the practicalities of common market practices
such as allocation and compression exercises.
I am especially pleased that the final rules require consistent
application of rules across SDRs for the validation of both Part 43
and Part 45 data submitted by reporting counterparties. I believe
the amendments to part 49 set forth a practical approach to ensuring
SDRs can meet the statutory requirement to confirm the accuracy of
swap data set forth in CEA section 21(c) \10\ without incurring
unreasonable burdens.
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\10\ 7 U.S.C. 24a(c)(2).
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I appreciate that the Commission considered and received
comments regarding whether to require reporting counterparties to
indicate whether a specific swap: (1) Was entered into for dealing
purposes (as opposed to hedging, investing, or proprietary trading);
and/or (2) needs not be considered in determining whether a person
is a swap dealer or need not be counted towards a person's de
minimis threshold for purposes of determining swap dealer status
under Commission regulations.\11\ While today's rules may not be the
appropriate means to acquire such information, I continue to believe
that that the Commission's ongoing surveillance for compliance with
the swap dealer registration requirements could be enhanced through
data collection and analysis.
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\11\ Commission staff has identified the lack of these fields as
limiting constraints on the usefulness of SDR data to identify which
swaps should be counted towards a person's de minimis threshold, and
the ability to precisely assess the current de minimis threshold or
the impact of potential changes to current exclusions. See De
Minimis Exception to the Swap Dealer Definition, 83 FR 27444, 27449
(proposed June 12, 2018); Swap Dealer De Minimis Exception Final
Staff Report at 19 (Aug. 15, 2016); (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf; Swap Dealer De Minimis
Exception Preliminary Report at 15 (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf.
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Thank you again to the staff who worked on these rules. I
support the overall vision articulated in these several rules and am
committed to supporting the acquisition and development of
information technology and human resources needed for execution of
that vision. As data forms the basis for much of what we do here at
the Commission, especially in terms of identifying, assessing, and
monitoring risk, I look forward to future discussions with staff
regarding how the CFTC's Market Risk Advisory Committee which I
sponsor may be of assistance.
Appendix 5--Statement of Commissioner Dan M. Berkovitz
Introduction
I support today's final rules amending the swap data reporting
requirements in parts 43,
[[Page 75600]]
45, 46, and 49 of the Commission's rules (the ``Reporting Rules'').
The amended rules provide major improvements to the Commission's
swap data reporting requirements. They will increase the
transparency of the swap markets, enhance the usability of the data,
streamline the data collection process, and better align the
Commission's reporting requirements with international standards.
The Commission must have accurate, timely, and standardized data
to fulfill its customer protection, market integrity, and risk
monitoring mandates in the Commodity Exchange Act (``CEA'').\1\ The
2008 financial crisis highlighted the systemic importance of global
swap markets, and drew attention to the opacity of a market valued
notionally in the trillions of dollars. Regulators such as the CFTC
were unable to quickly ascertain the exposures of even the largest
financial institutions in the United States. The absence of real-
time public swap reporting contributed to uncertainty as to market
liquidity and pricing. One of the primary goals of the Dodd-Frank
Act is to improve swap market transparency through both real-time
public reporting of swap transactions and ``regulatory reporting''
of complete swap data to registered swap data repositories
(``SDRs'').\2\
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\1\ See CEA section 3b.
\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
section 727, Public Law 111-203, 124 Stat. 1376 (2010) (the ``Dodd-
Frank Act''), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.
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As enacted by the Dodd-Frank Act, CEA section 2(a)(13)(G)
directs the CFTC to establish real-time and comprehensive swap data
reporting requirements, on a swap-by-swap basis. CEA section 21
establishes SDRs as the statutory entities responsible for
receiving, storing, and facilitating regulators' access to swap
data. The Commission began implementing these statutory directives
in 2011 and 2012 in several final rules that addressed regulatory
and real-time public reporting of swaps; established SDRs to receive
data and make it available to regulators and the public; and defined
certain swap dealer (``SD'') and major swap participant (``MSP'')
reporting obligations.\3\
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\3\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136 (Jan. 13, 2012); and Swap Data Repositories: Registration
Standards, Duties and Core Principles, 76 FR 54538 (Sept. 1, 2011).
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The Commission was the first major regulator to adopt data
repository and swap data reporting rules. Today's final rules are
informed by the Commission's and the market's experience with these
initial rules. Today's revisions also reflect recent international
work to harmonize and standardize data elements.
Part 43 Amendments (Real-Time Public Reporting)
Benefits of Real Time Public Reporting
Price transparency fosters price competition and reduces the
cost of hedging. In directing the Commission to adopt real-time
public reporting regulations, the Congress stated ``[t]he purpose of
this section is to authorize the Commission to make swap transaction
and pricing data available to the public in such form and at such
times as the Commission determines appropriate to enhance price
discovery.'' \4\ For real-time data to be useful for price
discovery, SDRs must be able to report standardized, valid, and
timely data. The reported data should also reflect the large
majority of swaps executed within a particular swap category. The
final Reporting Rules for part 43 address a number of infirmities in
the current rules affecting the aggregation, validation, and
timeliness of the data. They also provide pragmatic solutions to
several specific reporting issues, such as the treatment of prime
broker trades and post-priced swaps.
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\4\ CEA section 2(13)(B) (emphasis added).
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Block Trade Reporting
The Commission's proposed rule for block trades included two
significant amendments to part 43: (1) Refined swap categories for
calculating blocks; and (2) a single 48-hour time-delay for
reporting all blocks. In addition, the proposed rule would give
effect to increased block trade size thresholds from 50% to 67% of a
trimmed (excluding outliers) trade data set as provided for in the
original part 43. The increases in the block sizing thresholds and
the refinement of swap categories were geared toward better meeting
the statutory directives to the Commission to enhance price
discovery through real-time reporting while also providing
appropriate time delays for the reporting of swaps with very large
notional amounts, i.e., block trades.
Although I supported the issuance of the proposed rule, I
outlined a number of concerns with the proposed blanket 48-hour
delay. As described in the preamble to the part 43 final rule, a
number of commenters supported the longer delay as necessary to
facilitate the laying off of risk resulting from entering into swaps
in illiquid markets or with large notional amounts. Other commenters
raised concerns that such a broad, extended delay was unwarranted
and could impede, rather than foster, price discovery. The delay
also would provide counterparties to large swaps with an information
advantage during the 48-hour delay.
The CEA directs the Commission to provide for both real-time
reporting and appropriate block sizes. In developing the final rule
the Commission has sought to achieve these objectives.
As described in the preamble, upon analysis of market data and
consideration of the public comments, the Commission has concluded
that the categorization of swap transactions and associated block
sizes and time delay periods set forth in the final rule strikes an
appropriate balance to achieve the statutory objectives of enhancing
price discovery, not disclosing ``the business transactions and
market positions of any person,'' preserving market liquidity, and
providing appropriate time delays for block transactions. The final
part 43 includes a mechanism for regularly reviewing swap
transaction data to refine the block trade sizing and reporting
delays as appropriate to maintain that balance.
Consideration of Additional Information Going Forward
I have consistently supported the use of the best available data
to inform Commission rulemakings, and the periodic evaluation and
updating of those rules, as new data becomes available. The preamble
to the final rules for part 43 describes how available data,
analytical studies, and public comments informed the Commission's
rulemaking. Following press reports about the contents of the final
rule, the Commission recently has received comments from a number of
market participants raising issues with the reported provisions in
the final rule. These commenters have expressed concern that the
reported reversion of the time delays for block trades to the
provisions in the current regulations, together with the 67%
threshold for block trades, will impair market liquidity, increase
costs to market participants, and not achieve the Commission's
objectives of increasing price transparency and competitive trading
of swaps. Many of these commenters have asked the Commission to
delay the issuance of the final rule or to re-propose the part 43
amendments for additional public comments.
I do not believe it would be appropriate for the Commission to
withhold the issuance of the final rule based on these latest
comments and at this late stage in the process. The Commission has
expended significant time and resources in analyzing data and
responding to the public comments received during the public comment
period. As explained in the preamble, the Commission is already
years behind its original schedule for revising the block
thresholds. I therefore do not support further delay in moving
forward on these rules.
Nonetheless, I also support evaluation and refinement of the
block reporting rules, if appropriate, based upon market data and
analysis. The 30-month implementation schedule for the revised block
sizes provides market participants with sufficient time to review
the final rule and analyze any new data. Market participants can
then provide their views to the Commission on whether further,
specific adjustments to the block sizes and/or reporting delay
periods may be appropriate for certain instrument classes. This
implementation period is also sufficient for the Commission to
consider those comments and make any adjustments as may be
warranted. The Commission should consider any such new information
in a transparent, inclusive, and deliberative manner. Amended part
43 also provides a process for the Commission to regularly review
new data as it becomes available and amend the block size thresholds
and caps as appropriate.
Cross Border Regulatory Arbitrage Risk
The International Swaps and Derivatives Association, Inc.
(``ISDA'') and the Securities Industry and Financial Markets
Association (``SIFMA'') commented that higher block size thresholds
may put swap execution facilities (``SEFs'') organized in the United
States at a competitive disadvantage as compared to European trading
platforms that provide different trading protocols and allow longer
delays in swap trade reporting. SIFMA and
[[Page 75601]]
ISDA commented that the higher block size thresholds might
incentivize swap dealers to move at least a portion of their swap
trading from United States SEFs to European trading platforms. They
also noted that this regulatory arbitrage activity could apply to
swaps that are subject to mandatory exchange trading. Importantly,
European platforms allow a non-competitive single-quote trading
mechanism for these swaps while U.S. SEFs are required to maintain
more competitive request-for-quotes mechanisms from at least three
parties. The three-quote requirement serves to fulfill important
purposes delineated in the CEA to facilitate price discovery and
promote fair competition.
The migration of swap trading from SEFs to non-U.S. trading
platforms to avoid U.S. trade execution and/or swap reporting
requirements would diminish the liquidity in and transparency of
U.S. markets, to the detriment of many U.S. swap market
participants. Additionally, as the ISDA/SIFMA comment letter notes,
it would provide an unfair competitive advantage to non-U.S. trading
platforms over SEFs registered with the CFTC, who are required to
abide by CFTC regulations. Such migration would fragment the global
swaps market and undermine U.S. swap markets.\5\
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\5\ In my dissenting statement on the Commission's recent
revisions to it cross-border regulations, I detailed a number of
concerns with how those revisions could provide legal avenues for
U.S. swap dealers to migrate swap trading activity currently subject
to CFTC trade execution requirements to non-U.S. markets that would
not be subject to those CFTC requirements.
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I have supported the Commission's substituted compliance
determinations for foreign swap trading platforms in non-U.S.
markets where the foreign laws and regulations provide for
comparable and comprehensive regulation. Substituted compliance
recognizes the interests of non-U.S. jurisdictions in regulating
non-U.S. markets and allows U.S. firms to compete in those non-U.S.
markets. However, substituted compliance is not intended to
encourage--or permit--regulatory arbitrage or circumvention of U.S.
swap market regulations. If swap dealers were to move trading
activity away from U.S. SEFs to a foreign trading platform for
regulatory arbitrage purposes, such as, for example, to avoid the
CFTC's transparency and trade execution requirements, it would
undermine the goals of U.S. swap market regulation, and constitute
the type of fragmentation of the swaps markets that our cross-border
regime was meant to mitigate. It also would undermine findings by
the Commission that the non-U.S. platform is subject to regulation
that is as comparable and comprehensive as U.S. regulation, or that
the non-U.S. regime achieves a comparable outcome.
The Commission should be vigilant to protect U.S. markets and
market participants. The Commission should monitor swap data to
identify whether any such migration from U.S. markets to overseas
markets is occurring and respond, if necessary, to protect the U.S.
swap markets.
Part 45 (Swap Data Reporting), Part 46 (Pre-enactment and Transition
Swaps), and Part 49 (Swap Data Repositories) Amendments
I also support today's final rules amending the swap data
reporting, verification, and SDR registration requirements in parts
45, 46, and 49 of the Commission's rules. These regulatory reporting
rules will help ensure that reporting counterparties, including SDs,
MSPs, designated contract markets (``DCMs''), SEFs, derivatives
clearing organizations (``DCOs''), and others report accurate and
timely swap data to SDRs. Swap data will also be subject to a
periodic verification program requiring the cooperation of both SDRs
and reporting counterparties. Collectively, the final rules create a
comprehensive framework of swap data standards, reporting deadlines,
and data validation and verification procedures for all reporting
counterparties.
The final rules simplify the swap data reports required in part
45, and organize them into two report types: (1) ``Swap creation
data'' for new swaps; and (2) ``swap continuation data'' for changes
to existing swaps.\6\ The final rules also extend the deadline for
SDs, MSPs, SEFs, DCMs, and DCOs to submit these data sets to an SDR,
from ``as soon as technologically practicable'' to the end of the
next business day following the execution date (T+1). Off-facility
swaps where the reporting counterparty is not an SD, MSP, or DCO
must be reported no later than T+2 following the execution date.
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\6\ Swap creation data reports replace primary economic terms
(``PET'') and confirmation data previously required in part 45. The
final rules also eliminate optional ``state data'' reporting, which
resulted in extensive duplicative reports crowding SDR databases,
and often included no new information.
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The amended reporting deadlines will result in a moderate time
window where swap data may not be available to the Commission or
other regulators with access to an SDR. However, it is likely that
they will also improve the accuracy and reliability of data.
Reporting parties will have more time to ensure that their data
reports are complete and accurate before being transmitted to an
SDR.\7\
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\7\ The amended reporting deadlines are also consistent with
comparable swap data reporting obligations under the Securities and
Exchange Commission's and European Securities and Markets
Authority's rules.
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The final rules in part 49 will also promote data accuracy
through validation procedures to help identify errors when data is
first sent to an SDR, and periodic reconciliation exercises to
identify any discrepancies between an SDR's records and those of the
reporting party that submitted the swaps. The final rules provide
for less frequent reconciliation than the proposed rules, and depart
from the proposal's approach to reconciliation in other ways that
may merit future scrutiny to ensure that reconciliation is working
as intended. Nonetheless, the validation and periodic reconciliation
required by the final rule is an important step in ensuring that the
Commission has access to complete and accurate swap data to monitor
risk and fulfill its regulatory mandate.
The final rules also better harmonize with international
technical standards, the development of which included significant
Commission participation and leadership. These harmonization efforts
will reduce complexity for reporting parties without significantly
reducing the specific data elements needed by the Commission for its
purposes. For example, the final rules adopt the Unique Transaction
Identifier and related rules, consistent with CPMI-IOSCO technical
standards, in lieu of the Commission's previous Unique Swap
Identifier. They also adopt over 120 distinct data elements and
definitions that specify information to be reported to SDRs. Clear
and well-defined data standards are critical for the efficient
analysis of swap data across many hundreds of reporting parties and
multiple SDRs. Although data elements may not be the most riveting
aspect of Commission policy making, I support the Commission's
determination to focus on these important, technical elements as a
necessary component of any effective swap data regime.
Conclusion
Today's Reporting Rules are built upon nearly eight years of
experience with the current reporting rules and benefitted from
extensive international coordination. The amendments make important
strides toward fulfilling Congress's mandate to bring transparency
and effective oversight to the swap markets. I commend CFTC staff,
particularly in Division of Market Oversight and the Office of Data
and Technology, who have worked on the Reporting Rules over many
years. Swaps are highly variable and can be difficult to represent
in standardized data formats. Establishing accurate, timely, and
complete swap reporting requirements is a difficult, but important
function for the Commission and regulators around the globe. This
proposal offers a number of pragmatic solutions to known issues with
the current swap data rules. For these reasons, I am voting for the
final Reporting Rules.
[FR Doc. 2020-21569 Filed 11-24-20; 8:45 am]
BILLING CODE 6351-01-P