2011-33199
-
Federal Register, Volume 77 Issue 9 (Friday, January 13, 2012)[Federal Register Volume 77, Number 9 (Friday, January 13, 2012)]
[Rules and Regulations]
[Pages 2136-2224]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33199]
[[Page 2135]]
Vol. 77
Friday,
No. 9
January 13, 2012
Part II
Commodity Futures Trading Commission
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17 CFR Part 45
Swap Data Recordkeeping and Reporting Requirements; Final Rule
Federal Register / Vol. 77 , No. 9 / Friday, January 13, 2012 / Rules
and Regulations
[[Page 2136]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 45
RIN 3038-AD19
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 adopting rules to implement the Commodity Exchange Act
(``CEA'' or ``Act'') relating to swap data recordkeeping and reporting
requirements. These sections of the CEA were added by the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').
The rules being adopted apply to swap data recordkeeping and reporting
requirements for swap data repositories, derivatives clearing
organizations, designated contract markets, swap execution facilities,
swap dealers, major swap participants, and swap counterparties who are
neither swap dealers nor major swap participants. The recordkeeping and
reporting requirements of this rule further the goals of the Dodd-Frank
Act to reduce systemic risk, increase transparency and promote market
integrity within the financial system.
DATES: The effective date of this rule is March 13, 2012. Compliance
dates: (1) Swap execution facilities, designated contract markets,
derivatives clearing organizations, swap data repositories, swap
dealers, and major swap participants shall commence full compliance
with this part with respect to credit swaps and interest rate swaps on
the later of: July 16, 2012; or 60 calendar days after the publication
in the Federal Register of the later of the Commission's final rule
defining the term ``swap'' or the Commission's final rule defining the
terms ``swap dealer'' and ``major swap participant. '' (2) Swap
execution facilities, designated contract markets, derivatives clearing
organizations, swap data repositories, swap dealers, and major swap
participants shall commence full compliance with this part with respect
to equity swaps, foreign exchange swaps, and other commodity swaps on
or before 90 days after the compliance date for credit swaps and
interest rate swaps. (3) Non-SD/MSP counterparties shall commence full
compliance with this part with respect to all swaps on or before 90
days after the compliance date applicable to swap execution facilities,
designated contract markets, derivatives clearing organizations, swap
data repositories, swap dealers, and major swap participants with
respect to equity swaps, foreign exchange swaps, and other commodity
swaps.
FOR FURTHER INFORMATION CONTACT: David Taylor, Associate Director,
Division of Market Oversight, (202) 418-5488, dtaylor@cftc.gov, or Anne
Schubert, Economist, Division of Market Oversight, (202) 418-5436,
aschubert@cftc.gov; Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW., Washington, DC 20851.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Introduction
B. Swap Data Provisions of the Dodd-Frank Act
C. International Considerations
D. Consultations With Other U.S. Financial Regulators
E. Summary of the Proposed Part 45 Rule
1. Fundamental Goal
2. Swap Recordkeeping
3. Swap Data Reporting: Creation Data and Continuation Data
4. Unique Identifiers
6. Third-Party Facilitation of Reporting
7. Reporting a Swap to a Single SDR
8. Reporting Swaps in an Asset Class Not Accepted by Any SDR
9. Data Standards
10. Reporting Errors and Omissions in Previously Reported Data
F. Overview of Comments Received
II. Part 45 of the Commission's Regulations: The Final Rules
A. Recordkeeping Requirements--Sec. 45.2
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.2
B. Swap Data Reporting: Creation Data--Sec. 45.3
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.3
C. Swap Data Reporting: Continuation Data--Sec. 45.4
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.4
D. Summary of Creation Data and Continuation Data Reporting--
Sec. Sec. 45.3 and 45.4
F. Unique Swap Identifiers--Sec. 45.5
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.5
G. Legal Entity Identifiers--Sec. 45.6
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.6
H. Unique Product Identifiers--Sec. 45.7
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.7
I. Determination of Which Counterparty Must Report--Sec. 45.8
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.8
J. Third-Party Facilitation of Swap Data Reporting--Sec. 45.9
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.9
K. Reporting to a Single Swap Data Repository--Sec. 45.10
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.10
L. Data Reporting for Swaps in a Swap Asset Class Not Accepted
by Any Swap Data Repository--Sec. 45.11
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.11
M. Voluntary Supplemental Reporting--Sec. 45.12
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.12
N. Required Data Standards--Sec. 45.13
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.13
O. Reporting of Errors and Omissions in Previously Reported
Data--Sec. 45.14
1. Proposed Rule
2. Comments Received
3. Final Rule: Sec. 45.14
III. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
1. Introduction
2. Proposed Information Collection
3. Comments on Proposed Information Collection
4. Revised Information Collection Estimates
C. Consideration of Costs and Benefits
1. Introduction
2. General Cost-Benefit Comments Received
3. Recordkeeping
4. Swap Data Reporting
5. Unique Identifiers
IV. Compliance Dates
A. Proposed Rule
B. Comments Received
1. Initial Compliance Date
2. Phasing in the Start of Reporting
C. Determination of Compliance Dates
1. Initial Compliance Dates
2. Phasing in the Start of Reporting
3. Compliance Dates
Final Rules
I. Background
A. Introduction
On July 21, 2010, President Obama signed into law the Dodd-Frank
Act.\1\ Title VII of the Dodd-Frank Act \2\ amended the CEA \3\ to
establish a comprehensive new regulatory framework for swaps and
security-based
[[Page 2137]]
swaps. The legislation was enacted to reduce systemic risk, increase
transparency, and promote market integrity within the financial
system by, among other things: Providing for the registration and
comprehensive regulation of swap dealers (``SDs'') and major swap
participants (``MSPs''); imposing clearing and trade execution
requirements on standardized derivative products; creating rigorous
recordkeeping and data reporting regimes with respect to swaps,
including real time reporting; and enhancing the Commission's
rulemaking and enforcement authorities with respect to, among
others, all registered entities, intermediaries, and swap
counterparties subject to the Commission's oversight.
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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. 111-203, 124 Stat. 1376 (2010). The text of the Dodd-
Frank Act may be accessed at http://www.cftc.gov./LawRegulation/
OTCDERIVATIVES/index.htm.
\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\3\ 7 U.S.C. 1, et seq.
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B. Swap Data Provisions of the Dodd-Frank Act
To enhance transparency, promote standardization, and reduce
systemic risk, Section 727 of the Dodd-Frank Act added to the CEA
new section 2(a)(13)(G), which requires all swaps, whether cleared
or uncleared, to be reported to swap data repositories
(``SDRs''),\4\ which are new registered entities created by section
728 of the Dodd-Frank Act to collect and maintain data related to
swap transactions as prescribed by the Commission, and to make such
data electronically available to regulators.\5\ New section 21(b) of
the CEA, added by section 728 of the Dodd-Frank Act, directs the
Commission to prescribe standards for swap data recordkeeping and
reporting. Specifically, CEA section 21(b)(1)(A) provides that:
\4\ See also CEA section 1a(40)(E).
\5\ Regulations governing core principles and registration
requirements for, and the duties of, SDRs are the subject of part 49
of this chapter.
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The Commission shall prescribe standards that specify the data
elements for each swap that shall be collected and maintained by
each registered swap data repository.
These standards are to apply to both registered entities and
counterparties involved with swaps.
CEA section 21(b)(1)(B) provides that:
In carrying out [the duty to prescribe data element standards],
the Commission shall prescribe consistent data element standards
applicable to registered entities and reporting counterparties.
CEA section 21 also directs the Commission to prescribe data
standards for SDRs. Specifically, CEA section 21(b)(2) provides that:
The Commission shall prescribe data collection and data
maintenance standards for swap data repositories.
These standards are to be comparable to those for clearing
organizations. CEA section 21(b)(3) provides that:
The [data] standards prescribed by the Commission under this
subsection shall be comparable to the data standards imposed by the
Commission on derivatives clearing organizations in connection with
their clearing of swaps.
In addition, CEA section 21(c)(3) provides that, once the data
elements prescribed by the Commission are reported to an SDR, the SDR
shall:
Maintain the data [prescribed by the Commission for each swap] in
such form, in such manner, and for such period as may be required by
the Commission.
Section 727 of the Dodd Frank Act, which added to the CEA new
section 2(a)(13), provides that ``Each swap (whether cleared or
uncleared) shall be reported to a registered swap data repository.''
\6\ Section 729 of the Dodd-Frank Act added to the CEA new section 4r,
which addresses reporting and recordkeeping requirements for uncleared
swaps. Pursuant to this section, each swap not accepted for clearing by
any derivatives clearing organization (``DCO'') must be reported to an
SDR (or to the Commission if no repository will accept the swap). In a
July 15, 2010 floor statement concerning swap data reporting as well as
other aspects of the Dodd-Frank Act, Senator Blanche Lincoln emphasized
that these provisions should be interpreted as complementary to one
another to assure consistency between them, stating that: ``All swap
trades, even those which are not cleared, would still be reported to
regulators, a swap data repository, and subject to the public reporting
requirements under the legislation.'' \7\
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\6\ CEA section 2(a)(13)(G).
\7\ Senator Blanche Lincoln, ``Wall Street Transparency and
Accountability Act,'' Congressional Record, July 15, 2010, at S5905.
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CEA section 4r ensures that at least one counterparty to a swap has
an obligation to report data concerning that swap. The determination of
this reporting counterparty depends on the status of the counterparties
involved. If only one counterparty is an SD, the SD is required to
report the swap. If one counterparty is an MSP, and the other
counterparty is neither an SD nor an MSP (``non-SD/MSP counterparty''),
the MSP must report. Where the counterparties have the same status--two
SDs, two MSPs, or two non-SD/MSP counterparties--the counterparties
must select a counterparty to report the swap.\8\
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\8\ See CEA section 4r(a)(3).
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In addition, CEA section 4r provides for reporting to the
Commission of swaps neither cleared nor accepted by any SDR. Under this
provision, counterparties to such swaps must maintain books and records
pertaining to their swaps in the manner and for the time required by
the Commission, and must make these books and records available for
inspection by the Commission or other specified regulators if requested
to do so.\9\ It also requires counterparties to such swaps to provide
reports concerning such swaps to the Commission upon its request, in
the form and manner specified by the Commission.\10\ Such reports must
be as comprehensive as the data required to be collected by SDRs.\11\
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\9\ CEA section 4r(c)(2) requires individuals or entities that
enter into a swap transaction that is neither cleared nor accepted
by an SDR to make required books and records open to inspection by
any representative of the Commission; an appropriate prudential
regulator; the Securities and Exchange Commission; the Financial
Stability Oversight Council; and the Department of Justice.
\10\ CEA sections 4r(a)(1)(B) and 4r(c).
\11\ CEA section 4r(d).
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C. International Considerations
Section 752 of the Dodd-Frank Act directs the Commission to consult
and coordinate with foreign regulatory authorities regarding
establishment of consistent international standards for the regulation
of swaps and swap entities. The Commission is committed to a
cooperative international approach to swap recordkeeping and swap data
reporting, and has consulted extensively with various foreign
regulatory authorities in the process of promulgating both its proposed
and final part 45 rules. During this process, the Commission has served
as Co-Chair of the Committee on Payment and Settlement Systems
(``CPSS'') and the International Organization of Securities Commissions
(``IOSCO'') Task Force that has prepared a Report on OTC Derivatives
Data Reporting and Aggregation Requirement for presentation to the
Financial Stability Board (``FSB'') in December 2011. The Commission
also served as a member of the organizing committee for the FSB Legal
Entity Identifier Workshop held in Basel, Switzerland in September
2011. In the course of preparing the proposed and final part 45 rules,
Commission staff met with financial regulatory authorities from
Argentina, Australia, Brazil, Canada, China, Dubai (United Arab
Emirates), France, Germany, Hong Kong, Indonesia, India, Italy, Japan,
Korea, Mexico, the Netherlands, Portugal, Russia, Saudi Arabia,
Singapore, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.
Staff also met with representatives of FSB, IOSCO, CPSS, the
International Monetary Fund, the FSB Data Gaps and Systemic Linkages
Group, the Bank for International Settlements, the Committee on the
Global Financial System, the OTC Derivatives Regulatory Forum, the OTC
Derivatives Supervisors Group, the European Central Bank, the European
Commission, the European Union, the
[[Page 2138]]
Commission of European Securities Regulators, the European Systemic
Risk Board, the International Organisation for Standardisation
(``ISO''), and the Association of National Numbering Agencies
(``ANNA'').
In September 2009, the G-20 \12\ leaders made a number of
commitments regarding OTC derivatives, including the statement that:
\12\ The G-20 include leaders and representatives of the core
members of the G-20 major economies, which comprises 19 countries
and the European Union which is represented by its two governing
bodies, the European Council and the European Commission.
All standardized OTC derivative contracts should be traded on
exchanges or electronic trading platforms, where appropriate, and
cleared through central counterparties by end-2012 at the latest.
OTC derivative contracts should be reported to trade
repositories.\13\
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\13\ Leaders' Statement, Pittsburgh Summit, September 25, 2009,
at 9; available at http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
The Commission's part 45 rules, if adopted by the Commission, which
requires reporting of swap data to SDRs to begin in mid-2012, may be
the first set of regulatory requirements in the world to fulfill this
commitment.
D. Consultations With Other U.S. Financial Regulators
In developing the swap data recordkeeping and reporting rule,
Commission staff has also engaged in extensive consultations with U.S.
domestic financial regulators. The agencies and institutions consulted
include the Federal Reserve Board of Governors (``Federal Reserve'')
(including the Federal Reserve Bank of New York), the Federal Deposit
Insurance Corporation (``FDIC''), the Office of Financial Research
(``OFR''), the Office of the Comptroller of Currency (``OCC''), the
Securities and Exchange Commission (``SEC''), and the Department of the
Treasury.
E. Summary of the Proposed Part 45 Rule
1. Fundamental Goal
The fundamental goal of the part 45 Notice of Proposed Rulemaking
(``NOPR'') was to ensure that complete data concerning all swaps
subject to the Commission's jurisdiction is maintained in SDRs, where
it would be available to the Commission and other financial regulators
for fulfillment of their various regulatory mandates, including
systemic risk mitigation, market monitoring, and market abuse
prevention.
2. Swap Recordkeeping
The NOPR called for registered entities and swap counterparties to
keep records relating to swaps throughout the existence of each swap
and for five years following final termination or expiration of the
swap. These records would be required to be readily accessible during
the life of the swap and for two years thereafter, and retrievable from
storage within three business days during the remaining three years of
the retention period. The NOPR would require that data in SDRs be
readily accessible to the Commission throughout the retention period as
required by the Dodd-Frank Act.\14\
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\14\ The proposed rule also cross-referenced the detailed
recordkeeping requirements specific to DCMs, SEFs, DCOs, SDs, and
MSPs included in rulemakings specific to those entities and
counterparties.
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3. Swap Data Reporting: Creation Data and Continuation Data
In order to ensure that complete data concerning swaps is
maintained in SDRs and available to the Commission and other
regulators, the NOPR called for reporting of swap data from each of two
important stages of the existence of a swap: the creation of the swap,
and the continuation of the swap over its existence until its final
termination or expiration.
a. Creation data reporting. To ensure timeliness, accuracy, and
completeness with respect to data, the NOPR required reporting of two
types of data relating to the creation of a swap: the primary economic
terms of the swap verified or matched by the counterparties at or
shortly after the time of execution; and all of the terms of the swap
included in the legal confirmation of the swap. To ensure inclusion of
primary economic terms necessary for regulatory purposes, the rule
specified minimum data elements that must be reported for swaps in each
asset class.
b. Continuation data reporting. The NOPR provided that continuation
data reporting for credit and equity swaps would follow the life cycle
approach, and required reporting of all life cycle events affecting the
terms of a swap. The NOPR directed reporting of continuation data for
interest rate, currency, and other commodity swaps to follow the state
or snapshot approach, and required reporting of a daily snapshot of all
primary economic terms of a swap including any changes to such terms
occurring since the previous snapshot. For all asset classes, the NOPR
called for continuation data reporting to include specified valuation
data.
4. Unique Identifiers
The NOPR called for use of three unique identifiers in connection
with swap data reporting: a unique swap identifier (USI), a unique
counterparty identifier (UCI), and a unique product identifier (UPI).
The Commission proposed requiring use of these unique identifiers
because they would be crucial regulatory tools for linking data
together and enabling data aggregation by regulators across
counterparties, transactions, and asset classes, to fulfill the
systemic risk mitigation, market manipulation prevention, and other
important purposes of the Dodd-Frank Act. The Commission also noted
that such identifiers would have great benefits for financial
transaction processing, internal recordkeeping, compliance, due
diligence, and risk management by financial entities.
The NOPR called for the USI to be created at the time a swap is
executed, shared with all registered entities and counterparties
involved with the swap, and used to track that particular swap over its
life. The UCI would identify the legal entity that is a counterparty to
a swap. Pursuant to the NOPR, the Commission would require use of UCIs
in all swap data reporting, selecting an internationally-developed
legal entity identifier system for this purpose if one meeting the
Commission's requirements is available prior to the compliance date
when swap data reporting begins, or imposing a system created by the
Commission if that were needed. Confidential reference data concerning
the corporate or company affiliations of the legal entity involved
would allow regulators to monitor swap exposures. The UPI would
categorize or describe swaps with respect to the underlying products
referenced in them, allowing regulators to aggregate, analyze, and
report swap transactions by product type, and also enhancing position
limit enforcement and real time reporting.
5. Who Reports
In general, the NOPR called for reporting by the registered entity
or counterparty having the easiest, fastest, and cheapest access to the
data in question, and most likely to have automated systems suitable
for reporting. Swap execution facilities (``SEFs'') or designated
contract markets (``DCMs'') would report primary economic terms data
(``PET data'') for swaps executed on a trading facility, and DCOs would
report confirmation data for cleared swaps. Counterparty reporting
would follow the hierarchy outlined in the statute, giving SDs or MSPs
the duty to report when possible,
[[Page 2139]]
and limiting reporting by non-SD/MSP counterparties to situations where
there is no SD or MSP counterparty. Where both counterparties have the
same hierarchical status, the proposed rule would require them to agree
as one term of their swap which of them is to report, in order to avoid
reporting delays.
6. Third-Party Facilitation of Reporting
The NOPR would explicitly permit third-party facilitation of data
reporting, without removing the reporting responsibility from the
appropriate registered entity or counterparty.
7. Reporting a Swap to a Single SDR
To avoid fragmentation of data for a given swap across multiple
SDRs, the NOPR would require that all data for a particular swap must
be reported to the same SDR.
8. Reporting Swaps in an Asset Class Not Accepted by Any SDR
As required by the section 729 of the Dodd-Frank Act, the NOPR
provided that if there were an asset class for which no SDR currently
accepted data, registered entities or counterparties required to report
concerning swaps in such an asset class would be required to report the
same data to the Commission at a time and in a form and manner
determined by the Commission.
9. Data Standards
The NOPR would require SDRs to maintain data and transmit it to the
Commission in the format required by the Commission. It would permit an
SDR to allow those reporting data to it to use any data standard
acceptable to the SDR, so long as the SDR remains able to provide data
to the Commission in the Commission's required format.
10. Reporting Errors and Omissions in Previously Reported Data
Finally, the NOPR provided that registered entities and
counterparties required to report swap data must also report to the SDR
any errors or omissions in data previously reported, using the same
format used in the previous report. Non-reporting counterparties
discovering an error or omission would be required to notify the
reporting counterparty, for reporting to the SDR by the reporting
counterparty.
F. Overview of Comments Received
The comment period for the NOPR closed on February 7, 2011, but was
reopened pursuant to the Commission's Order Reopening and Extension of
Comment Periods for Rulemakings Implementing the Dodd-Frank Wall Street
Reform and Consumer Protection Act, dated May 4, 2011. The reopened
comment period closed on June 3, 2011. Seventy-five comment letters
submitted to the Commission addressed the proposed part 45 swap data
recordkeeping and reporting rule.\15\ Comments were provided by a broad
range of interested persons, including: Existing trade repositories,
DCMs, and DCOs; providers of various third party services related to
swaps; financial data and data management services and providers of
various types of identifiers; both buy side and sell side swap
counterparties of various types and sizes; trade associations involving
securities, futures, and foreign exchange markets and firms; banks and
mortgage lenders; managed funds and investment advisors; swap dealers;
swap ``end users''; energy producers; and non-profit
[[Page 2140]]
associations. Commission staff also held three public roundtables
relating to swap data reporting, on September 14, 2010, January 28,
2011, and June 6, 2011, which provided input from a broad cross-section
of industry and private sector experts concerning the issues addressed
in the NOPR. While many commenters expressed support for the proposed
part 45 rules, many also offered suggestions regarding swap data
recordkeeping and reporting, as well as recommendations for
clarification or modification of specific provisions of the proposed
rule. Comments are addressed as appropriate in connection with the
discussion below of the final rule provision or provisions to which
they relate. Some comments received by the Commission requested further
clarification relating to definitions provided in the NOPR, or
regarding the application of NOPR provisions in various contexts.
Definitions included in the final rule are provided for clarification
and do not impose new substantive obligations.
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\15\ All comment letters are available on the Commission Web
site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=920. Specific comment letters are identified by
CL and the submitter. Comments addressing the NOPR were received
from: (1) ACM Capital Management (``ACM'') June 15, 2011 (``CL-
ACM''); (2) Alice Corporation (``Alice'') June 1, 2011 (``CL-
Alice''); (3) American Bankers Association and the ABA Securities
Association (``ABA/ABASA'') June 3, 2011 (``CL-ABA/ABASA''); (4)
American Benefits Council (``ABC'') February 7, 2011 (``CL-ABC'');
(5) American Benefits Council (``ABC'') and Committee on Investment
of Employee Benefit Assets (``CIEBA'') February 7, 2011 (``CL-ABC/
CIEBA I''); (6) ABC and CIEBA March 25, 2011 (``CL-ABC/CIEBA II'');
(7) American Gas Association (``AGA'') February 3, 2011 (``CL-AGA
I''); (8) AGA June 3, 2011 (``CL-AGA II''); (9) Asset Management
Group (``AMG'') and Securities Industry and Financial Markets
Association (``SIFMA'') February 7, 2011 (``CL-AMG/SIFMA''); (10)
Japanese Banking Organizations--Bank of Tokyo-Mitsubishi UFJ, Ltd.
(``BTMU''), Mizuho Corporate Bank (``MHCB''), and Sumitomo Mitsui
Banking Corporation (``SMBC'') May 5, 2011 (``CL-Japanese Banks'');
(11) Better Markets, Inc. (``Better Markets'') February 7, 2011
(``CL-Better Markets I''); (12) Better Markets June 3, 2011 (``CL-
Better Markets II''); (13) BlackRock, Inc. (``BlackRock'') June 3,
2011 (``CL-BlackRock I''); (14) BlackRock June 3, 2011 (``CL-
BlackRock II''); (15) Bloomberg, LP (``Bloomberg'') June 3, 2011
(``CL-Bloomberg''); (16) Chatham Financial Corporation (``Chatham
Financial'') February 7, 2011 (``CL-Chatham Financial''); (17) Chris
Barnard (``Barnard'') May 17, 2011 (``CL-Barnard''); (18) Citadel,
LLC (``Citadel'') June 3, 2011 (``CL-Citadel''); (19) CME Group,
Inc. (``CME'') February 7, 2011 (``CL-CME I''); (20) CME June 3,
2011 (``CL-CME II''); (21) Coalition of Derivatives End-Users
(``CDEU'') February 25, 2011 (``CL-CDEU''); (22) Coalition of
Physical Energy Companies (``COPE'') February 7, 2011 (``CL-COPE
I''); (23) COPE June 3, 2011 (``CL-COPE II''); (24) Committee on
Capital Markets Regulation June 13, 2011 (``CL-Committee on Capital
Markets Regulation I''); (25) Committee on Capital Markets
Regulation June 24, 2011 (``CL-Committee on Capital Markets
Regulation II''); (26) Committee on Futures and Derivatives
Regulation, Bar Association of the City of New York June 13, 2011
(``CL-Committee on Futures and Derivatives Regulation''); (27)
Committee on the Investment of Employee Benefit Assets (``CIEBA'')
June 3, 2011 (``CL-CIEBA''); (28) Commodity Markets Council
(``CMC'') February 6, 2011 (``CL-CMC I''); (29) Commodity Markets
Council (``CMC'') February 7, 2011 (``CL-CMC II''); (30) Congressman
James Renacci (``Renacci'') June 10, 2011 (``CL-Renacci''); (31)
CUSIP Global Services (``CUSIP'') February 7, 2011 (``CL-CUSIP'');
(32) Customer Data Management Group (``CDMG'') April 1, 2011 (``CL-
CDMG''); (33) DC Energy, LLC (``DC Energy'') June 3, 2011 (``CL-DC
Energy''); (34) Dominion Resources, Inc. (``Dominion Resources'')
February 7, 2011 (``CL-Dominion Resources''); (35) The Depository
Trust & Clearing Corporation (``DTCC'') February 7, 2011 (``CL-DTCC
I''); (36) DTCCC June 3, 2011 (``CL-DTCC II''); (37) Edison Electric
Institute (``EEI'') June 3, 2011 (``CL-EEI''); (38) Edison Electric
Institute Electric Power Supply Association (``EPSA'') February 7,
2011 (``CL-EPSA''); (39) Encana Marketing (USA), Inc. (``Encana'')
February 7, 2011 (``CL-Encana''); (40) Eris Exchange, LLC (``Eris
Exchange'') June 3, 2011 (``CL-Eris''); (41) Futures Industry
Association (``FIA''), The Financial Services Roundtable (``FSR''),
Institute of International Bankers (``IIB''), Insured Retirement
Institute (``IRI''), International Swaps and Derivatives Association
(``ISDA''), Securities Industry and Financial Markets Association
(``SIFMA''), and U.S. Chamber of Commerce, (``Chamber of Commerce'')
June 1, 2011 (``CL-Chamber of Commerce''); (42) Foreign Banking
Organizations--Barclays, BNP Paribas, Deutsche Bank, Royal Bank of
Canada, The Royal Bank of Scotland Group, Societe Generale, Credit
Suisse, HSBC, UBS, Nomura Securities International, Inc., Rabobank
Nederland (``Foreign Banks'') January 11, 2011 (``CL-Foreign Banks
I''); (43) Foreign Banks February 17, 2011 (``CL-Foreign Banks
II''); (44) Freddie Mac February 7, 2011 (``CL-Freddie Mac''); (45)
The Federal Home Loan Banks (``FHLB'') February 7, 2011 (``CL-
FHLB''); (46) Global Foreign Exchange Division (``Global Forex'')
February 7, 2011 (``CL-Global Forex''); (47) Green Exchange, LLC
(``GreenEx'') June 3, 2011 (``CL-GreenEx''); (48) GS1 US (``GS1'')
February 7, 2011 (``CL-GS1''); (49) Intercontinental Exchange, Inc.
(``ICE'') February 7, 2011 (``CL-ICE''); (50) International Energy
Credit Association (``IECA'') February 7, 2011 (``CL-IECA''); (51)
International Swaps and Derivatives Association, Inc. (``ISDA'')
June 2, 2011 (``CL-ISDA''); (52) ISDA SIFMA February 7, 2011 (``CL-
ISDA SIFMA''); (53) Kansas City Board of Trade Clearing Corporation
(``KCBT'') February 7, 2011 (``CL-KCBT''); (54) Managed Funds
Association (``MFA'') February 7, 2011 (``CL-MFA''); (55) Markit
June 3, 2011 (``CL-Markit''); (56) MarkitSERV June 3, 2011 (``CL-
MarkitSERV I); (57) MarkitSERV June 3, 2011 (``CL-MarkitSERV II'');
(58) Minneapolis Grain Exchange (``MGEX'') June 3, 2011 (``CL-
MGEX''); (59) Not-For-Profit Electric End User Coalition consisting
of the National Rural Electric Cooperative Association, American
Public Power Association, Large Public Power Council, Edison
Electric Institute Electric Power Supply Association, (``Electric
Coalition'') February 7, 2011 (``CL-Electric Coalition I''); (60)
Electric Coalition June 3, 2011 (``CL-Electric Coalition II''); (61)
Noble Energy, Inc. (``Noble Energy'') July 7, 2011 (``CL-Noble
Energy''); (62) Office of the Comptroller of the Currency July 1,
2011 (``CL-Office of the Comptroller of the Currency''); (63) REGIS-
TR February 7, 2011 (``CL-REGIS-TR''); (64) Reval.com, Inc.
(``Reval'') January 24, 2011 (``CL-Reval''); (65) Shell Energy North
America (US), L.P. (``Shell Energy'') June 3, 2011 (``CL-Shell
Energy I''); (66) Shell Energy June 21, 2011 (``CL-Shell Energy
II''); (67) Society for Worldwide Interbank Financial
Telecommunication SCRL (``SWIFT'') February 14, 2011 (``CL-SWIFT'');
(68) SunGard Energy & Commodities (``SunGard'') February 7, 2011
(``CL-Sungard''); (69) Thomson Reuters February 7, 2011 (``CL-
Thomson Reuters''); (70) TradeWeb Markets, LLC (``TradeWeb'') June
3, 2011 (``CL-TradeWeb''); (71) TriOptima February 7, 2011 (``CL-
TriOptima''); (72) Senator Sherrod Brown (``Brown'') June 13, 2011
(``CL-Brown''); (73) Vanguard February 7, 2011 (``CL-Vanguard'');
(74) Working Group of Commercial Energy Firms (``WGCEF'') February
7, 2011 (``CL-WGCEF I''); (75) WGCEF June 3, 2011 (``CL-WGCEF II'').
---------------------------------------------------------------------------
II. Part 45 of the Commission's Regulations: The Final Rules
New part 45 contains provisions governing swap data recordkeeping
and reporting. Definitions are set forth in Sec. 45.1. Section 45.2
establishes swap recordkeeping requirements for registered entities and
swap counterparties. Sections 45.3 and 45.4 establish swap data
reporting requirements. Reporting of required swap creation data (the
data association with the creation or execution of a swap) is addressed
in Sec. 45.3, while reporting of required swap continuation data (the
data associated with the continued existence of a swap until its final
termination) is addressed in Sec. 45.4. Required use of unique
identifiers in swap data recordkeeping and reporting is addressed in
Sec. 45.5, which sets forth requirements regarding unique swap
identifiers (``USIs''); Sec. 45.6, which sets forth requirements
regarding legal entity identifiers (``LEIs''); and 45.7, which sets
forth requirements regarding unique product identifiers (``UPIs'').
Determination of which counterparty must report swap data for each swap
is established by Sec. 45.8. Third-party facilitation of swap data
reporting is addressed by Sec. 45.9. Section 45.11 establishes
requirements for reporting all data concerning a swap to a single SDR.
Section 45.11 addresses data reporting for swaps in a swap asset class
not accepted by any SDR. Section 45.12 sets forth requirements
concerning voluntary supplemental reporting of swap data to SDRs.
Section 45.13 establishes required data standards for swap data
reporting. Finally, Sec. 45.14 sets forth requirements for reporting
concerning errors and omissions in previously reported swap data.
A. Recordkeeping Requirements--Sec. 45.2
1. Proposed Rule
The NOPR provided that all SEFS, DCMs, DCOs, SDs, and MSPs must
keep full, complete, and systematic records, together with all
pertinent data and memoranda, of all activities relating to the
business of such entities or persons with respect to swaps, including,
without limitation, records of all data required to be reported in
connection with any swap. All such records would be required to be kept
throughout the existence of the swap and for five years following final
termination of the swap. Records would be required to be readily
accessible by the registered entity or counterparty in question via
real time electronic access throughout the life of the swap and for two
years following the final termination of the swap, and retrievable
within three business days through the remainder of the required
retention period.
The NOPR proposed lesser recordkeeping requirements for non-SD/MSP
counterparties, calling for them to keep full, complete, and systematic
records, including all pertinent data and memoranda, with respect to
each swap in which they are a counterparty (as opposed to all
activities relating to the business of such entities with respect to
swaps), in a way that makes the records retrievable by the counterparty
within three business days during the required retention period.
The NOPR provided that all records required to be kept by SDRs must
be kept by the SDR both: (a) throughout the existence of the swap and
for five years following final termination or expiration of the swap,
during which time the records must be readily accessible by the SDR and
available to the Commission via real time electronic access; and (b)
thereafter, for a period determined by the Commission, in archival
storage from which they are retrievable by the SDR within three
business days. This provision was intended to make effective the
statutory mandate that SDRs must ``provide direct electronic access to
the Commission (or any designee of the Commission including another
registered entity).'' \16\
---------------------------------------------------------------------------
\16\ CEA section 21(c)(4)(A).
---------------------------------------------------------------------------
As proposed, part 45 would also require that all records required
to be kept pursuant to the regulations must be open to inspection upon
request by any representative of the Commission, the Department of
Justice, or the SEC, or by any representative of a prudential regulator
as authorized by the Commission.
2. Comments Received
The Commission received comments concerning the proposed
recordkeeping provisions from both market participants who anticipated
that they could be SDs and MSPs and market participants who anticipated
that they could be non-SD/MSP counterparties. Many commenters asked
that non-SD/MSP counterparties be allowed to keep fewer records and to
keep records in paper form. Commenters suggested that required record
retention periods should be shortened, and that retrievability
requirements should be somewhat relaxed. Other commenters suggested
that recordkeeping requirements for non-SD/MSP counterparties should be
phased in.
a. Records required. American Gas Association (``AGA'') and Edison
Electric Institute (``EEI'') asked the Commission to specify more
precisely the information that non-SD/MSP counterparties will be
required to retain, defining in particular the meaning of ``all
pertinent data and memoranda,'' with examples. Arguing that non-SD/MSP
counterparties should not be required to keep records of swap terms
other than the final terms of the swap, EEI suggested that non-SD/MSP
counterparties be required to retain only ``master or bespoke
agreements, long or short-form confirmations, amendments and associated
swap transaction data stored in an end-user's trade capture system.''
The Committee on the Investment of Employee Benefit Assets (``CIEBA'')
suggested that a non-SD/MSP counterparty should only be required to
retain the final confirmation of any swap where the other counterparty
is an SD or MSP, and (presumably where no SD or MSP is involved) should
only be required to retain swap creation or continuation data that the
non-SD/MSP is required to report. The Working Group of Commercial
Energy Firms (``WGCEF'') asked that non-SD/MSP counterparties to
physical commodity swaps (or at least energy swaps) be excused from
recordkeeping requirements altogether, arguing that the final rule
should recognize ``the unique operational characteristics and abilities
of different participants in swap markets for physical commodities,''
since such counterparties may not presently have the necessary
technology, and the benefits of implementing it would not justify the
costs imposed. The Not-for-Profit Electric End User Coalition
(``Electric Coalition'') contended that the
[[Page 2141]]
rule should allow non-SD/MSP counterparties to keep records in paper
form.
b. Record retention periods. The International Swap Dealers
Association (``ISDA'') and the Securities Industry and Financial
Markets Association (``SIFMA'') suggested that the Commission should
analyze this requirement further before it is implemented. AGA argued
that record retention for the life of the swap plus five years would
impose substantial costs on non-SD/MSP counterparties such as gas
utilities, and asked that the record retention period for non-SD/MSP
counterparties be reduced to the life of the swap plus three years.
WGCEF commented that there would be no benefit to record retention
beyond five years following termination of a swap. Taking an opposite
view, Chris Barnard recommended that all registered entities and swap
counterparties should be required to keep records indefinitely.
c. Record retrievability. ISDA and SIFMA commented that current
recordkeeping practice for their members would normally mean
accessibility within a reasonable period of time, such as two working
days, and argued that instant access is impracticable to achieve.\17\
The Global Foreign Exchange Division of SIFMA (``Global Forex'')
suggested that after termination of the swap, real time access should
only be required for an additional 30 days. With respect to retrieval
by non-SD/MSP counterparties, AGA argued that the three-business-day
retrievability requirement is too onerous, and would preclude off-site
storage of business records, forcing end users to maintain on-site
record storage. The Electric Coalition suggested that the retrieval
period for non-SD/MSP counterparties be extended to 20 business days.
---------------------------------------------------------------------------
\17\ WGCEF asked the Commission to confirm that real time
accessibility refers to access by the counterparty, not the
Commission, and asked that the requirement be changed to require
record retrieval by the close of business the day following a
request.
---------------------------------------------------------------------------
d. Phasing in recordkeeping requirements for non-SD/MSP
counterparties. The Electric Coalition suggested that recordkeeping
requirements for non-SD/MSP counterparties be phased in. The Electric
Coalition also suggested that the Commission define two sub-categories
of non-SD/MSPs, namely financial and non-financial non-SD/MSPs, and
that it delay the beginning of compliance with recordkeeping
requirements even further for non-financial non-SD/MSP counterparties.
Dominion Resources commented that recordkeeping should focus first on
swaps involving platform execution or clearing, or involving SDs and
MSPs.
3. Final Rule: Sec. 45.2
a. Records required. The Commission believes that the final rule
should largely maintain the NOPR provisions regarding required records.
Those provisions call for recordkeeping with respect to swaps that
parallels the Commission's existing recordkeeping requirements with
respect to futures and options.\18\ Under those existing requirements,
all DCMs, DCOs, futures commission merchants (``FCMs''), introducing
brokers (``IBs''), and members of contract markets are generally
required to keep full and complete records, together with all pertinent
data and memoranda, of all activities relating to the business of the
entity or person that is subject to the Commission's authority. The
Commission believes that the rationale for requiring futures
registrants and counterparties subject to its jurisdiction to keep full
and complete records must also govern recordkeeping with respect to
swaps. Such records are essential to carrying out the regulatory
functions of not only the Commission but all other financial
regulators, and for appropriate risk management by registered entities
and swap counterparties themselves.\19\
---------------------------------------------------------------------------
\18\ Recordkeeping requirements relating to futures and options
are found in CEA sections 5(b) and 5(d); Sec. Sec. 1.31 and 1.35 of
this chapter; Appendix B to Part 38 of the Commission's Regulations,
Core Principle 17, Recordkeeping; and Appendix A to Part 39 of the
Commission's Regulations, Core Principle K, Recordkeeping.
\19\ The need for such records is also recognized
internationally. As CPSS has noted: ``it should be clear that the
data recorded in a TR [trade repository] cannot be a substitute for
the records of transactions at original counterparties. Therefore,
it is important that even where TRs have been established and used,
market participants maintain their own records of the transactions
that they are a counterparty to and reconcile them with their
counterparties or TRs on an ongoing basis (including for their own
risk management purposes).'' Committee on Payment and Settlement
Systems, Considerations for Trade Repositories in OTC Derivatives
Markets, May 2010, at 1.
---------------------------------------------------------------------------
The Commission notes that the NOPR placed narrower recordkeeping
obligations on non-SD/MSP counterparties subject to the Commission's
jurisdiction, requiring them to keep full, complete, and systematic
records, including all pertinent data and memoranda, with respect to
each swap to which they are a counterparty, rather than with respect to
their entire business relating to swaps. This narrower requirement was
designed to effectuate a policy choice made by the Commission to place
lesser burdens on non-SD/MSP counterparties to swaps, where this can be
done without damage to the fundamental systemic risk mitigation,
transparency, standardization, and market integrity purposes of the
legislation.
The Commission does not believe that it should further define or
reduce the records required to be kept. The Commission's existing
recordkeeping regulations in the futures context call for maintenance
of ``full and complete records.'' Complete records regarding each swap
should be required from all counterparties, including non-SD/MSP
counterparties to physical commodity swaps and other swaps, because
such records are essential for effective market oversight and
prosecution of violations by the Commission and other regulators.
Experience with recordkeeping requirements in the context of futures
suggests that all market participants are able to retain such records.
The Commission also does not believe that it should specifically
delineate the meaning of ``all pertinent data and memoranda.'' This
phrase is not further defined in the Commission's existing futures
regulations.
With respect to paper recordkeeping, the Commission agrees with the
comment suggesting that non-SD/MSP counterparties should be permitted
to keep required records in paper form, since this could serve to
reduce burdens on some such counterparties while still ensuring that
essential records are available.\20\ The final rule provides that non-
SD/MSP counterparties may keep records in either electronic or paper
form, so long as they are retrievable, and information in them is
reportable, as required by part 45. Because SEFS, DCMs, DCOs, SDs, and
MSPs are more likely to have automated systems suitable for electronic
recordkeeping, and because electronic production of records is
important to the Commission's enforcement functions, the final rule
will permit such registrants to keep records in paper form only if they
are originally created and exclusively maintained in paper form.
---------------------------------------------------------------------------
\20\ Although the final rule requires data reporting in
electronic form, a non-SD/MSP counterparty could achieve this by
entering information from paper records into a web interface
provided by an SDR.
---------------------------------------------------------------------------
b. Record retention periods. The Commission has determined that the
final rule should maintain the NOPR provision calling for required
records to be retained for the life of the swap plus five years. A swap
can continue to exist for a substantial period of time prior to its
final termination or expiration. During this time, which in some cases
can extend for many years, the key economic terms of the swap can
change. Thus, recordkeeping requirements with
[[Page 2142]]
respect to a swap must necessarily cover the entire period of time
during which the swap exists, as well as an appropriate period
following final termination or expiration of the swap. A five-year
retention period following termination of the swap will ensure document
retention consistent with the information that the Commission and other
regulators need to carry out their oversight and enforcement
responsibilities. It will also parallel the Commission's existing five-
year record retention requirement in the context of futures. Finally,
this five-year period is consistent with the Commission's final part 49
rules regarding SDR registration.
With respect to record retention by SDRs, the Commission has
determined that SDRs must retain all required records both: (a)
Throughout the existence of the swap and for five years following final
termination or expiration of the swap, during which time the records
must be readily accessible by the SDR and available to the Commission
via real time electronic access, as provided in the NOPR; and (b)
thereafter, for an archival storage period of ten additional years,
during which they must be retrievable by the SDR within three business
days. The Commission believes that extended retention of SDR records
will assist regulators in discharging their systemic risk and market
monitoring responsibilities, and aid market analysis. However, after a
substantial period of time has passed following final termination of a
swap, the data storage burden of retaining SDR records concerning the
swap could outweigh the remaining benefit involved, and accordingly the
Commission does not agree with the comment suggesting indefinite record
retention. The Commission may review the ten-year archival storage
requirement for SDRs at a future time, after experience with its
operation is available.
c. Record retrievability. The Commission does not believe that it
should reduce record retrievability requirements for SEFS, DCMs, DCOs,
SDs, and MSPs. The requirement that records be readily accessible for
the life of the swap plus two years parallels the Commission's
retrievability requirement during the first two years of the five-year
retention period for futures-related records.\21\ The Commission has
routinely interpreted ``readily accessible'' to mean retrievable in
real time or at least on the same day as the records are requested.
Moreover, Commission Regulation 1.31 requires records maintained
electronically to be produced immediately upon request. FCMs routinely
comply with this requirement, and the Commission does not believe that
SDs and MSPs should be unable to do so as well.
---------------------------------------------------------------------------
\21\ See Sec. 1.31 of this chapter.
---------------------------------------------------------------------------
With respect to record retrievability for non-SD/MSP
counterparties, the Commission accepts the comments suggesting that
retrieval from off-site storage within three business days could
possibly involve additional costs or limit off-site storage options for
some smaller non-SD/MSP counterparties. In order to lessen any burden
on non-SD/MSP counterparties while maintaining necessary accessibility
of pertinent records, the final rule will only require retrievability
of non-SD/MSP counterparty records within five business days throughout
the record retention period. The Commission believes that this will not
unduly compromise its ability to conduct investigations and carry out
its enforcement responsibilities.
d. Phasing in recordkeeping requirements for non-SD/MSP
counterparties. The Commission does not believe that it is necessary to
provide any phasing treatment with respect to recordkeeping
requirements for non-SD/MSP counterparties beyond the phasing by
counterparty type provided in the final rule with respect to compliance
dates. As noted above, the final rule provides less onerous
recordkeeping requirements and less onerous retrievability requirements
for non-SD/MSP counterparties, in order to ameliorate recordkeeping
burdens for them. Excusing non-SD/MSP counterparties from all
recordkeeping for an extended period could interfere with the ability
of the Commission and other regulators to carry out their oversight and
enforcement responsibilities. As previously noted, experience with
recordkeeping requirements in the context of futures suggests that all
market participants do retain records and that such recordkeeping is
essential for effective oversight and prosecution of violations.
B. Swap Data Reporting: Creation Data--Sec. 45.3
1. Proposed Rule
a. What creation data should be reported. In order to ensure
timeliness, accuracy, and completeness with respect to the swap data
available to regulators, the proposed rule called for reporting of swap
data from each of two important stages of the existence of a swap: the
creation of the swap, and the continuation of the swap over its
existence until its final termination or expiration. The NOPR required
reporting of two sets of data generated in connection with the swap's
creation: primary economic terms data, and confirmation data.
The NOPR defined primary economic terms as including all of the
terms of the swap verified or matched by the counterparties at or
shortly after the execution of the swap. In order to ensure that the
array of primary economic terms reported to an SDR for a swap is
sufficient in each case for regulatory purposes and is comparable
enough to permit data aggregation, the NOPR required that the primary
economic terms reported for each swap must include, at a minimum, all
of the data elements listed by the Commission in the asset class-
specific tables of minimum data elements appended to the NOPR. The
tables were designed to include data elements reflecting the basic
nature and essential economic terms of the product involved.
The NOPR defined confirmation as the full, signed, legal
confirmation by the counterparties of all of the terms of a swap, and
defined confirmation data as all of the terms of a swap matched and
agreed upon by the counterparties in confirming the swap. The NOPR
required reporting of confirmation data, in addition to the earlier
reporting of primary economic terms data, in order to help ensure the
completeness and accuracy of the data maintained in an SDR with respect
to a swap. Reporting of the terms of the confirmation, which has the
assent of both counterparties, also provides a means of fulfilling the
statutory directive that an SDR ``shall confirm with both
counterparties to the swap the accuracy of the data that was
submitted.'' \22\
---------------------------------------------------------------------------
\22\ CEA section 21(c)(2).
---------------------------------------------------------------------------
b. Who should report creation data. The NOPR's swap data reporting
provisions were designed to streamline and simplify the data reporting
approach, by calling for reporting by the registered entity or
counterparty that the Commission believes has the easiest, fastest, and
cheapest access to the data in question. As recognized in the NOPR,
such entities and counterparties are also the most likely to have
automated systems suitable for reporting.
Because the Commission anticipated that swap contract certification
process for swaps listed by SEFs and DCMs would define all or most of
the primary economic terms of a swap, the NOPR called for SEFs or DCMs
to report PET data for swaps executed on a trading platform, as soon as
technologically practicable after execution, with reporting
counterparties reporting only PET data that for any reason was not
[[Page 2143]]
available to the SEF or DCM. For off-facility swaps, where PET data is
created by the counterparties' verification of the primary economic
terms of the swap, the NOPR provided for the reporting counterparty (as
defined) to report the required PET data for the swap. The NOPR called
for this report to be made promptly, but in no event later than: 15
minutes after execution of a swap for which execution and verification
of primary economic terms occur electronically; 30 minutes after
execution of a swap which is not executed electronically but for which
verification of primary economic terms occurs electronically; or, in
the case of a swap for which neither execution nor verification of
primary economic terms occurs electronically, within a time after
execution to be determined by the Commission.
For cleared swaps, where confirmation data will be generated by
DCOs in the course of the normal clearing process, the NOPR called for
DCOs to report confirmation data, doing so as soon as technologically
practicable following clearing. For non-cleared swaps, where
confirmation will be done by the counterparties, the NOPR required the
reporting counterparty to report confirmation data, making this report
promptly following confirmation, but in no event later than: 15 minutes
after confirmation of a swap for which confirmation occurs
electronically; or, in the case of a swap for which confirmation was
done manually rather than electronically, within a time after
confirmation to be determined by the Commission.
The NOPR did not explicitly assign the right to select the SDR to
which a swap is reported, but it effectively determined who will make
this choice, through the interaction of two key aspects of the rule.
First, in order to prevent fragmentation of data for a single swap
across multiple SDRs, which would seriously impair the ability of the
Commission and other regulators to view or aggregate all of the data
concerning the swap, the proposed rule provided that, once an initial
data report concerning a swap is made to an SDR, all data reported for
that swap thereafter must be reported to that same SDR.\23\ Second, in
order to ensure that PET data concerning the swap is reported as soon
as technologically practicable following execution--in part to
facilitate real time reporting--the proposed rule required the SEF or
DCM to make the initial PET data report for swap executed on such a
facility, and required the reporting counterparty (in the majority of
cases, an SD or MSP) to make the initial report for an off-facility
swap. Because subsequent reports must go to the SDR that received the
initial report, in practice this meant that the SEF or DCM would select
the SDR for platform-executed swaps, and the reporting counterparty
would choose the SDR for off-facility swaps.
---------------------------------------------------------------------------
\23\ This requirement received universal approbation in both
comments and roundtables as appropriate and necessary.
---------------------------------------------------------------------------
c. Deadlines for creation data reporting. The NOPR established
reporting deadlines for creation data reporting, including both PET
data reporting and confirmation data reporting, determined by whether
the swap is platform-executed and/or cleared, whether verification
(matching) of primary economic terms by the counterparties occurs
electronically, and whether the reporting counterparty is an SD or MSP
on the one hand or a non-SD/MSP counterparty on the other. The
resulting deadlines were as shown in the following tables.
Proposed Rule--Reporting Counterparty: SD or MSP
----------------------------------------------------------------------------------------------------------------
Execution and clearing Report Reporter Reporting time
----------------------------------------------------------------------------------------------------------------
SEF or DCM, DCO................... PET data............. SEF or DCM........... As soon as technologically
practicable following
execution.
Any PET data not SD or MSP............ After execution:
reported by SEF or * 15 minutes if execution and
DCM. verification electronic.
* 30 minutes if execution non-
electronic but verification
electronic.
* 24 hours if neither
execution nor verification
electronic.
Confirmation data.... DCO.................. As soon as technologically
practicable following
clearing.
SEF, Not cleared.................. PET data............. SEF.................. As soon as technologically
practicable following
execution.
Any PET data not SD or MSP............ After execution:
reported by SEF. * 15 minutes if execution and
verification electronic.
* 30 minutes if execution non-
electronic but verification
electronic.
* 24 hours if neither
execution nor verification
electronic.
Confirmation data.... SD or MSP............ After confirmation:
* 15 minutes if confirmation
electronic.
* 24 hours if confirmation non-
electronic.
No platform, DCO.................. PET data............. SD or MSP............ After execution:
* 30 minutes if verification
electronic.
* 24 hours if verification non-
electronic.
Confirmation data.... DCO.................. As soon as technologically
practicable following
clearing.
No platform, Not cleared.......... PET data............. SD or MSP............ After execution:
* 30 minutes if verification
electronic.
* 24 hours if verification non-
electronic.
Confirmation data.... SD or MSP............ After confirmation:
* 15 minutes if confirmation
electronic.
* 24 hours if confirmation non-
electronic.
----------------------------------------------------------------------------------------------------------------
Proposed Rule--Reporting Counterparty: Non-SD/MSP
----------------------------------------------------------------------------------------------------------------
Execution and clearing Report Reporter Reporting time
----------------------------------------------------------------------------------------------------------------
SEF or DCM, DCO................... PET data............. SEF or DCM........... As soon as technologically
practicable following
execution.
[[Page 2144]]
Any PET data not Non-SD/MSP........... After execution:
reported by SEF or * 15 minutes if execution and
DCM. verification electronic.
* 30 minutes if execution non-
electronic but verification
electronic.
* 24 hours if neither
execution nor verification
electronic.
Confirmation data.... DCO.................. As soon as technologically
practicable following
clearing.
SEF, Not cleared.................. PET data............. SEF.................. As soon as technologically
practicable following
execution.
Any PET data not SD or MSP............ After execution:
reported by SEF. * 15 minutes if execution and
verification electronic.
* 30 minutes if execution non-
electronic but verification
electronic.
* 24 hours if neither
execution nor verification
electronic.
Confirmation data.... Non-SD/MSP........... After confirmation:
* To be determined by the
Commission prior to final
rule.
No platform, DCO.................. PET data............. Non-SD/MSP........... After execution:
* 30 minutes if verification
electronic.
* 24 hours if verification non-
electronic.
Confirmation data.... DCO.................. As soon as technologically
practicable following
clearing.
No platform, Not cleared.......... PET data............. Non-SD/MSP........... After execution:
* 30 minutes if verification
electronic.
* 24 hours if verification non-
electronic.
Confirmation data.... Non-SD/MSP........... After confirmation:
* To be determined by the
Commission prior to final
rule.
----------------------------------------------------------------------------------------------------------------
d. Reporting for multi-asset swaps and mixed swaps. As noted in the
NOPR, a mixed swap is in part a security-based swap subject to SEC
jurisdiction, and in part a swap subject to CFTC jurisdiction.\24\
Multi-asset swaps are those that do not have one easily identifiable
primary underlying asset, but instead involve multiple underlying
assets belonging to different asset classes that are all within CFTC's
jurisdiction. One way of stating the distinction between these two
types of swaps is that SEC and CFTC will each have jurisdiction over
part of a mixed swap, but only CFTC will have jurisdiction over the
different parts of a multi-asset swap. The NOPR requested comment on
how multi-asset and mixed swaps should be reported.
---------------------------------------------------------------------------
\24\ The Dodd-Frank Act defines ``mixed swap'' as follows: ``The
term `security-based swap' includes any agreement, contract, or
transaction that is as described in section 3(a)(68)(A) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and is
also based on the value of 1 [sic] or more interest or other rates,
currencies, commodities, instruments of indebtedness, indices,
quantitative measures, other financial or economic interest or
property of any kind (other than a single security or a narrow-based
security index), or the occurrence, non-occurrence, or the extent of
the occurrence of an event or contingency associated with a
potential financial, economic, or commercial consequence (other than
an event described in subparagraph (A)(iii).'' Dodd-Frank Sec.
721(21), CEA section 1a(47)(D).
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2. Comments Received
The Commission received numerous comments from a variety of
commenters concerning the proposed rule's provisions addressing
creation data reporting. The broad themes of these comments addressed
what should be included in required primary economic terms data, who
should make the initial creation data report, what deadlines should be
set for making creation data reports, and how creation data should be
reported with respect to multi-asset swaps, mixed swaps, and
international swaps.
a. What should be included in required PET data. Comments
concerning various aspects of required minimum PET data are discussed
below.
Clarification of the catch-all PET data category. The tables of
minimum PET data for each asset class appended to the NOPR included a
field for reporting ``any other primary economic terms of the swap
matched by the counterparties in verifying the swap.'' ISDA and SIFMA
commented that the Commission should clarify or provide examples of
what this requirement means.
Clarification of particular PET data terms for other commodity
swaps. Electric energy providers including EEI, the Electric Power
Supply Association (``EPSA''), the Coalition of Physical Energy
Companies (``COPE''), and Dominion Resources suggested that the terms
``timestamp,'' ``settlement method,'' ``grade,'' and ``total quantity''
should be clarified or else should not be included in the minimum PET
data for other commodity swaps. They asserted that timestamps are not
typically recorded under current energy market practice. They argued
that the settlement method field implies a swap potentially involving
physical delivery, whereas they believe that swaps are not agreements
intended to be physically settled. They also argued that the ``total
quantity'' of a commodity in a swap is not a term typically captured by
swap counterparties, who instead typically express the size of a swap
in terms of the quantity aligned with a settlement period.
Elimination or clarification of calculation and reporting of
futures equivalents. The NOPR called for minimum PET data reporting to
include futures contract equivalents and futures contract equivalent
units of measure. Better Markets expressed support for required
reporting of futures equivalents. However, the Depository Trust &
Clearing Corporation (``DTCC'') commented that OTC derivatives cannot
be mapped readily to futures contracts, and thus this data will not
necessarily be able to be aggregated in a meaningful fashion. Global
Forex asked the Commission to provide guidance on how to report futures
equivalents for swaps whose tenor sits between two futures contracts
dates; guidance on the case where multiple futures contracts exist for
the same underlying product; and guidance on products for which no
corresponding futures contracts exist.
Clarification of creation data reporting in the context of
structured transactions. ISDA and SIFMA commented that ``execution,''
``affirmation,'' and ``confirmation'' may have somewhat different
meanings in different asset classes, and requested clarification of the
application of these terms with respect to creation data
[[Page 2145]]
reporting. More specifically, Global Forex requested clarification of
creation data in the context of structured transactions, noting that
the meaning given these terms under prevalent foreign exchange market
conventions, which frequently involve structured transactions, may
differ from their application in other contexts.
Clarifications regarding foreign exchange transactions. Contending
that cross-currency swaps should be classified as interest rate swaps
rather than foreign exchange swaps, Global Forex argues that cross-
currency swaps in fact are interest rate products with multi-payment
schedules, that they are most often traded by interest rate desks with
interest rate participants, and that they are captured and managed in
interest rate systems and infrastructure using interest rate
conventions. Global Forex notes that foreign exchange swaps are
products traded by distinct foreign exchange desks with market
participants and internal and external systems infrastructure that are
different from the participants and infrastructure involved in cross-
currency swaps. Existing trade repositories including TriOptima and
DTCC also suggest that the Commission classify cross-currency swaps as
interest rate swaps.
Global Forex notes that foreign exchange swaps consist of a near
and a far leg, and that the foreign exchange swap market currently
lacks market conventions that suggest how to select a reporting
counterparty responsible for reporting both legs, in situations where
both parties have the same hierarchical level (e.g., two SDs). Global
Forex also notes that current trade capture systems differ in how they
handle foreign exchange swaps, and that some may book a foreign
exchange swap as a single trade, but split it in back-office systems
into two trades with separate trade identifiers. Global Forex does not
advocate reporting both legs separately; it simply points out this
potential issue in light of current, differing market practices.
Combining all PET data and confirmation data reporting in a single
report. Several comments suggest consolidating the requirements to
report both PET data and confirmation data. Dominion Resources and
Global Forex suggest a single report providing PET data plus
confirmation status (rather than all terms confirmed). ISDA and SIFMA
suggest replacing all creation data reporting with end-of-day snapshot
reporting (including the first-day report). The Kansas City Board of
Trade (``KCBT'') suggests that for swaps that are platform-executed and
cleared, the DCO's clearing report should replace confirmation
reporting. \25\ DTCC suggests creation data reporting for fully-
electronic trades should be limited to confirmation reporting, in the
belief that fully electronic trades can be confirmed within 15 minutes.
Thomson Reuters believes that creation data reporting should be limited
to confirmation reporting for all swaps whether platform executed or
voice executed. The Managed Funds Association (``MFA'') suggests
defining ``time of execution'' to mean 24 hours after manual
confirmation of the swap, arguing that the benefits of data reporting
within minutes of execution as presently defined do not outweigh either
the infrastructure costs or error risks involved.
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\25\ KCBT also suggests that DCOs should be allowed to report a
day's cleared swaps in a single daily data file, rather than
individually.
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Harmonizing the data fields require for real time and regulatory
reporting. ISDA, SIFMA, WGCEF, and Dominion Resources recommended
harmonizing the Commission's required PET data fields and real time
reporting data fields. The Electric Coalition suggested a need to
coordinate these two types of reporting with respect to reporting
triggers and the words used to define them (e.g. verification or
confirmation), and requested clarification concerning the data elements
required by the real time reporting rule and the swap data reporting
rule.
Allowing non-SD/MSP counterparties to report less data. The NOPR
requires the same minimum PET data fields to be reported for each swap
in an asset class, regardless of the nature of the reporting entity or
counterparty. Various energy producers commented concerning potential
burdens for non-SD/MSP counterparties in this regard. AGA suggested the
rule should minimize the burdens of reporting for non-SD/MSP
counterparties, and EEI supported the principle that responsibility for
reporting should rest with those having the best technology, such as
SEFs, DCMs, SDs and MSPs.\26\ EEI, EPSA, and COPE suggested limiting
data reporting for non-SD/MSP counterparties in physical energy to data
they already maintain under current data capture practices, limiting
their reporting of confirmation data to the confirmation information
currently captured in their systems, rather than requiring them to
report all confirmation terms. The International Energy Credit
Association (``IECA'') suggested exempting physical energy
counterparties from reporting requirements entirely, or at least
imposing ``lesser'' reporting requirements for them. The Electric
Coalition suggested that non-SD/MSP counterparties be subject only to a
``CFTC Lite'' reporting regime.
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\26\ The NOPR takes this approach, calling for SEFs and DCMs to
report all creation data in their possession for on-facility swaps,
and making SDs and MSPs the reporting counterparties when they are
involved.
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Miscellaneous aspects of PET data. The NOPR specifies minimum PET
data fields for each asset class. The SEC's proposed data reporting
rule for swaps under the SEC's jurisdiction, i.e., security-based swaps
in the credit and equity asset classes, sets out categories of required
data rather than specific data fields. ISDA and SIFMA suggested that
the Commission should adopt the SEC's approach, and expressed concern
that the Commission's approach could negatively affect FpML development
and result in some products not being adequately described. Eris
Exchange suggested that the Commission determine where prescriptive
rules are absolutely necessary to address systemic risk, and the
Commodity Markets Council suggested that the Commission avoid a
prescriptive regulatory model which would create detailed reporting
requirements and thus require different reporting methods.
SunGard Energy & Commodities (``SunGard'') suggested that for swaps
executed on SEFs and DCMs, having the SEF or DCM report position
changes to each account, instead of reporting individual swap
transactions, would be more efficient and more advantageous for
monitoring of positions and of risk.\27\
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\27\ SunGard suggested that such position reports could be
accompanied by a reference to the primary economic terms of the
contract, rather than by data reflecting all primary economic terms.
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b. Who makes the initial creation data report and selects the SDR.
The NOPR did not explicitly assign the right to select the SDR to which
a swap is reported, but it effectively determined who will make this
choice, through the interaction of two key aspects of the proposed
rule. First, in order to prevent fragmentation of data for a single
swap across multiple SDRs, which would seriously impair regulators'
ability to view or aggregate all of the data concerning the swap, the
NOPR provided that, once an initial data report concerning a swap is
made to an SDR, all data reported for that swap thereafter must be
reported to that same SDR.\28\ Second, in order to ensure that PET data
concerning the swap is reported as soon as practicable following
execution--in part to facilitate real time reporting--the NOPR required
the SEF or DCM to make the initial PET data report for swap
[[Page 2146]]
executed on such a facility, and required the reporting counterparty
(in the majority of cases, an SD or MSP) to make the initial report for
an off-facility swap. Because subsequent reports must go to the SDR
that received the initial report, in practice this meant that the SEF
or DCM would select the SDR for platform-executed swaps, and the
reporting counterparty would choose the SDR for off-facility swaps.
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\28\ This requirement received universal approbation in both
comments and roundtables as appropriate and necessary.
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The Commission received a number of comments concerning who should
select the SDR to which a swap is reported. WGCEF, COPE, EEI, and EPSA
supported the NOPR approach of giving reporting obligations to SEFs,
DCMs, and DCOs, arguing that this approach simplifies reporting and
eases burdens on counterparties, which is especially important in the
case of non-SD/MSP counterparties. EEI and EPSA emphasized that the
rules should ensure that SDR selection by a SEF, DCM, SD, or MSP does
not result in costs or burdens for non-SD/MSP counterparties. WGCEF
also suggested that DCOs should make the initial report for cleared
swaps executed off-platform, since (in WGCEF's view) execution
technically will not occur until such a swap is accepted for clearing.
Global Forex observed that if a platform makes the initial report and
thus selects the SDR, other entities or counterparties with reporting
obligations during the life of the swap would need to ensure that they
can connect to the chosen SDR. ABC and CIEBA suggested that for swaps
involving a benefit plan as a counterparty, the SDR selection should
always be made by the plan. ISDA and SIFMA suggested that the reporting
counterparty should always select the SDR, arguing that this would
permit the market to determine and follow the most efficient manner of
reporting. REGIS-TR opposed having reporting obligations assigned based
on platform execution or clearing.
DTCC and ICE recommended that the reporting counterparty--an SD or
MSP in the majority of cases--should always select the SDR, even for
platform-executed swaps. ICE also suggested that if a SEF or DCM makes
the first report and thus selects the SDR for a swap that is to be
cleared, the SEF or DCM should be permitted to select a DCO that is
also registered as an SDR as both the DCO that will clear the swap and
the SDR to which the swap is reported. Going further in this direction,
CME contended that the final rule should require the initial report for
each cleared swap to be made to a DCO that is also registered as an SDR
or an SDR chosen by such a DCO. CME argued that the structure and
wording of the Dodd-Frank Act demonstrate that this was Congress's
intent, and that limiting reporting for cleared swaps to DCOs that are
dually registered as SDRs or to SDRs chosen by a DCO would involve the
lowest cost and least burden. The Commodity Markets Council echoed
CME's cost-benefit argument, asserting that DCOs are the ``natural
choice'' to act as SDRs for cleared trades, and that it would be
costly, inefficient and unnecessary to require industry to establish a
redundant set of expensive connections with non-DCO SDRs for the
purpose of making regulatory reports for cleared trades.
c. Creation data reporting deadlines and deadline phasing.
Extended creation data reporting deadlines. The Commission received
a number of comments recommending extended deadlines for both PET data
reporting and confirmation data reporting. The Electric Coalition
commented that the NOPR reporting deadlines are far too short if the
reporting party is a non-financial entity, because such an entity would
need to manually extract reportable data elements from a customized
swap.
Several commenters urged the Commission to extend deadlines for PET
data reporting, particularly in the case of non-SD/MSP counterparties.
EEI suggested a PET data report deadline of T+1 (i.e., by the close of
business on the business day following the day of execution) in the
case of either electronic or manual verification. CIEBA asked that the
24-hour deadline for PET data reporting where both execution and
verification are non-electronic include only business days. COPE
concurred that the 24-hour deadline where verification is non-
electronic is too short for non-SD/MSP counterparties, and asked the
Commission not to set a deadline in the final rule, but to determine
the deadline through ongoing consultations with industry following
issuance of the final rule.
Commenters also urged extension of the deadlines for confirmation
data reporting. AGA asked that the confirmation data reporting deadline
for non-SD/MSP counterparties be set at T+1 for swaps electronically
confirmed, and at T+2 (i.e., by the close of business on the second
business day following the day of execution) for swaps not
electronically confirmed. The Federal Home Loan Banks (``FHLB'')
suggested a deadline of 24 hours following confirmation for reporting
confirmation of a swap electronically confirmed, and a deadline of five
business days following confirmation for a swap manually confirmed.
DTCC suggested that a 15-minute deadline for reporting confirmation of
an electronically executed swap would require a level of straight-
through processing not yet available, and that for similar reasons a
somewhat longer deadline would be needed where the swap was not
electronically executed but electronically cleared. DTCC recommended
setting the initial deadline for confirmation data reporting for
electronically executed swaps at 30 minutes, setting the deadline for
swaps not electronically executed but electronically cleared at two
hours, and phasing in confirmation data reporting deadlines. For
manually confirmed swaps, DTCC advocated a confirmation data reporting
deadline of five days after execution.
Streamlined regulatory and real time reporting. The Commission also
received comments from DTCC and from roundtable participants suggesting
that it consider minimizing the number of swap creation data reports to
be required of any given registered entity or swap counterparty, either
by combining PET data reporting and confirmation data reporting in a
single report, or by allowing a single PET data report to fulfill both
regulatory reporting requirements under part 45 and real time reporting
requirements under part 43.
Phasing in reporting deadlines. DTCC suggested that the Commission
consider phasing in creation data reporting deadlines where possible.
d. Reporting of multi-asset swaps and mixed swaps. As noted in the
preamble of the NOPR, generally, a mixed swap is in part a security-
based swap subject to SEC jurisdiction, and in part a swap belonging to
an asset class subject to CFTC jurisdiction.\29\ Multi-asset swaps are
those that do not have one easily identifiable primary underlying
notional item, but instead involve multiple underlying notional items
belonging to different asset classes that are all within CFTC's
jurisdiction. One way of stating the distinction between these two
types of swaps is that SEC and CFTC will each have jurisdiction over
part of a mixed
[[Page 2147]]
swap, but only CFTC will have jurisdiction over the different parts of
a multi-asset swap. The NOPR requested comment on how multi-asset and
mixed swaps should be reported, but did not directly address such
reporting in the text of the proposed rule.
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\29\ The Dodd-Frank Act defines ``mixed swap'' as follows: ``The
term `security-based swap' includes any agreement, contract, or
transaction that is as described in section 3(a)(68)(A) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and is
also based on the value of 1 [sic] or more interest or other rates,
currencies, commodities, instruments of indebtedness, indices,
quantitative measures, other financial or economic interest or
property of any kind (other than a single security or a narrow-based
security index), or the occurrence, non-occurrence, or the extent of
the occurrence of an event or contingency associated with a
potential financial, economic, or commercial consequence (other than
an event described in subparagraph (A)(iii).'' Dodd-Frank Sec.
721(21), CEA section 1a(47)(D).
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Commenters provided differing views concerning reporting of mixed
swaps and multi-asset swaps. Better Markets suggested that the
different legs of mixed swaps and multi-asset swaps should be reported
separately. ISDA and SIFMA suggested that multi-asset swaps should not
be decomposed into their underlying asset classes but should be
reported to an SDR that accepts swaps in the most significant asset
class component of the swap, as determined by the reporting
counterparty (in practice, usually the asset class of the desk that
trades the swap). DTCC suggested that swaps in asset classes subject to
joint SEC-CFTC regulation could be reported to an SDR registered with
both Commissions (except in cases where no such SDR is available), or
that a practicable reporting regime for mixed swaps and multi-asset
swaps may be to have the reporting counterparty for a mixed swap or
multi-asset swap report the swap to an SDR serving each asset class,
including the USI assigned in the context of the report to the first
SDR in the report made to the second SDR.
i. Reporting of international swaps. As noted above, the Dodd-Frank
Act directs the Commission to consult and coordinate with foreign
regulatory authorities regarding establishment of consistent
international standards for the regulation of swaps and swap entities.
The Commission is committed to a cooperative international approach to
swap recordkeeping and swap data reporting, and has consulted
extensively with various foreign regulatory authorities in the process
of preparing this final rule. International regulators consulted by the
Commission have urged the Commission to include provisions in its final
swap data reporting rules concerning ``international swaps,'' i.e.,
those swaps that may be required by U.S. law and the law of another
jurisdiction to be reported both to an SDR registered with the
Commission and to a different trade repository registered with the
other jurisdiction.
3. Final Rule: Sec. 45.3
a. What should be included in required PET data.
Clarification of the catch-all PET data category. The Commission's
purpose in including in the tables of minimum PET data a field for
reporting ``any other primary economic terms of the swap matched by the
counterparties in verifying the swap'' is to provide a ``catch all''
category necessary to (1) ensure reporting of all price-forming terms
agreed on at the time of swap verification, including any such terms
not listed in the minimum PET data tables for the asset class in
question, and (2) keep pace with market innovation and new varieties of
swaps for which the Commission has not enumerated all relevant data
fields. To clarify that this field is intended to include all terms
agreed on at the time of swap verification, the final rule eliminates
the words ``primary economic'' from the field description, specifies
reporting of ``any other terms of the swap matched by the
counterparties in verifying the swap,'' and adds some possible examples
of such terms. This aligns the field description with the NOPR and
final rule definition of ``primary economic terms'' as meaning ``all of
the terms of a swap matched or affirmed by the counterparties in
verifying the swap.''
Clarification of particular PET data terms for other commodity
swaps.
The Commission disagrees with comments suggesting that execution
date and time should not be required to be reported for certain types
of other commodity swaps. The Commission believes that the date and
time of the execution of a swap constitute a basic primary economic
term and a fundamental audit trail component for all swaps. This
information is essential to the ability of the Commission and other
regulators to fulfill their obligations to supervise swap markets and
prosecute abuses. For swaps executed on a SEF or DCM, and for off-
facility swaps executed via an automated system, a timestamp will be
created automatically by the system involved. For off-facility swaps
executed manually, counterparties can and must manually record and
report the date and time of execution. Where current market practice
does not include recording the date and time of execution of a swap,
adjustment will be necessary.
While the Commission notes that the parameters of what constitutes
a swap will be provided by the final definition of ``swap'' issued
jointly by the Commission and the SEC, the Commission believes that
``settlement method'' should be retained as a PET data field. The
definition of a swap in CEA section 1a(47) could include options that
potentially could require physical delivery of a commodity. Thus, while
certain transactions that require delivery of a commodity, e.g.,
forward contracts or spot transactions that are excluded from the
definition of a swap, may not constitute swaps (as commenters argue),
other derivative transactions involving delivery would be required to
be reported as swaps.
The Commission believes that ``grade'' should also be retained as a
PET data field for other commodity swaps. ``Grade'' would typically be
applicable as a defining characteristic of the swap for both physically
delivered and cash settled transactions, in that this term is intended
to identify the quality and other characteristics of the commodity that
underlies the swap. For a cash settled swap, the Commission believes
that separately accounting for grade in the terms reported is also
necessary as a means of classifying and identifying the quality
characteristics of the commodity underlying the swap. The Commission
recognizes that in certain cases--electricity being one example--a
grade may not exist. The final rule will indicate that where a
particular PET data field does not apply to a given swap, the reporting
entity or counterparty should report ``Not applicable'' for that field.
As noted in the comments, some commodity swap counterparties use
the convention of identifying the notional amount of a swap by
specifying the quantity in terms of dollars or units of the commodity,
whichever is used to calculate settlement period payment obligations.
However, other counterparties account for the size of a swap by
referring to the total quantity involved in a swap over its entire
existence. Because a single convention does not apply in all cases, the
final minimum PET data tables will retain the terms ``Quantity'' and
``Total quantity, '' but will also add the terms ``Quantity units'' and
``Notional quantity.'' Notional quantity will be defined as the amount
of the underlying commodity that is used to calculate periodic
settlement payments during the life of the swap. Quantity units will be
defined as the units in which the notional quantity is expressed, e.g.,
bushels, gallons, barrels, pounds, or tons.
Elimination or clarification of calculation and reporting of
futures equivalents. The NOPR provision for reporting of futures
contract equivalents was intended to assist the Commission in
monitoring the positions of traders for the purpose of enforcing
position limits mandated by the Dodd-Frank Act. However, in July 2011,
subsequent to publication of the NOPR, the Commission adopted new
reporting requirements for physical commodity swaps and swaptions. Part
150 of this chapter now requires routine position reports from clearing
organizations, clearing members and swap dealers, and
[[Page 2148]]
also applies to reportable swap trader positions. It also provides
guidelines on how swaps should be converted into futures equivalents.
The new regulations were issued in part to cover the period between the
present, when the date by which SDRs registered with the Commission
will be operational in all asset classes is not yet certain, and a
future time when the Commission may be able to obtain swap position
data by aggregating data across SDRs.\30\ Accordingly, the final part
45 rule will drop ``futures contract equivalent'' and ``futures
contract equivalent unit of measure'' from its minimum PET data tables.
The Commission may revisit possible reporting of futures equivalents at
a later time, after Commission staff has had an opportunity to evaluate
the Commission's experience in collecting futures equivalent data under
the new part 150 regulations.
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\30\ An SDR would be able to report position data to the
Commission only if it were the single SDR for an entire asset class.
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Clarification of creation data reporting in the context of
structured transactions. In response to comments requesting
clarification of creation data reporting in the context of structured
transactions, the Commission provides the following explanation.
As discussed below in the context of who reports creation data, for
swaps executed on a SEF or DCM, the final rule requires the SEF or DCM
to report all required swap creation data, as soon as technologically
practicable after execution, in a single report that includes all
primary economic terms data and all confirmation data for the swap.
This will address some of the concerns raised in these comments for
swaps executed on a SEF or DCM.
For off-facility swaps, the final rule requires the reporting
counterparty to report both (1) all primary economic terms data, within
specified times following execution, and (2) all confirmation data,
within specified times following confirmation by the
counterparties.\31\ The final rule requires both a PET data report and
a confirmation data report in recognition that the elapsed time between
execution and verification of primary economic terms on the one hand,
and confirmation of all terms of the swap on the other, may differ for
a given swap depending on context.
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\31\ The final rule will further provide that if an off-facility
swap is accepted for clearing within the applicable deadline for PET
data reporting by the reporting counterparty, and before the
reporting counterparty reports any primary economic terms data, then
the reporting counterparty will be excused from reporting creation
data, and the DCO will report all required creation data in a single
report that includes both confirmation data and PET data. The final
rule will also define ``confirmation'' as the consummation of
legally binding documentation memorializing the agreement of the
parties to all terms of the swap.
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The Commission understands that a major concern underlying these
comments reflects uncertainty as to what reporting the final rule
requires (a) in situations where give-up arrangements or block trade
details may not be entirely finalized as of the time the counterparties
verify primary economic terms, or (b) in the case of structured
transactions, where the counterparties may negotiate primary economic
terms in stages over a period of time before reaching agreement on
their entire deal. The Commission therefore wishes to clarify that for
off-facility swaps where execution and confirmation are not
simultaneous, the final rule requires PET data reporting when execution
has occurred and verification of primary economic terms is completed,
even though details such as give-ups may still be in process. It also
wishes to clarify that PET data reporting is to follow agreement on all
primary economic terms of the complete transaction, and is not required
or desired after each stage of negotiating a structured transaction or
after agreement on some but not all of the primary economic terms of
the swap.
Clarifications regarding foreign exchange transactions. The
Commission has considered and agrees with comments suggesting that
cross-currency swaps should be classified and reported as interest rate
swaps, in line with prevailing market practice concerning the trading
of such swaps. The final rule provides for reporting of cross-currency
swaps as interest rate swaps. The Commission has also considered
comments noting differences in current foreign exchange market practice
concerning the booking of the near and far legs of some foreign
exchange transactions. The Commission understands that a firm's
financial statements will address both legs of a foreign exchange swap,
and that confirmation is performed with respect to the whole swap
rather than separately for each leg. The final rule provides for
reporting of foreign exchange swaps as a single transaction by a single
reporting counterparty selected as provided in Sec. 45.8. The
Commission notes that foreign exchange market conventions may need to
adjust to this requirement.\32\
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\32\ The Commission also notes that the final rule addresses the
reporting of ``foreign exchange instruments,'' defined as
instruments that are both defined as a swap in part 1 of this
chapter and included in the foreign exchange asset class. The
definition specifies that instruments in the foreign exchange asset
class include: any currency option, foreign currency option, foreign
exchange option, or foreign exchange rate option; any foreign
exchange forward as defined in CEA section 1a(24); any foreign
exchange swap as defined in CEA section 1a(25); and any non-
deliverable forward involving foreign exchange. This definition and
this approach to reporting are required by the fact that the Dodd-
Frank Act defines the term ``foreign exchange swap,'' and the fact
that foreign exchange swaps as so defined are only a subset of the
foreign exchange instruments that will be defined as swaps.
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Combining all PET data and confirmation data reporting in a single
report. The Commission has considered the numerous comments suggesting
that the final rule should provide for PET data and confirmation data
reporting to be combined in a single report. The Commission agrees with
these comments with respect to swaps executed on a SEF or DCM. As noted
above, the final rule provides that for swaps executed on a SEF or DCM,
a single report by the SEF or DCM, made as soon as technologically
practicable after execution, will fulfill all creation data reporting
that would otherwise be required of reporting counterparties.
The Commission disagrees with these comments as they apply to off-
facility swaps. The NOPR requirements for both PET data reporting and
confirmation data reporting are designed to ensure both (a) timeliness
of reporting, served by the initial PET data report, and (b) data
accuracy and completeness, served by confirmation data reporting.\33\
In addition, as noted above, the NOPR requirement for both a PET data
report and a confirmation data report recognizes that the elapsed time
between verification of primary economic terms and confirmation of all
terms may differ in different contexts, and in some cases may be
substantial. In a number of cases, delaying the initial data report for
a swap until confirmation has occurred could prevent regulators from
seeing a current picture of the entire swap market in the data present
in SDRs. As provided in the NOPR and the final rule, reporting
counterparties for off-facility swaps will be free to contract with
third-party services providers to fulfill either or both of these
reporting obligations, which could reduce costs associated with making
these reports. The Commission notes that, for off-facility swaps not
accepted for clearing within the applicable deadline for the reporting
counterparty to report PET data, the reporting counterparty can avoid
the
[[Page 2149]]
need for a separate confirmation data reporting by confirming the swap
within the applicable deadline for PET data reporting, and reporting
both PET data and confirmation data in a single report.
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\33\ The Commission notes that it is working to align the
timeframes for regulatory swap data reporting pursuant to this part
and the dissemination delays for real time swap data reporting
pursuant to part 43, in order to permit a reporting entity or
counterparty to fulfill both obligations by making a single report,
should the reporting entity or counterparty choose to do so.
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Harmonizing the data fields required for real time and regulatory
reporting. The Commission agrees in principle with comments suggesting
harmonization of the data fields required for real time reporting
pursuant to part 43 and those required for regulatory reporting
pursuant to this part. While registered entities and reporting
counterparties subject to the Commission's jurisdiction will remain
responsible for complying with both part 43 and part 45, the Commission
is working to substantially align the minimum PET data fields required
by this part and the real time reporting data fields required by part
43, in order to reduce reporting burdens to the extent possible.
Allowing non-SD/MSP counterparties to report less data. The
Commission disagrees with comments suggesting that it should require
less data to be reported for a swap with respect to which a non-SD/MSP
counterparty is the reporting counterparty. The Commission believes
that fulfilling the purposes of the Dodd-Frank Act requires that
regulators have access to the same information for all swaps reported
to SDRs. To address commenters' concerns to the extent possible, the
final rule will lessen burdens on non-SD/MSP counterparties by phasing
in their reporting--which will begin as of a compliance date later than
the compliance dates for other registered entities and counterparties--
and by providing extended deadlines for their reporting once it begins.
Miscellaneous aspects of PET data. The Commission disagrees with
comments suggesting that the final rule should only provide categories
of data to be reported, rather than minimum PET data fields. The
Commission believes the approach taken by the NOPR in this respect is
appropriate. It is designed to ensure uniformity of essential data
concerning swaps across all of the asset classes over which the
Commission has jurisdiction, and across different SDRs, and to ensure
that the Commission has the necessary information to characterize and
understand the nature of reported swaps. Commission staff have
consulted with SEC staff regarding data reporting for swaps in the
credit and equity asset classes where the Commission and the SEC share
jurisdiction, and the Commission has substantially aligned its data
requirements in those asset classes with the data sought by the SEC. As
a result, the Commission does not believe that SDRs and security-based
SDRs will have difficulty in collecting the data needed by the two
Commissions. The inclusion in minimum PET data of all terms of the swap
matched by the counterparties in verifying the swap provides an avenue
for reporting for newly-developed swap products. The Commission will
also have the ability to amend its tables of required minimum PET data
at futures times when this is desirable.
The Commission disagrees with the comment suggesting that SEFs and
DCMs should report positions rather than swap transactions. The Dodd-
Frank Act requires ``each swap'' to be reported to an SDR, and does not
address position reporting to an SDR. In addition, unlike most current
futures exchanges, SEFs and DCMs will not necessarily have access to
all of the transactions of a given counterparty in a particular
product, and thus would be unable to report positions.
b. Who makes the initial creation data report and selects the SDR.
The Commission has considered the various comments received concerning
who should make the initial creation data report for a swap, and by
operation of the various parts of the rule thus select the SDR to which
the swap is reported. The Commission has determined that the final rule
should maintain the NOPR's approach, calling for initial creation data
reporting by the registered entity or reporting counterparty that the
Commission believes has the easiest and fastest access to the data
required, and requiring that, once an initial data report concerning a
swap is made to an SDR, all data reported for that swap thereafter must
be reported to that same SDR. Cumulatively, these provisions prevent
fragmentation of swap data that would impair the ability of the
Commission and other regulators to use the swap data in SDRs for the
purposes of the Dodd-Frank Act. Under this approach, competition may
lead SEFs and DCMs to establish connections to multiple SDRs, and
result in lower SDR fees charged, not only to SEFs and DCMs for swaps
executed on such facilities, but also to reporting counterparties for
off-facility swaps. The Commission believes that requiring that all
cleared swaps be reported only to DCOs registered as SDRs or to SDRs
chosen by a DCO would create a non-level playing field for competition
between DCO-SDRs and non-DCO SDRs. The Commission also believes that it
would make DCOs collectively, and could in time make a single DCO-SDR,
the sole recipient of data reported concerning cleared swaps. On the
other hand, the Commission believes that giving the choice of the SDR
to the reporting counterparty in all cases could in practice give an
SDR substantially owned by SDs a dominant market position with respect
to swap data reporting within an asset class or even with respect to
all swaps. The Commission believes that the rule as proposed favors
market competition, avoids injecting the Commission into a market
decision, and leaves the choice of SDR to be influenced by market
forces and possible market innovations. The rule as proposed also
addresses the major substance of the concerns expressed by non-SD/MSP
counterparties, since it calls for the initial data report to be made
by a non-SD/MSP counterparty only in the case of an off-facility swap
between two non-SD/MSP counterparties.
c. Creation data reporting deadlines and deadline phasing.
Extended creation data reporting deadlines. The Commission
continues to believe, as it stated in the NOPR, that in order to
fulfill the purposes of the Dodd-Frank Act while minimizing burdens for
registered entities and swap counterparties, particularly including
non-SD/MSP counterparties, the final rule should establish a swap data
reporting regime calling for reporting by the registered entity or
counterparty that has the easiest, fastest, and cheapest access to the
set of data in question. The Commission has also considered and
evaluated the comments it has received regarding ways that reporting
burdens could be reduced, either by allowing a single report to serve
different required functions or by extending and phasing in reporting
deadlines. The Commission has determined that the reporting regime
established by the final rule should maintain many fundamental aspects
of the reporting called for in the NOPR, while adjusting other aspects
of that regime to streamline reporting and minimize reporting burdens
where possible, while continuing to ensure that swap data for all swaps
is reported to SDRs in a manner that ensures the ability of the
Commission and other regulators to fulfill the systemic risk
mitigation, market transparency, position limit monitoring and market
surveillance objectives of the Dodd-Frank Act.
Streamlined regulatory and real time reporting. The Commission
agrees with comments suggesting that, where possible, the number of
swap creation data reports should be minimized and streamlined by
combining PET data reporting and confirmation data reporting in a
single report.
[[Page 2150]]
The Dodd-Frank Act does not specify the timeframes for reporting of
swap data to SDRs for regulatory purposes. However, to further the
objectives of the Dodd-Frank Act, the Commission believes it is
important that swap data be reported to SDRs either immediately
following execution of the swap or within a short but reasonable time
following execution. The Commission does not believe that PET data
reporting can wait until it is possible to report confirmation data in
all cases, because in an appreciable number of instances confirmation
of a swap can occur days, weeks, or even months after execution.
Where execution and confirmation are simultaneous or nearly so,
however, the Commission agrees with commenters' suggestion that
reporting both PET data and confirmation data in a single report would
reduce reporting burdens without impairing regulatory purposes. The
Commission is working to adopt final rules for SEFs and DCMs, and final
rules with respect to straight-through processing, providing that
execution of a swap on a SEF or DCM will constitute confirmation of all
of the terms of the swap. This final part 45 rule requires that the
terms of such contracts must include all of the minimum PET data
required by part 45 for a swap in the asset class in question. The
final rule therefore provides for a single creation data report,
including both PET data and confirmation data, in the case of swaps
executed on or pursuant to the rules of a SEF or DCM. Accordingly, no
counterparty will be required to report creation data for a swap
executed on or pursuant to the rules of a SEF or DCM.
The Commission agrees with commenters that a reporting regime that,
to the extent possible and practicable, permits reporting entities and
counterparties to comply with the regulatory data reporting
requirements of part 45 and the real time reporting requirements of
part 43 by making a single report can reduce reporting burdens while
still ensuring fulfillment of the purposes for which the Dodd-Frank Act
requires such reporting. The Commission is working to align the
reporting deadlines in this final rule with the public dissemination
delays provided in the final part 43 real time reporting rule, to the
extent possible and practicable, in order to achieve this goal.
The Commission's final clearing rules in part 39 of this chapter
provide that acceptance of the swap for clearing by a DCO constitutes
confirmation of all of the terms of the swap. This final part 45 rule
provides that the terms of such contracts must include all of the
minimum PET data required by part 45 for a swap in the asset class in
question. Because acceptance for clearing constitutes confirmation, the
final rule provides that if an off-facility swap is accepted for
clearing within the reporting deadlines applicable to the reporting
counterparty, the reporting counterparty shall be excused for creation
data reporting for the swap, and the DCO shall report all creation data
report, including both PET data and confirmation data, in a single
report made as technologically practicable after clearing. In such
cases, reporting will be further streamlined, and burdens for
counterparties will be further reduced.
Phasing in and extending reporting deadlines. As noted above,
counterparties will not be required to report creation data for swaps
executed on a SEF or DCM, or for swaps accepted for clearing by a DCO
within the applicable reporting deadlines. After considering comments
advocating the extension and phasing in of counterparty reporting
deadlines, the Commission has decided to extend and phase in such
deadlines in the final rule with respect to off-facility swaps not
accepted for clearing within such deadlines.
PET data reporting deadlines for SD or MSP reporting
counterparties will be phased in over two years.
PET data reporting deadlines for non-SD/MSP reporting
counterparties will be extended and phased in over three years, and
will exclude weekend days and legal holidays. For example, while the
NOPR set the non-SD/MSP reporting counterparty PET data reporting
deadline for an uncleared swap at 24 hours, the final rule calls for
reporting no later than 48 business hours after execution (during the
first year of reporting), 36 business hours after execution (during the
second year of reporting), or 24 business hours after execution
(thereafter).
To reduce possible burdens on small non-SD/MSP
counterparties entering into a swap with an SD or MSP, if the non-
reporting counterparty is a non-SD/MSP counterparty that is not a
financial entity, and if primary economic terms are not verified
electronically, PET data reporting deadlines for the SD or MSP
reporting counterparty will be further extended and phased in over
three years, and will exclude weekend days and legal holidays.
Confirmation data reporting deadlines for SD or MSP
reporting counterparties where confirmation is non-electronic will be
extended, and will exclude weekend days and legal holidays.
Confirmation data reporting deadlines for non-SD/MSP
reporting counterparties will be extended and phased in over three
years, and will exclude weekend days and legal holidays. The final rule
calls for such counterparties to report confirmation data no later than
48 business hours after confirmation (during the first year of
reporting), 36 business hours after confirmation (during the second
year of reporting), or 24 business hours after confirmation
(thereafter).
For off-facility, uncleared swaps, during the first six
months following the applicable compliance date, while PET data will
have to be reported electronically with data normalized in data fields,
reporting counterparties for whom reporting confirmation data
normalized in data fields is not yet technologically practicable may
report required confirmation data by transmitting an image of all
documents recording the confirmation. This will allow needed additional
time for development of schemas for data reporting and implementation
by non-SD/MSP counterparties. Electronic reporting of all confirmation
data normalized in data fields will be required after this six month
period.
Charts showing the final rule reporting requirements with respect
to both creation data reporting and continuation data reporting can be
seen below at pages 70 and71.
Reporting burden reductions for non-SD/MSP reporting
counterparties. As a result of the streamlined reporting regime and
extended, phased-in reporting deadlines noted above, the final rule
eliminates all reporting obligations for non-SD/MSP reporting
counterparties in many cases, and phases in or reduces them in
virtually all other cases. Non-SD/MSP reporting counterparties must
report data only for the small minority of swaps in which both
counterparties are non-SD/MSP counterparties. Even within this small
minority of swaps, a non-SD/MSP reporting counterparty will have no
reporting obligations for on-facility, cleared swaps, or for off-
facility swaps accepted for clearing within the applicable deadline for
PET data reporting. If an off-facility swap is accepted for clearing
after the PET data reporting deadline, the non-SD/MSP reporting
counterparty is excused from reporting confirmation data and
continuation data, which instead will be reported by the DCO. For on-
facility, uncleared swaps, a non-SD/MSP reporting counterparty's
reporting obligations are limited to reporting continuation data during
the existence of the swap. For off-facility, uncleared
[[Page 2151]]
swaps, creation data reporting deadlines for a non-SD/MSP reporting
counterparty have been extended and phased in as noted above, and no
longer include weekend days or holidays. The deadline for a non-SD/MSP
reporting counterparty to report changes to primary economic terms over
the life of the swap has been lengthened from reporting on the day such
a change occurs to reporting by the end of the second business day
following the date of such a change; and a non-SD/MSP reporting
counterparty will be required to report valuation data on only a
quarterly rather than a daily basis.
d. Allocations. As set forth more fully below in the discussion of
USIs, the Commission received and has considered comments and industry
requests for clarification concerning USI creation and swap creation
data reporting in the case of swaps involving allocation by an agent to
its clients who are the actual counterparties on one side of the swap.
In response to these requests, the final rule will address both USI
creation and creation data reporting for swaps involving allocation, as
set forth in the discussion of USIs below.
e. Reporting of multi-asset swaps and mixed swaps. After
considering comments concerning how multi-asset swaps and mixed swaps
should be reported, the Commission has determined that the final rule
should provide for mixed swaps to be reported to both an SDR registered
with CFTC and an SDR registered with SEC.\34\ Reporting to a dual-
registered SDR would satisfy this requirement, but would not be
required. To ensure regulatory ability to track mixed swaps and
aggregate data concerning them, the final rule will add a ``mixed
swap'' checkbox field to the tables of minimum primary economic terms.
To avoid double-counting of mixed swaps, the final rule requires the
reporting entity or counterparty to obtain a USI for the swap from the
first SDR to which the swap is reported, and to include that USI in the
data concerning the swap reported to the second SDR to which the swap
is reported.
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\34\ Such dual reporting would avoid any need for an SDR
accepting swaps only in a CFTC-regulated asset class to dual-
register with the SEC merely because it might receive a report for a
mixed swap in part subject to SEC jurisdiction.
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For multi-asset swaps, the final rule requires reporting to a
single SDR accepting swaps in the asset class determined by the
registered entity or counterparty reporting the swap to be the first or
primary asset class involved in the swap. To ensure regulatory ability
to track the swap in all asset classes involved, the final rule will
add two data fields to the tables of minimum primary economic terms,
one for indication of the first or primary asset class involved in the
swap (which must be an asset class accepted by the SDR), and the second
for indication of the other asset class or classes involved in the
swap.
f. Reporting of international swaps. The Commission agrees with
international regulators with whom the Commission has consulted who
have suggested that it is important for the final rule to include a
mechanism that enables the Commission and other regulators to identify
international swaps reported to multiple repositories, so that such
swaps are not double-counted by regulators. The Commission is mindful
of the fact that the Dodd-Frank Act directs the Commission to consult
and coordinate with foreign regulatory authorities regarding
establishment of consistent international standards for the regulation
of swaps and swap entities. The Commission also believes that providing
an accurate picture of the swap market to regulators is one of the
fundamental purposes of the Dodd-Frank Act. For these reasons, and in
order to clarify its intent concerning swap data reporting in this
context, the Commission has determined that the final rule will address
the reporting of ``international swaps,'' defined for clarity as those
swaps that may be required by U.S. law and the law of another
jurisdiction to be reported both to an SDR registered with the
Commission and to a different trade repository registered with the
other jurisdiction.\35\ In order to help provide for international
swaps the consistent international standards sought by the Dodd-Frank
Act, the final rule provides that for each international swap that is
reported to both a U.S.-registered SDR and a foreign trade repository,
the reporting counterparty shall report to the U.S.-registered SDR, as
soon as practicable, the identity of the foreign trade repository, and
the swap identifier used by that foreign trade repository to identify
that swap.\36\ If necessary, the reporting counterparty shall obtain
this information from the non-reporting counterparty. The Commission
believes that these provisions are a logical outgrowth of the swap data
reporting provisions of the NOPR and of the statutory call for
international consultation and consistent international standards.
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\35\ This definition does not add a new requirement for the
reporting of swaps not otherwise required to be reported.
\36\ Under the final rule provisions in Sec. 45.6 of this part
concerning unique swap identifiers, the non-reporting counterparty
will receive the USI for the swap from the SDR, and thus will be
able to provide it to the non-U.S. trade repository on request.
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C. Swap Data Reporting: Continuation Data--Sec. 45.4
1. Proposed Rule
As noted above, in order to ensure timeliness, accuracy, and
completeness with respect to the swap data available to regulators, the
proposed rule called for reporting of swap data from each of two
important stages of the existence of a swap: The creation of the swap,
and the continuation of the swap over its existence until its final
termination or expiration. During the continued existence of the swap,
the NOPR required reporting of three types of continuation data: (a)
Either life cycle event data or state data (depending on the reporting
method involved) that reflects all changes to the swap; (b) contract-
intrinsic data, meaning scheduled, anticipated events that do not
change the contractual terms of the swap, such as an anticipated rate
adjustment; and (c) valuation data that reflects the current value of
the swap, such as the daily mark-to-market.
As proposed, the rule specified the reporting method to be used in
each asset class for reporting all changes to the swap. For credit
swaps and equity swaps, the NOPR called for reporting life-cycle
events--meaning any event resulting in a change to data previously
reported in connection with the swap, such as an assignment or
novation, a partial or full termination of the swap, or a change in the
cash flows originally reported--on the day that such an event occurs.
For foreign exchange transactions, interest rate swaps, and other
commodity swaps, the NOPR called for a daily report of state data--
meaning all data necessary to provide a daily snapshot view of the
primary economic terms of the swap, including any changes since the
last snapshot.
For cleared swaps, the NOPR required daily valuation data reporting
by the DCO, daily valuation data reporting by SD or MSP reporting
counterparties, and valuation data reporting by non-SD/MSP reporting
counterparties at intervals to be determined prior to issuance of the
final rule.
2. Comments Received
The Commission received several comments from a variety of
commenters concerning the proposed rule's continuation data reporting
provisions. These comments addressed reporting with respect to changes
to the terms of the swap, contract intrinsic events,
[[Page 2152]]
valuation, and master agreements and collateral.
a. Reporting changes to a swap. The broad themes of the comments
received concerning reporting changes to a swap addressed the reporting
method--life cycle or snapshot--to be used, the timing and frequency of
reports, and the choice of who should make the required reports.
Reporting method. As noted above, the NOPR prescribed the data
reporting method to be used in each asset class to report changes to
the primary economic terms of the swap. TriOptima and the Electric
Coalition agreed that the rule should specify the method used in each
asset class, and supported the NOPR's choices in that respect. ICE
recommended adopting the lifecycle method rather than the snapshot
method for the other commodity asset class. ISDA, SIFMA, REGIS-TR, and
DTCC recommended having the rule not make the choice between the
lifecycle and the snapshot reporting method for each asset class, but
rather allowing SDRs to decide whether to accept data by either or both
methods. SunGard recommended that the Commission delegate the choice to
a self-regulatory organization or standards board.
Timing for reporting changes. Various non-SD/MSPs involved in
energy markets, including AGA, COPE, EEI, EPSA, and the Electric
Coalition, argued that daily snapshot reporting would be unduly
burdensome for non-SD/MSP reporting counterparties. COPE, EEI, and EPSA
advocated requiring a snapshot only when a change to primary economic
terms has occurred. AGA suggested reporting a monthly snapshot, while
the Electric Coalition advocated a quarterly snapshot.
Change reporting for cleared swaps. ICE, a number of non-SD/MSPs
involved in energy markets including WGCEF, EEI, EPSA, and Chris
Barnard recommended having continuation data reporting for cleared
swaps done solely by DCOs. WGCEF noted that counterparties to swaps
that are both platform-executed and cleared, the counterparties may not
know each other's identity, which could make determination of the
reporting counterparty difficult.
Reporting of contract-intrinsic events. ISDA and SIFMA suggested
that the Commission should not require reporting of contract-intrinsic
events, i.e., events that do not result in any change to the
contractual terms of the swap. These commenters noted that the SEC's
proposed data reporting rule for security-based swaps does not include
such a requirement, and argued that reporting of such events is
unnecessary if they are in the public domain. At a minimum, ISDA and
SIFMA suggested limiting reporting of such events to reporting along
with the next required life cycle event report.
Reporting corporate events of the non-reporting counterparty. For
non-cleared swaps, ISDA and SIFMA requested that the final rule allow
additional time for the reporting counterparty to report corporate
events of the non-reporting counterparty, arguing that the reporting
counterparty may not know of such events on the same day that they
happen.
b. Valuation data reporting. The themes of the comments received
regarding valuation data reporting included: Who should report
valuation data for cleared swaps; valuation data reporting by non-SD/
MSP reporting counterparties; what valuation data should be reported;
requiring independent valuations; and acceptable valuation methods.
Who should report valuation data for cleared swaps. A number of
commenters, including ICE, WGCEF, EEI, EPSA, and Chris Barnard,
recommended that all valuation data reporting for cleared swaps should
be done by the DCO. COPE, EEI, EPSA, and the Electric Coalition
suggested that non-SD/MSP reporting counterparties should not have to
report valuation data for either cleared or uncleared swaps.
Valuation data reporting by non-SD/MSP reporting counterparties.
The NOPR required non-SD/MSP reporting counterparties to report
valuation data for both cleared and non-cleared swaps, at intervals to
be determined by the Commission prior to issuance of the final rule.
FHLB and a number of commenters in the energy sector suggested that
valuation reporting requirements for non-SD/MSP counterparties be
either loosened or eliminated. FHLB recommended weekly valuation
reporting by non-SD/MSP reporting counterparties, arguing that this
should be sufficient for regulatory purposes and would avoid forcing
end users to implement the costly infrastructure needed to generate
daily valuation reports. AGA suggested monthly valuation reporting by
non-SDs/MSPs, since daily reporting would be unduly burdensome for
them. The Electric Coalition recommended quarterly reporting. Chatham
Financial supported valuation reporting only when swap portfolios are
reconciled, since (in their view) non-SD/MSP counterparties will lack
the systems and staff necessary to produce valuations and thus would
have to pay third-party service providers for them. As noted above,
COPE, EEI, EPSA, and the Electric Coalition urged that non-SD/MSP
reporting counterparties should not have to report valuation data at
all.\37\
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\37\ These commenters argued that valuation of swaps between
non-SD/MSP counterparties did not cause the financial crisis and was
not the target of the Dodd Frank Act, and contended that the Dodd-
Frank Act does not authorize requiring non-SD/MSP counterparties
(especially those that are not financial entities) to report
valuation data. They also contended that the value of standardized
swaps is transparent from market data, while the value of illiquid,
non-standard swaps is merely based on a business judgment.
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What valuation data should be reported. ISDA and SIFMA asked the
Commission to note that valuation data for uncleared swaps will not be
``same day,'' but will refer to portfolio valuation on the close of the
preceding day, since these valuations are typically performed
overnight. Reval urged required reporting of all data elements
necessary to determine the market value of the swap, and suggested that
independent valuation calculations by third parties such as SDRs should
be required. Reval also suggested requiring that valuation data be
reported on a portfolio basis rather than a transaction basis. ICE
suggested that DCO valuation data reports should consist solely of
daily price marks, and that SDRs should be required to calculate
valuation amounts for each open trade. SunGard asked the Commission to
provide guidance on acceptable methods of valuation for uncleared
swaps, either in the final rule or by industry consensus.
c. Possible reporting of master agreements or collateral. The NOPR
required registered entities and swap counterparties to keep full and
complete records concerning swaps, which would include records of
master agreements. The NOPR did not require reporting the terms of such
agreements to SDRs, but requested comment on whether a separate master
agreement library system should be established as part of an SDR.
Should a master agreement library system be established? Commenters
disagreed on whether master agreement reporting should be required.
Chatham Financial and the Coalition of Derivatives End-Users (``CDEU'')
recommended that the Commission carefully consider the costs and
benefits of master agreement reporting prior to instituting such a
requirement. They noted that if such reporting went beyond submission
of PDF copies of master agreements, market participants (especially end
users) would find it labor intensive and tedious to extract legal terms
from the documents. The Electric Coalition, American Benefits Council
(``ABC''), and CIEBA also emphasized the need to minimize
[[Page 2153]]
burdens involved in any required master agreement reporting. ISDA and
SIFMA recommended against a master agreement library, stating that a
centralized effort to capture documentation would need to be much wider
than master agreements; would be duplicative of existing industry
investments; would not provide regulators with particularly meaningful
data given the slow rate of change of these documents; and would not
provide information above and beyond that which would be readily
obtained from regulated firms. Reval suggested establishment of a
separate SDR for master agreements and related credit support
agreements, in order to enhance regulators' ability to measure systemic
risk. ABC and CIEBA suggested that master agreements be reported once
to a separate library at an SDR, with amendments reported to the same
SDR. The Electric Coalition recommended limiting master agreement-
related reporting to the reporting of master agreement identifiers
rather than of agreements themselves, in order to lessen reporting
burdens.
Should a collateral warehouse system be established? The NOPR
required registered entities and swap counterparties to keep full and
complete records concerning swaps, which would include records
concerning collateral. It did not require reporting concerning
collateral, but requested comment on whether a separate collateral
warehouse system should be established as part of an SDR, to enable
prudential regulators to monitor collateral management and gross
exposure on a portfolio level. SunGard, ISDA, SIFMA, DTCC, and
TriOptima recommended establishing a separate collateral repository,
noting that collateral information is important for systemic risk
management, but not possible in transaction-based reporting since
collateral is dealt with at a portfolio level. They suggested that this
would also provide a superior form of valuation information. Chatham
Financial suggested that the benefits of a collateral warehouse and
reporting concerning collateral may not outweigh the costs involved,
due to the potential for highly customized terms and the complexity and
difficulty of representing the terms of relevant agreements
electronically.
3. Final Rule: Sec. 45.4
The Commission has considered and evaluated these comments, and has
made a number of changes in the final rule. Accordingly, the
continuation data provisions of the final rule will include the
following changes from the NOPR.
a. Reporting changes to a swap.
Reporting method. The Commission believes the general principle
applicable to continuation data reporting should be that current
information concerning all swaps must be available to regulators in
SDRs in order to fulfill the purposes of the Dodd-Frank Act. Based on
comments, meetings with market participants, roundtable discussions,
and consultation with other regulators, the Commission has determined
that the final rule can serve this principle without mandating one
particular reporting method, whether life cycle or snapshot, for
continuation data reporting. Accordingly, the final rule requires
registered entities and reporting counterparties to report continuation
data in a manner sufficient to ensure that the information in the SDR
concerning the swap is current and accurate, and includes all changes
to any of the primary economic terms of the swap. The final rule will
leave to the SDR and registered entity and reporting counterparty
marketplace the choice of the method, whether life cycle or snapshot,
for reporting continuation data that is sufficient to meet this
requirement. This approach could also help to address reporting time
concerns raised by commenters, since reporting counterparties would not
be required to report on a daily basis if the SDR in question accepts
life cycle reporting.\38\
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\38\ The flexibility of this approach should also ensure
harmonization of the final rule with SEC rules in this respect: even
if the SEC rules specify a reporting method for reporting to
security-based swap data repositories, SDRs that accept mixed swaps
will be free to accept reporting by any reporting method mandated by
the SEC.
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Timing for reporting changes. Given the regulatory importance of
ensuring that information in SDRs is current, and, in the Commission's
view, the availability of automated systems and staff to DCOs, SDs, and
MSPs, the Commission believes it is necessary to require DCOs and SD or
MSP reporting counterparties to make continuation data reports, by
either reporting method, no later than the same day a relevant change
occurs. The Commission has considered comments suggesting that same-day
reporting could impose greater burdens on non-SD/MSP reporting
counterparties than on SDs or MSPs, due to comparative differences in
automated systems and staff, and the Commission is aware that swaps
between non-SD/MSP counterparties are likely to constitute only a
minority of all swaps. Accordingly, the final rule will call for non-
SD/MSP reporting counterparties to report continuation data no later
than the end of the second business day following the date of a
relevant change during the first year of reporting, and no later than
the end of the first business day following the date of a relevant
change thereafter. The Commission has determined that this approach
will lighten burdens on non-SD/MSP reporting counterparties without
unduly degrading the currency of the information available to
regulators in SDRs.
Change reporting for cleared swaps. The Commission has considered,
and agrees with, commenters' suggestion that continuation data
reporting will be best done by DCOs. For cleared swaps in all asset
classes, the final rule will make DCOs the sole reporters of
continuation data other than valuation data.
Reporting of contract-intrinsic events. The Commission has
considered the comments addressing reporting of contract-intrinsic
events. In light of the fact that contract-intrinsic events do not
involve changes to the primary economic terms of a swap, and that most
such events are in the public domain, and in order to reduce reporting
burdens to the extent this can be done without impairing the purposes
for which the Dodd-Frank Act requires swap data reporting, the
Commission has determined that the final rule will not require
reporting of contract-intrinsic events.
Reporting corporate events of the non-reporting counterparty. The
Commission has considered the comments relating to the time when
corporate events of the non-reporting counterparty must be reported,
and has made a number of changes in the final rule. As noted above, the
final rule requires reporting of changes to primary economic terms by
SDs or MSPs on the day they occur, and (after a one-year phase in
period) by non-SDs/MSPs by the end of the business day after they
occur. With respect to reporting corporate events of the non-reporting
counterparty, the final rule provides that SD and MSP reporting
counterparties must report their own corporate events on the day they
occur, and must report corporate events of the non-reporting
counterparty by the end of the business day following the date when
they occur. In order to further reduce related burdens for non-SD/MSP
reporting counterparties, the rule requires non-SD/MSP reporting
counterparties to report their own corporate events by the end of the
business day after the date on which they occur, and to report
corporate events of the non-reporting counterparty by the end of the
second business day following the date on which they occur. In
complying with the final rule, reporting counterparties should use due
[[Page 2154]]
diligence to ensure that the non-reporting counterparty notifies the
reporting counterparty promptly of the non-reporting counterparty's
corporate events affecting any primary economic term of the swap.\39\
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\39\ Such due diligence could consist of requiring as one term
of the swap agreement that the non-reporting counterparty notify the
reporting counterparty promptly of corporate events of the non-
reporting counterparty.
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b. Valuation data reporting for cleared swaps.
Who should report valuation data for cleared swaps. After
considering comments received, the Commission has determined that for
cleared swaps where the reporting counterparty is a non-SD/MSP, a DCO's
valuation is sufficient for regulatory purposes. The final rule
therefore will not require non-SD/MSP reporting counterparties to
report valuation data for cleared swaps. Because prudential regulators
have informed the Commission that counterparty valuations are useful
for systemic risk monitoring even where valuations differ, the final
rule requires SD and MSP reporting counterparties to report the daily
mark for each of their swaps, on a daily basis.\40\ The Commission
notes that SDs and MSPs may choose, though they are not required, to
provide to SDRs and to counterparties, in addition to the daily mark,
methodologies and assumptions sufficient to independently validate the
output from a model generating the daily mark, collectively referred to
as the ``reference model. Provision of a ``reference model'' does not
require an SD or MSP to disclose proprietary information.
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\40\ The Commission notes that SDs and MSPs may choose, though
they are not required, to provide to SDRs and to counterparties, in
addition to the daily mark, methodologies and assumptions suffcient
to validate the output from a model used to generate the daily mark,
collectively referred to as the ``reference model.'' Non-SD/MSP
counterparties may also choose, thought they are not required, to
provide a ``reference model'' in connection with valuation data
reporting. Provision of a ``reference model'' does not require an
SD, MSP, or non-SD/MSP counterparty to disclose proprietary
information.
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Valuation data reporting by non-SD/MSP reporting counterparties.
The Commission has considered the comments concerning valuation data
reporting by non-SD/MSP counterparties. As noted above, the final rule
will lessen valuation data reporting burdens for non-SD/MSP
counterparties by eliminating the requirement that they report
valuation data for cleared swaps. With respect to uncleared swaps
between non-SD/MSP counterparties, the Commission has determined that
the final rule should lessen valuation data reporting burdens for the
non-SD/MSP reporting counterparty by requiring such reports less
frequently than proposed, but should not eliminate such reporting
entirely. While this category represents a minority of all swaps, the
Commission believes that some valuation information should be present
in SDRs for all swaps for regulatory purposes. The final rule requires
non-SD/MSP reporting counterparties to report valuation data consisting
of the current daily mark of the transaction as of the last day of each
fiscal quarter, transmitting this report to the SDR within 30 calendar
days of the end of each fiscal quarter. The Commission notes that non-
SD/MSP reporting counterparties may choose, though they are not
required, to provide to SDRs and to counterparties, in addition to the
daily mark, methodologies and assumptions sufficient to independently
validate the output from a model generating the daily mark,
collectively referred to as the ``reference model. Provision of a
``reference model'' does not require a non-SD/MSP reporting
counterparty to disclose proprietary information. The final rule will
further provide that if a daily mark of the transaction is not
available, the reporting counterparty satisfies the valuation data
reporting requirement by reporting the current valuation of the swap
recorded on its books in accordance with applicable accounting
standards. The Commission believes that requiring valuation data
reporting by non-SD/MSP reporting counterparties on a quarterly basis,
when applicable law and accounting standards may require them to value
their swaps for purposes of their own accounting, will minimize
reporting burdens for such counterparties to the greatest extent
commensurable with ensuring that valuation data essential for
regulatory purposes is reported for such swaps.
What valuation data should be reported. The Commission is aware, as
comments noted, that valuations of swaps are typically performed
overnight. Accordingly, the final rule provides that the appropriate
daily mark to report when a valuation data report is required is the
most current daily mark available. The Commission disagrees with
comments suggesting required reporting of all data necessary for an
independent valuation of each swap and required performance of such
valuations by SDRs or other third parties, calling for portfolio-level
valuation data reporting, or suggesting that the final swap data
reporting rule should determine the acceptable methods for valuing
uncleared swaps. The Commission believes valuation is fundamentally in
the purview of the market. Prudential regulators have informed the
Commission that counterparty valuations are useful for systemic risk
monitoring even where such valuations represent the view of one party,
and even where such valuations may differ. The Commission believes that
daily mark to market, the valuation required by the final rule, is the
valuation appropriate for reporting on a transaction basis.
c. Possible reporting of master agreements or collateral.
Should a master agreement library system be established? After
considering relevant comments, the Commission has determined that it
should not require master agreement reporting in its first swap data
reporting final rule. As noted in the Joint Study on the Feasibility of
Mandating Algorithmic Descriptions for Derivatives released by the CFTC
and SEC in April 2011, at present the terms of such agreements are not
readily reportable in an electronic format, as the industry has not
developed electronic fields representing terms of a master
agreement.\41\ The Commission also understands that reporting of master
agreements could be initiated by the other regulators pursuant to
separate and different regulatory authority. The Commission may choose
to revisit this issue at some point in the future, if and when industry
and SDRs develop ways to represent the terms of such agreements
electronically.
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\41\ Commodity Futures Trading Commission and Securities and
Exchange Commission, Joint Study on the Feasibility of Mandating
Algorithmic Descriptions for Derivatives, April 7, 2011, available
at http://www.sec.gov/news/studies/2011/719b-study.pdf.
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Should a collateral warehouse system be established? After
considering relevant comments, the Commission has determined that it
should not require establishment of a collateral warehouse or reporting
concerning collateral in its first swap data reporting final rule. As
is the case with respect to the terms of master agreements, the
industry has not yet developed electronic fields suitable for
representing the terms required to report collateral. The Commission
also understands that reporting with respect to collateral could be
initiated by other regulators pursuant to separate and different
regulatory authority. The Commission may choose to revisit this issue
at some point in the future, if and when industry and SDRs develop ways
to represent electronically the terms required for reporting concerning
collateral.
[[Page 2155]]
D. Summary of Creation Data and Continuation Data Reporting--Sec. Sec.
45.3 and 45.4
As discussed above, the Commission is responding to comments
concerning creation data reporting by creating a streamlined reporting
regime that requires reporting by the registered entities or swap
counterparties that the Commission believes have the easiest, fastest,
and cheapest data access and those most likely to have the necessary
automated systems; that minimizes burdens and costs for counterparties
to the extent possible; and that provides certainty to the market. The
final rule provisions regarding creation data reporting obligations and
deadlines for SD or MSP reporting counterparties, and for non-SD/MSP
reporting counterparties, are summarized in the charts on the following
two pages, respectively.
BILLING CODE 6351-01-P
[[Page 2156]]
[GRAPHIC] [TIFF OMITTED] TR13JA12.000
[[Page 2157]]
[GRAPHIC] [TIFF OMITTED] TR13JA12.001
[[Page 2158]]
BILLING CODE 6351-01-C
F. Unique Swap Identifiers--Sec. 45.5
1. Proposed Rule
The NOPR required that each swap subject to the Commission's
jurisdiction be identified in all swap recordkeeping and data reporting
by a unique swap identifier (``USI''). The NOPR provided for a ``first-
touch'' approach to USI creation, with the USI created by SEFs and DCMs
for facility-executed swaps, by SDs and MSPs for off-facility swaps in
which they are the reporting counterparty, and by SDRs for off-facility
swaps between non-SD/MSP counterparties (who may lack the requisite
systems for USI creation).
2. Comments Received
a. First-touch creation of USIs. Most comments concerning the USI
received by the Commission via comment letters, roundtables, and
meetings with industry and other regulators supported use of a USI that
will enable regulators to track and aggregate all information
concerning a single swap throughout its existence, and supported the
NOPR's first-touch approach to USI creation. DTCC supported the first-
touch approach, while noting that SDRs could also create USIs and
transmit them to the counterparties to the swap (as the NOPR provides
for swaps between non-SD/MSP counterparties). WGCEF approved having
USIs assigned when a swap is executed. Global Forex supported USI
creation at the time the swap is executed, while pointing out that in
the foreign exchange context, where some pre-trade allocation occurs
and some firms book the trade upon receipt of a message that their
price has been hit, it could be necessary in some cases to append the
USI to an already-created record in a firm's automated systems.\42\ CME
suggested that USIs should not be created and issued by a single
coordinating registry, but should be created by market participants as
provided in the NOPR, using common standards that can be applied free
of charge. TriOptima indicated a preference for having SDRs create the
USI, with reporting entities or counterparties using their own local
trade identifiers in reporting to the SDR, which can map the local
identifiers to the USI. ISDA, SIFMA, and CME asked the Commission to
clarify further the purpose and intended use of USIs. Some roundtable
participants suggested that one way to ensure the uniqueness of USI
codes created by different registered entities would be for the
registered entity creating a USI to use an appropriate random number
generator.
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\42\ Global Forex still preferred USI creation at the time of
execution over creation at the point of order submission, since the
latter would create a risk of cancelled and non-sequential USIs in
the event a trade is cancelled.
---------------------------------------------------------------------------
b. Impact of allocation on USIs. TriOptima suggested that the
Commission should clarify the creation and use of USIs in the context
of allocation, observing that where allocation follows execution, it
may not be obvious whether or not a new USI should be assigned.
TriOptima suggested that rules addressing this issue are needed. Other
market participants also requested clarification concerning USI
creation and swap creation data reporting in the context of allocation.
c. Impact of post-execution events on USIs. Thomson Reuters,
TriOptima, and the WGCEF requested clarification regarding the impact
on USI codes of events such as compression, assignments, partial
terminations, changes to counterparty names, purchases, acquisitions,
or deactivation. Thomson Reuters suggested that when multiple swaps are
combined during their existence, the unique swap identifier should have
alternative tracking numbers externally linked to the original USI.
d. USIs for historical swaps. Although this issue pertains to part
46 rather than part 45, TriOptima suggested in its part 45 comment that
USIs should be assigned to historical swaps when they are first
reported to an SDR. TriOptima noted that giving USIs only to swaps
entered into after the applicable compliance date would create a long
transition period during which there are live contracts with and
without USIs, which TriOptima believed would be technologically
problematic. TriOptima recognized that introducing USIs for existing
transactions would be a large undertaking. It suggested that reporting
entities create USIs for historical swaps using the name-space method
(combining a code for the assigning entity and a USI code unique within
that entity).
3. Final Rule: Sec. 45.5
a. First-touch creation of USIs. After considering the comments
received, the Commission has determined that, as provided in the NOPR,
the final rule requires each swap subject to the Commission's
jurisdiction to be identified in all recordkeeping and swap data
reporting pursuant to this part by a USI, created through a first-touch
approach. The Commission believes that USIs will benefit both
regulators and counterparties, by facilitating aggregation of all data
concerning a given swap (including creation data, continuation data,
and error corrections, reported by execution platforms, clearing
houses, and counterparties) into a single, accurate data record that
tracks the swap over its duration. USIs are essential to giving
regulators the ability to track swap transactions throughout their
lives. In addition, USIs provide an efficient means of assuring that
transactions are not double counted when producing summary reports.
This is particularly important where transactions may be reported to
multiple SDRs, for example where a counterparty may be required to
report a transaction to a foreign SDR.
Having the USI created when the swap is executed, i.e., at the
earliest possible point, will best ensure that all market participants
involved with the swap, from counterparties to platforms to
clearinghouses to SDRS, will have the same USI for the swap, and have
it as soon as possible. This will avoid confusion and potential
errors.\43\ It will avoid delays in submitting an executed swap for
clearing while waiting for receipt of a USI from creation at a later
time, and will minimize to the extent possible the need to alter pre-
existing records concerning the swap in various automated systems to
add the USI. As the sole exception to first-touch USI creation,
designed to reduce burdens on non-SD/MSP reporting counterparties who
may lack the technical sophistication or automated systems needed for
USI creation, the final rule will maintain the NOPR provision calling
for the USI for each swap between non-SD/MSP counterparties to be
created by the SDR to which the swap is reported.
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\43\ The Commission disagrees with TriOptima's suggestion that
reporting entities should always use their own identifiers in
reporting to SDRs during the life of a swap. This would require the
SDR to match the entity's internal ID with the USI every time data
is submitted, and is not the more efficient approach.
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To ensure the uniqueness of USIs created by registered entities as
provided in the final rule, the final rule will follow the NOPR in
prescribing USI creation through what is known as the ``name space''
method. Under this method, the first characters of each USI will
consist of a unique code that identifies the registered entity creating
the USI, given to the registered entity by the Commission during the
registration process.\44\ The remaining characters of the USI will
consist of a code created by the registered entity that must be unique
with respect to all other USIs created by that registered entity. While
the
[[Page 2159]]
Commission will not prescribe the means for ensuring the uniqueness of
each USI created by a registered entity, Commission staff may work with
registered entities to identify random number generators sufficiently
capable for this purpose.
---------------------------------------------------------------------------
\44\ The registration paperwork established pursuant to the SEF,
DCM, SD, MSP, and SDR registration rules will include provision of
such a code to the registrant.
---------------------------------------------------------------------------
b. Impact of allocation on USIs. The Commission has considered the
comments and industry requests for clarification it received concerning
USI creation and swap creation data reporting in the case of swaps
involving allocation by an agent to its clients who are the actual
counterparties on one side of the swap. In response to these requests,
the final rule will address both USI creation and creation data
reporting for swaps involving allocation.
The Commission understands that in the allocation context, a firm
acting as an agent enters into a swap, typically with an SD (or
possibly an MSP), and then allocates its side of the swap to its
clients on whose behalf it arranged the swap. The clients of the agent,
who are the actual counterparties to the SD, must have pre-existing
ISDA agreements or similar agreements with the SD in order for the
transaction to take place. At the time of execution, the SD knows that
the firm acting as agent as only an agent and is not the SD's actual
counterparty for the swap, and it knows that the agent's clients are
its actual counterparties; but it does not yet know for this particular
swap the identity of the agent's clients that are its counterparties.
The agent firm allocates its side of the swap within a relatively short
time after execution, and the agent (or a third party service provider
acting on its behalf) then informs the SD of the identities of its
counterparties.\45\ Market participants have informed the Commission
that allocation is not algorithmic, due to particular requirements of
the agent's clients, and that it typically requires two or more hours
but is always completed by the end of the business day on which the
swap was executed. The result of allocation is that a single swap
transaction created at the moment of execution is replaced by several
swaps, for each of which the counterparties are the SD and one of the
agent's clients.\46\
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\45\ In the case of cleared swaps, allocation precedes
submission to the DCO for clearing.
\46\ This situation is distinct from cases where, for example, a
hedge fund enters into a swap as a principal, and later enters into
separate swaps with its own clients (who often are funds) to offset
its risk from the first swap in which it was a principal.
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To provide the clarification requested by commenters as noted
above, the Commission has determined that the final rule should
specifically address the creation of USIs and the reporting of required
swap creation data in the context of allocation.\47\ Because real time
reporting must occur as soon as technologically practicable after
execution of a swap, and because it is important for the exposure of
the reporting counterparty to be available to regulators in an SDR as
soon as technologically practicable after execution, the Commission
believes it is necessary for the original transaction between the SD
and the agent to be reported. However, because the SD's actual
counterparties are the clients of the agent and not the agent, the
Commission believes it is also necessary for each individual swap
between the SD and one of the agent's clients to also be reported. To
avoid double-counting of swaps in the allocation context, it is
necessary to be able to map together the original transaction and the
post-allocation swaps.
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\47\ The allocation provisions of the final rule do not create
reporting requirements additional to those included in the NOPR,
since the NOPR required, as mandated by CEA section 2(a)(13)(G),
that all swaps must be reported.
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Accordingly, the final rule provides that, in the context of
allocation, the reporting counterparty must create a USI for the swap
arranged between it and the agent, and report that swap to an SDR as
soon as technologically practicable after execution. The PET data for
such a swap will include an indication that the swap will be allocated,
and include the LEI (or substitute identifier) of the agent, but not
the LEIs of the clients who are the non-reporting counterparties, since
they will not yet be known to the reporting counterparty.
The final rule will also allow the agent to inform the reporting
counterparty of the identities of its actual counterparties as soon as
technologically practicable after execution, but not later than eight
business hours after execution. The Commission understands that major
firms acting as agents in the allocation context can allocate in a
shorter time, but that smaller firms acting as agents typically
allocate by the end of the business day. The Commission believes that a
deadline of eight business hours will appropriately take into account
the needs of such smaller firms.
Finally, the final rule requires the reporting counterparty to
create a USI for each of the individual swaps resulting from
allocation, and to report each such swap as soon as technologically
practicable after it is informed by the agent of the identities of its
actual counterparties, the clients of the agent (which must occur as
soon as technologically practicable after execution or at least within
eight business hours of execution, as provided above). To prevent
confusion or errors with respect to the data reported, and to avoid
double-counting, the final rule requires that the report to the SDR for
each post-allocation swap must include: An indication that the swap is
a post-allocation swap; the USI of the original transaction; the USI of
the post-allocation swap; the LEI of the actual counterparty; and the
LEI of the agent. The final rule will also require the SDR to which the
swaps are reported--which must be the same SDR to which the original
transaction is reported--to map together the USIs of the original swap
and of each of the post-allocation swaps.
The Commission is adopting these USI and creation data reporting
requirements in the context of allocation in response to comments
seeking clarification on reporting in this context, as noted above, and
in order to ensure that the Commission and other regulators can track
the entire history of swaps in the context of allocation.
c. Impact of post-execution events on USIs. The Commission has
noted comments requesting that the final address the impact of post-
execution events on USIs. In response to these comments, the final rule
provides that USI codes created at the time of execution using the
first-touch approach will only be replaced where a new swap takes the
place of an old swap, such as where a compression or full novation has
occurred. Under the final rule, in such cases a new USI will be
assigned to the new swap, and the SDR to which the swap has been
reported will be required to map the new USI back to the USIs of the
swaps from which the new swap originated, in a manner sufficient to
allow the Commission and other regulators to follow the entire history
and audit trail of each affected swap. In the case of events that do
not result in the creation of a new swap, such as partial terminations
or changes to counterparty names, the swap in question will retain the
USI code originally assigned to it.
d. USIs for historical swaps. The Commission agrees with the
comment suggesting that it would undesirable and possibly
technologically problematic to have live swaps both with and without
USIs recorded in SDRs for an extended period. The Commission believes
that for historical swaps, SDRs will be the best creators of USIs. The
Commission will address this issue in its final part 46 rule for
historical swaps.
[[Page 2160]]
G. Legal Entity Identifiers--Sec. 45.6
1. Proposed Rule
The NOPR required that each counterparty to any swap subject to the
Commission's jurisdiction be identified in all swap recordkeeping and
data reporting by a legal entity identifier (``LEI'') (referred to in
the NOPR as a unique counterparty identifier or ``UCI'') approved by
the Commission. The NOPR established principles that an LEI must follow
for it to be designated by the Commission as the LEI to be used in swap
data recordkeeping and reporting pursuant to the Commission's
Regulations.\48\ These principles included:
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\48\ In this summary of the principles that were discussed in
the NOPR preamble concerning Unique Counterparty Identifiers and set
forth in Sec. 45.4(b) of the NOPR, paragraph headings that have
come into common use in international discussions of principles for
the LEI, but that do not change the substance of the principles
stated in the NOPR, have been added for clarity.
Uniqueness (one LEI per legal entity, never re-used).
Neutrality (a single-field identifier format containing
no embedded intelligence).
Verifiability (a reliable method of verifying the
identity of holders of LEIs, avoiding assignment of duplicate
identifiers, and maintaining accurate reference data).
Reliability (data protection and system safeguards).
Open source (an open data standard and format capable
of broad use, that enables data aggregation by regulators).
Extensibility (capability of becoming the single
international standard for unique identification of legal entities
in the financial sector on a global basis).
Persistence (each LEI remains permanently in the
record, regardless of corporate events, while a new entity resulting
from a corporate event receives a new LEI).
Development and issuance acceptable to the Commission
(development via an international voluntary consensus standards body
such as the International Organisation for Standardisation, and
issuance through such a body and an associated registration
authority).
Governance and funding acceptable to the Commission
(ensuring LEI availability to all, on a royalty-free or reasonable
royalty basis, through an LEI issuance system operated on a non-
profit basis).
The NOPR also called for establishment of a confidential, non-
public LEI reference database, to which each swap counterparty
receiving an LEI would be required to report reference data that would
be associated with its LEI. Such reference data would include
information sufficient to verify the identity of the counterparty
receiving an LEI, both initially and at appropriate intervals
thereafter (commonly called validation data or level one reference
data).\49\ It would also include information concerning the corporate
affiliations of the counterparty, in order to enable the Commission and
other financial regulators to aggregate data concerning all swap
transactions within the same ownership group (commonly called hierarchy
data or level two reference data). As provided in the NOPR, data in the
reference database would be available only to the Commission, and to
other regulators via the same data access procedures applicable to data
in SDRs.
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\49\ As noted, the NOPR called for reference data including both
(1) information sufficient to verify the identity of the
counterparty receiving an LEI, both initially and on an ongoing
basis, as set forth in section 45.4(b)(3)(iv) of the NOPR, and (2)
information concerning the corporate affiliations and ownership
group of the counterparty, as set forth in section 45.4(b)(2) of the
NOPR. For clarity, the final rule uses the terms ``level one'' and
``level two'' reference data, which have come into common
international use in discussions of the LEI and LEI reference data,
to refer to these two types of reference information addressed in
the NOPR. These terms do not represent new data requirements beyond
those proposed in the NOPR, but instead provide a succinct way to
refer to the two types of reference data required in the NOPR.
---------------------------------------------------------------------------
The NOPR stated the Commission's belief that optimum effectiveness
of LEIs for achieving the systemic risk protection and transparency
goals of the Dodd-Frank Act--goals shared by financial regulators
world-wide, and repeatedly endorsed by the G-20 Leaders--would come
from a global LEI created on an international basis through an
international voluntary-consensus standards body such as ISO. The NOPR
also announced the Commission's intention to have the final part 45
rule prescribe use of such an international LEI in complying with the
final rule, if an LEI meeting the principles established in the NOPR is
available sufficiently prior to the compliance date on which swap data
reporting will first begin pursuant to the final rule.
Accordingly, the NOPR provided that the Commission would determine,
prior to the initial compliance date, whether such an LEI is available.
If it were, the NOPR called for the Commission to designate that LEI as
the LEI approved by the Commission for use in complying with the final
rule, and to publish notice of that designation to inform registered
entities and swap counterparties where they can obtain LEIs for use
pursuant to the final rule.\50\
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\50\ The NOPR called for the Commission to make this
determination at least 100 days prior to the initial compliance
date, and to publish notice no later than 90 days prior to the
initial compliance date, in order to give registered entities and
swap counterparties subject to the final rule reasonable time in
which to obtain LEIs for use as prescribed by the final rule.
---------------------------------------------------------------------------
In the event that the Commission were to find when it makes this
determination that an LEI meeting the criteria set forth in the NOPR is
not then available, the NOPR provided that until such time as the
Commission determines that such an LEI is available, registered
entities and swap counterparties should comply with the final rule by
using a unique counterparty identifier created and assigned by an SDR
as described in the NOPR.
2. Comments Received
a. Endorsement of the LEI. The great majority of comments
concerning the LEI received by the Commission via comment letters,
roundtables, and meetings with both industry and other regulators
strongly supported establishing an LEI to identify derivatives
transaction counterparties and other financial firms involved in the
world financial sector. Commenters supporting the LEI in comment
letters included ISDA, SIFMA, Global Forex, GS1, Thomson Reuters, CME,
ABC, Customer Data Management Group, CIEBA, and the Committee on
Capital Markets Regulation.
The Commission also received input from both U.S. and international
financial regulators, international regulatory organizations, and world
leaders endorsing creation of the LEI addressed in the NOPR. The CPSS-
IOSCO Report on OTC Derivatives Data Reporting and Aggregation
Requirements recommends expeditious development of a global LEI,
stating that:
[A] standard system of LEIs is an essential tool for aggregation
of OTC derivatives data. An LEI would contribute to the ability of
authorities to fulfill the systemic risk mitigation, transparency,
and market abuse protection goals established by the G20 commitments
related to OTC derivatives, and would benefit efficiency and
transparency in many other areas. As a universally available system
for uniquely identifying legal entities in multiple financial data
applications, LEIs would constitute a global public good. The Task
Force recommends the expeditious development and implementation of a
standard LEI that is capable of achieving the data aggregation
purposes discussed in this report, suitable for aggregation of OTC
derivatives data in and across TRs [trade repositories] on a global
basis, and capable of eventual extension to identification of legal
entities involved in various other aspects of the financial system
across the world financial sector.\51\
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\51\ Committee on Payment and Settlement Systems and Technical
Committee of the International Organization of Securities
Commissions, Report on OTC Derivatives Data Reporting and
Aggregation Requirements. Issuance of this report by CPSS and IOSCO
is anticipated during December 2012.
[[Page 2161]]
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The LEI technical principles recommended in the Report, and the
Report's statements concerning governance and funding for the LEI
issuance system, closely parallel the LEI principles set forth in the
NOPR, as do the principles set forth by the OFR in its Statement of
Policy concerning the LEI,\52\ and those discussed in the SEC's
proposed rule on data reporting for security-based swaps.\53\ Both the
FSB Plenary and the G-20 Finance Ministers and Central Bank Governors
have endorsed and supported creation and implementation of a global
LEI.\54\ At the conclusion of their November 2011 meeting in Cannes,
France, the G20 Leaders announced their strong support for the LEI,
stating in the Cannes Summit Final Declaration that: ``We support the
creation of a global legal entity identifier (LEI) which uniquely
identifies parties to financial transactions.'' \55\ Following the
meeting, the White House underscored President Obama's support for the
LEI, stating that:
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\52\ Department of the Treasury, Office of Financial Research,
Statement on Legal Entity Identification for Financial Contracts,
November 23, 2010, available at http://www.treasury.gov/initiatives/Documents/OFR_LEI_Policy_Statement-FINAL.PDF.
\53\ See Securities and Exchange Commission, Proposed Regulation
SBSR--Reporting and Dissemination of Security-Based Swap
Information, 17 CFT part 240 (November 19, 2010).
\54\ At its July 2011 meeting, the FSB Plenary ``welcomed the
progress of financial regulators and industry to establish a single
global system for uniquely identifying parties to financial
transactions.'' FSB Press Release, July 18, 2011, available at
https://www.financialstabilityboard.org/press/pr_110718.pdf. In
their Communiqu[eacute] at the conclusion of their October 2011
meeting, the Finance Ministers and Central Bank Governors of the G-
20 said, ``We underscored our support for a global legal entity
identifier system which uniquely identifies parties to financial
transactions with an appropriate governance structure representing
public interest.'' Communiqu[eacute] of Finance Ministers and
Central Bank Governors of the G-20, Paris, France, October 14-15,
2011, available at http://www.g20.org/Documents2011/10/G20%20communiqu[eacute]%2014-15%20October%202011-EN.pdf.
\55\ Cannes Summit Final Declaration, November 4, 2011, at 7,
paragraph 31, available at http://www.g20.org/Documents2011/11/Cannes%20Declaration%204%20November%202011.pdf.
The Legal Entity Identifier (LEI) initiative will support better
understanding of true exposures and interconnectedness among and
across financial institutions. We need such understanding to assess
and reduce risks to the financial system.\56\
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\56\ The White House, G-20: Fact Sheet on U.S. Financial Reform
and the G-20 Leaders' Agenda, November 4, 2011, available at http://www.whitehouse.gov/the-press-office/2011/11/04/g-20-fact-sheet-us-financial-reform-and-g-20-leaders-agenda.
b. LEI suggestions. Several comment letters received by the
Commission also made specific suggestions and requests for
clarification relating to the LEI. ISDA and SIFMA, Thomson Reuters, and
AMG suggested that the unique counterparty identifier required by the
final rule should be the same identifier as the legal entity identifier
being developed under principles stated in the OFR policy statement
concerning LEIs. Roundtable participants also suggested referring to
the identifier as the LEI rather than the UCI, to avoid confusion. CME,
Thomson Reuters, and most roundtable participants supported the NOPR
principle calling for a neutral LEI with no embedded intelligence.
WGCEF and TriOptima asked for guidance on how the LEI would relate to
corporate events such as mergers and acquisitions. The Asset Management
Group advocated assigning LEIs at the individual fund or account level
rather than the legal entity level. ISDA, SIFMA and CME suggested that
the LEI should be administered by a not-for-profit industry utility,
and that an international directory of LEI holders should be available
at no cost. CUSIP and GS1 suggested that they might be potential
providers of a future LEI.
c. LEI reference data. With respect to level two or hierarchical
reference data for the LEI, CME suggested clarifying whether the LEI is
intended to simply identify a specific counterparty or to establish a
counterparty's relationship with other entities. Global Forex noted
that data confidentiality law in different jurisdictions could raise
issues regarding access to level two reference data. The Asset
Management Group recommended that the definition of control for
purposes of reporting level two reference data should require at least
majority ownership. DTCC recommended that SDRs should have access to
the non-public LEI reference database for use in the construction of
reports to regulators, such as reports based on net or aggregated
positions.
d. Progress toward a global LEI. Since the Commission issued the
proposed rule requiring use of LEIs in swap data reporting under CFTC
jurisdiction, both international financial regulators and industry have
made significant progress toward creation of the global LEI called for
in the NOPR.
Voluntary consensus body standard. In response to the Commission's
preference, set forth in the NOPR as noted above, to have swap
counterparties identified by a universally-available LEI created on an
international basis through an international ``voluntary consensus
standards body,'' the International Organisation for Standardisation
has developed a new international technical standard for the LEI, ISO
17442 Legal Entity Identifier (LEI). ISO is the world's principal
voluntary consensus standards body, which includes 162 member
countries. Through its Technical Committee 68 (``TC 68''), the expert
committee for standardization in the field of banking, securities, and
other financial services, ISO has published 48 key standards for the
financial sector, ranging the international securities identification
numbering (``ISIN'') code for securities, and the business
identification code (``BIC'') for banking telecommunication messages to
the codes for exchange and market identification (``MIC''), and for
classification of financial instruments (``CFI'').\57\ The ISO 17442
LEI standard received unanimous approval from TC 68 in June 2011, and
it received unanimous support in the second round of voting by member
countries in the ISO approval process that concluded on December 14,
2011.\58\
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\57\ During the process of developing ISO 17442, ISO determined
that existing codes for other financial sector purposes, such as BIC
codes and ISIN codes, were not suited by design to provide unique
identification of legal entities across the world financial sector,
and that a new standard was needed for this purpose.
\58\ TC 68 will address comments received during the approval
process in January 2012.
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Industry recommendations. Also in response to the NOPR's call for
an international, universally-adopted LEI, in January 2011 a global
coalition of financial sector trade associations and organizations came
together to develop an industry consensus on requirements and standards
for the LEI, and make a recommendation concerning formation of an LEI
utility to issue LEIs and validate the identity of their holders.\59\
[[Page 2162]]
After extended discussions involving a broad cross-section of financial
trade associations and both buy-side and sell-side firms from a wide
range of countries, during the spring and summer of 2011 the global
coalition issued a comprehensive set of requirements for a viable,
international LEI; initiated a Solicitation of Interest process to
identify one or more solution providers able to build, manage, and run
an LEI utility to issue LEIs; evaluated formal responses from more than
10 potential providers; and issued three recommendations concerning
implementation of the global LEI system. First, the global coalition
recommended that the international technical standard for the LEI code
itself be the new international standard developed by ISO, ISO 17442
Legal Entity Identifier (LEI). Second, the coalition recommended that
the LEI utility that conducts LEI reference data collection and
maintenance, LEI assignment, and quality assurance be operated as a
joint venture including SWIFT (the Registration Authority selected by
ISO for the ISO 17442 standard) and DTCC and its subsidiary AVOX
Limited (to be the facilities manager for the LEI utility). Finally,
the coalition recommended that the Association of National Numbering
Agencies (``ANNA''), through its global network of national numbering
agencies, be a partner in federated LEI issuance in the home countries
of legal entities receiving LEIs. At the FSB LEI Workshop (discussed
below) and elsewhere, the global coalition has stated its willingness
to have the structure of the joint venture created to serve as the LEI
utility include a governing board controlled by international financial
regulators including the Commission, with authority over the operations
of the joint venture sufficient to ensure that the LEI utility
maintains compliance with the principles established for the LEI by
international financial regulators, including the principles
established by the Commission.
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\59\ The global coalition included twelve trade association who
endorsed the industry's Requirements for a Global Legal Entity
Identifier (LEI) Solution, available at http://www.sifma.org/LEI-Industry-Requirements/. The included trade associations were the
Association for Financial Markets in Europe, Asia Securities
Industry and Financial Markets Association, British Bankers
Association, Customer Data Management Group, The Clearing House
Association L.L.C., Enterprise Data Management Council, Financial
Services Roundtable, Futures Industry Association, Global Regulatory
Identifier Steering Group, International Swaps and Derivatives
Association, Investment Company Institute, and Securities Industry
and Financial Markets Association. In addition, the following firms
were party to the discussions leading to creation of Requirements
for a Global Legal Entity Identifier (LEI) Solution:
AllianceBernstein, Bank of America Merrill Lynch, Bank of New York
Mellon-Pershing, Barclays Capital, Branch Banking & Trust Company,
BlackRock, BNP Paribas, CIBC Wholesale Banking, Citi, Credit Suisse,
Deutsche Bank, E*Trade Financial, Edward Jones, Federated
Investments, Fidelity, GE Asset Management, GE Capital, Goldman
Sachs, HSBC, Janney Montgomery Scott LLC, Jefferies, JP Morgan
Chase, JWG, KeyBank, Loomis Sayles, Morgan Stanley, New York Life,
Nomura, Northern Trust, Prudential, Royal Bank of Canada, Royal Bank
of Scotland, R-Cube, Renaissance Technologies, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, State Street, T Rowe Price, Tradeweb, UBS,
and Wells Fargo.
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The Commission understands that, in order to ensure as far as
possible that LEIs can in fact be issued to swap counterparties subject
to the Commission's jurisdiction prior to the initial compliance date
for swap data reporting pursuant to this final rule, SWIFT, DTCC, AVOX,
and ANNA are moving forward to cleanse already-available data
sufficient to validate the identity of legal entities to receive an
LEI; to collect and cleanse such validation data for other swap
counterparties; and to issue temporary identifiers readily convertible
into LEIs if their joint venture is designated by the Commission as the
provider of LEIs to be used pursuant to this rule. They have also
informed Commission staff that they anticipate being able to provide
LEIs to swap counterparties by the summer of 2012 if they are so
designated.
International developments. In September 2011, the FSB convened an
international LEI Workshop including over 50 private sector experts and
over 60 representatives from the international financial regulatory
community, including the Commission, to further educate participants
and elicit their input concerning the LEI, and to guide preparation of
a roadmap leading to recommendations concerning implementation of a
global LEI system. Workshop participants discussed possible technical
and governance principles for the LEI drawn from the CPSS-IOSCO Report
on OTC Derivatives Data Reporting and Aggregation Requirements, which
as noted above closely parallel those included in the NOPR. The
Workshop revealed strong support for the LEI initiative from both
private sector and official sector participants. Industry
representatives emphasized the vital importance of support and
leadership from the global regulatory community, and the many potential
benefits of a global LEI that would only be realized if regulators
support the LEI initiative. Presenters at the Workshop also supported
the timely phasing of LEI implementation, likely to begin with use of
the LEI in reporting OTC derivatives data to trade repositories.
When the G-20 Leaders endorsed the LEI initiative following the
Workshop, they stated that:
We call on the FSB to take the lead in helping coordinate work
among the regulatory community to prepare recommendations for the
appropriate governance framework, representing the public interest,
for such a global LEI by our next Summit.\60\
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\60\ Cannes Summit Final Declaration, November 4, 2011, at 7,
paragraph 31, available at http://www.g20.org/Documents2011/11/Cannes%20Declaration%204%20November%202011.pdf.
Following the request from the G20, the FSB decided in December to
create a time-limited, ad-hoc expert group of authorities, including
the Commission, to carry forward work on key outstanding issues
relevant to implementation of a global LEI, in order to fulfill the G-
20 mandate. The group held its first meeting on December 13 and 14,
2011. The issues to be addressed by the expert group include: (1) The
governance framework for the global LEI; (2) the operational model for
the LEI system; (3) the scope of LEI reference data; (4) reference data
access and confidentiality; (5) the funding model for the LEI system;
and (6) global implementation and phasing of the LEI. It is anticipated
that the expert group will deliver clear recommendations with respect
to implementation of a global LEI system to the FSB Plenary for
endorsement in April or May 2012. This process is designed to allow
first-phase implementation of the LEI in OTC derivatives data reporting
to trade repositories, including swap data reporting to SDRs pursuant
to this final rule, to proceed, if possible, on the basis of globally
agreed principles concerning governance, funding, and access to
reference data.
3. Final Rule: Sec. 45.6
a. Important factors in the Commission's decision. The Commission
has considered and evaluated the comments and international input it
has received concerning the LEI and the principles which should govern
the LEI system, and has taken such comments and input into account in
the LEI provisions of the final rule. It has also considered the
progress made by the international financial regulatory community and
industry toward creation of a global LEI, created on an international
basis through an international voluntary consensus standards body, that
meets the requirements provided in the NOPR, and is suitable for
designation by the Commission for use in recordkeeping and swap data
reporting pursuant to this final rule as set forth in the NOPR.
Broad endorsement of the LEI. The Commission agrees with the
recommendation of commenters, roundtable participants, industry, U.S.
and international financial regulators, international regulatory
organizations, and world leaders calling for creation of a global LEI.
It also believes, as recommended by roundtable participants, the CPSS-
IOSCO Report on OTC Derivatives Data Reporting and Aggregation
Requirements, and many FSB LEI Workshop participants, that the LEI
should first be used for identification of swap counterparties in data
reported to SDRs.
LEI suggestions by commenters. The Commission accepts the
suggestion of various commenters and roundtable participants that the
unique
[[Page 2163]]
counterparty identifier required by the final rule should be the same
identifier as the legal entity identifier (``LEI'') being developed by
industry and international regulators as described above, and should be
referred to as the LEI (rather than the UCI as in the NOPR) in order to
avoid confusion. The Commission agrees with commenters that the
neutrality principle set forth in the NOPR and elsewhere, calling for a
neutral LEI with no embedded intelligence should be maintained. The
persistence principle in the final rule addresses commenters' requests
for guidance on how the LEI will relate to corporate events such as
mergers and acquisitions.\61\ The Commission disagrees with the
suggestion of one commenter that LEIs should be assigned at the
individual fund or account level rather than the legal entity level,
since LEIs by nature are legal entity identifiers. The Commission
agrees with comments calling for the LEI to be administered by a not-
for-profit industry utility, and for an international directory of LEI
holders to publicly available free of charge. The criteria for the
Commission's designation of the LEI utility that will provide LEIs to
be used in compliance with the rule are discussed below.
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\61\ In determining whether a new entity requiring a new LEI has
resulted from a corporate event, the LEI utility may consider
whether the primary regulator (if any) of the entity or entities
involved in the corporate event considers the result to be a new
entity; whether market data vendors consider the result to be a new
entity; or whether ownership has changed as a result of the
corporate event.
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LEI reference data considerations. The Commission believes that
level one LEI reference data is essential to the ability of the issuer
of LEIs to validate the identity of a legal entity receiving an LEI. As
recognized by the participants in the FSB LEI Workshop, the Commission
understands that such data by its nature is public, and presents no
confidentiality or access issues. The Commission also believes, as also
recognized by participants in the Workshop and in the CPSS-IOSCO Report
on OTC Derivatives Data Reporting and Aggregation Requirements, that
level two LEI reference data concerning the hierarchical relationships
or company affiliations of legal entities is needed by regulators for
use of the LEI as a tool to aggregate the data in trade repositories in
order to enhance systemic risk mitigation and market supervision. The
Commission understands, as recognized by Workshop participants, that
some level two reference data is public and does not pose
confidentiality concerns. However, the Commission is also aware, as
pointed out by commenters and Workshop participants, that financial
data confidentiality law in different jurisdictions could raise issues
regarding access by regulators outside those jurisdictions, or by the
public, to some level two reference data.\62\
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\62\ The Commission has considered comments concerning the
definition of control it should employ in connection with level two
reference data, and concerning SDR access to level two reference
data for the purpose of constructing reports for regulators.
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LEI standard. The Commission recognizes that ISO, the international
voluntary consensus standards body cited in the NOPR, has developed an
international standard for a global LEI, ISO 17442 Legal Entity
Identifier (LEI).
Industry recommendations. The Commission also recognizes that a
global coalition of financial sector trade associations and
organizations has developed a broad-based industry consensus on
requirements and standards for the LEI, and has recommended that (1)
the international standard for the LEI code itself should be ISO
standard 17442; and (2) the LEI utility for LEI issuance, reference
data collection and maintenance, and quality assurance should be
operated as a joint venture including SWIFT, DTCC, AVOX, and ANNA. The
Commission notes that the coalition has publicly stated its willingness
for this joint venture to include a governing board controlled by
international financial regulators including the Commission, with power
to ensure that the LEI utility maintains compliance with the principles
established for the LEI by international financial regulators,
including the principles established by the Commission in this final
rule.
Timely availability of LEIs. The Commission understands that the
recommended joint venture partners are moving forward to obtain and
process the reference data necessary to validate the identity of legal
entities to be identified by LEIs, so that if the joint venture is
designated by the Commission as the issuer of LEIs to be used in swap
data reporting, it can in fact be able to issue LEIs to swap
counterparties subject to the Commission's jurisdiction prior to the
commencement of swap data reporting pursuant to this final rule. At
this time, the Commission is not aware of any other candidate to be the
LEI utility designated to provide LEIs for use in compliance with this
final rule that would in fact be able to provide the required LEIs on a
timely basis.
The Commission is aware that the ability of any LEI utility
designated by the Commission to provide the LEIs to be used in
compliance with this final rule to provide such LEIs when swap data
reporting commences pursuant to this rule will depend in part on the
Commission making such a designation, as called for in the NOPR,
sufficiently prior to the commencement of swap data reporting to enable
the LEI utility to issue the LEIs needed for compliance with this rule
on a timely basis.
Need for an internationally-established LEI. As stated in the NOPR,
the Commission recognizes that optimum effectiveness of LEIs as a tool
for achieving the systemic risk mitigation, transparency, and market
protection goals of the Dodd-Frank Act--goals shared by financial
regulators world-wide--would come from creation of a global LEI, on an
international basis, that is capable of becoming the single
international standard for unique identification of legal entities
across the world financial sector. The Commission has participated in
all of the work of the global financial regulatory community to date
concerning implementation of a global LEI, and has carefully considered
the results of this work. One reason the Commission has done so is that
it recognizes the importance of having first-phase implementation of a
global LEI follow principles that are forward-compatible with later
phases of LEI implementation.\63\ The Commission welcomes, and is
participating in, the work of the FSB-coordinated, ad-hoc expert group
of authorities working to deliver clear recommendations on
implementation of a global LEI system to the FSB Plenary for
endorsement in April or May 2012. The Commission understands that an
important purpose of FSB endorsement of these recommendations would be
to allow first-phase implementation of the LEI, including its use in
swap data reporting to SDRs pursuant to this final rule, to proceed, if
possible, on the basis of globally agreed principles concerning
governance and funding of the LEI and access to LEI reference data.
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\63\ This is particularly true in light of the fact that, once
industry builds or adapts automated systems for use in swap data
reporting to include the LEI, it could be inadvisable to require
registered entities and swap counterparties to incur the additional
burden and cost that could come from changing the LEI system in ways
that were not compatible with first-phase implementation of the LEI.
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b. Final rule LEI provisions. In light of these considerations, the
Commission has determined that Sec. 45.6 will include the following
provisions.
Standard for the LEI code. The LEI to be used in all recordkeeping
and all swap data reporting required by this part, once the Commission
has
[[Page 2164]]
designated the LEI utility that will provide the LEI to be used in
complying with this part, as set forth below, must be issued under, and
conform to, ISO Standard 17442, Legal Entity Identifier (LEI). This
standard is the sole existing LEI standard created by a voluntary
consensus standards body, and is the standard created by ISO, the
voluntary consensus standards body cited in the NOPR as the optimum
source for the LEI standard.
LEI principles. The final rule includes both technical and
governance principles that must be followed by the LEI used for
compliance with the rule. These principles are based on those set forth
in the NOPR, as complemented by the closely-parallel principles and
governance considerations recommended in the CPSS-IOSCO Report on OTC
Derivatives Data Reporting and Aggregation Requirements and the
principles discussed at the FSB LEI Workshop.\64\ The final rule
principles, set forth in detail in the text of section 45.6, are
summarized below.
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\64\ As noted above, all of these principles closely parallel
those set forth by the OFR in its Statement of Policy concerning the
LEI, see footnote 52 above, and those discussed in the SEC's
proposed rule on data reporting for security-based swaps, see
footnote 53 above.
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Technical Principles
Uniqueness (one LEI per legal entity, never re-used).
Neutrality (a single-field identifier format containing
no embedded intelligence).
Reliability (a reliable method of verifying the
identity of holders of LEIs, based on reference data necessary for
this purpose; as well as robust quality assurance practices and
system safeguards, including the system safeguards applicable to
SDRs under part 49 of this chapter).
Open source (an open data standard and format capable
of broad use, that enables data aggregation by regulators).
Extensibility (capability of becoming the single
international standard for unique identification of legal entities
in the financial sector on a global basis).
Persistence (each LEI remains permanently in the
record, regardless of corporate events, while a new entity resulting
from a corporate event receives a new LEI).
Governance Principles
International governance (for operations, a governance
structure for the LEI utility giving the Commission and other
financial regulators requiring use of the LEI power to ensure that
the LEI system adheres to these principles) (for compliance with ISO
17442, governance by ISO).
Reference data access (access to LEI reference data
must enable use of the LEI as a public good, while respecting
applicable law regarding data confidentiality).
Non-profit operation and funding (funding and operation
on a non-profit, reasonable cost-recovery basis, subject to
international governance).
Unbundling and non-restricted use (LEI issuance not
tied to other services; no restrictions on use of the LEI;
intellectual property consistent with open source principles).
Commercial advantage prohibition (no commercial use by
the utility of LEI reference data that is not available to the
public free of charge).
Designation of the LEI utility. As called for in the NOPR, the
final rule provides for the Commission to designate the LEI utility
that will provide the LEI to be used in complying with this rule, once
the Commission determines that an LEI system satisfying the
requirements of the rule is available, making this designation in a
Commission order. In determining whether an LEI system satisfying the
Commission's requirements is available, the Commission will consider,
without limitation, the following factors:
Whether the LEI provided by the utility is issued
under, and conforms to, ISO Standard 17442, Legal Entity Identifier
(LEI).
Whether the LEI provided by the utility complies with
all of the technical principles set forth in this rule.
Whether the LEI utility complies with all of the
governance principles set forth in this rule.
Whether the LEI utility has demonstrated that it in
fact can provide LEIs for identification of swap counterparties in
swap data reporting commencing as of the compliance dates set forth
in this rule.
The acceptability of the LEI utility to industry
participants required to use the LEI in complying with the rule.
In making its determination, the Commission will consider all
candidates meeting these criteria, but it will not consider any
candidate that does not demonstrate that it in fact can provide LEIs
for identification of swap counterparties in swap data reporting
pursuant to this rule as of the compliance dates set forth in this
rule.
The Commission will make this determination and designate the LEI
utility at a time sufficiently prior to the commencement of swap data
reporting to enable the designated utility to issue LEIs far enough in
advance of the compliance dates set forth in the rule to enable
compliance with the rule.
Reference data reporting. When an LEI utility has been designated
by the Commission, the final rule requires reporting of both level one
and level two reference data concerning the legal entity identified by
an LEI. Level one reference data means the minimum information needed
to identify, on a verifiable basis, the legal entity to which an LEI is
assigned. Level two reference data means information concerning the
corporate affiliations or company hierarchy relationships of the legal
entity receiving an LEI. As provided in the NOPR, the final rule
requires reporting of both types of reference data for each
counterparty to any swap subject to the Commission's jurisdiction.
The rule provides that level one reference data must be reported
into a publicly-available level one reference database maintained by
the issuer of the LEI designated by the Commission, at a time
sufficient to ensure that the counterparty's legal entity identifier is
available for inclusion in recordkeeping and swap data reporting as
required by the rule. Such reference data is essential to verifying the
identity of the legal entity receiving an LEI. Level one reference data
can be reported into the database by the entity itself (self-
registration), or by another entity or organization such as a swap
dealer reporting on behalf of its counterparties or a national number
agency or data service provider reporting on behalf of its clients
(third-party registration). Subsequent changes and corrections to level
one reference data must also be reported.
While the NOPR required reporting of level two reference data
concerning all of a counterparty's corporate or company affiliation
relationships, the Commission has determined that the final rule will
reduce this requirement, and call for reporting of only a single piece
of level two reference data, the identity of the counterparty's
``ultimate parent'' as defined in the final rule. In making this
determination, the Commission has taken into account comments
suggesting that the Commission should coordinate with the SEC and
international regulators to ensure where possible against material,
substantive difference in reporting requirements, as well as comments
suggesting that it should establish an ownership threshold for
affiliations required to be reported, in order to reduce burdens for
counterparties. The definitions of ``control,'' ``parent,'' and
``ultimate parent'' adopted in the final rule are closely aligned with
the SEC's definitions, including a 25% ownership threshold.\65\ These
definitions are provided both to reduce burdens for counterparties, in
relation to the full affiliation reporting proposed in the NOPR, and to
provide clarity as to the
[[Page 2165]]
single affiliation required to be reported. The Commission believes
that reporting of level two reference data consisting of the identity
of a counterparty's ultimate parent is essential to the ability of the
Commission and other regulators to aggregate swap data in order to
fulfill the purposes of the Dodd-Frank Act. The Commission may revisit
the issue of what additional level two reference data should be
reported at a later time, when an international consensus concerning
the reporting of additional level two reference data has had time to be
developed.
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\65\ The Commission disagrees with the 50% ownership threshold
suggested by one commenter. The Commission believes that a 50%
threshold would result in no ultimate parent being reported in a
notable number of cases, and believes that the 25% threshold used by
the SEC is more appropriate.
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Accordingly, the final rule also requires reporting of level two
reference data, consisting of the identity of the counterparty's
ultimate parent. Level two reference data must be reported to a level
two reference database. All non-public level two reference data
reported to the level two reference database will be available only to
the Commission and other financial regulators in any jurisdiction
requiring LEI use. Where applicable law forbids such reporting, the
rule requires reporting that fact, and the citation of the law in
question, in place of the data to which such law applies. The rule
provides that the location of the level two database will be determined
at a future time by a Commission order, and that the obligation to
report level two reference data will not apply until that order is
issued. The rule also provides that, once the order is issued, level
two reference data must be reported at a time sufficient to ensure that
it is included in the database when the counterparty's LEI is included
in recordkeeping and swap data reporting as required by the rule. Level
two reference data may also be reported via either self-registration or
third-party registration. Changes and corrections must also be
reported.
Use of the LEI by registered entities and swap counterparties. The
final rule provides that, when an LEI utility has been designated by
the Commission, each registered entity and swap counterparty subject to
the Commission's jurisdiction must use the LEI provided by the
designated LEI utility in all recordkeeping and swap data reporting
pursuant to this part.\66\
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\66\ The final rule provides a grace period until October 15,
2012, for reporting counterparties whose systems are not yet
prepared to include LEIs.
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Swap counterparty identification prior to LEI availability.
Finally, the final rule provides that, before the LEI utility has been
designated by the Commission, registered entities and swap
counterparties subject to the Commission's jurisdiction shall use a
substitute counterparty identifier created and assigned by an SDR, as
provided in the final rule.
c. Incorporation of international principles and recommendations.
Because this final rule is being issued prior to completion of the work
of the FSB-coordinated, ad-hoc expert group of authorities that will
make recommendations to the FSB Plenary in April 2012 concerning LEI
governance, funding, and reference data, it has been written, of
necessity, to provide the principles and requirements that will apply
to the LEI, when its use pursuant to this rule begins, in the absence
of globally agreed principles for these aspects of the LEI system. As
noted above, the Commission shares the goal of a global LEI capable of
becoming the single international standard for unique identification of
legal entities across the world financial sector. Therefore, if LEI
principles that the Commission determines are forward-compatible with
the principles set forth in this rule, or recommendations concerning
LEI governance and funding and access to LEI reference data that are
acceptable to the Commission, are endorsed by the FSB in April or May
2012, the Commission may issue an interim final rule addressing LEI
governance, funding, and reference data, that includes such principles
and recommendations. Such an interim final rule, if issued, would
replace affected provisions of this final rule, pending notice and
comment and possible later adoption of the interim final rule by the
Commission as a final rule.\67\
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\67\ The Commission believes that the provisions of such an
interim final rule must not impair the availability of LEIs for use
in swap data reporting when such reporting commences pursuant to
this rule. Accordingly, the Commission does not intend that such an
interim final rule would alter the requirement for the LEI to be
issued pursuant to ISO Standard 17442, or would alter the
Commission's designation of the LEI utility once that designation
has been made.
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H. Unique Product Identifiers--Sec. 45.7
1. Proposed Rule
The NOPR required that each swap subject to CFTC jurisdiction be
identified in all swap recordkeeping and data reporting by a unique
product identifier (``UPI'') and a product classification system, as
determined by the Commission, for the purpose of categorizing swaps
with respect to the underlying products referenced in them. The NOPR
called for the UPI and product classification system to identify both
the swap asset class and the subtype within that asset class to which
the swap belongs, with sufficient specificity and distinctiveness (as
determined separately for each asset class) to enable regulators to
fulfill their regulatory responsibilities and to enhance real time
reporting. As provided in the NOPR, UPIs would be assigned to swaps at
a particular, asset class-specific level of the robust swap taxonomy
used by the product classification system, and the use of UPIs and the
classification system would enable regulators to aggregate and report
swap activity at a variety of product type levels, and to prepare
reports required by the Dodd-Frank Act regarding swap market activity.
2. Comments Received
The majority of comments concerning the UPI received via comment
letters, roundtables, and meetings with both industry and other
regulators supported creation of a product classification system that
provides a universally-accepted means of describing all swaps, whether
standardized or bespoke, and permits creation of UPIs for sufficiently
standardized swaps. As noted in the CPSS-IOSCO Report on OTC
Derivatives Data Reporting and Aggregation Requirements, development of
a standard product classification system is needed as a first step
toward both a system of product identifiers for standardized
derivatives products and an internationally-accepted semantic for
describing non-standardized instruments. DTCC and Thomson Reuters
pointed out that creation of a product taxonomy is a significant
undertaking, and Thomson Reuters suggested that a pilot program for
developing UPIs could be useful.
An industry initiative to create a product classification system is
being led by the creators of FpML, in cooperation with experts in FIX.
The data subcommittee of the CFTC Technology Advisory Committee
(``TAC'') has taken up this subject as well. Industry experts involved
in the industry initiative and the TAC data subcommittee anticipate
that it may be possible, once a product classification system is
developed, to assign a UPI to approximately 80 to 95 percent of swaps
(depending on the asset class involved), while approximately 5 to 20
percent of swaps may be sufficiently bespoke that they can only be
described rather than identified by a UPI. The CPSS-IOSCO Report on OTC
Derivatives Data Reporting and Aggregation Requirements recommends
CPSS-IOSCO and FSB support for timely development of a standard product
classification system that can be used as a common basis for
classifying and describing OTC derivatives products, and recommends
that the FSB direct further international consultation and
[[Page 2166]]
coordination by financial and data experts from both regulators and
industry concerning this work.
3. Final Rule: Sec. 45.7
After considering the comments and input received concerning the
UPI and product classification system, the Commission has determined
that, as called for in the NOPR, the final rule provides that each swap
subject to the Commission's jurisdiction must be identified in
recordkeeping and swap data reporting pursuant to this part by means of
a unique product identifier and product classification system
acceptable to the Commission, when such an identifier and
classification system are designated by the Commission for this
purpose. The unique product identifier and product classification
system will be required to identify and describe the swap asset class
and the sub-type within that asset class to which the swap belongs, and
the underlying product for the swap, with sufficient distinctiveness
and specificity to enable the Commission and other financial regulators
to fulfill their regulatory responsibilities.
The final rule provides that the Commission will determine when a
unique product identifier and product classification acceptable to the
Commission and satisfying these requirements is available, and when it
so determines will designate the unique product identifier and product
classification system for use in compliance with this part, making this
designation in a Commission order. The final rule requires registered
entities and swap counterparties subject to the Commission's
jurisdiction to use the unique product identifier and product
classification system in compliance with this part when this
designation is made. Prior to this designation, each registered entity
and swap counterparty must use the internal product identifier or
product description used by the SDR in all recordkeeping and swap data
reporting pursuant to this part.
I. Determination of Which Counterparty Must Report--Sec. 45.8
1. Proposed Rule
The NOPR followed the reporting counterparty hierarchy outlined in
Sec. 4r(a)(3) of the CEA, which provides that where only one
counterparty is an SD or MSP, the SD or MSP is the reporting
counterparty, and where one counterparty is an SD and the other is an
MSP, the SD is the reporting counterparty.\68\ The effect of this
provision is to establish a hierarchy of counterparty types for
reporting obligation purposes, in which SDs outrank MSPs, who outrank
non-SD/MSP counterparties. Where both counterparties are at the same
hierarchical level, the NOPR followed the statute in calling for them
to select the counterparty obligated to report. In order to prevent
confusion and delay concerning this choice, the NOPR provided a
mechanism for counterparties to use in making this selection, by
requiring counterparties at the same hierarchical level to agree as one
term of their swap which counterparty will fulfill reporting
obligations for that swap. In cases where only one counterparty is a
U.S. person, the NOPR requires the U.S. person to be the reporting
counterparty, in order to ensure compliance with reporting obligations
in such situations.
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\68\ As stated in the NOPR, the Commission believes that, while
CEA section 4r(a) applies explicitly to swaps not accepted for
clearing by a DCO, the duty to report should be borne by the same
counterparty regardless of whether the swap is cleared or uncleared,
for the sake of uniformity and ease of applicability. This approach
also effectuates a policy choice made by Congress in the Dodd-Frank
Act to place lesser burdens on non-SD/MSP counterparties to swaps,
where this can be done without damage to the fundamental systemic
risk mitigation, transparency, standardization, and market integrity
purposes of the legislation. The Commission believes it is
appropriate for SDs and MSPs to have the responsibility of reporting
with respect to the majority of swaps, because they are more likely
than non-SD/MSP counterparties to have automated systems in place
that can facilitate reporting. The Commission notes that the SEC
followed the same approach in its proposed regulations for security-
based swap data reporting.
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2. Comments Received
The Commission received several comments concerning determination
of the reporting counterparty. The two themes addressed in these
comments were the need for a selection mechanism or deciding factor for
cases where both counterparties are at the same hierarchical level, and
who should be the reporting counterparty when only one counterparty is
a U.S. person.
a. Deciding factor between two counterparties at the same
hierarchical level. Commenters asked the Commission to provide in the
final rule a mechanism for determining which counterparty is the
reporting counterparty in cases where both counterparties are at the
same hierarchical level, and suggested various deciding factors for use
in such cases. The Electric Coalition recommended that for swaps
between two non-SD/MSP counterparties where only one counterparty is a
``financial entity,'' the final rule should make the financial entity
the reporting counterparty. AGA suggested that, between counterparties
at the same hierarchical level, the entity that is the ``calculation
agent'' under the applicable ISDA documentation should be the reporting
counterparty, unless the parties agree otherwise. ICE suggested that
the seller of the swap should be the reporting counterparty in such
situations, arguing that there is too much uncertainty when parties are
required to select the reporting counterparty, particularly for
platform-executed swaps where counterparties are unknown to each other
at the time of execution. WGCEF raised the issue of whether entities
designated as SDs or MSPs for some but not all swaps should be treated
as non-SDs/MSPs with respect to reporting counterparty determinations
regarding swaps for which they are not designated as SDs or MSPs. WGCEF
suggested that a ``limited'' SD or ``limited'' MSP should only be
required to be the reporting counterparty for swaps within the
particular asset class for which it is designated an SD or MSP. FHLB
recommended that when an SD is transacting with a limited SD, the SD
should be designated the reporting counterparty, because it would be
burdensome for a limited SD to comply with requirements meant for
entities for which swap dealing is a primary business. Where a limited
SD is the reporting counterparty, FHLB asked that it be treated as a
non-SD/MSP with respect to reporting deadlines.
b. Non-U.S. counterparties. The Commission received a number of
comments on which counterparty should be the reporting counterparty
when only one counterparty is a U.S. person. The Foreign Banks, ISDA,
SIFMA, DTCC, MarkitServ, Freddie Mac, Vanguard, EEI, Chatham Financial,
ABC, CIEBA, and the Electric Coalition recommended requiring non-U.S.
SDs or MSPs to be the reporting counterparty for swaps with U.S. non-
SD/MSP counterparties.\69\ The commenters pointed to the superior
technology and technical expertise of SDs and MSPs, the benefits of a
consistent approach to reporting, and concerns regarding whether U.S.
non-SD/MSP counterparties would be discouraged from transacting with
foreign SDs and MSPs if they were required to bear the burden of
reporting. EEI and Vanguard suggested allowing the counterparties in
this situation to agree on which of them will be the reporting
counterparty, and MarkitServ suggested allowing non-SD/MSP
counterparties to delegate the
[[Page 2167]]
reporting obligation to the non-U.S. SD counterparty.
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\69\ ABC and CIEBA argued that making a U.S. non-SD/MSP
counterparty the reporting counterparty where the other counterparty
is a foreign SD or MSP is contrary to Sec. 729 of the Dodd-Frank
Act.
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3. Final Rule: Sec. 45.8
a. Deciding factor between two counterparties at the same
hierarchical level. The Commission has considered comments calling for
the final rule to provide a mechanism for determining which
counterparty is the reporting counterparty in cases where both
counterparties are at the same hierarchical level, and agrees that this
would be beneficial where a deciding factor can be applicable for all
swaps. The Commission has determined that the final rule provides that
for swaps between non-SD/MSP counterparties where only one counterparty
is a ``financial entity'' as defined in CEA section 2(h)(7)(C), the
financial entity shall be the reporting counterparty. The Commission
believes it is appropriate for financial entities, as defined by the
Dodd-Frank Act, to have the responsibility of reporting in such cases,
because, in the Commission's view, they are more likely than non-SD/MSP
counterparties who are not financial entities to have automated systems
in place that can facilitate reporting. The Commission has not found
any other factor usable for automatic choice of the reporting
counterparty between two counterparties at the same hierarchical level
that applies across all markets and all asset classes.
For off-platform swaps, the final rule retains the NOPR requirement
that counterparties at the same hierarchical level agree, as one term
of the swap, which of them is the reporting counterparty.
For swaps executed on a SEF or DCM, determination of the reporting
counterparty is necessary for purposes of continuation data reporting,
despite the fact that the SEF or DCM will report all creation data for
the swap under the streamlined reporting schema adopted in the final
rule as discussed above. For on-facility swaps where counterparties at
the same hierarchical level know the identity of the other
counterparty, the final rule adopts the NOPR requirement that the
counterparties agree as one term of the swap which of them is the
reporting counterparty. For on-facility swaps where counterparties at
the same hierarchical level do not know the identity of the other
counterparty, the final rule provides that: (a) the SEF or DCM must
transmit to each counterparty the LEI (or substitute identifier as
provided in Sec. 45.6) of the other counterparty that is at the same
hierarchical level;\70\ (b) the counterparties must agree which
counterparty will be the reporting counterparty, after receiving such
notice from the SEF or the DCM and before the end of the next business
day following the date of execution of the swap; and (c) the reporting
counterparty must report to the SDR to which the SEF or DCM has
reported the swap that it is the reporting counterparty.
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\70\ The SEF or DCM will know that both counterparties are at
the same hierarchical level because the final rule requires the
terms of the contract on the SEF or DCM to include all minimum PET
data, and the tables of minimum PET data include an indication of
whether a counterparty is an SD, an MSP, or a non-SD/MSP
counterparty.
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b. Non-U.S. counterparties. The Commission has considered the large
number of comments recommending that a non-U.S. SD or MSP in a swap
with a U.S. counterparty at a lower hierarchical level should be the
reporting counterparty despite its status as a non-U.S. person. The
Commission has determined that, because non-U.S. SDs and MSPs will be
required to register with the Commission in this connection, the
Commission will have sufficient oversight and enforcement authority
with respect to such counterparties. The Commission understands that
the SEC has made a similar determination in the context of security-
based swap data reporting. Accordingly, the final rule provides that,
with a single exception, the determination of the reporting
counterparty in situations where only one counterparty is a U.S. person
must be made by applying the normal counterparty determination
procedure set forth in Sec. 45.8. The Commission believes this is
appropriate because it places the burden of reporting on the
counterparty that in the Commission's view is more likely to have
automated systems suitable for reporting. In cases where both
counterparties are non-SD/MSP counterparties and only one counterparty
is a U.S. person, the final rule will adopt the NOPR provision
requiring the U.S. person to be the reporting counterparty. This is
necessary in such situations because the non-U.S. non-SD/MSP
counterparty will not be required to register with the Commission.
Where neither counterparty to a swap executed on a SEF or DCM,
otherwise executed in the U.S., or cleared on a DCO is a U.S. person,
the final rule applies the same hierarchical selection criteria as for
other swaps.
c. Reporting counterparty determination after a change of
counterparty. In light of the various comments calling for clear
direction from the Commission regarding determination of the reporting
counterparty, and calling for the statutory preference for SD or MSP
reporting counterparties where this is possible, the Commission has
determined that the final rule provides for determination of the
reporting counterparty in cases where, during the life of a swap, the
reporting counterparty ceases to be a counterparty due to an assignment
or novation. In such cases, the final rule provides for the reporting
counterparty to be selected from the two current counterparties to the
swap, as follows: If only one counterparty is an SD, the SD is the
reporting counterparty; if neither counterparty is an SD and only one
is an MSP, the MSP is the reporting counterparty; if both
counterparties are non-SD/MSP counterparties and only one is a U.S.
person, the U.S. person is the reporting counterparty; and in all other
cases, the counterparty replacing the previous reporting counterparty
is the reporting counterparty, unless otherwise agreed by the
counterparties.
J. Third-Party Facilitation of Swap Data Reporting--Sec. 45.9
1. Proposed Rule. The NOPR provided that registered entities and
counterparties required to report pursuant to this part may contract
with third-party service providers to facilitate reporting, but,
nonetheless, remain fully responsible for reporting as required.
2. Comments Received. Roundtable participants generally endorsed
the NOPR provision permitting third-party facilitation of swap data
reporting, and no comment letters suggested any changes to this
provision.
3. Final Rule: Sec. 45.9. The Commission recognizes, as stated in
the NOPR, that while the various reporting obligations established in
the final rule fall explicitly on registered entities and swap
counterparties, efficiencies and decreased cost may in some
circumstances be gained by engaging third parties to facilitate the
actual reporting of information. The Commission believes that the use
of such third-party facilitators, however, should not allow the
registered entity or counterparty with the obligation to report to
avoid its responsibility to report swap data in a timely and accurate
manner. Accordingly, the Commission has adopted the regulation on
third-party facilitation of swap data reporting as proposed.
[[Page 2168]]
K. Reporting to a Single Swap Data Repository--Sec. 45.10
1. Proposed Rule. The NOPR required that all swap data for a given
swap must be reported to a single SDR, which must be the SDR to which
required primary economic terms data for that swap is first reported.
2. Comments Received. Roundtable participants generally endorsed
the NOPR provision requiring that all swap data for a given swap must
be reported to a single SDR, and no comment letters suggested changing
this requirement. Comments addressing who should make the first swap
data report for a swap, and thus in effect choose the SDR, are
discussed above in the section concerning creation data reporting.
3. Final Rule: Sec. 45.10. The Commission believes that important
regulatory purposes of the Dodd-Frank Act would be frustrated, and that
regulators' ability to see necessary information concerning swaps could
be impeded, if data concerning a given swap was spread over multiple
SDRs. Accordingly, the final rule adopts the NOPR provision requiring
that all swap data for a given swap must be reported to a single SDR,
which shall be the SDR to which creation data for that swap is first
reported.
As discussed above, the Commission is responding to comments
concerning creation data reporting by adopting in the final rule a
streamlined reporting regime that requires reporting by the registered
entities or swap counterparties with the easiest, fastest, and cheapest
data access and those most likely to have the necessary automated
systems; that minimizes burdens and costs for counterparties to the
extent possible; and that provides certainty to the market. To
effectuate this streamlined reporting regime, Sec. 45.3 and Sec.
45.10 of the final rule provides that the initial report of creation
data for a swap will be made as follows:
For swaps executed on a SEF or DCM, the SEF or DCM
reports all creation data to a single SDR, as soon as
technologically practicable after execution.
For off-facility swaps, the reporting counterparty
reports all PET data to a single SDR, within the deadlines provided
in the final rule.
For off-facility swaps, if the reporting counterparty
is excused from reporting, as provided in the final rule, because
the swap is accepted for clearing before the reporting deadline and
before any report made by the reporting counterparty, the DCO
reports all creation data to a single SDR, as soon as
technologically practicable after execution.
L. Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any
Swap Data Repository--Sec. 45.11
1. Proposed Rule. As noted in the NOPR, CEA section 4r(a)(1)(B)
recognizes that in some circumstances there may be no SDR that will
accept swap data for certain swap transactions. This category of swaps
should be limited, since the Commission's final part 49 regulations
require an SDR that accepts swap data for any swap in an asset class to
accept data for all swaps in that asset class. However, situations
could arise where a novel product does not fit into any existing asset
class, or where no SDR yet accepts swap data for any swap in an
existing asset class. The NOPR provided that in such cases, the
reporting counterparty must report to the Commission all swap data
concerning that swap required by this part to be reported to an SDR,
making this report at a time and in a form determined by the
Commission.
2. Comments Received. The Commission received no comments
concerning this provision.
3. Final Rule: Sec. 45.11. The Commission has determined to adopt
the NOPR provision requiring that, should there be a swap asset class
for which no SDR currently accepts swap data, each registered entity or
swap counterparty required to report swap data for such a swap must
report to the Commission all swap data required by this part to be
reported to an SDR, making this report at times announced by the
Commission and in an electronic file in a format acceptable to the
Commission. The Commission has recently reorganized its divisional
structure to facilitate discharge of its responsibilities under the
Dodd Frank Act, and as part of that reorganization, the Commission's
Chief Information Officer is responsible for all matters concerning
data received by the Commission. Accordingly, the Commission has
determined that the final rule will delegate to the Chief Information
Officer the authority to determine the format, data standards, and
electronic transmission standards and procedures acceptable to the
Commission for such reporting, and the dates and times at which data
for such swaps shall be reported to the Commission. The determinations
made by the Commission through the Chief Information Officer in these
respects will be published in the Federal Register and on the
Commission's Web site.
M. Voluntary Supplemental Reporting--Sec. 45.12
1. Proposed Rule. As discussed above, the Dodd-Frank Act provides
for designation of one counterparty to a swap as the reporting
counterparty for that swap. Neither the Dodd-Frank act nor the NOPR
addresses additional, voluntary reporting of swap data to an SDR by the
other counterparty to the swap. Nothing in the Dodd-Frank Act prohibits
such additional, voluntary reporting.
2. Comments Received. The Commission received several comments
recommending that the final rule should confirm that voluntary data
reporting by market participants not required to report is permitted,
and should provide for such voluntary supplemental reporting. WGCEF
asked the Commission to clarify that a market participant has the
option to report any and all transaction data even where it is not
required to report by Commission rules. REGIS-TR recommended that both
counterparties be allowed to report a swap and confirm their PET data
and confirmation data, via SDR systems that allow regulators to see
which counterparty entered the information, and argued this would lower
overall compliance costs. DTCC stated that voluntary reporting by
participants not required to report is technologically feasible and
would ensure greater data accuracy. ISDA and SIFMA observed that
reporting by both counterparties is not essential to the accuracy of
data in SDRs, since confirmations require the consent of both
counterparties and the NOPR required confirmation data reporting.
TriOptima suggested that both parties should be required to report some
types of transaction data, such as that relating to systemic risk
monitoring, arguing that one-party reporting can raise risks of
inaccurate data. Most of the international regulators consulted by the
Commission concerning the final rule have informed the Commission that
they believe reporting by both counterparties is desirable, and that
reporting regimes outside the U.S. are likely to require such dual
reporting. Roundtable participants noted that some counterparties may
prefer to report whether or not they are the reporting counterparty, in
order to simplify their business processes, and have data concerning
all their swaps present in a single SDR.
3. Final Rule: Sec. 45.12. The Commission has considered these
comments, and agrees that voluntary supplemental reporting by
counterparties not designated as the reporting counterparty is
[[Page 2169]]
technologically feasible and may have benefits for both data accuracy
and counterparty business processes. While the Dodd-Frank Act requires
swap data reporting by only one counterparty and establishes a
hierarchy for choosing the reporting counterparty, it does not prohibit
voluntary swap data reporting to an SDR that supplements required
reporting. The Commission also notes that its final part 49 rules
permit counterparties to access to information in SDRs concerning their
own swaps, and notes that nothing forbids swap counterparties to use an
SDR as a provider of third-party services going beyond acceptance of
required swap data reports for regulatory purposes. For these reasons,
the Commission has determined that the final rule provides for
voluntary supplemental reporting to any SDR by either counterparty of
swap data that this part does not require that counterparty to report.
The Commission has also determined that, to avoid double-counting
of the same swap due to voluntary supplemental reports, and to ensure
that data reported via a voluntary supplemental report (``VSR'') to the
same SDR to which required data is reported is integrated into that
SDR's record for the swap, each VSR must include minimum VSR
information that ensures achievement of these purposes. This required
VSR information includes: an indication that the report is a VSR; the
USI for the swap that has been created as required by this part; the
identity of the SDR to which all required creation data and
continuation data is reported for the swap, if the VSR is made to a
different SDR; the LEI (or substitute identifier) of the counterparty
making the VSR; and if applicable, an indication that the VSR is made
pursuant to the law of a jurisdiction outside the U.S. To avoid
confusion and double-counting, and to ensure that each VSR includes the
USI for the swap, the rule will also provide that a VSR may not be made
until after the USI for the swap has been created as provided in Sec.
45.5 and transmitted to the counterparty making the VSR.
N. Required Data Standards--Sec. 45.13
1. Proposed Rule. CEA section 21(b)(2) directs the Commission to
prescribe data collection and data maintenance standards for swap data
repositories. The CEA also provides that SDRs shall maintain swap data
reported to them ``in such form, in such manner, and for such period as
may be required by the Commission,'' and directs SDRs to ``provide
direct electronic access to the Commission.'' \71\ These requirements
are designed to effectuate the fundamental purpose for the
legislation's swap data reporting requirements: making swap data
available to the Commission and other financial regulators so as to
enable them to better fulfill their market oversight and other
regulatory functions, increase market transparency, and mitigate
systemic risk. Pursuant to these provisions, the NOPR required SDRs to
be able to transmit data to the Commission using the data standards and
formats required by Commission. The NOPR did not mandate use of a
specific data standard for reporting to SDRs, but left SDRs free to
make their own business decisions in this regard, so long as they
remain able to transmit data to the Commission as required.
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\71\ CEA section 21(c)(3) and (4).
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2. Comments Received. DTCC and WGCEF both suggested that using
existing standards and formats would facilitate implementation of Dodd-
Frank. DTCC also noted that SDRs will need to adapt to a changing
marketplace, and therefore will need the flexibility to specify
acceptable data formats, connectivity, and protocols for reporting to
them. DTCC recommended that SDRs make their data formats publicly
available, and develop application programming interfaces (``APIs'') to
enable direct submission of data by participants. WGCEF argued that
SDRs should be required to develop and use a common standard for data
reporting, suggesting that this will reduce costs and opportunities for
inaccuracy.
3. Final Rule: Sec. 45.13. The Commission considered whether it
would be preferable, as suggested by one commenter, to require that all
swap data reporting to SDRs use a uniform reporting format or single
data standard, but has decided not to impose such a requirement. Doing
so would be likely to require changes to the existing automated systems
of some entities and counterparties, which in some cases could impose
additional burdens and costs. The Commission agrees with the comment
suggesting that SDRs will need flexibility with respect to data
standards used by them in receiving data. The Commission has been
advised by existing trade repositories that they are able to accept
data in multiple formats or data standards from different
counterparties, and to map the data they receive into a common data
standard within the repository, without undue difficulty, delay, or
cost. The Commission notes that automated systems and data standards
evolve over time, and that it may be desirable for regulations
concerning data standards to avoid locking reporting entities,
reporting counterparties, and SDRs into particular data standards that
could become less appropriate in the future.\72\ In addition, the
Commission anticipates that the degree of flexibility offered by SDRs
concerning data standards for swap data reporting could become an
element of marketplace competition with respect to SDRs. Accordingly,
the final rule gives SDRs flexibility to use a variety of data
standards to receive data reported to them, provided that they are able
to transmit data to the Commission in a manner that meets the
Commission's needs. This flexibility is designed to allow the most
cost-effective application of both existing and evolving data
standards.
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\72\ CEA section 21(f)(4)(B) explicitly permits the Commission
to ``take into consideration any evolving standard of the United
States or the international community.''
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The Commission also agrees with the comment suggesting that it
would be beneficial for the data formats used by SDRs to be publicly
available. The Commission encourages SDRs to make public the
documentation of their data formats and any APIs or service interfaces
they develop for reporting data.
For the reasons discussed above, the Commission has determined to
adopt the NOPR provisions regarding data standards in the final rule.
The final rule requires an SDR to maintain all swap data reported to it
in a format acceptable to the Commission, and to transmit all swap data
requested by the Commission to the Commission in an electronic file in
a format acceptable to the Commission. It requires reporting entities
and counterparties to use the facilities, methods, or data standards
provided or required by an SDR to which they report data, but also
allows an SDR to permit reporting via various facilities, methods, or
data standards, provided that its requirements in this regard enable it
to maintain swap data and transmit it to the Commission as the
Commission requires.
As noted above, the Commission has recently reorganized its
divisional structure to facilitate discharge of its responsibilities
under the Dodd-Frank Act, and as part of that reorganization, the
Commission's Chief Information Officer is responsible for all matters
concerning data received by the Commission. Accordingly, the Commission
has determined that the final rule will delegate to the Chief
Information Officer (a) the authority to determine the format, data
standards,
[[Page 2170]]
and electronic transmission standards and procedures acceptable to the
Commission for provision of data to the Commission by SDRs; and (b) the
authority to determine whether the Commission may permit or require use
of one or more particular data standards by SDRs or reporting entities
and counterparties in order to ensure that SDRs can provide data to the
Commission as required. The determinations made by the Commission
through the Chief Information Officer in these respects will be
published in the Federal Register and on the Commission's Web site.
O. Reporting of Errors and Omissions in Previously Reported Data--Sec.
45.14
1. Proposed Rule
The NOPR directed all entities and counterparties required to
report data to SDRs to report any errors and omissions in the data so
reported, as soon as technologically practicable after discovery of any
such error or omission. It also required non-reporting counterparties
discovering a data error or omission to notify the reporting
counterparty promptly, and required the reporting counterparty to then
report it. The NOPR required reports of errors and omissions to be made
using the same format used to report the erroneous or omitted data.
2. Comments Received
a. Error reporting. WGCEF and MFA suggested that the final rule
should permit (but not require) non-reporting counterparties to report
errors they discover to the SDR. MFA argued this is needed in the event
of a dispute between the reporting and non-reporting counterparties.
ISDA and SIFMA recommended the reasons for an error correction should
not be reported, on the basis that recording the reason for an
adjustment is not current market practice. Encana requested
clarification of the interaction of error reporting under this section
and the part 49 provisions requiring an SDR to confirm with the
counterparties the accuracy of the data submitted.
b. Liability for errors. WGCEF, AGA, ISDA, and SIFMA suggested that
safe harbors should be created for good-faith mistakes made by either
counterparty in reporting swap data, and for errors of which the
counterparties are not aware. AGA asked the Commission to state
explicitly that it will not penalize parties for inadvertent errors in
reporting, and that good faith efforts to comply with new requirements
will not result in exposure to enforcement actions. ISDA and SIFMA
asked the Commission to clarify that a party has no obligation to
correct errors of which it is not aware, and suggested having the final
rule provide that reporting parties are not responsible for data errors
that occur after submission to an SDR.
3. Final Rule: Sec. 45.14
The Commission has considered the above comments, and has
determined to adopt the NOPR provisions concerning error reporting
substantially as proposed. Accurate swap data is essential to effective
fulfillment of the various regulatory functions of financial
regulators, and the final rule provisions are designed to ensure data
accuracy to the extent possible.
a. Error reporting. As noted above, the Commission agrees that
voluntary supplemental reporting may have benefits for data accuracy,
and has added Sec. 45.12 to the final rule expressly permitting
voluntary supplemental reporting, which is not limited in scope and can
include error reporting. The Commission believes that it is a business
decision of an SDR whether it should require reporting the reasons for
an error correction, and has decided not to address that issue by rule.
Records required to be kept pursuant to this part should provide
sufficient information when necessary regarding the reasons for an
error correction.\73\ The Commission intends Sec. 45.14 to work
together in a complementary fashion with the provisions of part 49
directing SDRs to obtain acknowledgment from counterparties of the
accuracy of reported data within a short time after it is submitted.
Both provisions are intended to protect the integrity and accuracy of
the data in SDRs.
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\73\ The Commission does not believe it is necessary or
appropriate for the final rule to further address potential disputes
between reporting and non-reporting counterparties, which could
involve legal disputes between counterparties affecting the validity
or terms of a swap.
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To help ensure data accuracy, the final rule requires registered
entities and swap counterparties that report swap data to an SDR or to
any other registered entity or swap counterparty to report any errors
or omissions in the data they report, as soon as technologically
practicable after discovery of any error or omission.\74\ The final
rule requires a non-reporting swap counterparty that discovers any
error or omission with respect to any swap data reported to an SDR for
its swaps to notify the reporting counterparty promptly of each such
error or omission, and requires the reporting counterparty, upon
receiving such notice, to report a correction of each such error or
omission to the SDR, as soon as technologically practicable after
receiving notice of it from the non-reporting counterparty. The
Commission believes that this provision is an appropriate measure to
ensure data accuracy.
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\74\ Because daily snapshot reports of state data by reporting
counterparties by their nature can correct errors or omissions in
previous snapshot reports, the final rule provides that for swaps
reported via the snapshot reporting method, reporting counterparties
fulfill the requirement to report errors or omissions in state data
previously reported by making corrections in their next daily report
of state data.
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To ensure consistency of data within an SDR with respect to error
corrections, the final rule requires an entity or counterparty
correcting an error or omission to do so in the same data format it
used in making the erroneous report. To similarly ensure consistency of
data transmitted to the Commission with respect to error corrections,
the final rule imposes the same requirement on SDRs with respect to
transmission of error corrections.
b. Liability for errors. The Commission has determined that the
final rule should not provide a safe harbor for good-faith mistakes
made in reporting data. It is the reporting party's responsibility to
report data accurately and develop processes to achieve this goal. The
Commission will continue to carry out its oversight and enforcement
responsibilities in a reasonable and appropriate manner. The final rule
does not require swap counterparties to monitor data in an SDR, but
does require them to report all data errors of which they become aware.
As noted above, the Commission believes this is an appropriate measure
to ensure data accuracy.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires that agencies consider the impact of their rules on ``small
entities.'' As provided in the NOPR, this part will have a direct
effect on SDRs, DCOs, SEFs, DCMs, SDs, MSPs, and non-SD/MSP
counterparties who are counterparties to one or more swaps and subject
to the Commission's jurisdiction.
As stated in the NOPR, the Commission has previously established
that DCMs are not small entities for purposes of the RFA. The
Commission also proposed that certain entities for which the Commission
had not previously made a determination for RFA purposes--namely SDRs,
DCOs, SEFs, SDs, and MSPs--should not be considered to be small
entities, for reasons set forth in the NOPR.
[[Page 2171]]
As noted in the NOPR, this part requires swap data reporting by a
non-SD/MSP counterparty only with respect to swaps in which neither
counterparty is an SD or MSP. With respect to such swaps, which
represent a minority of swap transactions, only one of the swap non-SD/
MSP counterparties will be required to report--the counterparty
designated as the reporting counterparty. In addition, the Commission
has determined that the final rule provides that for swaps between non-
SD/MSP counterparties where only one counterparty is a ``financial
entity'' as defined in CEA section 2(h)(7)(C), the financial entity
shall be the reporting counterparty. The Commission believes these
provisions of the final rule reduce the economic impact on any non-SD/
MSP counterparties that may be considered to be small entities under
the RFA.
Due to the operation of certain provisions of the CEA and the final
rule, non-SD/MSP counterparties who may be considered small entities
for RFA purposes are never required to report any swap creation data.
Under the CEA, a non-SD/MSP counterparty is required to transact on a
SEF or DCM unless that non-SD/MSP is an Eligible Contract Participant
(``ECP'').\75\ The Commission has previously determined that ECPs are
not ``small entities'' for RFA purposes.\76\ For all swaps executed on
a SEF or DCM, the final rule requires the SEF or DCM to report all
required swap creation data. Therefore, no ``small entities'' for RFA
purposes are required to report any swap creation data under the final
rule.
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\75\ CEA section 2(e) provides that ``It shall be unlawful for
any person, other than an eligible contract participant, to enter
into a swap unless the swap is entered into on, or subject to the
rules of, a [SEF or DCM].'' Congress created the ECP category in the
Commodity Futures Modernization Act in 2000, to include individuals
and entities that Congress determined to be sufficiently
sophisticated in financial matters that they should be permitted to
trade over-the-counter swaps without the protection of federal
regulation. See, e.g., ``Report of the President's Working Group on
Financial Markets'' (Nov. 1999) at 16 (recommending that
``sophisticated counterparties that use OTC derivatives simply do
not require the same protections under the CEA as those required by
retail investors''). In the Dodd-Frank Act, Congress made two
changes to the statutory ECP definition, both of which increased the
thresholds to qualify as an ECP, making it harder for some entities
and individuals to qualify. Compare CEA section 1a(12), 7 U.S.C.
1a(12) (2009), with Sec. Sec. 721(a)(1) and (9) of the Dodd-Frank
Act, respectively redesignating section 1a(12) as section 1a(18) and
increasing thresholds for certain categories of ECP.
\76\ 66 FR 20740, 20743, Apr. 25, 2001.
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With respect to reporting of swap continuation data, the Commission
has attempted to minimize the burden on non-SD/MSP counterparties who
may be considered small entities for purposes of the RFA. As noted
above, in the final rule the Commission is responding to comments
concerning swap data reporting by creating a streamlined reporting
regime that requires reporting by the registered entities or swap
counterparties that the Commission believes will have the easiest,
fastest, and cheapest data access and will be most likely to have the
necessary automated systems, in order to minimize burdens and costs, to
the extent possible, for swap counterparties and particularly for non-
SD/MSP counterparties. Under the final rule reporting regime, non-SD/
MSP reporting counterparties will not have to report either creation
data or continuation data for any swap executed on a SEF or DCM and
cleared on a DCO. In addition, non-SD/MSP counterparties will not have
to report either creation data or continuation data for any off-
facility swap accepted by a DCO for clearing within the deadline for
the initial data report for the swap, as the DCO is then required to
report all swap data for the swap. The Commission believes that these
provisions of the final rule further reduce the economic impact on any
non-SD/MSP counterparties that may be considered to be small entities
under the RFA.
In the NOPR, the Chairman, on behalf of the Commission, certified
that the rulemaking would not have a significant economic effect on a
substantial number of small entities. Nonetheless, the Commission
specifically requested comment on the impact these proposed rules may
have on small entities. The Commission received one comment on its RFA
statement, from the Electric Coalition, stating that the vast majority
of members of the National Rural Electric Cooperative Association and
the American Public Power Association are considered small entities for
purposes of the RFA. The Electric Coalition suggested that the
Commission should consider the overall impact of its Dodd-Frank Act
rules on nonfinancial entities, including small entities, and conduct a
comprehensive analysis under the RFA.
In response to this comment, and to other comments by non-SD/MSP
counterparties, the Commission has adjusted the final reporting regime
to reduce burdens and costs for non-SD/MSP counterparties in a variety
of ways, as set forth in detail in the discussion above concerning
Sec. Sec. 45.3 and 45.4 of the final rule. The Commission notes that
the commenter did not dispute the reasons for the Commission's
conclusion that this part does not have a significant impact on a
substantial number of small entities. For these reasons, and for the
reasons stated above and in the NOPR, the Commission continues to
believe that this part will not have a significant impact on a
substantial number of small entities. Therefore, the Chairman, on
behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.
605(b), that this part as finally adopted will not have a significant
economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
1. Introduction
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number issued by the Office of Management and
Budget (``OMB''). Provisions of Commission Regulations 45.2, 45.3,
45.4, 45.5, 45.6, 45.7, and 45.14 result in information collection
requirements within the meaning of the Paperwork Reduction Act
(``PRA'').\77\ The Commission submitted the NOPR and supporting
documentation to OMB for review in accordance with 44 U.S.C. 3507(d)
and 5 CFR 1320.11. The Commission requested that OMB approve, and
assign a new control number for, the collections of information covered
by the NOPR.
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\77\ 44 U.S.C. 3301 et seq.
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The title for the proposed collection of information under part 45
is ``Swap Data Recordkeeping and Reporting Requirements.'' To the
extent that the recordkeeping and reporting requirements in this
rulemaking overlap with the requirements of other rulemakings for which
the Commission prepared and submitted an information collection request
to OMB, the burdens associated with the requirements are not being
accounted for in the information collection request for this
rulemaking, to avoid unnecessary duplication of information collection
burdens.
2. Proposed Information Collection
In its proposed rulemaking, the Commission provided burden
estimates for the new collections of information contained in proposed
Sec. Sec. 45.2, 45.3, and 45.4.
In the NOPR, it was estimated that 30,384 SDRs, SEFs, DCMs, DCOs,
SDs, MSPs, and non-SD/MSP counterparties \78\ would be required to
[[Page 2172]]
keep records of all activities relating to swaps. Specifically, the
NOPR required SDRs, SEFs, DCMs, DCOs, SDs, and MSPs to keep complete
records of all activities relating to their business with respect to
swaps. The NOPR required non-SD/MSP counterparties to keep complete
records with respect to each swap in which they would be a
counterparty. For SDs and MSPs, the Commission determined that the
proposed recordkeeping requirements would not impose any new
recordkeeping or information collection requirements, or other
collections of information, as requirements for maintaining and
recording swap transaction data by SDs and MSPs would be addressed in
related rulemakings associated with business conduct standards for SDs
and MSPs. For SDRs, SEFs, DCMs, DCOs (an estimated 84 entities or
persons), which were anticipated to have higher levels of swap
recording activity \79\ than non-SD/MSP counterparties, the Commission
estimates that there may be approximately 40 annual burden hours per
entity, excluding customary and usual business practices. And for non-
SD/MSP reporting counterparties (an estimated 30,000 entities or
persons), who were anticipated to have lower levels of swap recording
activity, the Commission estimated that there would be approximately 10
annual burden hours per entity, excluding customary and usual business
practices. Accordingly, 303,360 estimated aggregate annual burden hours
were estimated.
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\78\ Because SDRs, MSPs, SDs, DCOs, and SEFs are new entities,
the following estimates were made in the NOPR: 15 SDRs, 50 MSPs, 250
SDs, 12 DCOs, and 40 SEFs. The number of DCMs was estimated to be 17
DCMs based on the current (as of October 18, 2010) number of
designated DCMs. Additionally, for purposes of the Paperwork
Reduction Act, the Commission estimated that there would be 30,000
non-SD/MSP counterparties who would be subject annually to the
recordkeeping requirements of proposed Regulation 45.1.
\79\ The Commission estimated that ``high activity'' entities or
persons would be those persons who would process or enter into
hundreds or thousands of swaps per week that would be subject to the
jurisdiction of the Commission. Low activity users were estimated to
be those who would process or enter into substantially fewer than
the high activity users.
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Under the NOPR's swap data reporting provisions, SEFs, DCMs, DCOs,
MSPs, SDs, and non-SD/MSP counterparties were required to provide
reports to SDRs regarding swap transactions. SEFs and DCMs were
required to report certain information once at the time of swap
execution. DCOs, SDs, MSPs, and non-SD/MSP counterparties were required
to report certain information once, as well as other information on a
daily basis. With respect to proposed reporting by SDs, MSPs, and non-
SD/MSP counterparties, only one counterparty was required to report,
typically an SD or an MSP. The Commission anticipated that the
reporting would to a significant extent be automatically completed by
electronic computer systems, and calculated burden hours based on the
annual burden hours necessary to oversee and maintain the reporting
functionality.\80\ SEFs, DCMs, DCOs, MSPs, and SDs (an estimated 369
entities or persons) were anticipated to have high levels of reporting
activity, with the Commission estimating that the average annual burden
would be approximately 2,080 hours.\81\ Non-SD/MSP counterparties
required to report under the proposed rules--estimated at 1,500
entities \82\--were anticipated to have lower levels of activity with
respect to reporting. For such entities, the Commission estimated that
the annual burden would be approximately 75 hours. In sum, the
Commission estimated 880,020 aggregate annual burden hours for proposed
regulation 45.3.
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\80\ Estimated burden hours were obtained through consultation
with the Commission's information technology staff.
\81\ The Commission estimated 2,080 hours by assuming that a
significant number of SEFs, DCMs, DCOs, MSPs, and SDs would dedicate
the equivalent of at least one full-time employee to ensuring
compliance with the reporting obligations of Regulation 45.3 (2,080
hours = 52 weeks x 5 days x 8 hours). The Commission believed that
this was a reasonable assumption due to the volume of swap
transactions that would be processed by these entities, the varied
nature of the information required to be reported by Regulation
45.3, and the frequency (daily) with which some reports would be
required to be made.
\82\ This is the estimated number of non-SD/MSP counterparties
who would be required to report in a given year. Only one
counterparty to a swap would be required to report, most frequently
anticipated to be an SD or a MSP.
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Under the NOPR's unique identifier provisions, SDRs, SEFs, DCMs,
SDs, and MSPs were required to report a unique swap identifier to other
registered entities and swap participants. SEFs and DCMs were expected
to have higher levels of activity than SDRs, SDs, and MSPs with respect
to unique swap identifier reporting. The Commission anticipated that
the reporting of the unique swap identifier would be automatically
completed by electronic computer systems. Accordingly, the burden hours
estimates in the proposal were based on the estimated burden hours
necessary to oversee and maintain the electronic functionality of
unique swap ID reporting.\83\ In accord, the Commission estimated that
SEFs and DCMs (an estimated 57 entities or persons) would expend
approximately 22 annual burden hours per entity. The Commission
estimated that SDRs, SDs, and MSPs (an estimated 315 entities or
persons) would expend approximately 6 annual burden hours per entity.
Therefore, 3,144 estimated aggregated annual burden hours were
estimated.
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\83\ Estimated burden hours were obtained through consultation
with the Commission's information technology staff.
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The NOPR's unique identifier provisions also required SDs, MSPs,
and non-SD/MSP counterparties (an estimated 30,300 entities and
persons) to report into a confidential database their ownership and
affiliations information (as well as changes to ownership and
affiliations). The report would be made once at the time of the first
swap reported to an SDR, and would be made anytime thereafter that the
entity's legal affiliations change. The burden hours per report were
estimated to be approximately two hours per entity, excluding customary
and usual business practices. The number of reports required to be made
per year was estimated to vary between zero and four, depending on the
number of changes an entity would have in its legal affiliations in
that year. The estimated annual burden per entity therefore was
estimated to vary between zero and eight burden hours, with aggregate
annual burden hours estimated to be between 0 and 242,400 hours.
3. Comments on Proposed Information Collection
Swap data reporting is required by the CEA as amended by Title VII
of the Dodd-Frank Act. The Commission received numerous comments
supporting the overall goals of swap data reporting, including systemic
risk protection, market integrity, and transparency goals. The
Commission also received general comments and suggestions regarding the
information collections set forth in the NOPR. The comments concerned,
among other things, the type of information that should be collected;
the entity or entities that should be responsible for reporting the
information; the manner in which the data should be required to be
reported (snapshot or lifecycle method of reporting); and the timeframe
in which such data should be required to be reported. The comments
received by the Commission are set forth in detail above in the
discussions of each section of the final rule as well as the discussion
below on the consideration of the costs and benefits of the final rule.
In response, the Commission amended the information collection
requirements set forth in the NOPR in a variety of ways in order to
address concerns of the commenters and reduce the burden of the
information collections on registered entities and counterparties. The
Commission amended the information collection
[[Page 2173]]
requirements of the NOPR by, among other things, reducing the types of
information to be collected (e.g., the final rule does not require
reporting of contract intrinsic data, master agreements, certain
collateral information, or certain valuation information); streamlining
the entity or entities responsible for reporting the information in
order to assign reporting responsibilities to the entity or entities
with the easiest, fastest, and cheapest access to the data in question
(e.g., the final rule does not require non-SD/MSP counterparties to
report any additional swap data for swaps that are both executed on a
platform and cleared, as the SEF/DCM reports all creation data and the
DCO reports all continuation data); providing greater flexibility in
the manner in which information is to be reported (the final rule
permits either the snapshot or lifecycle method of reporting may be
used for any asset class); and modifying the timeframe in which
information is to be collected (e.g., the final rule requires non-SD/
MSP counterparties to report valuation data for uncleared swaps only on
a quarterly basis, and provides phasing to all SDs, MSPs, and non-SD/
MSP counterparties with respect to the timeframe in which information
must be reported).
The Commission is also clarifying in the final rule that non-SD/MSP
counterparties are permitted to fulfill their part 45 recordkeeping
responsibilities by keeping records in paper, rather than electronic,
form. The final rule also provides that other counterparties and
registered entities are also permitted to keep paper, rather than
electronic, records, if such records were originally created and
exclusively maintained in paper form. These provisions concerning the
recordkeeping information collection provisions are intended to address
concerns raised by several commenters
4. Revised Information Collection Estimates
Under the final rules, reporting entities and persons will provide
information under sections 45.2, 45.3, 45.4, 45.5, 45.6, 45.7, and
45.14 of this part. The information provided under each regulation is
set forth below, together with burden estimates that were calculated,
through research and through consultation with the Commission's
technology staff, using wage rate estimates based on salary information
for the securities industry compiled by the Securities Industry and
Financial Markets Association (``SIFMA'').\84\
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\84\ These wage estimates are derived from an industry-wide
survey of participants and thus reflect an average across entities;
the Commission notes that the actual costs for any individual
company or sector may vary from the average. The Commission
estimated the dollar costs of hourly burdens for each type of
professional using the following calculations:
(1) [(2009 salary + bonus) * (salary growth per professional
type, 2009-2010)] = Estimated 2010 total annual compensation. The
most recent data provided by the SIFMA report describe the 2009
total compensation (salary + bonus) by professional type, the growth
in base salary from 2009 to 2010 for each professional type, and the
2010 base salary for each professional type; thus, the Commission
estimated the 2010 total compensation for each professional type,
but, in the absence of similarly granular data on salary growth or
compensation from 2010 to 2011 and beyond, did not estimate dollar
costs beyond 2010.
(2) [(Estimated 2010 total annual compensation)/(1,800 annual
work hours)] = Hourly wage per professional type.]
(3) [Hourly wage) * (Adjustment factor for overhead and other
benefits, which the Commission has estimated to be 1.3)] = Adjusted
hourly wage per professional type.]
(4) [(Adjusted hourly wage) * (Estimated hour burden for
compliance)] = Dollar cost of compliance for each hour burden
estimate per professional type.]
The sum of each of these calculations for all professional types
involved in compliance with a given element of the final rule
represents the total cost for each counterparty, reporting
counterparty, SD, MSP, SEF, DCM, or SDR, as applicable to that
element of the final rule.
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a. Section 45.2. Under Sec. 45.2, SDRs, SEFs, DCMs, DCOs, SDs,
MSPs, and non-SD/MSP counterparties--which presently would include an
estimated 30,210 entities or persons \85\--are required to keep records
of all activities relating to swaps. Specifically, Sec. 45.2 requires
SDRs, SEFs, DCMs, DCOs, SDs, and MSPs to keep complete records of all
activities relating to their business with respect to swaps. The rule
requires non-SD/MSP counterparties to keep complete records with
respect to each swap in which they are a counterparty.
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\85\ Because SDRs, MSPs, SDs, DCOs, and SEFs are new entities,
estimates were made by the Commission: 15 SDRs, 50 MSPs, 250 SDs, 12
DCOs, and 40 SEFs. The number of DCMs was estimated to be 17 DCMs
based on the current (as of October 18, 2010) number of designated
DCMs. Additionally, for purposes of the Paperwork Reduction Act, the
Commission estimates that there would be 30,000 non-SD/MSP
counterparties who would annually be subject to the recordkeeping
requirements of proposed Regulation 45.1. The Commission is revising
its estimate of SDs and MSPs from a total of 300 in the proposed
rule to 125 for this final rule, and is revising its DCM estimate
from 17 to 18 to account for the designation of a new DCM.
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With respect to SDs and MSPs, the Commission has determined that
Sec. 45.2 will not impose any new recordkeeping or information
collection requirements, or other collections of information that
require approval of the Office of Management and Budget under the
Paperwork Reduction Act. The burden associated with the requirements
for maintaining and recording swap transaction data by SDs and MSPs are
also contained in separate rulemakings proposed by the Commission
concerning business conduct standards for SDs and MSPs, for which the
Commission has prepared an information collection request for review
and approval by OMB.
The Commission believes that some percentage of the estimated
30,000 non-SD/MSP counterparties who would be subject to the
recordkeeping requirements of section 45.2 would contract with third-
party service providers to fulfill these requirements, and would
therefore pay some fee to such providers in lieu of incurring the
Commission's estimated costs of reporting. The identity of such third
parties, the composition of the marketplace for third party services,
and the costs to third parties to provide recordkeeping services given
the economies of scale and scope they may realize in providing those
services are all presently unknowable. Therefore, the Commission does
not believe it is feasible to quantify the fees charged by third
parties to non-SD/MSPs at the present time, but believes that they will
likely vary with the volume of records to be retained. The remaining
non-SD/MSP counterparties would elect to perform these functions
themselves and incur the costs enumerated below. The Commission notes
that this final rule allows non-SD/MSP counterparties to retain records
in either an electronic or paper form, which could facilitate
recordkeeping for less technologically resourced counterparties, and
thus encourage a greater percentage of non-SD/MSP counterparties to
retain records themselves.
For purposes of calculating recordkeeping burdens with respect to
the PRA, the Commission is assuming that all 30,000 non-SD/MSP
counterparties required to keep records will incur the cost of doing so
themselves. The Commission estimates that this requirement would impose
an initial non-recurring burden of 480 hours per reporting counterparty
at a cost of $32,820, and investments in technological infrastructure
of $50,000, and a recurring annual burden of 165 hours per reporting
counterparty at a cost of $12,125 and a technological infrastructure
maintenance cost of $25,000. This would present an aggregate non-
recurring burden of $2,484,600,000 for all non-SD/MSP counterparties,
and an aggregate recurring annual burden of $1,113,750,000 for all non-
SD/MSP counterparties.
[[Page 2174]]
With respect to SEFs, DCMs, DCOs, SDs, and MSPs (an estimated 195
entities or persons), which will have higher levels of swap recording
activity \86\ than non-SD/MSP counterparties, the Commission estimates
that this requirement would impose an initial non-recurring burden of
1,560 hours per SEF, DCO, or DCM at a cost of $111,917, and investments
in technological infrastructure of $100,000, and a recurring annual
burden of 700 hours per SEF, DCO, DCM, SD, or MSP at a cost of $49,798,
and a technological infrastructure maintenance cost of $50,000.
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\86\ For purposes of this Paperwork Reduction Act analysis, the
Commission estimates that ``high activity'' entities or persons are
those who process or enter into hundreds or thousands of swaps per
week that are subject to the jurisdiction of the Commission. Low
activity users would be those who process or enter into
substantially fewer than the high activity users.
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The Commission also estimates that Sec. 45.2 will result in
retrieval costs for registered entities and swap counterparties that do
not currently have the ability to retrieve records within the required
timeframe. The Commission expects that this requirement will present
costs to registered entities and swap counterparties in the form of
non-recurring investments in technological systems and personnel
associated with establishing data retrieval processes, and recurring
expenses associated with the actual retrieval of swap data records.
With respect to non-SD/MSP reporting counterparties that do not
contract with a third party, the Commission estimates that this
requirement would impose an initial non-recurring burden of 310 hours
per reporting counterparty at a cost of $25,534 and a recurring annual
burden of 115 hours per reporting counterparty at a cost of $9,510.
With respect to SEFs, DCOs, DCMs, SDs, and MSPs, the Commission
estimates that this requirement would impose an initial non-recurring
burden of 350 hours per SEF, DCO, DCM, SD, or MSP at a cost of $28,745,
and a recurring annual burden of 175 hours per SEF, DCO, DCM, SD, or
MSP at a cost of $14,373.
b. Sections 45.3 and 45.4. Pursuant to Sec. Sec. 45.3 and 45.4,
SEFs, DCMs, DCOs, MSPs, SDs, and non-SD/MSP counterparties are required
to provide reports to SDRs regarding swap transactions. SEFs and DCMs
are required to report certain information (swap creation data) once at
the time of swap execution. DCOs, SDs, MSPs, and non-SD/MSP
counterparties are required to report certain information (swap
creation data) once, as well as other information (swap continuation
data) throughout the life of a swap--whenever a reportable event or a
reportable change occurs. With respect to reporting by SDs, MSPs, and
non-SD/MSP counterparties, only one counterparty to a swap is required
to report information concerning that swap, typically an SD or an MSP,
as determined by Sec. 45.8.
The Commission anticipates that the reporting required by
Sec. Sec. 45.3 and 45.4 will to a significant extent be automatically
completed by electronic computer systems; the following burden hours
are calculated based on the annual burden hours necessary to oversee,
maintain, and utilize the reporting functionality. SEFs, DCMs, DCOs,
MSPs, and SDs (an estimated 195 entities or persons) are anticipated to
have high levels of reporting activity; the Commission estimates that
their average annual burden may be approximately 2,080 hours per SEF,
DCO, DCM, MSP, or SD.\87\ The Commission estimated 2,080 hours by
assuming that a significant number of SEFs, DCMs, DCOs, MSPs, and SDs
will dedicate the equivalent of least one full-time employee to
ensuring compliance with the reporting obligations of Sec. Sec. 45.3
and 45.4 (2,080 hours = 52 weeks x 5 days x 8 hours). The Commission
believes that this is a reasonable assumption due to the volume of swap
transactions that will be processed or entered into by these entities,
the varied nature of the information required to be reported, and the
frequency with which information may be required to be reported.\88\
The Commission notes, however, that these burdens should not be
considered additional to the costs of compliance with Part 43, because
the basic data reporting technology, processes, and personnel hours and
expertise necessary to fulfill the requirements of Part 43 encompass
both the data stream necessary for real-time public reporting and the
creation data stream necessary for regulatory reporting.\89\
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\87\ The Commission obtained this estimate in consultation with
the Commission's information technology staff.
\88\ The estimated burden hours were obtained in consultation
with the Commission's information technology staff.
\89\ The Commission notes that DCOs are not dicussed in Part 43.
The costs to DCOs for compliance with this final rule are thus
unique to this rule, but identical to the costs addressed in Part
43.
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Non-SD/MSP counterparties who would be required to report--which
presently would include an estimated 1,000 entities \90\--are
anticipated to have lower levels of activity with respect to reporting.
Of those 1,000 non-SD/MSPs, the Commission believes that a majority,
estimated now at 75%, or 750 entities, will contract with third parties
to satisfy their reporting obligations. The identity of such third
parties, the composition of the marketplace for third party services,
and the costs to third parties to provide reporting services given the
economies of scale and scope they may realize in providing those
services are all presently unknowable. Therefore, the Commission does
not believe it is feasibly to quantify the fees charged by third
parties to non-SD/MSPs at the present time, but believes that they will
likely vary with the volume of reports to be made. For those non-SDs/
non-MSPs who are required to report swap transaction and pricing data
to an SDR and contract with a third party, the Commission estimates
that such non-SD/MSP counterparties will incur a recurring burden for
reporting errors and omissions should errors or omissions be noticed by
the counterparty or the SDR; however, the Commission has already
considered these burdens in Part 43, and thus has not reapplied them to
this rule. The costs of reporting to the remaining 250 non-SD/MSP
counterparties that do not contract with a third party are addressed
below.
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\90\ This is the estimated number of non-SD/MSP counterparties
who will be required to report in a given year. Only one
counterparty to a swap is required to report, typically an SD or a
MSP as determined by Sec. 45.8. Therefore, a non-SD/MSP
counterparty that is in a swap with an SD or MSP counterparty will
not be subject to the reporting obligations of Sec. Sec. 45.3 and
45.4.
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The Commission estimates that costs applicable to reporting
counterparties will include maintenance of an internal order management
system (``OMS'') and the personnel hours needed to maintain a
compliance program in support of that system. With respect to all
reporting counterparties, including SEFs, DCOs, DCMs, SDs, MSPs, and
non-SD/MSP counterparties that do not contract with a third party for
reporting, the Commission estimates that the additional implementation
of the OMS and the associated compliance and support program for the
reporting of swap continuation data would impose an initial non-
recurring burden of 350 hours per reporting counterparty at a cost of
$28,745, and a recurring annual burden of 175 hours per reporting
counterparty at a cost of $14,373.
In addition to the burden estimates presented here, reporting
counterparties will incur costs associates with establishing and
maintaining connectivity to an SDR for the purposes of effecting
reporting. Connectivity costs have been accounted for in the
[[Page 2175]]
information collection prepared by the Commission with respect to its
proposed part 43 rules, in which the information collection costs
applicable to SDRs also have been estimated.\91\ To avoid creating
duplicative PRA estimates, the Commission is not accounting again for
those costs with respect to this rulemaking. And in the event that
there is a swap asset class for which no SDR accepts swap data, swap
data for a swap in that class must be reported to the Commission. With
respect to all reporting counterparties, including SEFs, DCOs, DCMs,
SDs, MSPs, and non-SD/MSP reporting counterparties that do not contract
with a third party for reporting, the Commission estimates that the
annual cost to maintain connectivity to the Commission would be
approximately $100,000 for each reporting counterparty or registered
entity that transacts in swap asset classes that are not accepted by
any registered SDR.\92\
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\91\ The Commission estimated the annual recurring technology-
related burden of maintaining connectivity to an SDR at
approximately $100,000 per reporting entity. The Commission also
estimated the non-recurring personnel hour burden of establishing
connectivity to an SDR from the perspective of a non-financial end-
user counterparty with no initial infrastructure or personnel
training to leverage to be approximately 172 burden hours at a cost
of approximately $12,824 for each non-financial end-user. This
estimate represents the costs of developing information capture and
transmission systems, correspondence testing and operational
support. The Commission notes that with respect to both part 43 and
part 45, the cost to a non-financial end-user with no initial
infrastructure or personnel training represents a high-end estimate,
and that the costs of establishing and maintaining connectivity to
an SDR will likely be considerably lower for SEFs, DCMs, SDs, and
MSPs that likely have greater levels of technological sophistication
and existing personnel training to leverage.
\92\ This estimate is calculated as follows: [($100,000 in
hardware- and software-related expenses, including necessary back-up
and redundancy, per SDR connection) x (1 SDR connections per
reporting counterparty)] = $100,000 per non-financial end-user. The
Commission notes that there are circumstances under which a non-
financial end-user serving as a reporting counterparty would be
required to incur additional costs to maintain connectivity to both
the Commission and one or more SDRs. Specifically, if a reporting
counterparty engages in swap transactions in multiple asset classes,
and an SDR exists that accepts data for at least one of those asset
classes, but no SDR exists that accepts data for one or more of
these asset classes, the reporting counterparty would then incur the
costs of establishing and maintaining connectivity to both an SDR
and the Commission. The Commission believes that the costs of
establishing and maintaining connectivity to a second data
repository would be some percentage of, but not equal to, the costs
of establishing and maintaining connectivity to the first data
repository, because the reporting counterparty would likely be able
to leverage existing technology and expertise in the process. The
Commission does not believe that the percentage of the initial costs
that this additional cost represents is readily quantifiable,
because it will likely vary with the volume of swaps, and thus the
volume of data to be reported, that the reporting counterparty
transacts in the secondary asset classes.
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c. Section 45.5. Pursuant to Sec. 45.5, SDRs, SEFs, DCMs, SDs, and
MSPs will be required to report a unique swap identifier to other
registered entities and swap participants. SEFs and DCMs are
anticipated to have higher levels of activity than SDRs, SDs, and MSPs
with respect to unique swap identifier reporting. The Commission
anticipates that the reporting of the unique swap identifier will be
automatically completed by electronic computer systems. The following
burden hours are based on the estimated burden hours necessary to
oversee, maintain, and utilize the electronic functionality of unique
swap ID reporting.\93\
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\93\ The estimated burden hours were obtained in consultation
with the Commission's information technology staff.
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The Commission estimates that USI-related costs will be highest for
SEFs, DCOs, and DCMs, because they will have to create the greatest
number of USIs. The Commission estimates the requirement for SEFs,
DCOs, and DCMs to create and transmit USIs to counterparties and other
registered entities to present a total marginal non-recurring burden of
1,000 personnel hours at a total cost of $81,869 per entity, and a
recurring annual burden of 470 personnel hours at a total cost of
$37,741 per entity.
For off-facility swaps with an SD or MSP reporting counterparty,
the Commission estimates the requirement for SDs and MSPs to create and
transmit USIs to counterparties and other registered entities to
present a total marginal non-recurring burden of 750 personnel hours at
a cost of $61,402 per entity, and a recurring annual burden of 353
hours of annual personnel hours at a total cost of $28,386 per entity.
For off-facility swaps between non-SD/MSP counterparties, the
Commission estimates the requirement for SDRs to create and transmit
USIs to counterparties and other registered entities to present a total
marginal non-recurring burden of 500 annual personnel hours at a cost
of $40,935 per entity, and a recurring annual burden of 235 annual
personnel hours for a total cost of $18,871 per entity.
d. Section 45.6. Pursuant to Sec. 45.6, each SD, MSP, and non-SD/
MSP counterparty (an estimated 30,125 entities and persons), will be
required to report both level one and level two reference data
concerning itself to a public level one reference database and a
confidential level two reference database, respectively. The report
will be made once at the time of the first swap data report to an SDR
involving the SD, MSP, or non-SD/MSP counterparty. A similar report
will be required whenever an update or correction to the previously
reported reference data is required. For any such report, the estimated
number of burden hours is approximately two hours per entity, excluding
customary and usual business practices. The number of reports required
to be made per year is estimated to vary between zero and four,
depending on when the SD, MSP or non-SD/MSP counterparty is required to
make either the initial report or a report of an update or
correction.\94\ Thus, the estimated annual burden per entity varies
between zero and eight burden hours. Therefore, there are between 0 and
241,000 estimated aggregate annual burden hours.
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\94\ The estimated burden hours and the estimated number of
reports were obtained in consultation with the Commission's
information technology staff.
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Additionally, the Commission anticipates that an LEI meeting the
requirement of the final rule will be available before the commencement
of swap data reporting. However, the Commission has also considered the
potential burden that will be imposed on SDRs for creating, assigning
and transmitting substitute identifiers if they should be required. The
Commission estimates the cost to SDRs to create, assign and transmit
substitute identifiers to counterparties and other registered entities
to present a total marginal non-recurring burden of 500 annual
personnel hours at a cost of $40,935 and a recurring annual burden of
235 annual personnel hours for a total cost of $18,871.
e. Section 45.7. Pursuant to Sec. 45.7, each swap subject to the
Commission's jurisdiction will need to be identified in all
recordkeeping and swap data reporting by means of a unique product
identifier and product classification system, which shall be designated
at a later date by the Commission. The Commission expects that this
will result in a one-time retrieval burden for each SEF and DCM for
each swap product traded on its platform, either at the time the
Commission designates the system for currently listed products or at
the time a product is listed for trading. SDs, MSPs, and non-SD/MSP
reporting counterparties also will be subject to a one-time retrieval
burden for each swap product that they are required to report to an SDR
or the Commission. As with unique swap identifiers, the Commission
anticipates that the reporting of the unique swap identifier will be
automatically completed by
[[Page 2176]]
electronic computer systems. Until such time as a system is designated,
however, the Commission cannot estimate the aggregate annual burden
hours associated with the retrieval necessary to populate the records
and reports. The Commission therefore will establish a burden estimate
associated with the collection of information resulting from Sec. 45.7
on the designation of a system.
f. Sec. 45.14. Pursuant to Sec. 45.14, a registered SDR is
required to develop protocols regarding the reporting and correction of
erroneous information. The Commission anticipates that this requirement
will result in costs to SDRs associated with the reporting of both
creation and continuation data in the form of non-recurring investments
in technological systems and personnel during the development of the
formatting procedure, and recurring expenses associated with data
processing, systems maintenance, and personnel hours to format new
data. However, the burden associated with Sec. 45.14 are contained in
the real time public reporting rules proposed by the Commission, for
which the Commission has prepared an information collection request for
review and approval by OMB. To avoid duplication of PRA burdens, those
costs are not being accounted for in the information collection request
associated with this rulemaking.
C. Consideration of Costs and Benefits
1. Introduction
The swap markets, which have grown exponentially in recent years,
are now an integral part of the nation's financial system. As the
financial crisis of 2008 demonstrated, the absence of transparency in
the swap markets can pose significant risk to this system.\95\ The
Dodd-Frank Act seeks in part to promote the financial stability of the
United States by improving financial system accountability and
transparency. More specifically, Title VII of the Dodd-Frank Act
directs the Commission to oversee the swap markets and to develop and
promulgate regulations to increase swap market transparency and thereby
reduce the potential for counterparty and systemic risk.\96\
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\95\ As the U.S. Senate Committee on Banking, Housing, and Urban
Affairs explained concerning the 2008 financial crisis:
Information on prices and quantities [in ``over-the-counter'',
or ``OTC'', derivatives contracts] is opaque. This can lead to
inefficient pricing and risk assessment for derivatives users and
leave regulators ill-informed about risks building up throughout the
financial system. Lack of transparency in the massive OTC market
intensified systemic fears during the crisis about interrelated
derivatives exposures from counterparty risk. These counterparty
risk concerns played an important role in freezing up credit markets
around the failures of Bear Stearns, AIG, and Lehman Brothers.
S. Rep. No. 111-176, at 30 (2010). More specifically with
respect to credit default swaps (``CDSs''), the Government
Accountability Office found that ``comprehensive and consistent data
on the overall market have not been readily available,'' that
``authoritative information about the actual size of the CDS market
is generally not available,'' and that regulators currently are
unable ``to monitor activities across the market.'' Government
Accountability Office, ``Systemic Risk: Regulatory Oversight and
Recent Initiatives to Address Risk Posed by Credit Default Swaps,''
GAO-09-397T (March 2009), at 2, 5, 27.
\96\ See Mark Jickling and Kathleen Ann Ruane, Cong. Research
Serv., The Dodd-Frank Wall Street Reform and Consumer Protection
Act: Title VII, Derivatives 1 (2010); Financial Regulatory Reform--A
New Foundation: Rebuilding Financial Supervision and Regulation,
U.S. Department of the Treasury, at 47-48 (June 17, 2009).
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Transaction reporting is a fundamental component of the
legislation's objective to reduce risk, increase transparency, and
promote market integrity within the financial system generally, and the
swap market in particular. Specifically, the Dodd-Frank Act requires
that ``each swap (whether cleared or uncleared) * * * be reported to a
registered swap data repository.'' \97\ The Dodd-Frank Act also
requires SDRs to collect and maintain swap transaction data as
prescribed by the Commission, and to make such data electronically
available to regulators.\98\
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\97\ CEA section 2(a)(13)(G).
\98\ Regulations governing core principles, registration
requirements, and duties of SDRs are contained in part 49 of this
chapter.
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CEA section 21(b)(1)(A), added by section 728 of the Dodd-Frank
Act, addresses the content of the swap transaction data that registered
entities and reporting counterparties must report to a registered SDR
and directs the Commission to ``prescribe standards that specify the
data elements for each swap that shall be collected and maintained by
each registered swap data repository.'' In fulfilling this statutory
mandate, CEA section 21(b)(1)(B) also directs the Commission to
``prescribe consistent data element standards applicable to registered
entities and reporting counterparties.'' In promulgating this part 45,
the Commission implements Congress's mandate that swap transaction and
pricing data is reported to registered SDRs. Part 45 achieves the
statutory objectives of transparency by, inter alia, requiring that
market participants report swap transaction data to an SDR, possibly
through intermediaries.\99\
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\99\ CEA section 4r(a)(1)(B), added by section 729 of the Dodd-
Frank Act, requires that each swap not accepted for clearing by any
DCO must be reported to a registered SDR or, in the case in which
there is no SDR that would accept the swap, to the Commission.
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As discussed in more detail below, the Commission anticipates that
the requirements of part 45 will generate several overarching, if
presently unquantifiable, benefits to swap market participants and the
general public. These include (a) Increased transparency; (b) improved
regulatory understanding of concentrations of risk within the market;
(c) more effective monitoring of risk profiles by regulators and by
regulated entities themselves through the use of unique identifiers;
(d) improved regulatory oversight, and (e) more robust data management
systems.
The Commission believes these benefits, made possible by the timely
reporting of comprehensive swap transaction data, consistent data
standards for recordkeeping, and identification of products, entities
and transactions through unique identifiers, will accrue to market
participants in a number of ways:
Increased transparency of derivatives markets.
Improved risk management: a transfer of the costs
associated with systemic risk from the public to private entities,
particularly to those that are better positioned to realize
economies of scale and scope in assuming those costs.
More robust risk monitoring and management capabilities
for market participants as a result of the systems required under
part 45. This will improve the monitoring of the participant's
current swap market position.
New tools to process transactions at a lower expense
per transaction given the systems required under part 45. These
tools will enable participants to handle the same or an increased
volume of swaps at a lower marginal expense.
More robust standards for the financial services
industry, such as utilizing UTC and unique identifiers.
Swap transaction reporting under the final rules
provides a means for the Commission to gain a better understanding
of the swap markets--including aggregate positions both in specific
swap instruments and positions taken by individual entities or
groups--by requiring transaction data for currently opaque markets,
and then aggregating that data in useful ways. For example, having
such data would help Commission staff monitor and analyze the swap
market in a more comprehensive manner. In this way, the final rule
would support Congress' mandate that the Commission supervise the
swap markets; in addition, transaction reporting aids the Commission
in the development of the mandated semiannual reports on swap
trading activity.
In the NOPR, the Commission requested comment on whether a phase-in
approach should be used for the time of reporting of confirmation by
non-SD/MSP counterparties. The Commission also requested comment on
whether
[[Page 2177]]
there was sufficient infrastructure to support lifecycle or alternative
approaches for data reporting. The Commission received a number of
comments on the implementation of the proposed rules that included
cost-benefit considerations.
Global Forex commented that the phase-in period should take into
account the work needed for FX market participants to establish
connectivity to the SDR and for the SDR to develop unique identifiers
and become established. Similarly, CME added that the compliance date
must take into account the scope of implementation, which could take in
its view several years. The Electric Coalition recommended that the
Commission clarify its regulatory needs before setting forth specific
reporting rules. Thomson Reuters recommended that the Commission
implement rules consistent with proposals by the European Commission in
their Markets in Financial Instruments Directive (MiFID). DTCC
recommended a nearly year-long phase-in with products with the greatest
automation being required first. ISDA recommended that legal entity
identifiers and unique product identifiers be implemented prior to
reporting.
The Electric Coalition presented a detailed three-step
implementation proposal that it stated would reduce burdens for
commercial energy firms. The Electric Coalition recommended that
reporting be implemented in three phases: first for on-facility,
cleared swaps; second for standardized but off-facility and uncleared
swaps; and third for bespoke off-facility and uncleared swaps.
Similarly, Chatham Financial presented a detailed implementation
schedule in four stages by counterparty. Under Chatham Financial's
approach, DCMs, SEFs and DCOs would be required to report in the first
stage; financial SDs would begin reporting in the second stage; non-
financial SDs and MSPs would commence reporting in the third stage; and
non-SD/MSP reporting counterparties would begin reporting in the fourth
stage. CDEU agreed with Chatham Financial's approach. Dominion
Resources recommended a phase-in approach for non-SD/MSP
counterparties.
As discussed above, the Commission agrees with comments
recommending phasing in reporting by asset class and by counterparty
type, and has determined that the final rule provides for such a phase-
in approach. The Commission anticipates that this approach will result
in cost reductions for reporting counterparties relative to an
immediate implementation of all of the reporting provisions of the
rule. In particular, as discussed above, the phase-in approach adopted
in the final rule will reduce costs for non-SD/MSP reporting
counterparties by giving them six additional months to prepare for
reporting. In response to comments, the Commission has also set forth a
mechanism for voluntary supplemental reporting in Sec. 45.12. As
discussed in more detail above, the Commission believes Sec. 45.12 may
have benefits for both data accuracy and business processes.
In the sections that follow, the Commission considers the costs and
benefits of part 45 as required by CEA section 15(a).
a. Background
Pursuant to CEA section 15(a), before promulgating a regulation
under the CEA the Commission generally must consider the costs and
benefits of its actions in the context of five broad areas of market
and public concern: (1) Protection of market participants and the
public; (2) efficiency, competitiveness, and financial integrity of
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations. The Commission, in its
discretion, may give greater weight to any one of the five enumerated
factors and may determine that, notwithstanding costs, a particular
rule protects the public interest.\100\
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\100\ See, e.g., Fisherman's Doc Co-op., Inc. v. Brown, 75 F.3d
164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336
(DC Cir. 1985) (noting that an agency has discretion to weigh
factors in undertaking cost-benefit analysis).
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In the NOPR, the Commission stated that the proposed reporting and
recordkeeping requirements could impose significant compliance costs on
some SDRs, SEFs, DCMs, DCOs, SDs, MSPs, and non-SD/MSP counterparties.
In particular, the Commission noted that the proposed recordkeeping and
reporting requirements could require capital expenditures for some such
entities that could affect their ability to compete in the global
marketplace because of reductions in available resources. The
Commission solicited comment on its consideration of costs and benefits
and specifically invited commenters to submit any data or other
information that they may have quantifying or qualifying the costs and
benefits of the proposed requirements. The Commission also requested
comments on the overall costs and benefits of the proposed rules
implementing the Dodd-Frank Act.
In considering the costs and benefits of this final rule as well as
its other final rules implementing the Dodd-Frank Act, the Commission
has, wherever feasible, endeavored to estimate or quantify the costs
and benefits of the final rules. Where this is not feasible, the
Commission provides a qualitative assessment of such costs and
benefits. In this respect, the Commission notes that public comment
letters did not provide quantitative data regarding the costs and
benefits associated with the Proposed Rules.
In the following discussion, the Commission addresses the costs and
benefits of the final rule, considers comments regarding the costs and
benefits of the final rule, and subsequently considers the five broad
areas of market and public concern as required by section 15(a) of the
CEA. Moreover, as this rulemaking contains numerous reporting and
recordkeeping requirements, many of the costs of the rulemaking are
associated with collections of information. The Commission is obligated
to estimate the burden of and provide supporting statements for any
collections of information it seeks to establish under considerations
contained in the PRA, 44 U.S.C. 3501 et seq., and to seek approval of
those requirements from the OMB. Therefore, the estimated burden for
the collections of information in this rulemaking, as well as the
consideration of comments thereto, are discussed in the PRA section of
this rulemaking and the information collection request filed with OMB
as required by that statute. Otherwise, the costs and benefits of the
Commission's determinations are considered in light of the five factors
set forth in CEA section 15(a).
In this final rulemaking, the Commission is adopting regulations
mandated by section 21(b) to specify ``consistent data element
standards'' for reporting swaps to registered SDRs.
b. Cost-Estimation Methodology
The Commission has chosen to use as the reference point for its
cost estimates a non-SD/MSP counterparty that is not a financial entity
as defined in CEA section (2)(h)(7)(C), and does not have the technical
capability and other infrastructure to comply with the part 45
requirements--in other words, a new market entrant with no prior swap
market participation or infrastructure.
However, the Commission expects that the actual costs to
established market participants will often be lower than this reference
point--perhaps significantly so, depending on the type,
[[Page 2178]]
flexibility, and scalability of systems already in place.\101\
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\101\ ``The submission of information to trade repositories is
an activity that takes place in many OTC markets today and will not
unduly burden those who must comply with the requirement.'' CL-WMBAA
at 6. In contrast, as commenters highlighted, the costs of complying
with part 43 can be expected to be higher for non-financial end-
users and others currently lacking the resources and systems of
large financial institutions that transact swaps more frequently.
See, e.g., CL-COPE. ``Swap Dealers have books of business that
typically are much larger because they encompass a much broader
universe of types of swaps and because it is the core of their
regular business * * * of necessity, swap dealers have and will
continue to develop sophisticated and highly complex computer
systems powered by highly customized software to enable them to keep
track of and manage their books of business. * * * End-users simply
do not have these systems and capabilities.'' CL-Coalition of Energy
End-Users at 4.
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The Commission recognizes that the costs of complying with part 45
are largely attributable to the reporting and recordkeeping
requirements of this rule. As discussed above, the Commission has
determined that the final rule will adopt a streamlined reporting
regime that requires reporting by the registered entities or swap
counterparties with the easiest, fastest, and cheapest data access and
those most likely to have the necessary automated systems. Under this
reporting regime, reporting obligations for non-SD/MSP counterparties
are entirely eliminated in many cases, and are phased in or reduced in
all other cases.
Non-SD/MSP counterparties can be required to report data only for
the small minority of swaps in which both counterparties are non-SD/MSP
counterparties.
Even within this small minority of swaps, the non-SD/MSP reporting
counterparty will have no reporting obligations for swaps executed on a
SEF or DCM and cleared by a DCO, or for off-facility swaps accepted for
clearing by a DCO within the extended deadline for PET data reporting
by the non-SD/MSP reporting counterparty.\102\
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\102\ If an off-facility swap is accepted for clearing after the
deadline for PET data reporting by the non-SD/MSP reporting
counterparty, the non-SD/MSP counterparty is excused from reporting
confirmation data, which will instead be reported by the DCO.
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For swaps executed on a SEF or DCM but not cleared, the non-SD/MSP
reporting counterparty's reporting obligations are limited to reporting
required swap continuation data during the existence of the swap. Here
the final rule provides reporting deadlines for non-SD/MSP reporting
counterparties that are extended and phased in: a change to the primary
economic terms of the swap must be reported by the end of the second
business day following the date of the change during the first year of
reporting, and by the end of the first business day following the date
of the change thereafter; and valuation data is only required to be
reported on a quarterly basis.
A non-SD/MSP counterparty will be required to report both swap
creation data and swap continuation data only for off-facility,
uncleared swaps between non-SD/MSP counterparties; and this obligation
can apply only if the non-SD/MSP counterparty is an ECP, since CEA
section 2(e) restricts swap trading by non-ECP counterparties to on-
facility swaps. For the small number of off-facility, uncleared swaps
for which a non-SD/MSP that is an ECP is the reporting counterparty,
the final rule also provides reporting deadlines that are extended and
phased in.\103\
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\103\ In such cases, PET data must be reported within 48 hours
after execution during the first year of reporting, within 36
business hours after execution during the second year of reporting,
and within 24 business hours after execution thereafter.
Confirmation data must be reported within 48 hours after
confirmation during the first year of reporting, within 36 business
hours after confirmation during the second year of reporting, and
within 24 business hours after confirmation thereafter. During the
existence of the swap, changes to primary economic terms must be
reported by the end of the second business day following the date of
the change during the first year of reporting, and by the end of the
first business day following the date of the change thereafter; and
valuation data is only required to be reported on a quarterly basis.
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Furthermore, costs for non-SD/MSP counterparties that are not a
``financial entity'' as defined in CEA section 2(h)(7)(C) will be
further reduced by the fact that the final rule provides that for swaps
between non-SD/MSP counterparties where only one counterparty is a
financial entity, the financial entity will be the reporting
counterparty. Because financial non-SD/MSP counterparties are more
likely than non-SD/MSP counterparties that are not financial entities
to have in place some or all of the personnel and technological
infrastructure necessary to serve as the reporting counterparty, and to
be able to realize economies of scale with respect to reporting,
placing the burden of reporting in this context on the counterparty
that is a financial entity is likely to provide a more cost-effective
overall reporting process.
These provisions of the final rule either eliminate or
substantially reduce the cost and burden of reporting for non-SD/MSP
counterparties.
To address costs specific to SDRs, the Commission has estimated the
incremental costs SDRs would incur to comply with the reporting and
recordkeeping requirements of this rulemaking above the base operating
costs for SDRs reflected in a separate rulemaking.\104\ These
incremental costs include the creation and transmission of unique
identifiers.
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\104\ See Commission, Swap Data Repositories: Registration
Standards, Duties and Core Principles: Final Rule. 76 FR 54538 (Sep.
1, 2011) at 54572 (SDR Final Rule).
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2. General Cost-Benefit Comments Received
This rulemaking has generated an extensive record, which is
discussed at length throughout this notice as it relates to the
substantive provisions in the final rules. A number of commenters
suggested that implementing and complying with the proposed rules would
incur significant costs. Because of its concern about the potential
level of costs, the Minneapolis Grain Exchange (``MGEX'') requested an
extensive and realistic cost-benefit analysis of each regulation before
adoption. The Commission also received general comments from Chatham
Financial, Vanguard, ABC, EEI, WGCEF, Dominion Resources, FHLB, DTCC,
the Electric Coalition, and CDEU, recommending that the Commission
consider the costs and burdens of the proposed rules on non-registered,
small entities. The Foreign Banks, Global Forex, CME, ISDA and SIFMA
requested that the Commission consider the cost implications of the
proposed regulations on all applicable entities and in some instances,
recommended alternative approaches. The Commission has carefully
considered alternatives suggested by commenters, and in a number of
instances, has adopted alternatives or modifications to the proposed
rules where, in the Commission's judgment, the alternative or modified
standard accomplishes the same regulatory objective in a more cost-
effective manner.
In response to the Commission's invitation in the NOPR for comments
on the overall costs and benefits of the proposed rules, Better Markets
stated that the Commission's cost-benefit analyses in the notices of
proposed rulemaking may have understated the benefits of the proposed
rules. Better Markets argued that adequate assessment of the costs and
benefits of any single proposed rule or element of such a rule would be
difficult or impossible without considering the integrated regulatory
system of the Dodd-Frank Act as a whole. According to Better Markets:
It is undeniable that the Proposed Rules are intended and
designed to work as a system. Costing-out individual components of
the Proposed Rules inevitably double counts
[[Page 2179]]
costs which are applicable to multiple individual rules. It also
prevents the consideration of the full range of benefits that arise
from the system as a whole that provides for greater stability,
reduces systemic risk and protects taxpayers and the public treasury
from future bailouts.\105\
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\105\ CL-Better Markets II, at 3.
Better Markets also stated that an accurate cost benefit assessment
must include the avoided risk of a new financial crisis. One measure of
this is the still accumulating cost of the 2008 financial crisis. The
comment letter cited a statement by Andrew G. Haldane, Executive
Director for Financial Stability at the Bank of England, who estimated
the worldwide cost of the crisis in terms of lost output at between $60
trillion and $200 trillion, depending primarily on the long term
persistence of the effects.
Notwithstanding that it must (and does) conduct a cost-benefit
analysis with respect to this rulemaking, the Commission agrees with
Better Markets that the proposed rules should operate in a coordinated
manner to improve and protect financial markets. In that regard, the
costs and benefits associated with this final rule are in some
instances not readily separable from the costs and benefits associated
with other Commission rulemakings implementing the Dodd-Frank Act, most
notably those governing real-time public reporting of swap transaction
and pricing data (part 43) and registration and regulation of swap data
repositories (part 49). Swap data recordkeeping and reporting, will,
for instance, provide information to enable regulatory agencies to more
fully understand the mechanisms and risks of the swap market. Access to
previously unavailable data will allow these agencies to better model
and analyze swap markets to mitigate systemic risk, detect potential
market manipulation, and expand their capabilities in efficient market
oversight. Acknowledging this, the Commission must conduct a cost-
benefit analysis with respect to specific rulemaking.
In a broad sense, the costs presented to market participants by the
requirements of this rule represent the internalization by financial
market participants of a negative externality--the costs generated by
systemically risky behavior on the part of market participants, which
had previously been internalized by the taxpaying public in the form of
government bailouts of failed financial firms that were brought down in
part by this risky behavior.
In analyzing the costs and benefits of this rulemaking, it is
important to note that many elements of the rule are mandated by Dodd-
Frank Act and are thus outside the Commission's discretion. For
example:
Information about all swaps, cleared or uncleared, must
be reported to a registered SDR (or, in the event that a swap is not
is not accepted by an SDR, to the Commission).
The Commission must prescribe consistent data element
standards for SDRs, registered entities, and reporting
counterparties.
The Commission must determine the hierarchy of
reporting responsibility for uncleared swaps.
3. Recordkeeping
As discussed throughout this release, the CEA as amended by the
Dodd-Frank Act establishes recordkeeping requirements for registered
entities.
a. Benefits of Recordkeeping
The recordkeeping requirements of part 45 will allow the Commission
and other regulatory agencies to develop an accurate picture of swap
markets in a timely fashion. This serves the public interest. From an
enforcement perspective, the recordkeeping requirements of part 45
enable investigators and attorneys to reconstruct a comprehensive,
sequenced record of swap transactions that will be an essential tool in
ensuring the fairness of swap markets. The recordkeeping requirements
of part 45 will also facilitate examinations and investigations by the
Commission and other regulators to ensure that registered entities are
in compliance with core principles.
The requirement to retain records for the life of the swap plus
five years provides be of substantial benefit to the economists
employed by the Commission and to other regulators. In general,
economic analysis benefits from a broader body of data; in particular,
time-series analysis (a fundamental element of economic and statistical
analysis in which the value of a variable is charted over time) may
benefit from a body of data that represents a longer time horizon.
b. Costs of Recordkeeping
The Commission received several comments related to the costs of
swap recordkeeping. With respect to recordkeeping by non-SD/MSP
counterparties, the Electric Coalition recommended that the Commission
reduce recordkeeping requirements to the minimum necessary and phase
requirements relative to the cost of implementation. Shell Energy
requested clarification that non-SD/MSP counterparties are not subject
to the recordkeeping requirements. WGCEF requested that the Commission
consider participants who transact in non-financial markets when
adopting its recordkeeping proposals, and further evaluate the actual
costs, availability of technology, and ability of market participants
to deploy the technology required to comply with such requirements.
With respect to record retention, AGA contended that requiring
records to be kept through the life of a swap plus five years would
impose substantive costs on end-users such as gas utilities. AGA also
stated that the proposed three-day accessibility requirement
effectively would require an off-site storage provider, which if
available at all, could be cost-prohibitive. Reasoning that
transactions between non-SD/MSP counterparties would represent only a
small portion of regulated activity, AGA recommended that the
Commission reduce its recordkeeping requirements for non-SD/MSPs so
that they would only have to maintain such records for three years
following expiration of the swap. CIEBA and WGCEF supported the
proposed five-year post-expiration retention period, but also
recommended not extending it further. ISDA and SIFMA requested
clarification that the phrase ``via real-time electronic access'' does
not mean ``instantly accessible'' which it characterized as
impracticable given the volume of day to day reporting.
As discussed above, the Commission has determined that the final
rule requires SEFS, DCMs, DCOs, SDs, and MSPs to keep full, complete,
and systematic records, together with all pertinent data and memoranda,
of all activities relating to the business of such entities or persons
with respect to swaps. Such records must be kept in electronic rather
than paper form unless they are originally created and exclusively
maintained in paper form. The final rule limits the parallel
requirement for non-SD/MSP counterparties to full, complete, and
systematic records, together with all pertinent data and memoranda,
with respect to each swap in which they are a counterparty. In response
to comments, the Commission has determined that non-SD/MSP
counterparties may keep records in either electronic or paper form.
With respect to record retention, the final rule provides that all
records required to be kept by SEFS, DCMs, DCOs, SDs, and MSPs must be
kept with respect to each swap throughout the life of the swap and for
at least five years following final termination of the swap, or for at
least ten years following the date of creation of the swap, whichever
is greater. Non-SD/MSP counterparties
[[Page 2180]]
must keep required records throughout the existence of the swap and for
five years following final termination of the swap.
With respect to record retrieval, the final rule provides that
required records maintained by SEFs, DCMs, DCOs, SDs, and MSPs must be
readily accessible by the registered entity in question via real time
electronic access throughout the life of the swap and for two years
following the final termination of the swap, and must be retrievable
within three business days throughout the remainder of the required
retention period. Record retrieval requirements are lower in the case
of non-SD/MSP counterparties: in response to comments, the Commission
has determined that non-SD/MSP counterparties need only be able to
retrieve records within five business days throughout the required
retention period.
As discussed above, the Commission has determined that the
compliance date for non-SD/MSP counterparties will be six months after
the compliance date for other registered entities and counterparties.
The Commission has determined that compliance with the requirement to
begin recordkeeping should not be further phased in for non-SD/MSP
counterparties. As noted, the final rule provides lesser recordkeeping
requirements and lesser retrieval requirements for non-SD/MSP
counterparties, in order to reduce recordkeeping costs and burdens for
them. The Commission believes that delaying the requirement to comply
with recordkeeping requirements could interfere with the ability of the
Commission and other regulators to carry out their oversight and
enforcement responsibilities. As noted above, the Commission's
experience with recordkeeping requirements in the context of futures
suggests that all market participants do retain records, and that such
recordkeeping is essential for effective oversight and prosecution of
violations.
The Commission anticipates that the recordkeeping requirements in
Sec. 45.2 will present additional costs to registered entities and
swap counterparties that currently do not retain swap records for the
required period of time. Costs for recordkeeping costs will include
non-recurring investments in technological systems and personnel
associated with establishing data capture and storage systems, and
recurring expenses associated with personnel, data storage and
maintenance of data storage systems. The Commission has not identified
any quantifiable costs of recordkeeping that are not associated with an
information collection subject to the PRA. Quantifiable costs
associated with the same are reflected in the PRA. The Commission
believes that this cost will be substantially reduced or effectively
eliminated for registered entities and swap counterparties that already
engage in the recordkeeping as required by the final rule.
The Commission anticipates that the retrieval requirements set
forth in part 45.2 will result in additional costs to registered
entities and swap counterparties that do not currently have the ability
to retrieve records within the required timeframe. The Commission
expects that this requirement will present costs to registered entities
and swap counterparties in the form of non-recurring investments in
technological systems and personnel associated with establishing data
retrieval processes, and recurring expenses associated with the actual
retrieval of swap data records. Quantifiable costs associated with the
same are reflected in the PRA. The Commission believes that these costs
will be substantially reduced or effectively eliminated for registered
entities and swap counterparties with an existing infrastructure
capable of record retrieval within the timeframe set forth in this
requirement.
The Commission also believes that its determination to allow non-
SD/MSP counterparties to keep records in either electronic or paper
form will generally reduce the cost and burden of recordkeeping for
such counterparties. While many non-SD/MSP counterparties may choose to
keep records in electronic form, some such counterparties that
currently do not have electronic recordkeeping systems may prefer, as
suggested by comments, to avoid the cost of acquiring such systems by
continuing to maintain paper records. The Commission believes that the
final rule provision lengthening the record retrieval period for non-
SD/MSP counterparties to five business days will give such
counterparties adequate time to retrieve such paper records in the
event that the records are requested by the Commission or another
regulator in the course of an investigation. The Commission generally
believes that the pre-Dodd-Frank rationale for requiring Commission
registrants to keep all records relating to their business similarly
applies to swaps by registered entities and swap counterparties. The
Commission requires these records to perform its regulatory function.
Retaining readily accessible records may also improve the risk
management practices of complying entities that wish to consult or
analyze swap transactions as part of their proprietary risk management
strategies.
c. Recordkeeping Requirements in Light of CEA Section 15(a)
The Commission has evaluated the benefits of the recordkeeping
provisions of Sec. 45.2 in light of the specific considerations
identified in section 15(a) of the CEA as follows:
Protection of market participants and the public. As discussed
above, the Commission has endeavored to limit the costs attributable to
discretionary implementation decisions to the maximum degree consistent
with statutory requirements and their intended benefits. The Commission
has endeavored to match the costs of the post-implementation
marketplace with the sizes, levels of sophistication, and levels of
systemic importance of the affected participants, so that the
associated benefits may be realized by the public.
With respect to recordkeeping, the Commission believes the benefits
include the protection of market participants and the public. The
Commission believes that the recordkeeping requirements in the final
rule will enable the Commission and other regulatory agencies to
fulfill their oversight and enforcement responsibilities. The record
retention periods in the final rule are consistent with both the
Commission's existing retention requirement in the context of futures,
pursuant to Commission Regulation 1.31, and with applicable statutes of
limitation. Such record retention will give the Commission ready access
to data essential to its mission to protect market participants and the
public from violations of the CEA and Commission regulations. The
build-up of systemic risk in the largely opaque swap market played a
significant role in the financial crisis of 2007-2008; accordingly, the
Commission believes that the introduction of transparency to these
markets will be critical to regulators' efforts to inform and protect
market participants and the public in the future.
Efficiency, competiveness, and financial integrity. As discussed
above, the Commission has endeavored to limit the costs attributable to
discretionary implementation decisions to the maximum degree consistent
with statutory requirements and their intended benefits. The Commission
has endeavored to match the costs of the post-implementation
marketplace with the sizes, levels of sophistication, and
[[Page 2181]]
levels of systemic importance of the affected participants, so that the
associated benefits may be realized by the public.
The Commission believes that the recordkeeping requirements
provided in the final rule will serve to protect the financial
integrity of swap markets, through increased transparency. This
transparency will provide the Commission and other regulators enhanced
enforcement abilities, aiding the prosecution and deterrence of market
abuses. The Commission acknowledges the costs associated with the
recordkeeping requirement (discussed above), and has attempted to
minimize costs to the extent consistent with fulfillment of the
purposes of the Dodd-Frank Act. The final rule adopts the NOPR
provision for lesser recordkeeping requirements for non-SD/MSP
counterparties. While other registered entities and counterparties must
keep records of all activities relating to their businesses with
respect to swaps, non-SD/MSP counterparties are only required to keep
records with respect to each swap in which they are a counterparty.
Recordkeeping by all swap counterparties, including non-SD/MSP
counterparties, is essential to the Commission's enforcement and market
supervision functions. The Commission also notes that current lapses in
recordkeeping by institutions may generate implicit integrity costs to
financial transactions and the wider public; the final rule attempts to
mitigate these current costs through various recordkeeping requirements
(including universal identifiers), aiding financial integrity.
The Commission believes that, by improving the integrity of the
U.S. swap markets in the manner described above, this final rule may
make participation in the U.S. swap markets more appealing to entities
that currently do not participate, and thus could enhance demand for
access to the U.S. swap market and its participants both domestically
and internationally. This potential increase in swap market
participation may improve the competitiveness of the swap marketplace
as more parties demand sources of risk transference.
Furthermore, the Commission does not anticipate that the
recordkeeping requirements of this final rule present any costs that
would impede the efficiency of swap markets. Required recordkeeping may
aid internal audits and dispute resolution. Electronic recordkeeping,
which will aid required electronic reporting, may improve efficiency
and reduce initiation and maintenance costs over the long run.
Price discovery. The Commission does not believe that this
requirement has a material effect on the price discovery process.
Sound risk management practices. The Commission believes that the
final rule recordkeeping requirements may serve to improve the
soundness of the risk management practices of market participants. The
Commission is essentially requiring the maintenance of accurate records
in a manner such that records are readily available for reproduction to
regulators, but the Commission anticipates an ancillary risk management
benefit. That is, market participants will now have access to a highly
organized and streamlined internal records system when analyzing or
otherwise developing their risk management practices. The Commission
does not believe that the costs associated with its discretionary
implementation decisions are of a magnitude to impede sound risk
management. Moreover, the cost of implementation of the recordkeeping
rule may be partially compensated by error avoidance and the mitigation
of internal risk.
Other public interest considerations. As discussed throughout the
preamble, the Commission believes that the greater market transparency,
enhanced market monitoring, and increased systemic risk mitigation that
will be enabled by the swap recordkeeping required by the final rule
are in the public interest.
4. Swap Data Reporting
a. Benefits of Swap Data Reporting
The Commission anticipates that the part 45 reporting requirements
will generate several overarching, if presently unquantifiable,
benefits to swap market participants and the general public. These
include(i) Improved risk management; (ii) a transfer of the costs
associated with systemic risk from the public to private entities,
particularly to those that are better positioned to realize economies
of scale and scope in assuming those costs; and (iii) improved
regulatory oversight.
The Commission believes these benefits, made possible by the timely
reporting of comprehensive swap transaction data, will accrue to market
participants in a number of ways:
More robust risk monitoring and management capabilities
for market participants as a result of the systems required under
part 45. This will improve the monitoring of the participant's
current swap market position.
New tools to process transactions at a lower expense
per transaction given the systems required under part 45. These
tools will enable participants to handle the same or an increased
volume of swaps at a lower marginal expense both at trade inception
and during its life.
More robust standards for the financial services
industry, such as utilizing UTC and unique identifiers for products
and legal entities.
Transaction reporting under part 45 also benefits the general
public by supporting the Commission's supervision of the swap market,
as well as the broader supervisory responsibilities of U.S. financial
regulators to protect against financial market systemic risk. The
reporting and recordkeeping requirements provide a means for the
Commission to gain a better understanding of the swap market--including
the pricing patterns of certain commodities. As bespoke swaps move onto
more standardized, and in some cases, electronic platforms, more
numerous trade participants will likely enter these markets. Timely,
comprehensive, and standardized regulatory reporting is especially
crucial for successful oversight of these marketplaces.
Transparency facilitated by transaction reporting to SDRs also will
help provide a check against a reoccurrence of the type of systemic
risk build-up that occurred in 2008, when ``the market permitted
enormous exposure to risk to grow out of the sight of regulators and
other traders and derivatives exposures that could not be readily
quantified exacerbated panic and uncertainty about the true financial
condition of other market participants, contributing to the freezing of
credit markets.'' \106\ The ability to monitor and quantify these
levels of risk assumption provides one additional line of defense
against another occurrence of crippling financial costs.
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\106\ Mark Jickling and Kathleen Ann Ruane, Cong. Research
Serv., The Dodd-Frank Wall Street Reform and Consumer Protection
Act: Title VII, Derivatives 1 (2010).
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Pursuant to this final rule, reporting counterparties will be
required to report allocation information when a swap is transacted by
an agent on behalf of clients. The Commission believes that this
requirement will enable regulators to better understand swaps in the
context of allocation, and to more accurately assess their associated
systemic risk, by enabling regulators to see the full record of each
such swap all the way back to both the original transaction and the
actual counterparties.
The Commission believes requiring all data to be reported in the
same SDR following the initial report from a SEF or DCM would reduce
data fragmentation and improve regulatory
[[Page 2182]]
oversight. The costs and benefits of the Commission's approach are
addressed in more detail below in the discussion of the section 15(a)
factors. The Commission is harmonizing its initial PET data reporting
with the part 43 real-time public reporting requirements to the extent
possible and setting forth identical timeframes so that counterparties
and registered entities may be able to, in most cases, submit data for
both requirements in a single report.\107\
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\107\ The phase-in and implementation of these requirements may
differ.
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The Commission notes that there is a cost reduction associated with
the improved harmonization between the approach to PET data reporting
of this final rule and the part 43 real-time public reporting
requirements that were made by the Commission between the issuance of
the NOPR and this final rule. These requirements have been harmonized
to the extent possible, including the imposition of identical
timeframes, so that counterparties and registered entities will be able
to make one initial report. The Commission anticipates that this
harmonization will result in a significant reduction in cost to
counterparties and registered entities.
The Commission believes that part 45 will yield significant
benefits to the public and swap market participants. As discussed more
fully below, however, the Commission is mindful of the costs of its
rules and has carefully considered comments concerning the potential
costs of its proposed recordkeeping and reporting rules. To the extent
possible and consistent with the statutory and regulatory objectives of
this rulemaking, the Commission has adopted cost-mitigating
alternatives presented by commenters. In the following paragraphs, the
Commission first estimates the costs of reporting and next considers
those costs and the aforementioned benefits in light of the five public
interest factors of CEA section 15(a).
b. Costs of Swap Data Reporting
As discussed in detail above, the Commission received a number of
comments supporting the proposed reporting rules, and others suggesting
alternatives or refinements. Commenters did not provide any
quantitative data regarding the costs to registered entities, reporting
counterparties and the public. The Commission addressed those comments
above and, where deemed appropriate, the final rules reflect
commenters' suggestions.
Costs of Reporting Requirements
The Commission anticipates that the direct, quantifiable costs of
complying with the requirement for SEFs, DCMs, DCOs, and reporting
counterparties to report creation data will take the forms of (i)
nonrecurring expenditures in technology and personnel; and (ii)
recurring expenses associated with systems maintenance, support, and
compliance. Each of these quantifiable costs of swap data reporting is
associated with an information collection subject to the PRA. These
costs therefore have been accounted for in the information collection
requests filed with OMB as required by the PRA.
The Commission estimates that the initial costs for its reference
point, a non-SD/MSP reporting counterparty that is not a ``financial
entity'' as defined in CEA section 2(h)(7)(C), and does not contract
with a third party to report swap data, will likely consist of (i)
Developing an internal OMS capable of capturing all relevant swap data
in real-time; (ii) establishing connectivity with an SDR that accepts
data; (iii) developing written policies and procedures to ensure
compliance with part 45; and (iv) compliance with error correction
procedures.\108\
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\108\ As noted above, most data reporting pursuant to Part 45
will be performed by SDs, MSPs, SEFs, DCMs, or DCOs. However, when
estimating costs to market participants for this final rule, the
Commission anticipates that the technological infrastructure and
personnel costs will likely be highest for an unsophisticated non-
SD/MSP reporting counterparty that is not a financial entity, has no
existing infrastructure for reporting, and does not contract with a
third-party service provider to facilitate reporting. Accordingly
the Commission considered costs from this perspective. The
Commission anticipates that these costs will be lower, and in many
cases significantly reduced or completely eliminated, for larger or
more sophisticated entities that already have technological and
personnel systems developed and operational.
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The Commission anticipates, however, that the costs of creation
data reporting for the reporting entities and counterparties listed
above are already largely addressed by the costs of reporting the real-
time data stream for compliance with part 43. Accordingly, the costs of
creation data reporting presented by part 45 should not be considered
incremental to the costs of capturing and transmitting the real-time
data stream pursuant to part 43 except in certain instances, which are
addressed below. In general, the Commission estimates that the
processes necessary for capturing and transmitting the real-time data
stream pursuant to part 43 will encompass the costs of capturing and
transmitting creation data pursuant to part 45. The Commission
anticipates that a reporting entity or counterparty will use its OMS to
capture all of the information that pertains to a given swap. This body
of information will be used to produce the fields necessary for
compliance with both part 43 and part 45. Therefore, the Commission
believes that, in general, the costs of developing and maintaining an
OMS necessary for compliance with part 45 should not be considered to
be incremental to the costs of developing and maintaining an OMS for
compliance with part 43.
Similarly, under both part 43 and part 45 the reporting entity will
be required to establish and maintain connectivity with an SDR for the
transmission of data. The Commission anticipates that, in order to
streamline the data reporting process, reporting entities will transmit
both the real-time data stream and the regulatory data stream
simultaneously to the same SDR via the same connection.\109\ The
Commission has aligned the reporting deadlines provided in part 45 and
the public dissemination delays set forth in part 43 in order to reduce
costs and burdens by permitting registered entities and reporting
counterparties to fulfill their swap data reporting obligations with
respect to both part 45 and part 43 by transmitting a single
report.\110\ Given simultaneous transmission of the data streams
necessary for compliance with parts 43 and 45, the Commission believes
that, in general, the costs of establishing and maintaining
connectivity to an SDR in order to comply with part 45 should not be
considered to be additional to the costs of establishing and
maintaining connectivity to an SDR in order to comply with part 43.
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\109\ Should a reporting entity elect to transmit these streams
separately, its cost to transmit data to an SDR would likely
increase; however, it is for precisely this reason that the
Commission anticipates that reporting entities would, in fact,
eliminate duplicative reporting of data streams for a given swap by
transmitting both streams simultaneously.
\110\ For off-facility swaps that are not accepted for clearing
within the applicable deadline for the reporting counterparty to
report PET data, the reporting counterparty can combine required PET
data reporting and required real time reporting in a single report,
but would still have to report confirmation data separately if it is
not reported along with PET data. Reporting counterparties can avoid
the need for a separate confirmation data report by confirming their
swaps within the applicable deadline for PET data reporting.
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The Commission anticipates that the same logic may be applied to
the costs of developing written compliance policies and procedures, as
well as the costs of developing and implementing error correction
procedures. Because the data streams necessary for compliance with
parts 43 and 45 for a given swap
[[Page 2183]]
originate from the same set of information, the Commission anticipates
that reporting entities will likely consider the management of both
streams when developing compliance and error correction procedures. The
Commission therefore believes that in general, the costs of developing
and implementing compliance and error correction procedures presented
by part 45 should not be considered additional to the costs of
developing and implementing compliance and error correction procedures
presented by part 43.
The Commission acknowledges that part 43 does not address the costs
of reporting by DCOs. The Commission estimates that the incremental
costs to DCOs of compliance with this final rule would be comparable to
the costs either (a) a SEF or DCM, if the DCO makes the creation data
report for an off-facility, cleared swap,\111\ or (b) an SDR, if the
DCO registers as such. In the event that a DCO registers as an SDR, it
will also incur the costs of registering as such pursuant to part 49.
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\111\ The costs to a DCO will be similar to those of a SEF or
DCM in this instance because the initial report to the Commission by
the registered entity will include the same data fields reported in
the same timeframe; thus, the non-recurring and recurring costs to a
DCO of processing and reporting those data should be similar, if not
identical, to those incurred by a SEF or DCM.
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Costs of Reporting Timelines
The reporting timelines and requirements established in this part
were designed to accommodate the needs of reporting counterparties and
registered entities of varying size and sophistication. The Commission
believes that these reporting timelines and requirements have been
tailored appropriately to the sizes and levels of technological and
personnel sophistication of the affected entities, and will not impose
any additional costs to reporting counterparties or registered entities
above the costs associated with their reporting obligations. Costs
associated with reporting obligations are discussed below in the
sections addressing the costs of creation data reporting and
continuation data reporting.
Several commenters addressed the timeframes allotted for reporting
creation and continuation data. The AGA requested at least 24 hours for
PET data reports by non-SD/MSP reporting counterparties, both initially
and when required to supplement an incomplete SEF or DCM report. AGA
also requested more than the 24 hour timeframe allotted for PET data
reporting for swaps that are neither electronically executed nor
verified, because in certain instances the reports could be required
outside normal business hours, which would increase reporting costs.
Similarly, ABC asked the Commission to clarify that the 24 hour
timeframe did not include non-business days, such as a national or
state holiday or a national or state period of emergency.
MFA commented generally that it believed that the policy benefits
of providing swap data within minutes of execution do not outweigh the
costs in terms of the high likelihood of errors, or the infrastructure
costs to establish a mechanism to report swaps information in these
short timeframes. Specifically, MFA recommended that the Commission
define ``execution'' as being coterminous with ``confirmation'' for on-
facility swaps. It also urged that, for swaps not executed or confirmed
electronically, the 24-hour timeframe in the NOPR should commence
following manual confirmation. Similarly, COPE, EEI, and IECA commented
that the 24 hour timeframe was too short for non-SD/MSP counterparties.
Specifically, IECA recommended weekly reports for all required creation
data and weekly or biweekly for continuation data.
Chatham Financial and CDEU recommended a timeline of the next
business day following execution for electronically executed non-SD/MSP
reportable swaps and second business day following execution for non-
electronically executed and confirmed non-SD/MSP reportable swaps.
The Electric Coalition recommended that non-SD/MSP reporting
counterparties be required to report no more than quarterly, and
generally commented that the timelines were too short for non-financial
entities. Similarly, CDEU commented that, for valuation data (a subset
of continuation data reporting), non-SD/MSP end-users should not be
required no more frequently than they are required to reconcile their
portfolios.
As discussed above, after considering these comments, the
Commission has determined that the final rule will adopt a streamlined
reporting regime that requires reporting by the registered entities or
swap counterparties with the easiest, fastest, and cheapest data access
and those most likely to have the necessary automated systems.
Under this reporting regime, in the case of swaps executed on a SEF
or DCM and cleared on a DCO, and in the case of off-facility swaps
accepted for clearing by a DCO within the deadlines for reporting
counterparties to report PET data, reporting obligations for non-SD/MSP
reporting counterparties are entirely eliminated, and the only
reporting obligation for SD or MSP reporting counterparties is the
requirement to report valuation data during the existence of the swap.
For on-facility swaps that are not cleared, reporting
counterparties must report only required swap continuation data,
including reports of changes to primary economic terms of the swap made
after occurrence of such a change, and reports of valuation data. As
noted above, the deadlines for such reports by non-SD/MSP reporting
counterparties have been substantially extended.
For off-facility swaps not accepted for clearing within the
applicable counterparty reporting deadline, but eventually cleared, SD
or MSP reporting counterparties are required to report only PET data
and valuation data, and non-SD/MSP reporting counterparties are
required to report only PET data.
A non-SD/MSP counterparty will be required to report both swap
creation data and swap continuation data only for off-facility,
uncleared swaps between non-SD/MSP counterparties; and this obligation
can apply only if the non-SD/MSP counterparty is an ECP, since CEA
section 2(e) restricts swap trading by non-ECP counterparties to on-
facility swaps. For the extremely small number of off-facility,
uncleared swaps for which a non-SD/MSP that is an ECP is the reporting
counterparty, the final rule also provides reporting deadlines that are
extended and phased in. In such cases, PET data must be reported by the
non-SD/MSP reporting counterparty within 48 hours after execution
during the first year of reporting, within 36 business hours after
execution during the second year of reporting, and within 24 business
hours after execution thereafter. Confirmation data must be reported
within 48 hours after confirmation during the first year of reporting,
within 36 business hours after confirmation during the second year of
reporting, and within 24 business hours after confirmation thereafter.
During the existence of the swap, changes to primary economic terms
must be reported by the end of the second business day following the
date of the change during the first year of reporting, and by the end
of the first business day following the date of the change thereafter;
and valuation data is only required to be reported on a quarterly
basis.
Finally, for off-facility, uncleared swaps, SD or MSP reporting
counterparties must report both required swap creation data and
required swap confirmation data. However, the reporting timeframes for
these reports have been coordinated with the dissemination delays for
real
[[Page 2184]]
time reporting, in order to permit counterparties to fulfill both real
time and regulatory reporting obligations by making a single creation
data report.\112\ Confirmation data reporting deadlines in this context
have also been extended to 24 business hours in cases where
confirmation occurs manually rather than through use of automated
systems, due to the presence of a non-SD/MSP counterparty that lacks
such systems.
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\112\ The phase-in and implementation of these requirements may
differ.
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These provisions of the final rule either eliminate or
substantially reduce the costs and burdens of swap data reporting for
all reporting counterparties, and particularly for non-SD/MSP reporting
counterparties, who are those least likely to have existing
technological and personnel infrastructure for swap data reporting.
Costs of Reporting Cleared Swaps
The Commission notes that the final rule swap data reporting
requirements could present costs to reporting counterparties and
registered entities to the extent that a SEF, DCM, or reporting
counterparty reports regulatory data to an SDR with which it does not
have a presently existing connection, rather than to a DCO registered
as an SDR, with which registered entity or reporting counterparty has a
presently existing connection for clearing purposes.\113\ However, the
Commission enumerated the costs of establishing connectivity to an SDR
for swap data reporting in its final part 43 rules governing real-time
reporting of swap transaction and pricing information. The costs of
connectivity presented by this final rule are not additional to those
costs considered in connection with part 43, and thus are not
appropriate for evaluating costs relative to benefits in this
rulemaking. Moreover, the Commission has not identified any
quantifiable costs with respect to connectivity not associated with the
part 43 information collection request, for which the Commission must
account under the PRA.
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\113\ Should a DCO register as an SDR, counterparties that
transacted through the DCO previously would have already established
connectivity for processing those transactions, and would thus not
have to incur new connectivity costs once the DCO began functioning
as an SDR.
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Two commenters addressed cost-benefit considerations in regard to
the reporting of cleared swaps to SDRs. CMC recommended that the
Commission leverage existing DCOs for reporting cleared swaps, adding
that requiring the industry to establish a redundant set of expensive
connections with non-DCO SDRs for the purpose of making regulatory
reports for cleared trades would be costly, inefficient and
unnecessary. Similarly, CME recommended that the initial regulatory
report for a cleared swap be reported to a DCO or an SDR chosen by the
DCO, adding that this approach is the lowest cost and least burdensome
method for implementing the regulatory reporting requirements.
The Commission has determined to adopt the rules as they relate to
reporting swap data for cleared trades to SDRs largely as proposed.
While the Commission is cognizant of the cost-benefit considerations,
section 2(a) of the CEA requires each ``swap (whether cleared or
uncleared) * * * be reported to a registered swap data repository''
(emphasis added). The Commission notes that section 21(a)(1)(B) allows
DCOs to register as SDRs, and that the final rules do not preclude
counterparties or registered entities from reporting swap data to
existing DCOs registered as SDRs, or to SDRs chosen by DCOs, if they so
choose for business or cost-benefit reasons.
Costs Affected by Permitted Use of Third-Party Service Providers to
Facilitate Reporting
The Commission anticipates that the final rule reporting
requirements for reporting counterparties and registered entities may
result in costs to such counterparties and entities in the form of (i)
personnel hours dedicated to the development and maintenance of
reporting systems and connectivity to data repositories; and (ii) the
development and ongoing administration of a compliance program. Such
costs could include standardizing data or hiring new personnel to
upgrade technology infrastructure. However, such costs could be
affected or reduced where the reporting counterparty or registered
entity required to report chooses to have a third-party service
provider facilitate reporting.
The Commission requested comment on the merits of allowing third-
party facilitation of swap data reporting and on how it should be
structured. Several commenters responded with comments regarding cost-
benefit considerations. Global Forex, DTCC and WGCEF supported the NOPR
provision allowing third-party facilitation of reporting because they
believe it will reduce costs, particularly for non-SD/MSPs.
As noted above, the Commission has considered these comments, and
has determined to adopt in the final rule the NOPR provision permitting
third-party facilitation of data reporting. The use of third-party
service providers in the reporting phase of the regulatory data
reporting process may also represent a likely cost reduction. Reporting
counterparties and registered entities that elect to contract with
third-party service providers can realize the cost savings associated
with the comparative advantages of third-party providers specializing
in swap data reporting services.
Costs of Creation Data Reporting
i. Costs to Counterparties and Registered Entities
As discussed in more detail above, the NOPR called for two types of
creation data reporting, namely PET data reporting and confirmation
data reporting. The Commission anticipates that creation data reporting
will represent costs to reporting counterparties and registered
entities in the form of (a) significant non-recurring investments in
technological systems and personnel; and (b) recurring expenses
associated with systems usage and maintenance and personnel hours
required for data reporting.
The Commission estimates that the initial costs for its reference
point, a non-SD/MSP reporting counterparty that is not a financial
entity as defined in the Dodd-Frank Act and does not contract with a
third party to report swap data, will likely consist of (i) Developing
an internal OMS capable of capturing all relevant swap data in real-
time; (ii) establishing connectivity with an SDR that accepts data;
(iii) developing written policies and procedures to ensure compliance
with part 43; and (iv) compliance with error correction procedures.
The Commission estimates that the recurring costs for its reference
point, a non-SD/MSP reporting counterparty that is not a financial
entity and does not contract with a third party to report swap data,
will likely consist of (i) Operational support for its OMS, including
adaptation to new products, systems upgrades and ongoing maintenance;
(ii) maintaining connectivity with an SDR that accepts data, including
the demands on technological systems and the burden associated with the
personnel hours necessary to facilitate transmission of data; and (iii)
compliance with error correction procedures, including the burden
associated with the personnel hours necessary to monitor and report
errors.
The Commission notes, however, these costs should not be added to
the costs of reporting data for real-time public reporting enumerated
in the Commission's final rules in part 43
[[Page 2185]]
concerning real time reporting, insofar as they refer to PET data for
regulatory reporting.
Pursuant to the final rule, counterparties will be required to
report allocation information when a swap is transacted by an agent on
behalf of clients. The Commission does not believe that this
requirement is likely to present a significant incremental burden to
counterparties. Based on conversations with industry participants, the
Commission believes that allocation reports are already transmitted
from one counterparty to the other following a swap; therefore,
transmitting that report to an SDR would present a negligible
additional burden.
The final rule provides that, should there be a swap asset class
for which no SDR accepts swap data, swap data for a swap in that asset
class must be reported to the Commission. This provision was set forth
in the NOPR, and is required by CEA section 4r(b) and (c). The
Commission anticipates that this requirement is unlikely to impose
additional costs on registered entities and swap counterparties
required to report swap data, since SDRs covering all existing swap
asset classes have already applied for designation by the Commission.
The Commission also notes that the requirements for such reporting
differ from those for reporting to an SDR. The final rule calls for
data for such swaps to be reported to the Commission at times announced
by the Commission and in an electronic file in a format acceptable to
the Commission, as determined by the Commission's Chief Information
Officer.
The Commission has nonetheless considered possible costs associated
with such reporting, which would apply only in the event that there is
an asset class for which no SDR accepts data. In such circumstances,
reporting counterparties and registered entities required to report
swap data would be required to incur an initial one-time cost to
establish and test connectivity to the Commission. The Commission
notes, however, that because reporting counterparties will already be
required to develop and test technological systems for establishing
connectivity to an SDR pursuant to this final rule, there will not be
an incremental non-recurring cost presented by this requirement.
Rather, because this cost will only be incurred by a reporting
counterparty in the absence of an SDR that accepts data for any asset
class, this cost should be considered to exist in the absence of,
rather than together with, the cost of establishing connectivity to an
SDR.
In the event that a new asset class comes into existence for which
no SDR immediately accepts regulatory swap data reports, the Commission
will be required to receive data reports concerning swaps in that asset
class until an SDR elects to receive swap data in that asset class. The
Commission has accounted in the PRA for the cost of maintaining
connectivity to the Commission which would be incurred by registered
entities and reporting counterparties transacting in such an asset. The
Commission does not believe it is feasible to estimate the likelihood
that such an asset class will arise or the length of time for which the
Commission will be required to receive the associated regulatory data.
The Commission believes that this recurring burden of transmitting
data to the Commission will represent a small percentage of the burden
of transmitting data to a registered SDR or third-party service
provider as required for real time reporting pursuant to part 43 and
regulatory reporting to SDRs as required by this part. The Commission
has determined that this percentage is not readily quantifiable,
because the asset classes for which reporting to the Commission would
be required, and thus the amount of data that would be required to be
reported to the Commission, are currently unknown.
The NOPR sought to mitigate the fragmentation of data for a single
swap across multiple SDRs by requiring that once an initial data report
concerning a swap is made to an SDR, all data reported for that swap
thereafter must be reported to that same SDR.\114\ Roundtable
participants agreed that the NOPR provision calling for all data for a
given swap to be reported to a single SDR was essential to preventing
fragmentation of data across multiple SDRs, something that would
seriously impair both regulators' ability to view or aggregate all of
the data concerning a swap and the ability of reporting entities and
counterparties to review data reported by them. WGCEF commented that
all swap data for a given swap should be reported to the same SDR. The
Commission received no comments opposing this requirement.
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\114\ The NOPR also called for PET data to be reported promptly
following execution of the swap.
---------------------------------------------------------------------------
Global Forex observed that, after the initial swap data report is
made for a swap, market participants required to make further reports
concerning that swap would need to ensure that they can connect to the
chosen SDR. EEI, EPSA, and WGCEF suggested that the rules should ensure
that SDR selection by a platform, SD, or MSP is equitable and does not
result in unreasonable costs or burdens being imposed on non-SD/MSP
counterparties.
WGCEF also suggested that market participants should not be
required to report all of their swaps to the same SDR, since SDR
competition would tend to lower fees associated with reporting. DTCC,
ICE, and WGCEF recommended that the reporting counterparty should
always select the SDR. ICE argued that otherwise reporting
counterparties could incur significant expenses to build and maintain
connections to an SDR with which they are not already connected. ABC
and CIEBA suggest that for swaps involving a benefit plan as a
counterparty, the SDR selection should always be made by the plan.
The CMC and CME both recommended that the initial regulatory report
for a cleared trade be transmitted to either a DCO or an SDR that is
affiliated with a DCO. CMC suggested that this would reduce unnecessary
expenses and operational difficulties, whereas it would be costly,
inefficient and unnecessary to require industry to establish a
redundant set of expensive connections with non-DCO SDRs for the
purpose of making regulatory reports for cleared trades. CME stated
that having cleared swaps reported to a DCO also registered as an SDR
or an SDR that is affiliated with a DCO would provide the lowest cost
and least operationally burdensome path available to meet regulatory
requirements.
The Commission anticipates that, because the final rule does not
require each cleared swap to be reported to an SDR affiliated with the
DCO that clears the swap, in some circumstances DCOs may incur some
increased costs, relative to an environment in which all cleared swaps
must be reported to a DCO-SDR.
For a cleared swap executed on a SEF or DCM, and
reported to an SDR by the SEF or DCM as required by the final rule,
the DCO could incur incremental costs, if the SEF or DCM chooses to
report to an SDR other than the DCO-SDR. In this circumstance, the
DCO would be required to report confirmation data and continuation
data to the SDR receiving the initial report, and thus to assume the
costs necessary to establish connectivity to that SDR and transmit
data to it. Such connectivity and transmission costs are addressed
below. However, if the DCO chooses to register as an SDR, as
explicitly permitted by the statute and anticipated by these
commenters, the SEF or DCM would be able to reduce its costs by
selecting the DCO-SDR as the SDR receiving the initial report, and
thus avoid the need to send data separately to an SDR for regulatory
reporting purposes and to a DCO for clearing purposes. In such an
event, the DCO would not incur these incremental costs.
For an off-facility, cleared swap for which the
reporting counterparty is excused
[[Page 2186]]
by the final rule from reporting creation data, the DCO would not
incur incremental costs. In this situation, the DCO would select the
SDR to which all data is reported, by making the initial creation
data report. The DCO could report to itself in its capacity as an
SDR if it chooses to to register as an SDR, as explicitly permitted
by the statute and anticipated by these commenters.
For an off-facility, cleared swap with respect to which
the reporting counterparty makes the initial PET data report, the
DCO would incur incremental costs if the reporting counterparty
chooses to report to an SDR other than the DCO-SDR. In this
circumstance the DCO would be required to report confirmation data
and continuation data to the SDR receiving the initial report, and
thus to assume the costs necessary to establish connectivity to that
SDR and transmit data to it. These costs are addressed below.
However, if the DCO chooses to register as an SDR, as explicitly
permitted by the statute and anticipated by these commenters, the
reporting counterparty would be able to reduce its costs by
selecting the DCO-SDR as the SDR receiving the initial report, and
thus avoid the need to send data separately to an SDR for regulatory
reporting purposes and to a DCO for clearing purposes. In such an
event, the DCO would not incur these incremental costs.
The Commission also anticipates that, because the final rule does
not require each cleared swap to be reported to an SDR affiliated with
the DCO that clears the swap, in some circumstances reporting
counterparties may incur some increased costs, but also some increased
benefits, relative to an environment in which all cleared swaps must be
reported to a DCO-SDR.
For swaps executed on a SEF or DCM, an SD or MSP
reporting counterparty would incur the incremental costs if the SEF
or DCM chooses to report to an SDR other than the DCO-SDR. In this
circumstance, the SD or MSP would be required to report valuation
data to the SDR, and thus to assume the costs necessary to establish
connectivity to that SDR and transmit data to it. Such costs are
addressed below. A non-SD/MSP reporting counterparty would not incur
such incremental costs, because all continuation data would be
reported by the DCO. However, if the DCO chooses to register as an
SDR, as explicitly permitted by the statute and anticipated by these
commenters, the SEF or DCM would be able to reduce its costs by
selecting the DCO-SDR as the SDR receiving the initial report, and
thus avoid the need to send data separately to an SDR for regulatory
reporting purposes and to a DCO for clearing purposes. In such an
event, the SD or MSP reporting counterparty would not incur these
incremental costs.
For an off-facility, cleared swap with respect to which
the reporting counterparty is excused by the final rule from
reporting creation data, an SD or MSP reporting counterparty would
incur incremental costs only if the DCO chooses not to register as
an SDR.\115\ In this situation, the DCO would select the SDR to
which all data is reported, by making the initial creation data
report, and could report to itself in its capacity as an SDR if it
chooses to to register as an SDR, as explicitly permitted by the
statute and anticipated by these commenters. The incremental costs
for the SD or MSP reporting counterparty would be the costs
necessary to establish connectivity to, and transmit valuation data
to, the SDR to which the initial creation data report was made. A
non-SD/MSP reporting counterparty would not incur such incremental
costs, because all continuation data would be reported by the DCO.
---------------------------------------------------------------------------
\115\ The Commission believes that a DCO registered as an SDR
would choose to report to itself in its capacity as an SDR in this
circumstance.
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For an off-facility, cleared swap with respect to which
the reporting counterparty makes the initial PET data report, the
reporting counterparty would not incur incremental costs, but would
receive the benefit of being able to choose either the DCO-SDR or
any other SDR accepting swaps in the asset class in question.
The Commission also anticipates that, because the final rule does
not require each cleared swap to be reported to an SDR affiliated with
the DCO that clears the swap, SEFs and DCMs would receive benefits
relative to an environment in which all cleared swaps must be reported
to a DCO-SDR. Specifically, for any swap executed on a SEF or DCM, the
facility would be able to choose either the DCO-SDR or any other SDR
accepting swaps in the asset class in question.
The Commission notes that DCOs are eligible to register as SDRs and
capitalize on these existing connections, and the Commission
anticipates that the competitive market for SDR services will dictate
such an outcome if it is indeed cost-effective. The Commission believes
that a competitive marketplace for SDR services presents the
opportunity for significant reductions to the cost of swap data
reporting.
WGCEF and Dominion recommended that the Commission harmonize its
PET data requirements with the reporting required by the part 43 real-
time public reporting regulations to reduce the reporting burdens on
counterparties.
After considering these comments, the Commission has determined, as
noted above, that the final rule should require that all data for a
given swap be reported to the same SDR to which the initial report of
swap data is made as provided in the final rule. The wide variety of
suggestions by commenters concerning who should choose the SDR suggests
that no single approach produces the lowest cost for all market
participants in all circumstances, and that this decision is best left
to the market. The final rule as adopted avoids injecting the
Commission unnecessarily into a market decision, and leaves the choice
of SDR to be influenced by market forces and possible market
innovations. Requiring that all cleared swaps be reported only to DCOs
registered as SDRs would create a non-level playing field for
competition between DCO-SDRs and non-DCO-SDRs. Conversely, giving the
choice of the SDR to the reporting counterparty in all cases could in
practice give an SDR substantially owned by SDs a dominant market
position with respect to much swap data reporting. The final rule also
addresses the major substance of the concerns expressed by non-SD/MSP
counterparties, since it requires the initial data report to be made by
a non-SD/MSP counterparty only in the case of a swap executed off-
facility between two non-SD/MSP counterparties that are ECPs. Moreover,
in this situation, the non-SD/MSP reporting counterparty will, by
making the initial data report, be able to select the SDR as
recommended by comments.
ii. Costs to SDRs
The Commission anticipates that creation data reporting will
present additional costs to SDRs, both in the form of non-recurring
investments in technological systems and personnel during the
development of the formatting procedure, and in the form of recurring
expenses associated with data processing, systems maintenance, and
personnel hours. However, these costs should not be considered
independent of the costs associated with real time reporting pursuant
to part 43, which includes the burden estimate for the data formatting
processes that an SDR will need to employ. The Commission anticipates
that compliance with this requirement will primarily require SDRs to
handle additional swap data required to be reported by this part but
not required to be reported by part 43. This part will not require SDRs
to fulfill any of the rounding, counterparty masking, or disseminating
requirements of real-time public reporting. Therefore, in general, the
Commission anticipates that the recurring burden to an SDR presented by
creation data reporting will be negligibly incremental to the costs to
SDRs associated with real-time public reporting.
Pursuant to the final rule, in the context of allocations, as
discussed above, reporting of both the original swap between the
reporting counterparty and the agent and reporting of the swaps
resulting from allocation will be required. The only additional duty
for SDRs in this context
[[Page 2187]]
is the need to map together these related swaps. SDRs will already be
required to have automated systems and personnel capable of mapping
together various data reports, such as mapping together different data
reports for a single swap using the USI for the swap that is included
in each such report. As a result of the requirement for mapping in the
context of allocations, the Commission anticipates that SDRs will incur
an incremental burden consisting of (a) one-time setup costs to program
automated systems to do the required mapping in the allocation context,
and (b) low ongoing maintenance costs associated with keeping such
programming up to date. The Commission does not believe that this
burden is readily quantifiable, both because the percentage of swaps
involving allocations is currently unknown, and because the number of
client allocations could vary greatly between swaps involving
allocation. As noted above, SDRs must have the capacity to map together
all data reports associated with any USI, and compliance with this
requirement will facilitate the data mapping process in the context of
allocations, which will also involve USIs. This should reduce the
additional burden of linking allocation reports, or eliminate it in
some cases. The Commission was informed by roundtable participants that
existing trade repositories are able to accept data in multiple formats
or data standards from different counterparties, and to map the data
they receive into a common data standard within the repository, without
undue difficulty, delay, or cost. Therefore, the Commission anticipates
that SDRs will be able to perform the mapping required in the
allocation context using existing technologies and processes.
With regard to SDRs, the error reporting requirement of this final
rule would require a registered SDR to develop protocols regarding the
reporting and correction of erroneous information. This reporting
requirement is associated with an information collection for which the
Commission is obligated to account under the PRA. Accordingly, the
burden estimates have been addressed in the information collection
requests that the Commission has prepared and submitted to OMB for
approval, as required under that statute
Costs of Continuation Data Reporting
The Commission received several comments on the cost-benefit
implications of its proposed approach regarding continuation reporting.
Several comments addressed the NOPR provisions prescribed the data
reporting method--life cycle reporting or snapshot reporting--to be
used in each asset class to report changes to the primary economic
terms of the swap. TriOptima supported the NOPR's approach. ICE
commented with respect to the other commodity asset class that the
snapshot approach would be inefficient, create burdens, and prove
technologically challenging, and that therefore its drawbacks would
outweigh its benefits. Reval commented that continuation data reporting
by either method would require significant capabilities and
investments, and stated that snapshot reporting for interest rate,
currency, and other commodity swaps would not lessen the burdens of
compliance. As noted above, ISDA, SIFMA, REGIS-TR, and DTCC recommended
having the rule not make the choice between the lifecycle and the
snapshot reporting method for each asset class, but rather allowing
SDRs to decide whether to accept data by either or both methods.
Other comments addressed the impact of required frequency of
reporting. EEI, WGCEF, and CDEU contended that daily snapshot reporting
would be burdensome and excessive for non-SD/MSP counterparties, and
recommended quarterly rather than daily reports. AGA stated that daily
continuation data reporting would be unduly burdensome, and recommended
monthly reporting instead.
Additional comments addressed costs associated with valuation data
reporting. Chatham Financial recommended that the Commission align the
timing for valuation data reporting with the timing for the portfolio
reconciliation requirements in the Commission's portfolio and
reconciliation rulemaking, in order to reduce the burden on non-SD/MSP
reporting counterparties. ICE suggested that only DCOs be required to
report valuation data for cleared swaps, since requiring both DCOs and
counterparties to report this data would drastically increase the
number of messages transmitted to SDRs on a daily basis and
unnecessarily burden reporting counterparties. EEI and CDEU questioned
the Commission's regulatory authority and need for valuation data
reporting from non-registered counterparties. ISDA and SIFMA commented
that the implementation of any valuation methodology requires
significant operational and infrastructure development, and called for
further consultation before the Commission requires such a methodology.
FHLB recommended weekly valuation reporting by non-SD/MSP reporting
counterparties, arguing that this should be sufficient for regulatory
purposes and would avoid forcing such counterparties to implement the
costly infrastructure needed to generate daily valuation reports. The
Electric Coalition recommended quarterly valuation data reporting for
the same reason.
The Commission anticipates that the reporting of continuation data
will present additional costs beyond the costs of reporting required
swap creation data as discussed above, consisting of the additional
maintenance of an internal OMS and the additional personnel hours
needed to maintain a compliance program in support of the OMS.
The Commission believes that promptly submitting amended
transaction and pricing data to the appropriate registered SDR after
discovery of an error would impose a burden on reporting counterparties
and registered entities. Likewise, the Commission believes that
promptly notifying the relevant reporting counterparty or registered
entity after discovery of an error would impose a burden on non-
reporting counterparties.
The Commission believes that error reporting would impose an
initial, non-recurring burden associated with designing and building
the reporting parties' reporting system to be capable of submitting
amended swap transactions to a registered SDR. In addition, reporting
parties will be required to support and maintain the error reporting
function and registered SDRs will be required to accept the error
reporting.
The Commission believes that designing and building appropriate
reporting system functionality would be a component of, and represent
an incremental add-on to, the cost of building a reporting system and
developing a compliance function as required by Sec. 43.3(a) (real-
time reporting rule). With regard to non-reporting counterparties, the
Commission believes that the error reporting requirement of this final
rule would impose a minimal non-recurring and recurring burdens
associated with promptly notifying the relevant reporting party after
discovery of an error. The Commission believes, however, that swap
counterparties already monitor their swap transactions in the ordinary
course of business, and thus the error reporting requirement of this
final rule would not result in any significant new burdens for these
participants.
Upon consideration of the comments, the Commission is adopting the
NOPR continuation data provisions with a number of modifications that
the
[[Page 2188]]
Commission believes will further reduce costs and burdens for
registered entities and reporting counterparties, and in particular for
non-SD/MSP reporting counterparties. If a swap is cleared, the DCO will
report all continuation data with the exception of valuation reporting
by SDs and MSPs. Non-SD/MSP reporting counterparties will not be
required to report any continuation data for cleared swaps. For
uncleared swaps, the deadlines for non-SD/MSP reporting counterparties
to report changes to primary economic terms have been extended and
phased in. While the NOPR required the reporting of all of the data
elements necessary for a person to determine the current market value
of the swap, the final rule requires only the reporting of the data
elements necessary to describe the daily mark of the transaction. In
addition, non-SD/MSP reporting counterparties will only be required to
report valuation data on a quarterly basis. In part to further reduce
continuation data reporting costs as discussed in the above comments,
the final rule requires that continuation data be reported in a manner
sufficient to ensure that the information in the SDR concerning the
swap is current and accurate, and includes all changes to any of the
primary economic terms of the swap, but will leave to the SDR and
registered entity and reporting counterparty marketplace the choice of
the reporting method used to meet this requirement. This approach will
help to address commenters' concerns about the cost of daily reporting,
since reporting counterparties would not be required to report on a
daily basis if the SDR in question accepts life cycle reporting.\116\
Additionally in order to reduce reporting burdens to the extent this
can be done without impairing the purposes for which the Dodd-Frank Act
requires swap data reporting, the Commission has determined that the
final rule will not require reporting of contract-intrinsic events.
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\116\ The flexibility of this approach should also ensure
harmonization of the final rule with SEC rules in this respect: even
if the SEC rules specify a reporting method for reporting to
security-based swap data repositories, SDRs that accept mixed swaps
will be free to accept reporting by any reporting method mandated by
the SEC.
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The Commission believes that the swap data reporting requirements
of the final rule represent a reduced cost compared to the requirements
of the NOPR. The Commission does not mandate which particular approach
an SDR chooses, either snapshot approach or lifecycle, in the final
rule, so long as the continuation data for a given swap are accurately
reported. This approach will allow registered SDRs to select the method
of continuation data reporting that is most cost-effective and most
logical for the swap business of their reporting customers. As noted,
costs have been reduced by elimination of required reporting of
contract-intrinsic data. The Commission does not mandate the reporting
of contract-intrinsic data in the final rule, a data stream that was
required under the proposed rule. The Commission believes that this
requirement would have presented a cost burden to reporting
counterparties and registered entities and its elimination will present
a cost reduction. Furthermore, allowing the clearing of a swap on a DCO
to satisfy the continuation data reporting obligations of non-SD/MSP
reporting counterparties represents a lowered overall cost. This
approach eliminates duplication of the reporting requirement,
capitalizes on the transmission pipeline from the DCO to the SDR, and
will allow for more cost-effective reporting than a regime in which
reporting parties entering into a cleared swap would always be
responsible for reporting regulatory data, as the DCO will likely
realize economies of scale in the reporting process.
Collateral and Master Agreement Reporting
In the NOPR, the Commission requested comment as to whether
separate warehouse and library systems should be developed for
collateral and master agreements. Several commenters responded with
cost-benefit considerations regarding establishing these separate
reporting systems. ABC supported requiring master agreement reporting
but recommended that they be reported only once if required. SunGard
supported the establishment of a collateral SDR that could hold credit
support agreements and related net margin and collateral positions
between two counterparties, adding that this would eliminate
unnecessary costs. Chatham Financial and CDEU recommended that the
Commission not require master agreement or collateral reporting because
the costs of reporting would outweigh the benefits. After consideration
of these comments, the Commission has determined not to require master
agreement or collateral reporting at this time.
c. Reporting Requirements in Light of CEA Section 15(a)
The Commission has evaluated the costs and benefits of the
reporting provisions under Sec. 45.3 in light of the specific
considerations identified in Section 15(a) of the CEA as follows.
Protection of market participants and the public. As discussed
above, the Commission has endeavored to limit the costs attributable to
discretionary implementation decisions to the maximum degree consistent
with statutory requirements and their intended benefits. The Commission
has endeavored to match the costs of the post-implementation
marketplace with the sizes, levels of sophistication, and levels of
systemic importance of the affected participants, so that the
associated benefits may be realized by the public.
With respect to swap data reporting, the Commission believes the
benefits include the protection of market participants and the public.
The Commission believes that the reporting requirement of Sec. 45.3
will provide regulatory agencies with a wealth of previously
unavailable data. This comprehensive data will be available in a
unified format, greatly enhancing the ability of regulators in their
oversight and enforcement functions. Systemic risk regulators need data
that will enable them to monitor gross and net counterparty exposures
wherever possible, not just notional volumes for each contract but also
market values. Such data would make it possible to calculate the
concentration of counterparty risk on both participant and market
levels. Market regulators need data that helps them promote market
fairness and competitiveness; protect market participants against
fraud, manipulation, and abusive trading practices; enforce aggregate
speculative position limits as adopted; and ensure the financial
integrity of the clearing process.
The Commission believes that important regulatory purposes of Dodd-
Frank would be frustrated, and that regulators' ability to see
necessary information concerning swaps could be impeded, if data
concerning a given swap was spread over multiple SDRs.
Efficiency, competiveness, and financial integrity. As discussed
above, the Commission has endeavored to limit the costs attributable to
discretionary implementation decisions to the maximum degree consistent
with statutory requirements and their intended benefits. The Commission
has endeavored to match the costs of the post-implementation
marketplace with the sizes, levels of sophistication, and levels of
systemic importance of the affected participants, so that the
associated benefits may be realized by the public.
[[Page 2189]]
With respect to swap data reporting, the Commission believes the
benefits include enhancing the financial integrity of swap markets. The
Commission believes that final rule's streamlined reporting regime,
including the counterparty hierarchy used to select the reporting
counterparty, can be considered efficient in that it assigns greater
reporting responsibility to more sophisticated entities more likely to
be able to realize economies of scale and scope in reporting costs.
This reporting regime may also be an incentive for the platform
execution of swaps that might have otherwise been executed bilaterally,
since platform execution absolves the swap counterparties of the
majority of the reporting burden discussed in this Consideration of
Costs and Benefits section. The Commission anticipates that this will
increase the role of the registered entities in the market that are
able to report data to an SDR most efficiently. Similarly, a potential
increase in the number of participants using platform execution, due to
this efficiency, may aid in market competition.
The Commission believes that, by improving the integrity of the
U.S. swap markets in the manner described above, this final rule may
make participation in the U.S. swap markets more appealing to entities
that currently do not participate; therefore, this final rule presents
the potential to enhance the demand for access to the U.S. swap market
and its participants both domestically and in the global swap
marketplace. This potential increase in swap market participation may
improve the competitiveness of the swap marketplace as more parties
demand sources of risk transference.
The Commission believes that reporting parties may be able to
realize lower costs by means of transmitting reporting and regulatory
data through third-party service providers. These providers will likely
have a comparative advantage in data processing costs relative to the
capabilities of reporting parties; as in the case of the reporting
hierarchy, the final rule allows for the use of reporting methods
considered more efficient by market participants themselves.
Because the accuracy of swap data is essential for market integrity
and regulatory oversight, the final Sec. 45.14 requires the prompt
correction of errors. As seen during the most recent financial crisis,
market volatility may be such that a delay in error correction, even on
the order of a day, may be too late for effective analysis and
response. Because of this, the Commission has considered the cost of
error correction on market participants with regard to the effects of
market turmoil during critical events intensified by market opacity.
The Commission believes that the data standards provisions of the
final rule will serve to reduce costs and burdens for registered
entities and swap counterparties by (a) allowing reporting entities and
counterparties to use whatever facilities, methods, or data standards
are provided or required by the SDR to which data is reported; and (b)
allowing SDRs to use various facilities, methods, and data standards to
receive data, so long as the SDR can provide data to the Commission in
the format required by the Commission. The Commission believes this
approach is preferable to having the Commission mandate that reporting
entities or counterparties adopt a particular format or data standard
for reporting swap data, which in some cases could impose the
additional burden of acquiring new technological capability different
or more extensive that what the entity or counterparty already
possesses. The Commission believes that, in light of this provision of
the final rule, market competition is likely to lead SDRs to allow
reporting entities and counterparties to report using data formats or
standards that are easiest and least costly for them. Costs for market
participants may also be lowered by the final rule provision
authorizing the Commission's Chief Information Officer to require use
of a particular data standard in order to accommodate the needs of
different communities of users.\117\
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\117\ This authority could be used, for example, to require SDRs
to accept swap data reports using a particular computer language
already used by firms in a particular segment of the swap
marketplace, so that they are not forced to incur additional cost by
acquiring the capability needed to report using a different computer
language.
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Furthermore, the Commission does not anticipate that the
recordkeeping requirements of this final rule present any costs that
would impede the efficiency of swap markets.
Price Discovery. The Commission does not believe that the data
reporting requirements of this final rule have a material effect on the
price discovery process. The Commission does not believe that the costs
associated with its discretionary implementation decisions are of a
magnitude to impede the normal functioning of swap market participants,
and thereby disrupt the price discovery process.
Sound risk management practices. The Commission does not believe
that the data reporting requirements of this final rule have a material
effect on sound risk management practices of market participants or
that the costs associated with its discretionary implementation
decisions are of a magnitude to impede sound risk management. However,
as noted in the section on recordkeeping, data which will be reported
may be of use for internal risk management.
Other public interest considerations. The Commission believes that
the data reporting requirements of this final rule will allow
regulators to readily acquire and analyze market data, thus
streamlining the surveillance process.
5. Unique Identifiers
As discussed more fully above, pursuant to its authority in CEA
section 21(b) (added by section 728(b) of the Dodd Frank Act), the
Commission proposed requiring the use of three unique identifiers,
which would serve as critical tools for data aggregation for the
purposes of conducting market and financial risk surveillance,
enforcing position limits, analyzing market data, enforcing Commission
regulations, monitoring systemic risk, and improving market
transparency.
The NOPR required that each swap be identified in all swap
recordkeeping and data reporting by a Unique Swap Identifier (``USI'').
The NOPR took a ``first-touch'' approach to USI creation, with the USI
created by SEFs and DCMs for platform-executed swaps, by SDs and MSPs
for off-platform swaps in which they are the reporting counterparty,
and by SDRs for off-platform swaps between non-SD/MSP counterparties
(who may lack the requisite systems for USI creation). This approach
was designed to foster efficiency by taking advantage of the
technological sophistication and capabilities of SEFs, DCMs, SDs, MSPs,
and SDR, while ensuring that a swap is identified by a USI from its
inception. The provision calling for SDRs to create USIs for off-
facility swaps between non-SD/MSP counterparties was designed to reduce
costs and burdens for such counterparties. Non-SD/MSP counterparties
may lack the sophistication to assign unique identifiers, whereas SDRs
will likely be large, sophisticated entities capable of realizing
economies of scope and scale in processing varied swap data streams;
thus, SDRs are better suited to assign unique identifiers for off-
facility swaps between non-SD/MSP counterparties.
The NOPR required that each swap counterparty be identified in all
swap recordkeeping and data reporting by a legal entity identifier
(``LEI'') (referred to in the NOPR as a unique counterparty identifier
or ``UCI'') approved by the Commission. The NOPR established
[[Page 2190]]
principles that an LEI must follow to be designated by the Commission
as the LEI to be used in swap data recordkeeping and reporting pursuant
to the Commission's Regulations.
The NOPR also called for establishment of a confidential, non-
public LEI reference database, to which each swap counterparty
receiving an LEI would be required to report reference data that would
be associated with its LEI. The NOPR stated the Commission's belief
that optimum effectiveness of LEIs for achieving the systemic risk
protection and transparency goals of the Dodd-Frank Act would come from
a global LEI created on an international basis through an international
voluntary-consensus standards body such as ISO. The NOPR provided that
the Commission would determine, prior to the initial compliance date,
whether such an LEI is available. If it were, the NOPR called for the
Commission to designate that LEI as the LEI approved by the Commission
for use in complying with the final rule. During such time as such an
LEI is not available, the NOPR called swap counterparties to be
identified by a substitute identifier created and assigned by an SDR as
described in the NOPR.
The NOPR required that each swap subject to CFTC jurisdiction be
identified in all swap recordkeeping and data reporting by a unique
product identifier (``UPI'') and a product classification system, as
determined by the Commission, for the purpose of categorizing swaps
with respect to the underlying products referenced in them. The NOPR
called for the UPI and product classification system to identify both
the swap asset class and the subtype within that asset class to which
the swap belongs, with sufficient specificity and distinctiveness to
enable regulators to fulfill their regulatory responsibilities and to
facilitate real time reporting. As provided in the NOPR, UPIs would be
assigned to swaps at a particular, asset class-specific level of the
robust swap taxonomy used by the product classification system, and the
use of UPIs and the classification system would enable regulators to
aggregate and report swap activity at a variety of product type levels,
and to prepare reports required by the Dodd-Frank Act regarding swap
market activity.
a. Benefits of the Unique Identifier Requirements
The Commission anticipates that its approach regarding unique
identifiers will generate several overarching, if presently
unquantifiable, benefits to both swap market participants and the
public generally, including both improved risk management and improved
regulatory oversight. The Commission believes these benefits will
accrue to market participants in a number of ways:
Improved policy analysis by financial regulators
employing legal entity reference data as the basic infrastructure
for identifying, describing, classifying, labeling, organizing, and
using information about trades, counterparties and market
instruments.
Improved identification and quantification of existing
or altered interconnections between firms.
Improved real time analysis across multiple financial
markets to identify systemic risk, market stresses and potential
contagion effects across asset classes.
Improved financial transaction processing, internal
recordkeeping, compliance, due diligence, and risk management by
financial entities.
Unique identifiers will benefit the general public by supporting
the Commission's supervisory function over the swap market, as well as
the broader supervisory responsibilities of U.S. financial regulators
to protect against financial market systemic risk, enhancing the
Commission's ability to detect anomalies in the market.
USIs will assist fulfillment of the systemic risk mitigation,
transparency, and market monitoring purposes of the Dodd-Frank Act, by
enabling identification of the origins of each swap as well as events
that affect the swap during its existence. USIs will be essential for
collating various data reports concerning a swap into a single,
accurate data record. They will also help to avoid double-counting of a
swap reported to different SDRs or to foreign trade repositories,
something that will improve data quality and accurate data aggregation.
Substantial benefits of LEIs for the public are recognized in the CPSS-
IOSCO Report on OTC Derivatives Data Reporting and Aggregation
Requirement, which recommends expeditious development of a global LEI:
[A] standard system of LEIs is an essential tool for aggregation
of OTC derivatives data. An LEI would contribute to the ability of
authorities to fulfill the systemic risk mitigation, transparency,
and market abuse protection goals established by the G20 commitments
related to OTC derivatives, and would benefit efficiency and
transparency in many other areas. As a universally available system
for uniquely identifying legal entities in multiple financial data
applications, LEIs would constitute a global public good.\118\
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\118\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and
Aggregation Requirement, August 2011, p. 36. Publicly available at
http://www.bis.org/publ/cpss96.pdf.
LEIs also offer benefits to market participants. The Commission
notes that while requiring the use of LEIs will represent a new cost to
market participants, LEIs may also reduce the costs of entity
identification for market participants. As noted in the CPSS-IOSCO Data
---------------------------------------------------------------------------
Report:
The data aggregation experience of the private sector in past
years suggests * * * that a universal LEI would have the added
benefit of improving the operational efficiency of firms that are
OTC derivatives counterparties. For financial firms, the current
absence of an industry-wide LEI standard makes tracking
counterparties and calculating exposures across multiple data
systems complicated and expensive, and can lead to costly errors.
Maintaining internal identifier databases and reconciling entity
identification with counterparties is expensive for large firms and
may be disproportionately so for small firms. In the worst case
scenario, identification problems can lead to transactions that are
broken or fail to settle. Entity identification touches so many
aspects of critical business functions that many firms have created
their own internal identifiers, sometimes doing so on a department-
by-department or function-by function basis. Such stop-gap measures
can provide a measure of local relief, but ultimately they further
aggravate and complicate the discontinuity, inconsistency, and
incompatibility of legal entity identification systems both for
identifying OTC derivatives counterparties and across the
international financial sector as a whole. This makes useful data
aggregation and analysis substantially more difficult or even
impracticable. In addition, complete automation of back-office
activities and ``straight through processing'' remain elusive, in
part, because of the lack of a universal identifier for legal
entities.\119\
---------------------------------------------------------------------------
\119\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and
Aggregation Requirement, August 2011, p. 30. Publicly available at
http://www.bis.org/publ/cpss96.pdf.
UPIs may enable better assessment of systemic risk with respect to
particular products, more effective monitoring of the positions and
exposures of individual market participants, and greater transparency
provided by real time reporting as well as by the availability to
regulators of a clearer picture of the marketplace. They may also allow
aggregation of swap data across multiple SDRs, and comparison of swap
data with information concerning cash, equities, and futures markets.
As noted in the CPSS-IOSCO Data Report, UPIs may also assist the back
office and risk management processes of market participants. Much as
LEIs may reduce the costs of entity identification in the fashion
described above by the CPSS-IOSCO Data Report, the Commission believes
that while requiring the use of UPIs will represent
[[Page 2191]]
a new cost to market participants, UPIs may lower costs for market
participants associated with the need to develop and maintain
proprietary product data models and systems, which many firms are
forced to do because of the absence of a universally-accepted standard
for describing, classifying, and identifying swap products.
b. Costs of Unique Identifier Requirements
Costs of USI Requirements
As noted above, for swaps executed on a SEF or DCM, the final rule
requires SEFs and DCMs to generate a USI at the time of execution, and
transmit it to both counterparties, the DCO (if applicable), and the
SDR. For off-facility swaps with an SD or MSP reporting counterparty,
the final rule requires the SD or MSP reporting counterparty to create
the USI at the time of execution, and to transmit it to its
counterparty, the DCO (if applicable) and the SDR. For off-facility
swaps between two non-SD/MSP counterparties, the SDR will assign and
transmit the USI to both counterparties and to the DCO (if applicable).
The Commission anticipates that this requirement will impose additional
costs to SEFs, DCMs, SDs, MSPs and SDRs. The Commission has not
identified any quantifiable costs of the USI requirements that are not
associated with an information collection subject to the PRA. These
costs therefore have been accounted for in the information collection
requests filed with OMB as required by the PRA.
Thomson Reuters stated that the USI proposal could impose a
significant implementation burden on market participants because it
requires the linkage of additional information such as tracking
numbers. Thomson Reuters recommended a USI with no linked information
such as embedded asset class or geographical identifiers.
The Commission believes that, even in the absence of this
requirement, the automated systems of SEFs, DCMs, DCOs, SDs, MSPs, and
SDRs would in all cases create internal identifiers for swap
transactions. Accordingly, for these entities, the cost of creating
USIs will not constitute an incremental cost for such entities above
costs they would already incur. Additionally, to reduce costs for off-
facility bilateral swaps between two non-SD/MSP counterparties, the
final rules have maintained the NOPR approach requiring SDRs to create
and transmit USIs for such swaps.
Costs of LEI Requirements
The Commission anticipates that required use of LEIs will impose
additional costs on market participants.
The Commission received several comments regarding the cost-benefit
implications of the NOPR's LEI provisions.
Three commenters presented LEI proposals or alternatives they
believed would meet the Commission's requirements in the most cost-
effective manner. CME recommended that the Commission use its large
trader system for futures, since this would be quicker, easier, less
costly, and less risky than attempting to establish a new international
method identifying legal entities. CUSIP presented its CABRE system as
a viable and cost-effective alternative for LEIs, suggesting that it
would help market participants realize significant cost savings much
earlier than other options. GS1 presented itself as a potential LEI
provider, suggesting that it could implement a LEI system at no
additional cost to SDs and SEFs that would minimize the overall cost of
the identification system. Two members of Congress asked that the
Commission give full and fair consideration to GS1's proposal because
it could make implementation less costly and burdensome for a
significant segment of the industry.
TriOptima commented that the LEI would require significant
adaptation costs and could possibly delay the implementation of SDRs.
TriOptima suggested an interim period to allow reporting institutions
to submit their own LEI and then map this identifier to the one used by
the SDR.
With respect to the NOPR requirement for reporting of level two LEI
reference data concerning the affiliations of a counterparty, AMG
suggested that the Commission should establish a 50 percent majority
ownership threshold, because requiring corporate affiliation
information from companies that have less than majority ownership may
be burdensome, and in many cases, impracticable.
As discussed above, three commenters presented alternatives to the
Commission's proposals regarding LEIs. The Commission has evaluated
these proposals and will continue to weigh the cost and benefits of
each as it prepares to implement an international industry initiative
and designate an LEI for use in swap data reporting as provided in the
final rule.
The Commission has determined that costs for market participants
are not readily quantifiable. However, the Commission understands that
start-up costs for the LEI system may be borne at least in part by data
service providers, SDs, and other major market participants that are
involved in the international industry initiative now underway to
develop LEIs. Because this process is ongoing, the Commission has
determined that it cannot readily estimate the remaining costs to
market participants that will be imposed by its completion, or what
portion of the impetus for the LEI initiative can be attributed to this
final rule rather than to a general pre-implementation industry
initiative for a better system of legal entity identification.
The final rule calls for the Commission to determine prior to the
start of swap data reporting whether an LEI system meeting the
requirements of the final rule is available. If the Commission
determines that such a system is available, its use will be required in
all swap data recordkeeping and reporting. If the Commission determines
that such a system is not yet available, until such time as the
Commission designates such a system for use in complying with the final
rule, swap counterparties will be identified by means of a substitute
identifier created by SDRs as specified in the final rule. Although the
Commission anticipates that an LEI meeting the requirement of the final
rule will be available before the commencement of swap data reporting,
the Commission has also considered the potential costs and benefits to
SDRs for creating, assigning and transmitting such substitute
identifiers if they should be required. The Commission anticipates that
if SDRs are required to create substitute identifiers, such
requirements will impose additional costs for SDRs.
Pursuant to this final rule, the reporting of Level Two LEI
reference data will be limited to the identity of a swap counterparty's
ultimate parent. This represents a reduction to the burden presented in
the NOPR, which called for the reporting of all affiliations of each
swap counterparty identified by an LEI. The Commission believes that
this approach is practical and cost-effective, because it reduces the
burden on swap counterparties, while capturing the essential level two
LEI reference data for a given swap that will allow the Commission and
other regulators to aggregate swap data in a way that enables effective
monitoring of systemic risk.
Costs of UPI requirements
Thomson Reuters recommended that the Commission establish a pilot
program for the development of UPI codes.
[[Page 2192]]
The Commission anticipates that this requirement will ultimately
impose additional costs to market participants. The final rule provides
that when the Commission determines that a UPI and product
classification system acceptable to the Commission is available, the
Commission will designate that system for use in all swap data
recordkeeping and reporting. Until the Commission designates such a
system, the final rule calls for swaps to be identified by the internal
product identifier or product description used by the SDR to which a
swap is reported. As the Commission has not set forth requirements for
a UPI system in the final rules, and has not yet designated such a
system for use by market participants, the Commission has not
identified any quantifiable costs of the LEI requirements that are not
associated with an information collection subject to the PRA. These
costs therefore have been accounted for in the information collection
requests filed with OMB as required by the PRA.
c. Unique Identifiers in Light of CEA Section 15(a)
The Commission has evaluated the benefits of the required use of
USIs, LEIs, and UPIs in light of the specific considerations identified
in Section 15(a) of the CEA, as follows.
Protection of market participants and the public. As discussed
above, the Commission has endeavored to limit the costs attributable to
discretionary implementation decisions to the maximum degree consistent
with statutory requirements and their intended benefits. The Commission
has endeavored to match the costs of the post-implementation
marketplace with the sizes, levels of sophistication, and levels of
systemic importance of the affected participants, so that the
associated benefits may be realized by the public.
With respect to unique identifiers, the Commission believes the
benefits include the protection of market participants and the public.
USIs. The Commission believes that USIs will be a vital tool for
regulatory agencies in analyzing swap market data for the purposes of
identifying the positions of systemically important market participants
and the accumulation of systemic risk, thus protecting market
participants and the public. USIs will allow for the creation of a
clear and unified data stream by allowing for the aggregation of
transaction information without double-counting swaps reported to
different SDRs or to foreign trade repositories, or reported in VSRs.
LEIs. The Commission believes that requiring the use of LEIs will
greatly enhance the ability of the Commission and other regulatory
agencies to oversee swap markets by providing necessary clarity and
cohesion to the data used for regulatory analyses. Among the benefits
to regulators of an LEI regime, the Global Financial Markets
Association (``GFMA'') identified more efficient data aggregation; more
powerful modeling and risk analysis; facilitation of information
sharing and reconciliation between regulators; better supervision of
cross-border firms and firms whose business lines are overseen by
multiple regulators; and facilitating identification of affiliates and
parent companies. GFMA also called the LEI regime ``a powerful tool for
regulators in monitoring and managing systemic risks.'' \120\ The CPSS-
IOSCO Report on OTC Derivatives Data Reporting and Aggregation
Requirement, which recommends expeditious development of a global LEI,
states that:
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\120\ GFMA, Creating a Global Legal Entity Identifier (LEI)
Standard, September 21, 2001, p. 10. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.
[A] standard system of LEIs is an essential tool for aggregation
of OTC derivatives data. An LEI would contribute to the ability of
authorities to fulfill the systemic risk mitigation, transparency,
and market abuse protection goals established by the G20 commitments
related to OTC derivatives, and would benefit efficiency and
transparency in many other areas. As a universally available system
for uniquely identifying legal entities in multiple financial data
applications, LEIs would constitute a global public good.\121\
---------------------------------------------------------------------------
\121\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and
Aggregation Requirement, August 2011, p.36. Publicly available at
http://www.bis.org/publ/cpss96.pdf.
UPIs. The Commission believes that UPIs will work in conjunction
with USIs to create an accurate, clear, and unified data record free of
double-counting. The use of UPIs will also allow regulatory agencies to
compare swap market data with data from the cash, equities, and futures
markets for a given product, thus enhancing regulators' understanding
of the roles of different financial instruments in the marketplace for
that product.
Efficiency, competitiveness, and financial integrity. As discussed
above, the Commission has endeavored to limit the costs attributable to
discretionary implementation decisions to the maximum degree consistent
with statutory requirements and their intended benefits. The Commission
has endeavored to match the costs of the post-implementation
marketplace with the sizes, levels of sophistication, and levels of
systemic importance of the affected participants, so that the
associated benefits may be realized by the public. With respect to
unique identifiers, the Commission believes the benefits include
enhancements to the financial integrity of the swap market.
The Commission believes that, by improving the integrity of the
U.S. swap markets in the manner described above, this final rule may
make participation in the U.S. swap markets more appealing to entities
that currently do not participate. Therefore, this final rule presents
the potential to enhance the demand for access to the U.S. swap market
and its participants both domestically and in the global swap
marketplace. This potential increase in swap market participation may
improve the competitiveness of the swap marketplace as more parties
demand sources of risk transference.
Furthermore, the Commission does not anticipate that the unique
identifier requirements of this final rule present any costs that would
impede the efficiency of swap markets.
USIs. The Commission believes that the benefits of USIs include
greater transparency, improved data aggregation and cross-border
supervision. This will improve regulatory oversight and responsiveness,
and promote a more thorough understanding of the exposures of swap
counterparties, which will provide more financial integrity for the
swap market.
The Commission believes that USIs, as well as LEIs and UPIs, will
enable greater automation of back-office processes for reporting
counterparties, thereby promoting efficiency and a potential source of
cost reduction for swap market participants.
LEIs. As stated above, the Commission believes that LEIs, along
with USIs and UPIs, will promote greater automation of back-office
processes for reporting counterparties, thereby improving operational
efficiency.
UPIs. The Commission believes that UPIs will serve to work in
conjunction with USIs in creating an accurate, clear, and unified data
record. UPIs will therefore promote the same benefits of greater
transparency, data aggregation, and cross-border supervision, and
therefore enhance the financial integrity of swap markets.
Price discovery. The Commission does not believe that the unique
identifier requirements will have a material impact on price discovery,
or that the costs associated with its discretionary implementation
decisions are of a magnitude to impede the normal functioning of swap
market participants
[[Page 2193]]
and thereby disrupt the price discovery process.
Sound risk management practices. The Commission believes that
requiring the use of USIs, UPIs, and LEIs will also facilitate risk
management for market participants.
USIs. The Commission believes that the use of USIs will likely
create a more clearly organized, readily accessible database of swap
information for each reporting counterparty, including accurate
information related to cross-border transactions, which may facilitate
the internal risk management operations of the counterparty.
LEIs. The Commission believes that LEIs will provide a number of
benefits in the area of risk management to reporting counterparties.
These include the benefits identified by GFMA, which are enumerated
below.
GFMA stated that the risk management benefits of LEIs included
improved response times for crisis reporting and the potential for
improved response times for sanctions monitoring; a holistic view of
counterparty and issuer risks; and the facilitation of data
aggregation, modeling, and analysis.\122\
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\122\ GFMA, Creating a Global Legal Entity Identifier (LEI)
Standard, September 21, 2001, p. 11. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.
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GFMA also listed a number of other operational benefits to market
participants of implementing LEIs. These include an integrated view of
entities across divisions and subsidiaries; support for the development
of hierarchy information; processing and settlement efficiency; an
improved vendor feed and improved corporate actions management; support
for new client on-boarding; and the facilitation of post-merger
integrations.\123\
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\123\ GFMA, Creating a Global Legal Entity Identifier (LEI)
Standard, September 21, 2001, p. 11. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.
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The Commission believes that the benefits of LEIs also include the
facilitation of straight-through processing, which will promote risk
mitigation for counterparties. As the Counterparty Risk Management
Policy Group II (CPRMG II) noted:
CRMPG II recommends that trade associations and market
participants must pursue and develop straight through processing of
OTC transactions, a critical risk mitigant in today's high volume
markets. As a fundamental matter, disputes over the existence or the
terms of a transaction have the potential for enormously increasing
risk, since each party to the disputed transaction hedges and risk
manages the disputed trade based on certain economic assumptions.
[Straight through processing] reduces the number and frequency of
trade disputes and maximizes market efficiency, opportunity and
access. [Straight through processing] therefore fosters legal,
credit, market and operational certainty.\124\
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\124\ Counterparty Risk Management Policy Group II, Toward
Greater Financial Stability: A Private Sector Perspective, July 27,
2005, p. 84. Publicly available at http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2005-07-25%20Counterparty%20Risk%20Management%20Policy%20Group-%20Toward%20Greater%20Financial%20Stability.pdf.
UPIs. The Commission believes that UPIs will serve to work in
conjunction with USIs in creating an accurate and unified internal data
record for each reporting counterparty. The use of UPIs will allow a
reporting counterparty to monitor its swap market exposures and compare
them to its positions and to the broader market variables in analogous
cash, equities, and futures instruments. The Commission believes that
this will greatly enhance the ability of the reporting counterparty to
assess the risk associated with its swap market exposures.
Other public interest considerations. The Commission anticipates
that unique identifiers will facilitate the efforts of academics and
analysts employed by regulatory agencies in the course of their
investigations by providing a clear framework for data aggregation and
comparison across financial instruments.
IV. Compliance Dates
A. Proposed Rule
Section 754 of the Dodd-Frank Act requires Title VII to be
effective within 360 days of enactment (i.e., by July 16, 2011) or, to
the extent a provision of Title VII requires rulemaking, not less than
60 days after publication of final rules or regulations implementing
such a provision of Title VII. While the final rules become effective
sixty (60) days after Federal Register publication, the Commission has
discretion to set forth dates to begin enforcement of regulatory
provisions.\125\ In setting forth compliance dates the Commission has
taken into consideration comment received and factors such as available
resources and the Dodd-Frank Act's goals. In May 2011, the Commission
and the SEC held a joint public roundtable to elicit comment concerning
what implementation schedule should be set for the Commission's Dodd-
Frank Act rules, including comment concerning the amount of time
registered entities and counterparties will need, after issuance of the
final rule, to prepare for the commencement of swap data reporting
pursuant to this part. The NOPR requested comment regarding the nature
and length of the implementation and preparation period which the
Commission should provide prior to the start of swap data reporting,
and concerning how the beginning of such reporting should be phased in.
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\125\ See Heckler v. Chaney, 470 U.S. 821 (1985).
---------------------------------------------------------------------------
B. Comments Received
The Commission received numerous comments from comment letters and
roundtable participants concerning when swap data reporting should
begin, and how the commencement of reporting should be phased in.
1. Initial Compliance Date
A variety of comments addressed the setting of the initial
compliance date for reporting.
a. Definite compliance dates. Better Markets called on the
Commission to provide the industry with clear compliance dates for the
start of reporting.
b. Period for infrastructure development and testing. Roundtable
participants, DTCC, ISDA, SIFMA, Global Forex, MFA, WGCEF, and Dominion
Resources emphasized that reporting should not be required to begin
until the industry has time to implement or modify and to test
automated systems to be used for reporting. In order to allow for such
infrastructure development and testing, commenters urged that the
initial compliance date for reporting should be set at least six to
nine months following issuance of the final rule.
c. Conditions precedent to reporting. EEI, the Electric Coalition,
and roundtable participants commented that reporting should not be
required to begin until after issuance of all the Commission's Dodd-
Frank Act rules, or at least of certain key rules including definitions
of ``swap,'' ``swap dealer,'' and ``major swap participant.'' ISDA,
SIFMA, Global Forex, MFA, and WGCEF argued that reporting should not be
required to begin until at least one SDR accepting swaps in the asset
class in question is fully functional, and DTCC and WGCEF suggested
that reporting should begin only after both unique identifiers and data
formats for reporting are finalized. MFA noted that beginning reporting
after SDR registration and infrastructure are finalized could avoid
giving current service providers an advantage over new entrants.
d. Other initial reporting suggestions. ISDA and SIFMA suggested
that the CFTC and the SEC should harmonize
[[Page 2194]]
when reporting will commence. Global Forex, DTCC, and Thomson Reuters
suggested consideration of a partially voluntary, benchmark approach to
implementation of reporting, similar to the ODSG commitment letter
approach used to initiate existing reporting to trade repositories.
2. Phasing in the Start of Reporting
A number of commenters also advocated phasing in the start of
reporting.
a. Phasing by asset class. DTCC, Global Forex, and roundtable
participants urged phasing in the start of reporting by asset class.
They noted that that different swap asset classes are at different
levels of automation and data normalization, with the credit and
interest rate asset classes at a more advanced stage of development
than the equity, foreign exchange, and other commodity asset classes.
b. Phasing by counterparty type. The Electric Coalition and Chatham
Financial advocated phasing in the start of reporting according to the
type and sophistication of the counterparty, with end users being
phased in last as they have the least technological sophistication.
Global Forex suggested that the phase-in design should include a
gradual reduction of target reporting times to allow participants to
improve their systems over time.
c. Phasing by product type. WGCEF and Thomson Reuters suggested
that reporting for swaps executed on electronic platforms should be
phased in more quickly than reporting for off-platform, bespoke
transactions, and that the Commission should focus on the more liquid
contracts which represent the bulk of the OTC market.
d. Other phasing suggestions. DTCC, Global Forex, and roundtable
participants suggested that phasing in reporting of confirmation data
to begin several months later than the reporting of PET data would take
into account the need for additional time to prepare for reporting of
the relative larger amount of data involved in confirmation data
reporting, to develop ways to represent confirmation terms in machine-
readable form, and to normalize and create data fields for confirmation
data. Eris Exchange suggested that voluntary reporting should precede
mandatory reporting. MGEX called for a carefully thought out,
staggered, and reasonable implementation schedule.
C. Determination of Compliance Dates
The Commission has considered the above comments, and has
determined to provide an implementation schedule and compliance dates
for swap data reporting incorporating many of commenters' suggestions,
as set forth below.
1. Initial Compliance Dates
a. Clear compliance dates. The Commission agrees with comments
calling for clear compliance dates for the beginning of full compliance
with this part. The Commission has determined that each SEF, DCM, DCO,
SDR, SD, MSP, and non-SD/MSP counterparty subject to the jurisdiction
of the Commission must commence full compliance with this part on the
applicable compliance date set forth below.\126\
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\126\ The obligations of swap counterparties with respect to
historical swaps, i.e., swaps executed prior to the applicable
compliance date and in existence on or after July 15, 2010, the date
of enactment of the Dodd-Frank Act, will be as provided in part 46
of this chapter.
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b. Period for infrastructure development and testing. The
Commission agrees with commenters and roundtable participants that it
is important to provide a period of at least six months following
issuance of the final data recordkeeping and reporting rule, in order
to allow necessary infrastructure development and testing in light of
the requirements of the final rule to occur before reporting is
required to begin. The initial compliance date for swap data reporting
set by the final rule provides such an infrastructure development and
testing period. The Commission believes that a six month period should
be sufficient for this purpose, and also believes that timely
fulfillment of the important purposes of the Dodd-Frank Act would be
frustrated if the start of swap data reporting were further delayed. In
order to minimize confusion concerning the commencement of both
regulatory reporting and real time reporting, and to reduce burdens on
registered entities and swap counterparties required to report under
both part 45 and part 43, the Commission has determined to set the same
date as the initial compliance date for reporting under both part 45
and part 43.
c. Conditions precedent to reporting. The Commission recognizes
that adequate preparation by registered entities and swap
counterparties for the beginning of swap data reporting would be
difficult in the absence of final Commission rules defining ``swap,''
``swap dealer,'' and ``major swap participant.'' The definition of
``swap'' is relevant to determining what transactions must be reported,
while the definitions of SD and MSP are relevant to determining which
counterparty is the reporting counterparty pursuant to this part.
Accordingly, the Commission has determined that the initial compliance
date provided in the final rule will be the later of (1) the date
certain listed below, or (2) 60 days following issuance of the later of
the Commission's final rules defining swap and defining SD and MSP. The
Commission disagrees with comments calling for swap data reporting to
be delayed until after all Commission rules under the Dodd-Frank Act
are issued, because it believes that important purposes of the Dodd-
Frank Act would be frustrated by additional delay.
d. Other initial reporting suggestions. The Commission has
consulted extensively with the SEC concerning the Commission's swap
data reporting rule and the SEC's security-based swap data reporting
rule. Both Commissions have worked to coordinate and harmonize those
rules to the extent practicable. Since the Dodd-Frank Act provides
clear delineation of the jurisdiction of each Commission with respect
to swaps, the Commission does not believe that it is necessary to delay
the commencement of reporting pursuant to this part until issuance of
the SEC's final security-based swap data reporting rule. The Commission
disagrees with comments calling for swap data reporting pursuant to
this part to follow the voluntary, benchmark approach to implementation
of reporting followed previously under the ODSG commitment letter
approach used to initiate reporting to trade repositories, or to have
voluntary reporting precede mandatory reporting. The Commission has
consulted with ODSG and ODRF concerning experience gained from prior
voluntary reporting. The Commission believes, however, that a
``benchmark'' approach involving flexible timetables is not appropriate
for implementation of reporting under the Dodd-Frank Act. The
uncertainty in such a reporting regime could burden the industry, and
make effective oversight and enforcement more difficult.
2. Phasing in the Start of Reporting
a. Phasing by asset class. The Commission accepts the view of many
market participants that differences between asset classes with respect
to both existing automation and existing data normalization are
significant and should be taken into account in order to ensure that
data reporting required by the final rule is practicable to achieve by
the applicable compliance dates. The Commission also believes that
establishing deadlines for the commencement of reporting in all asset
classes will serve as an important
[[Page 2195]]
incentive for continued progress by the industry in these regards.
Accordingly, the Commission has determined that swap data reporting
should be phased in by asset class, with reporting for credit swaps and
interest rate swaps beginning earlier than reporting for equity swaps,
foreign exchange transactions, and other commodity swaps.
b. Phasing by counterparty type. The Commission agrees with
comments suggesting that the initial compliance date for non-SD/MSP
reporting counterparties should take into account the fact that such
counterparties are less likely than SEFs, DCMs, DCOs, SDs, and MSPs, to
have sophisticated automated systems for reporting, and the possible
need of non-SD/MSP reporting counterparties for additional time to
prepare for reporting. The Commission has determined that swap data
reporting should be phased in by counterparty type, with reporting by
non-SD/MSP reporting counterparties in each asset class commencing 180
days after the start of reporting in that asset class by SEFs, DCMs,
DCOs, SDs, and MSPs.\127\ The Commission does not believe that
reporting should be further phased in by registered entity or
counterparty type. The Commission believes that SEFs, DCMs, DCOs, SDs,
and MSPs have sufficient technological expertise to enable them to meet
a compliance date which provides an appropriate, six-month preparation
period, without further phase-in.
c. Phasing by product type. In light of the phasing by asset class
and by counterparty type to be provided in the final rule as noted
above, the Commission does not believe that additional phasing by
product type is necessary. The Commission does not believe that it is
technologically necessary to delay reporting for off-facility,
uncleared swaps. Where an SD or MSP is the reporting counterparty for a
bespoke swap, reporting systems should be available. In the relatively
few instances where a non-SD/MSP counterparty is the reporting
counterparty for a bespoke swap, the final rule already provides an
additional six-month phase-in period and extended reporting deadlines.
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\127\ The Commission notes that one consequence of this approach
is that continuation data reporting by a non-SD/MSP reporting
counterparty for an on-facility swap in some cases may begin as much
as six months after the creation data report for that swap by the
SEF or DCM on which the swap was executed. The Commission believes
this is acceptable in light of the burden reduction provided to non-
SD/MSP reporting counterparties by phasing in their swap data
reporting.
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d. Other phasing suggestions. As discussed above, the Commission
believes that confirmation data is essential to fulfilling the purposes
of the Dodd-Frank Act, and should be reported starting with the
applicable compliance date. However, the Commission also recognizes
that for some swap counterparties, and particularly for non-SD/MSP
reporting counterparties, reporting confirmation data normalized in
data fields may not yet be technologically practicable when reporting
begins. These considerations are less applicable in the case of swaps
executed on a SEF or DCM or cleared by a DCO, since in such cases, as
discussed above, execution on the SEF or DCM or clearing on the DCO
will be required to include all terms of the confirmation of the swap.
Therefore, as discussed above in the section addressing creation data
reporting, the final rule provides as follows. For off-facility,
uncleared swaps, during the first six months following the applicable
compliance date, while PET data will have to be reported electronically
with data normalized in data fields, reporting counterparties for whom
reporting confirmation data normalized in data fields is not yet
technologically practicable may report required confirmation data by
transmitting an image of all documents recording the confirmation. This
will allow needed additional time for development of schemas for data
reporting and implementation by non-SD/MSP counterparties. Electronic
reporting of all confirmation data normalized in data fields will be
required after this six month period.
3. Compliance Dates
For the reasons set forth above, the Commission has determined that
each swap execution facility, designated contract market, derivatives
clearing organization, swap data repository, swap dealer, major swap
participant, and non-SD/MSP counterparty subject to the jurisdiction of
the Commission shall commence full compliance with all provisions of
this part on the applicable compliance dates set forth below. The
obligations of swap counterparties with respect to swaps executed prior
to the applicable compliance date as provided in this section and in
existence on or after July 21, 2010, the date of enactment of the Dodd-
Frank Act, are set forth in part 46 of this chapter.
a. Compliance Dates for Swap Execution Facilities, Designated Contract
Markets, Derivatives Clearing Organizations, Swap Data Repositories,
Swap Dealers, and Major Swap Participants.
Swap execution facilities, designated contract markets, derivatives
clearing organizations, swap data repositories, swap dealers, and major
swap participants shall commence full compliance with all provisions of
this part as follows:
Credit swaps and interest rate swaps. Compliance date 1, the
compliance date with respect to credit swaps and interest rate swaps,
shall be the later of: July 16, 2012; or 60 calendar days after the
publication in the Federal Register of the later of the Commission's
final rule defining the term ``swap'' or the Commission's final rule
defining the terms ``swap dealer'' and ``major swap participant.''
Equity swaps, foreign exchange swaps, and other commodity swaps.
Compliance date 2, the compliance date with respect to equity swaps,
foreign exchange swaps, and other commodity swaps, shall be 90 calendar
days after compliance date 1.
Compliance date for non-SD/MSP counterparties. Non-SD/MSP
counterparties shall commence full compliance with all provisions of
this part for all swaps on compliance date 3, which shall be 90
calendar days after compliance date 2.
The phasing in of swap data reporting under the final rule is shown
graphically in the following table.
BILLING CODE 6351-01-P
[[Page 2196]]
[GRAPHIC] [TIFF OMITTED] TR13JA12.002
[[Page 2197]]
BILLING CODE 6351-01-C
Final Rules
List of Subjects in 17 CFR Part 45
Swaps, Data recordkeeping requirements and data reporting
requirements.
0
In consideration of the foregoing, and pursuant to the authority of the
Commodity Exchange Act as amended, and in particular sections 8a(5) and
21 of the Act, the Commission hereby adopts an amendment to Chapter 1
of Title 17 of the Code of Federal Regulation by adding a part 45 to
read as follows:
PART 45--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS
Sec.
45.1 Definitions.
45.2 Swap recordkeeping.
45.3 Swap data reporting: Creation data.
45.4 Swap data reporting: Continuation data.
45.5 Unique swap identifiers.
45.6 Legal entity identifiers.
48.7 Unique product identifiers.
45.8 Determination of which counterparty must report.
45.9 Third-party facilitation of data reporting.
45.10 Reporting to a single swap data repository.
45.11 Data reporting for swaps in a swap asset class not accepted by
any swap data repository.
45.12 Voluntary supplemental reporting.
45.13 Required data standards.
45.14 Reporting of errors and omissions in previously reported data.
Appendix 1 to Part 45--Tables of minimum primary economic terms
data.
Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a and 24, 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.
Sec. 45.1 Definitions.
As used in this part:
Asset class means the broad category of goods, services or
commodities, including any ``excluded commodity'' as defined in CEA
section 1a(19), with common characteristics underlying a swap. The
asset classes include credit, equity, foreign exchange (excluding
cross-currency), interest rate (including cross-currency), 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
reporting counterparty or registered entity reporting data for the
swap.
Business hours means consecutive hours during one or more
consecutive business days.
Compliance date means the applicable 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 this part, as set forth in the preamble to this part.
Confirmation (``confirming'') means the consummation
(electronically or otherwise) of legally binding documentation
(electronic or otherwise) that memorializes the agreement of the
parties to all terms of a swap. A confirmation must be in writing
(whether electronic or otherwise) and must legally supersede any
previous agreement (electronically or otherwise).
Confirmation data means all of the terms of a swap matched and
agreed upon by the counterparties in confirming the swap. For cleared
swaps, confirmation data also includes the internal identifiers
assigned by the automated systems of the derivatives clearing
organization to the two transactions resulting from novation to the
clearing house.
Credit swap means any swap that is primarily based on instruments
of indebtedness, including, without limitation: Any swap primarily
based on one or more broad-based indices related to instruments of
indebtedness; and any swap that is an index credit swap or total return
swap on one or more indices of debt instruments.
Derivatives clearing organization has the meaning set forth in CEA
section 1a(9), and any Commission regulation implementing that Section,
including, without limitation, Sec. 39.5 of this chapter.
Designated contract market has the meaning set forth in CEA section
5, and any Commission regulation implementing that Section.
Electronic confirmation (confirmation ``occurs electronically'')
means confirmation that is done by means of automated electronic
systems.
Electronic reporting (``report electronically'') means the
reporting of data normalized in data fields 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.
Electronic verification (verification ``occurs electronically'')
means verification that is done by means of automated electronic
systems.
Financial entity has the meaning set forth in CEA section
2(h)(7)(C).
Foreign exchange forward has the meaning set forth in CEA section
1a(24).
Foreign exchange instrument means an instrument that is both
defined as a swap in part 1 of this chapter and included in the foreign
exchange asset class. Instruments in the foreign exchange asset class
include: Any currency option, foreign currency option, foreign exchange
option, or foreign exchange rate option; any foreign exchange forward
as defined in CEA section 1a(24); any foreign exchange swap as defined
in CEA section 1a(25); and any non-deliverable forward involving
foreign exchange.
Foreign exchange swap has the meaning set forth in CEA section
1a(25). It does not include swaps primarily based on rates of exchange
between different currencies, changes in such rates, or other aspects
of such rates (sometimes known as ``cross-currency swaps'').
Interest rate swap means any swap which is primarily based on one
or more interest rates, such as swaps of payments determined by fixed
and floating interest rates; or any swap which is primarily based on
rates of exchange between different currencies, changes in such rates,
or other aspects of such rates (sometimes known as ``cross-currency
swaps'').
International swap means a swap required by U.S. law and the law of
another jurisdiction to be reported both to a swap data repository and
to a different trade repository registered with the other jurisdiction.
Life cycle event means any event that would result in either a
change to a primary economic term of a swap or to any primary economic
terms 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 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).
Life cycle event data means all of the data elements necessary to
fully report any life cycle event.
Major swap participant has the meaning set forth in CEA section
1a(33) and in part 1 of this chapter.
Mixed swap has the meaning set forth in CEA section 1a(47)(D), and
refers to an instrument that is in part a swap
[[Page 2198]]
subject to the jurisdiction of the Commission, and in part a security-
based swap subject to the jurisdiction of the SEC.
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-electronic confirmation (confirmation ``does not occur
electronically'') means confirmation that is done manually rather than
by means of automated electronic systems.
Non-electronic verification (verification ``does not occur
electronically'') means verification that is done manually rather than
by means of automated electronic systems.
Non-SD/MSP counterparty means a swap counterparty that is neither a
swap dealer nor a major swap participant.
Off-facility swap means a swap not executed on or pursuant to the
rules of a swap execution facility or designated contract market.
Other commodity swap means any swap not included in the credit,
equity, foreign exchange, or interest rate asset classes, including,
without limitation, any swap for which the primary underlying item is a
physical commodity or the price or any other aspect of a physical
commodity.
Primary economic terms means all of the terms of a swap matched or
affirmed by the counterparties in verifying the swap, including at a
minimum each of the terms included in the most recent Federal Register
release by the Commission listing minimum primary economic terms for
swaps in the swap asset class in question. The Commission's current
lists of minimum primary economic terms for swaps in each swap asset
class are found in Appendix 1 to Part 45.
Primary economic terms data means all of the data elements
necessary to fully report all of the primary economic terms of a swap
in the swap asset class of the swap in question.
Quarterly reporting (``reported quarterly'') means reporting four
times each fiscal year, following the end of each fiscal year quarter,
making each quarterly report within 30 calendar days of the end of the
fiscal year quarter.
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 data
concerning the swap in the swap data repository remains current and
accurate, and includes all changes to the primary economic terms of the
swap occurring during the existence of the swap. For this purpose,
required swap continuation data includes:
(1) 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
(2) All valuation data for the swap.
Required swap creation data means all primary economic terms data
for a swap in the swap asset class in question, and all confirmation
data for the swap.
State data means all of the data elements necessary to provide a
snapshot view, on a daily basis, of all of the primary economic terms
of a swap in the swap asset class of the swap in question, including
any change to any primary economic term or to any previously-reported
primary economic terms data since the last snapshot. At a minimum,
state data must include each of the terms included in the most recent
Federal Register release by the Commission listing minimum primary
economic terms for swaps in the swap asset class in question. The
Commission's current lists of minimum primary economic terms for swaps
in each swap asset class are found in Appendix 1 to Part 45.
Swap data repository has the meaning set forth in CEA section
1a(48), and in part 49 of this chapter.
Swap dealer has the meaning set forth in CEA section 1a(49), and in
part 1 of this chapter.
Swap execution facility has the meaning set forth in CEA section
1a(50) and in part 37 of this chapter.
Valuation data means all of the data elements necessary to fully
describe the daily mark of the transaction, pursuant to CEA section
4s(h)(3)(B)(iii), and to Sec. 23.431 of this chapter if applicable.
Verification (``verify,'' ``verified,'' or ``verifying'') means the
matching by the counterparties to a swap of each of the primary
economic terms of a swap, at or shortly after the time the swap is
executed.
Sec. 45.2 Swap recordkeeping.
(a) Recordkeeping by swap execution facilities, designated contract
markets, derivatives clearing organizations, swap dealers, and major
swap participants. Each swap execution facility, designated contract
market, derivatives clearing organization, swap dealer, and major swap
participant subject to the jurisdiction of the Commission shall keep
full, complete, and systematic records, together with all pertinent
data and memoranda, of all activities relating to the business of such
entity or person with respect to swaps, as prescribed by the
Commission. Such records shall include, without limitation, the
following:
(1) For swap execution facilities, all records required by part 37
of this chapter.
(2) For designated contract markets, all records required by part
38 of this chapter.
(3) For derivatives clearing organizations, all records required by
part 39 of this chapter.
(4) For swap dealers and major swap participants, all records
required by part 23 of this chapter, and all records demonstrating that
they are entitled, with respect to any swap, to elect the clearing
requirement exception pursuant to CEA section 2(h)(7).
(b) Recordkeeping by non-SD/MSP counterparties. All non-SD/MSP
counterparties subject to the jurisdiction of the Commission shall keep
full, complete, and systematic records, together with all pertinent
data and memoranda, with respect to each swap in which they are a
counterparty, including, without limitation, all records demonstrating
that they are entitled, with respect to any swap, to elect the clearing
requirement exception in CEA section 2(h)(7).
(c) Record retention. All records required to be kept pursuant to
this section shall be retained with respect to each swap throughout the
life of the swap and for a period of at least five years following the
final termination of the swap.
(d) Retention form. Records required to be kept pursuant to this
section must be kept as required by paragraph (d)(1) or (2) of this
section, as applicable.
(1) Records required to be kept by swap execution facilities,
designated contract markets, derivatives clearing organizations, swap
dealers, or major swap participants may be kept in electronic form, or
kept in paper form if originally created and exclusively maintained in
paper form, so long as they are retrievable, and information in them is
reportable, as required by this section.
(2) Records required to be kept by non-SD/MSP counterparties may be
kept in either electronic or paper form, so long as they are
retrievable, and information in them is reportable, as required by this
section.
(e) Record retrievability. Records required to be kept by swap
execution facilities, designated contract markets, derivatives clearing
organizations, or swap counterparties pursuant to this
[[Page 2199]]
section shall be retrievable as provided in paragraphs (e)(1) and (2)
of this section, as applicable.
(1) Each record required by this section or any other section of
the CEA to be kept by a swap execution facility, designated contract
market, derivatives clearing organization, swap dealer, or major swap
participant shall be readily accessible via real time electronic access
by the registrant throughout the life of the swap and for two years
following the final termination of the swap, and shall be retrievable
by the registrant within three business days through the remainder of
the period following final termination of the swap during which it is
required to be kept.
(2) Each record required by this section or any other section of
the CEA to be kept by a non-SD/MSP counterparty shall be retrievable by
that counterparty within five business days throughout the period
during which it is required to be kept.
(f) Recordkeeping by swap data repositories. Each swap data
repository registered with the Commission shall keep full, complete,
and systematic records, together with all pertinent data and memoranda,
of all activities relating to the business of the swap data repository
and all swap data reported to the swap data repository, as prescribed
by the Commission. Such records shall include, without limitation, all
records required by part 49 of this chapter.
(g) Record retention and retrievability by swap data repositories.
All records required to be kept by a swap data repository pursuant to
this section must be kept by the swap data repository both:
(1) 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 by the swap data repository and available to
the Commission via real time electronic access; and
(2) Thereafter, for a period of at least ten additional years in
archival storage from which they are retrievable by the swap data
repository within three business days.
(h) Record inspection. All records required to be kept pursuant to
this section by any registrant or its affiliates or by any non-SD/MSP
counterparty subject to the jurisdiction of the Commission shall be
open to inspection upon request by any representative of the
Commission, the United States Department of Justice, or the Securities
and Exchange Commission, or by any representative of a prudential
regulator as authorized by the Commission. Copies of all such records
shall be provided, at the expense of the entity or person required to
keep the record, to any representative of the Commission upon request.
Copies of records required to be kept by any registrant shall be
provided either by electronic means, in hard copy, or both, as
requested by the Commission, with the sole exception that copies of
records originally created and exclusively maintained in paper form may
be provided in hard copy only. Copies of records required to be kept by
any non-SD/MSP counterparty subject to the jurisdiction of the
Commission that is not a Commission registrant shall be provided in the
form, whether electronic or paper, in which the records are kept.
Sec. 45.3 Swap data reporting: creation data.
Registered entities and swap counterparties must report required
swap creation data electronically to a swap data repository as set
forth in this Section. This obligation commences on the applicable
compliance date set forth in the preamble to this part. The reporting
obligations of swap counterparties with respect to swaps executed prior
to the applicable compliance date and in existence on or after July 21,
2010, the date of enactment of the Dodd-Frank Act, are set forth in
part 46 of this chapter. This section and Sec. 45.4 establish the
general swap data reporting obligations of swap dealers, major swap
participants, non-SD/MSP counterparties, swap execution facilities,
designated contract markets, and derivatives clearing organizations to
report swap data to a swap data repository. In addition to the
reporting obligations set forth in this section and Sec. 45.4,
registered entities and swap counterparties are subject to other
reporting obligations set forth in this chapter, including, without
limitation, the following: Swap dealers, major swap participants, and
non-SD/MSP counterparties are also subject to the reporting obligations
with respect to corporate affiliations reporting set forth in Sec.
45.6; swap execution facilities, designated contract markets, swap
dealers, major swap participants, and non-SD/MSP counterparties are
subject to the reporting obligations with respect to real time
reporting of swap data set forth in part 43 of this chapter;
counterparties to a swap for which the clearing requirement exception
in CEA section 2(h)(7) has been elected are subject to the reporting
obligations set forth in part 39 of this chapter; and, where
applicable, swap dealers, major swap participants, and non-SD/MSP
counterparties are subject to the reporting obligations with respect to
large traders set forth in parts 17 and 18 of this chapter.
(a) Swaps executed on or pursuant to the rules of a swap execution
facility or designated contract market. (1) 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 must report all required swap creation data, as soon as
technologically practicable after execution of the swap. This report
must include all confirmation data for the swap, as defined in part 23
and in Sec. 45.1, and all primary economic terms data for the swap, as
defined in Sec. 45.1.
(2) If such a swap is accepted for clearing by a derivatives
clearing organization, the derivatives clearing organization must
report all confirmation data for the swap, as defined in part 39 and in
Sec. 45.1, as soon as technologically practicable after clearing. The
derivatives clearing organization shall fulfill this requirement by
reporting all confirmation data for the swap, as defined in part 39 and
in this Sec. 45.1, which must include all primary economic terms data
for the swap as defined in Sec. 45.1, and must include the internal
identifiers assigned by the automated systems of the derivatives
clearing organization to the two transactions resulting from novation
to the clearing house.
(b) Off-facility swaps subject to mandatory clearing. For all off-
facility swaps subject to the mandatory clearing requirement, except
for those off-facility swaps excepted from that requirement pursuant to
CEA section 2(h)(7) and those off-facility swaps covered by CEA section
2(a)(13)(C)(iv), required swap creation data must be reported as
provided in paragraph (b) of this section.
(1) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, within
the applicable reporting deadline set forth in paragraph (b)(1)(i) or
(ii) of this section. However, if the swap is voluntarily submitted for
clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in
paragraphs (b)(1)(i) or (ii) of this section, and if the swap is
accepted for clearing before the reporting counterparty reports any
primary economic terms data to a swap data repository, then the
reporting counterparty is excused from reporting required swap creation
data for the swap.
(i) If the reporting counterparty is a swap dealer or a major swap
participant, the reporting counterparty must report all primary
economic terms data for the
[[Page 2200]]
swap as soon as technologically practicable after execution, but no
later than: 30 minutes after execution during the first year following
the compliance date; and 15 minutes after execution thereafter.
(ii) If the reporting counterparty is a non-SD/MSP counterparty,
the reporting counterparty must report all primary economic terms data
for the swap as soon as technologically practicable after execution,
but no later than: four business hours after execution during the first
year following the compliance date; two business hours after execution
during the second year following the compliance date; and one business
hour after execution thereafter.
(2) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec.
45.1, as soon as technologically practicable after clearing. The
derivatives clearing organization shall fulfill this requirement by
reporting all confirmation data for the swap, as defined in part 39 and
in this Sec. 45.1, which must include all primary economic terms data
for the swap as defined in Sec. 45.1, and must include the internal
identifiers assigned by the automated systems of the derivatives
clearing organization to the two transactions resulting from novation
to the clearing house.
(3) If the swap is not accepted for clearing, the reporting
counterparty must report all confirmation data for the swap, as defined
in Sec. 45.1, within the applicable reporting deadline set forth in
paragraph (b)(3)(i) or (ii) of this section. During the first 180
calendar days following the compliance date, if reporting confirmation
data normalized in data fields is not yet technologically practicable
for the reporting counterparty, the reporting counterparty may report
confirmation data to the swap data repository by transmitting to the
swap data repository an image of the document or documents constituting
the confirmation, until such time as electronic reporting of
confirmation data is technologically practicable for the reporting
counterparty. Beginning 180 days after the compliance date, the
reporting counterparty must report all confirmation data to the swap
data repository electronically.
(i) If the reporting counterparty is a swap dealer or major swap
participant, the reporting counterparty must report all confirmation
data as soon as technologically practicable following confirmation, but
no later than: 30 minutes after confirmation if confirmation occurs
electronically; or 24 business hours after confirmation if confirmation
does not occur electronically.
(ii) If the reporting counterparty is a non-SD/MSP counterparty,
the reporting counterparty must report all confirmation data as soon as
technologically practicable following confirmation, but no later than:
the end of the second business day after the date of confirmation
during the first year following the compliance date; and the end of the
first business day after the date of confirmation thereafter.
(c) Off-facility swaps not subject to mandatory clearing, with a
swap dealer or major swap participant reporting counterparty. For all
off-facility swaps not subject to the mandatory clearing requirement
set forth in CEA section 2(h), all off-facility swaps for which the
clearing requirement exception in CEA section 2(h)(7) has been elected,
and all off-facility swaps covered by CEA section 2(a)(13)(C)(iv), for
which a swap dealer or major swap participant is the reporting
counterparty, required swap creation data must be reported as provided
in paragraph (c) of this section.
(1) Credit, equity, foreign exchange, and interest rate swaps. For
each such credit swap, equity swap, foreign exchange instrument, or
interest rate swap:
(i) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, within
the applicable reporting deadline set forth in paragraph (c)(1)(i)(A)
or (B) of this section. However, if the swap is voluntarily submitted
for clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in
paragraphs (c)(1)(i)(A) or (B) of this section, and if the swap is
accepted for clearing before the reporting counterparty reports any
primary economic terms data to a swap data repository, then the
reporting counterparty is excused from reporting required swap creation
data for the swap.
(A) If the non-reporting counterparty is a swap dealer, a major
swap participant, or a non-SD/MSP counterparty that is a financial
entity as defined in CEA section 2(h)(7)(C), or if the non-reporting
counterparty is a non-SD/MSP counterparty that is not a financial
entity as defined in CEA section 2(h)(7)(C) and verification of primary
economic terms occurs electronically, then the reporting counterparty
must report all primary economic terms data for the swap as soon as
technologically practicable after execution, but no later than: one
hour after execution during the first year following the compliance
date; and 30 minutes after execution thereafter.
(B) If the non-reporting counterparty is a non-SD/MSP counterparty
that is not a financial entity as defined in CEA section 2(h)(7)(C),
and if verification of primary economic terms does not occur
electronically, then the reporting counterparty must report all primary
economic terms data for the swap as soon as technologically practicable
after execution, but no later than: 24 business hours after execution
during the first year following the compliance date; 12 business hours
after execution during the second year following the compliance date;
and 30 minutes after execution thereafter.
(ii) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec.
45.1, as soon as technologically practicable after clearing. The
derivatives clearing organization shall fulfill this requirement by
reporting all confirmation data for the swap, as defined in part 39 and
in this Sec. 45.1, which must include all primary economic terms data
for the swap as defined in Sec. 45.1, and must include the internal
identifiers assigned by the automated systems of the derivatives
clearing organization to the two transactions resulting from novation
to the clearing house.
(iii) If the swap is not voluntarily submitted for clearing, the
reporting counterparty must report all confirmation data for the swap,
as defined in Sec. 45.1, as soon as technologically practicable after
confirmation, but no later than: 30 minutes after confirmation if
confirmation occurs electronically; or 24 business hours after
confirmation if confirmation does not occur electronically. During the
first 180 calendar days following the compliance date, if reporting
confirmation data normalized in data fields is not yet technologically
practicable for the reporting counterparty, the reporting counterparty
may report confirmation data to the swap data repository by
transmitting to the swap data repository an image of the document or
documents constituting the confirmation, until such time as electronic
reporting of confirmation data is technologically practicable for the
reporting counterparty. Beginning 180 days after the compliance date,
the reporting counterparty must report all confirmation data to the
swap data repository electronically.
[[Page 2201]]
(2) Other commodity swaps. For each such other commodity swap:
(i) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, within
the applicable reporting deadline set forth in paragraph (c)(2)(i)(A)
or (B) of this section. However, if the swap is voluntarily submitted
for clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in
paragraphs (c)(2)(i)(A) or (B) of this section, and if the swap is
accepted for clearing before the reporting counterparty reports any
primary economic terms data to a swap data repository, then the
reporting counterparty is excused from reporting required swap creation
data for the swap.
(A) If the non-reporting counterparty is a swap dealer, a major
swap participant, or a non-SD/MSP counterparty that is a financial
entity as defined in CEA section 2(h)(7)(C), or if the non-reporting
counterparty is a non-SD/MSP counterparty that is not a financial
entity as defined in CEA section 2(h)(7)(C) and verification of primary
economic terms occurs electronically, then the reporting counterparty
must report all primary economic terms data for the swap as soon as
technologically practicable after execution, but no later than: four
hours after execution during the first year following the compliance
date; and two hours after execution thereafter.
(B) If the non-reporting counterparty is a non-SD/MSP counterparty
that is not a financial entity as defined in CEA section 2(h)(7)(C),
and if verification of primary economic terms does not occur
electronically, then the reporting counterparty must report all primary
economic terms data for the swap as soon as technologically practicable
after execution, but no later than: 48 business hours after execution
during the first year following the compliance date; 24 business hours
after execution during the second year following the compliance date;
and two hours after execution thereafter.
(ii) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec.
45.1, as soon as technologically practicable after clearing. The
derivatives clearing organization shall fulfill this requirement by
reporting all confirmation data for the swap, as defined in part 39 and
in this Sec. 45.1, which must include all primary economic terms data
for the swap as defined in Sec. 45.1, and must include the internal
identifiers assigned by the automated systems of the derivatives
clearing organization to the two transactions resulting from novation
to the clearing house.
(iii) If the swap is not voluntarily submitted for clearing, the
reporting counterparty must report all confirmation data for the swap,
as defined in Sec. 45.1, as soon as technologically practicable after
confirmation, but no later than: 30 minutes after confirmation if
confirmation occurs electronically; or 24 business hours after
confirmation if confirmation does not occur electronically. During the
first 180 calendar days following the compliance date, if reporting
confirmation data normalized in data fields is not yet technologically
practicable for the reporting counterparty, the reporting counterparty
may report confirmation data to the swap data repository by
transmitting to the swap data repository an image of the document or
documents constituting the confirmation, until such time as electronic
reporting of confirmation data is technologically practicable for the
reporting counterparty. Beginning 180 days after the compliance date,
the reporting counterparty must report all confirmation data to the
swap data repository electronically.
(d) Off-facility swaps not subject to mandatory clearing, with a
non-SD/MSP reporting counterparty. For all off-facility swaps not
subject to the mandatory clearing requirement set forth in CEA section
2(h), all off-facility swaps for which the clearing requirement
exception in CEA section 2(h)(7) has been elected, and all off-facility
swaps covered by CEA section 2(a)(13)(C)(iv), in all asset classes, for
which a non-SD/MSP counterparty is the reporting counterparty, required
swap creation data must be reported as provided in this paragraph (d).
(1) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, as soon
as technologically practicable after execution, but no later than: 48
business hours after execution during the first year following the
compliance date; 36 business hours after execution during the second
year following the compliance date; and 24 business hours after
execution thereafter. However, if the swap is voluntarily submitted for
clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in this
paragraph (d)(1), and if the swap is accepted for clearing before the
reporting counterparty reports any primary economic terms data to a
swap data repository, then the reporting counterparty is excused from
reporting required swap creation data for the swap.
(2) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec.
45.1, as soon as technologically practicable after clearing. The
derivatives clearing organization shall fulfill this requirement by
reporting all confirmation data for the swap, as defined in part 39 and
in this Sec. 45.1, which must include all primary economic terms data
for the swap as defined in Sec. 45.1, and must include the internal
identifiers assigned by the automated systems of the derivatives
clearing organization to the two transactions resulting from novation
to the clearing house.
(3) If the swap is not voluntarily submitted for clearing, the
reporting counterparty must report all confirmation data for the swap,
as defined in Sec. 45.1, as soon as technologically practicable after
confirmation, but no later than: 48 business hours after confirmation
during the first year following the compliance date; 36 business hours
after confirmation during the second year following the compliance
date; and 24 business hours after confirmation thereafter. During the
first 180 calendar days following the compliance date, if reporting
confirmation data normalized in data fields is not yet technologically
practicable for the reporting counterparty, the reporting counterparty
may report confirmation data to the swap data repository by
transmitting to the swap data repository an image of the document or
documents constituting the confirmation, until such time as electronic
reporting of confirmation data is technologically practicable for the
reporting counterparty. Beginning 180 days after the compliance date,
the reporting counterparty must report all confirmation data to the
swap data repository electronically.
(e) Allocations. For swaps involving allocation, required swap
creation data shall be reported to a single swap data repository as
follows.
(i) Initial swap between reporting counterparty and agent. The
initial swap transaction between the reporting counterparty and the
agent shall be reported as required by Sec. 45.3(a) through (d) of
this part. A unique swap identifier for the initial swap transaction
must be created as provided in Sec. 45.5 of this part.
[[Page 2202]]
(ii) Post-allocation swaps. (A) 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 not later than eight business hours after execution.
(B) Duties of the reporting counterparty. The reporting
counterparty must report all required swap creation data for each swap
resulting from allocation, to the same swap data repository to which
the initial swap transaction is reported, as soon as technologically
practicable after it is informed by the agent of the identities of its
actual counterparties. The reporting counterparty must create a unique
swap identifier for each such swap as required in Sec. 45.5 of this
part.
(C) Duties of the swap data repository. The swap data repository to
which the initial swap transaction and the post-allocation swaps are
reported must map together the unique swap identifiers of the original
swap transaction and of each of the post-allocation swaps.
(f) 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 making the first report of required swap creation data
pursuant to this section. The registered entity or reporting
counterparty making the first report of required swap creation data
pursuant to this section shall report all primary economic terms for
each asset class involved in the swap.
(g) Mixed swaps. (1) For each mixed swap, required swap creation
data and required swap continuation data shall be reported to a swap
data repository registered with the Commission 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 making the
first report of required swap creation data pursuant to this section
shall ensure that the same unique swap identifier is recorded for the
swap in both the swap data repository and the security-based swap data
repository.
(h) International swaps. For each international swap, the reporting
counterparty shall report as soon as practicable to the swap data
repository the identity of the non-U.S. trade repository not registered
with the Commission to which the swap is also reported and the swap
identifier used by the non-U.S. trade repository to identify the swap.
If necessary, the reporting counterparty shall obtain this information
from the non-reporting counterparty.
Sec. 45.4 Swap data reporting: continuation data.
Registered entities and swap counterparties must report required
swap continuation data electronically to a swap data repository as set
forth in this section. This obligation commences on the applicable
compliance date set forth in the preamble to this part. The reporting
obligations of registered entities and swap counterparties with respect
to swaps executed prior to the applicable compliance date and in
existence on or after July 21, 2010, the date of enactment of the Dodd-
Frank Act, are set forth in part 46 of this chapter. This section and
Sec. 45.3 establish the general swap data reporting obligations of
swap dealers, major swap participants, non-SD/MSP counterparties, swap
execution facilities, designated contract markets, and derivatives
clearing organizations to report swap data to a swap data repository.
In addition to the reporting obligations set forth in this section and
Sec. 45.3, registered entities and swap counterparties are subject to
other reporting obligations set forth in this chapter, including,
without limitation, the following: Swap dealers, major swap
participants, and non-SD/MSP counterparties are also subject to the
reporting obligations with respect to corporate affiliations reporting
set forth in Sec. 45.6; swap execution facilities, designated contract
markets, swap dealers, major swap participants, and non-SD/MSP
counterparties are subject to the reporting obligations with respect to
real time reporting of swap data set forth in part 43 of this chapter;
and, where applicable, swap dealers, major swap participants, and non-
SD/MSP counterparties are subject to the reporting obligations with
respect to large traders set forth in parts 17 and 18 of this chapter.
(a) Continuation data reporting method. For each swap, regardless
of asset class, reporting counterparties and derivatives clearing
organizations required to report swap continuation data must do so in a
manner sufficient to ensure that all data in the swap data repository
concerning the swap remains current and accurate, and includes all
changes to the primary economic terms of the swap occurring during the
existence of the swap. Reporting entities and counterparties fulfill
this obligation by reporting either life cycle event data or state data
for the swap within the applicable deadlines set forth in this section.
Reporting counterparties and derivatives clearing organizations
required to report swap continuation data for a swap may fulfill their
obligation to report either life cycle event data or state data by
reporting:
(1) Life cycle event data to a swap data repository that accepts
only life cycle event data reporting;
(2) State data to a swap data repository that accepts only state
data reporting; or
(3) Either life cycle event data or state data to a swap data
repository that accepts both life cycle event data and state data
reporting.
(b) Continuation data reporting for cleared swaps. For all swaps
cleared by a derivatives clearing organization, required continuation
data must be reported as provided in this section.
(1) Life cycle event data or state data reporting. The derivatives
clearing organization must report to the swap data repository either:
(i) All life cycle event data for the swap, reported on the same
day that any life cycle event occurs with respect to the swap; or
(ii) All state data for the swap, reported daily.
(2) Valuation data reporting. Valuation data for the swap must be
reported as follows:
(i) By the derivatives clearing organization, daily; and
(ii) If the reporting counterparty is a swap dealer or major swap
participant, by the reporting counterparty, daily. Non-SD/MSP reporting
counterparties are not required to report valuation data for cleared
swaps.
(c) Continuation data reporting for uncleared swaps. For all swaps
that are not cleared by a derivatives clearing organization, the
reporting counterparty must report all required swap continuation data
as provided in this section.
(1) Life cycle event data or state data reporting. The reporting
counterparty for the swap must report to the swap data repository
either all life cycle event data for the swap or all state data for the
swap, within the applicable deadline set forth in paragraphs (c)(1)(i)
or (ii) of this section.
(i) If the reporting counterparty is a swap dealer or major swap
participant:
(A) Life cycle event data must be reported on the same day that any
life cycle event occurs, with the sole
[[Page 2203]]
exception that life cycle event data relating to a corporate event of
the non-reporting counterparty must be reported no later than the
second business day after the day on which such event occurs.
(B) State data must be reported daily.
(ii) If the reporting counterparty is a non-SD/MSP counterparty:
(A) Life cycle event data must be reported no later than: the end
of the second business day following the date of any life cycle event
during the first year after the applicable compliance date; and the end
of the first business day following the date of any life cycle event
thereafter; with the sole exception that life cycle event data relating
to a corporate event of the non-reporting counterparty must be reported
no later than the end of the third business day following the date of
such event during the first year after the compliance date, and no
later than the end of the second business day following such event
thereafter.
(B) State data must be reported daily.
(2) Valuation data reporting. Valuation data for the swap must be
reported by the reporting counterparty for the swap as follows:
(i) If the reporting counterparty is a swap dealer or major swap
participant, the reporting counterparty must report all valuation data
for the swap, daily.
(ii) If the reporting counterparty is a non-SD/MSP counterparty,
the reporting counterparty must report the current daily mark of the
transaction as of the last day of each fiscal quarter. This report must
be transmitted to the swap data repository within 30 calendar days of
the end of each fiscal quarter. If a daily mark of the transaction is
not available for the swap, the reporting counterparty satisfies this
requirement by reporting the current valuation of the swap recorded on
its books in accordance with applicable accounting standards.
Sec. 45.5 Unique swap identifiers.
Each swap subject to the jurisdiction of the Commission shall be
identified in all recordkeeping and all swap data reporting pursuant to
this part by the use of a unique swap identifier, which shall be
created, transmitted, and used for each swap as provided in paragraphs
(a) through (c) of this section.
(a) Swaps executed on a swap execution facility or designated
contract market. For each swap executed on a swap execution facility or
designated contract market, the swap execution facility or designated
contract market shall create and transmit a unique swap identifier as
provided in paragraphs (a)(1) and (2) of this section.
(1) Creation. The swap execution facility or designated contract
market shall generate and assign a unique swap identifier at, or as
soon as technologically practicable following, the time of execution of
the swap, and prior to the reporting of required swap creation data.
The unique swap identifier shall consist of a single data field that
contains two components:
(i) The unique alphanumeric code assigned to the swap execution
facility or designated contract market by the Commission for the
purpose of identifying the swap execution facility or designated
contract market with respect to unique swap identifier creation; and
(ii) An alphanumeric code generated and assigned to that swap by
the automated systems of the swap execution facility or designated
contract market, which shall be unique with respect to all such codes
generated and assigned by that swap execution facility or designated
contract market.
(2) Transmission. The swap execution facility or designated
contract market shall transmit the unique swap identifier
electronically as follows:
(i) To the swap data repository to which the swap execution
facility or designated contract market reports required swap creation
data for the swap, as part of that report;
(ii) To each counterparty to the swap, as soon as technologically
practicable after execution of the swap;
(iii) To the derivatives clearing organization, if any, to which
the swap is submitted for clearing, as part of the required swap
creation data transmitted to the derivatives clearing organization for
clearing purposes.
(b) Off-facility swaps with a swap dealer or major swap participant
reporting counterparty. For each off-facility swap where the reporting
counterparty is a swap dealer or major swap participant, the reporting
counterparty shall create and transmit a unique swap identifier as
provided in paragraphs (b)(1) and (2) of this section.
(1) Creation. The reporting counterparty shall generate and assign
a unique swap identifier as soon as technologically practicable after
execution of the swap and prior to both the reporting of required swap
creation data and the transmission of data to a derivatives clearing
organization if the swap is to be cleared. The unique swap identifier
shall consist of a single data field that contains two components:
(i) The unique alphanumeric code assigned to the swap dealer or
major swap participant by the Commission at the time of its
registration as such, for the purpose of identifying the swap dealer or
major swap participant with respect to unique swap identifier creation;
and
(ii) An alphanumeric code generated and assigned to that swap by
the automated systems of the swap dealer or major swap participant,
which shall be unique with respect to all such codes generated and
assigned by that swap dealer or major swap participant.
(2) Transmission. The reporting counterparty shall transmit the
unique swap identifier electronically as follows:
(i) To the swap data repository to which the reporting counterparty
reports required swap creation data for the swap, as part of that
report;
(ii) To the non-reporting counterparty to the swap, as soon as
technologically practicable after execution of the swap; and
(iii) To the derivatives clearing organization, if any, to which
the swap is submitted for clearing, as part of the required swap
creation data transmitted to the derivatives clearing organization for
clearing purposes.
(c) Off-facility swaps with a non-SD/MSP reporting counterparty.
For each off-facility swap for which the reporting counterparty is a
non-SD/MSP counterparty, the swap data repository to which primary
economic terms data is reported shall create and transmit a unique swap
identifier as provided in paragraphs (c)(1) and (2) of this section.
(1) Creation. The swap data repository shall generate and assign a
unique swap identifier as soon as technologically practicable following
receipt of the first report of required swap creation data concerning
the swap. The unique swap identifier shall consist of a single data
field that contains two components:
(i) The unique alphanumeric code assigned to the swap data
repository by the Commission at the time of its registration as such,
for the purpose of identifying the swap data repository with respect to
unique swap identifier creation; and
(ii) An alphanumeric code generated and assigned to that swap by
the automated systems of the swap data repository, which shall be
unique with respect to all such codes generated and assigned by that
swap data repository.
(2) Transmission. The swap data repository shall transmit the
unique swap identifier electronically as follows:
(i) To the counterparties to the swap, as soon as technologically
practicable following creation of the unique swap identifier; and
(ii) To the derivatives clearing organization, if any, to which the
swap is submitted for clearing, as soon as technologically practicable
following creation of the unique swap identifier.
[[Page 2204]]
(d) Allocations. For swaps involving allocation, unique swap
identifiers shall be created and transmitted as follows.
(1) Initial swap between reporting counterparty and agent. The
unique swap identifier for the initial swap transaction between the
reporting counterparty and the agent shall be created as required by
paragraph (a) through (c) of this section, and shall be transmitted as
follows:
(i) If the unique swap identifier is created by a swap execution
facility or designated contract market, the swap execution facility or
designated contract market must include the unique swap identifier in
its swap creation data report to the swap data repository, and must
transmit the unique identifier to the reporting counterparty and to the
agent.
(ii) If the unique swap identifier is created by the reporting
counterparty, the reporting counterparty must include the unique swap
identifier in its swap creation data report to the swap data
repository, and must transmit the unique identifier to the agent.
(2) Post-allocation swaps. The reporting counterparty must create a
unique swap identifier for each of the individual swaps resulting from
allocation, as soon as technologically practicable after it is informed
by the agent of the identities of its actual counterparties, and must
transmit each such unique swap identifier to:
(i) The non-reporting counterparty for the swap in question.
(ii) The agent.
(iii) The derivatives clearing organization, if any, to which the
swap is submitted for clearing, as part of the required swap creation
data transmitted to the derivatives clearing organization for clearing
purposes.
(iv) The same swap data repository to which the initial swap
transaction is reported, as part of the report of required swap
creation data to the swap data repository.
(e) Use. Each registered entity or swap counterparty subject to the
jurisdiction of the Commission shall include the unique swap 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
swap identifier as provided in this section, throughout the existence
of the swap and for as long as any records are required by the CEA or
Commission regulations to be kept by that registered entity or
counterparty concerning the swap, 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. 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 a swap data repository, the Commission, or another
regulator of such internally generated identifiers in addition to the
reporting of the unique swap identifier.
Sec. 45.6 Legal entity identifiers
Each counterparty to any swap subject to the jurisdiction of the
Commission shall be identified in all recordkeeping and all swap data
reporting pursuant to this part by means of a single legal entity
identifier as specified in this section.
(a) Definitions. As used in this section:
Control (``controlling,'' ``controlled by,'' ``under common control
with'') means, for the purposes of Sec. 45.6, the possession, direct
or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting interest, by contract, or otherwise. A person is presumed to
control another person if the person: is a director, general partner or
officer exercising executive responsibility (or having similar status
or functions); directly or indirectly has the right to vote 25 percent
or more of a class of voting interest or has the power to sell or
direct the sale of 25 percent or more of a class of voting interest;
or, in the case of a partnership, has the right to receive upon
dissolution, or has contributed, 25 percent or more of the capital.
Legal identifier system means an LEI utility conforming with the
requirements of this section that issues or is capable of issuing an
LEI conforming with the requirements of this section, and is capable of
maintaining LEI reference data as required by this section.
Level one reference data means the minimum information needed to
identify, on a verifiable basis, the legal entity to which a legal
entity identifier is assigned. Level one reference data shall include,
without limitation, all of the data elements included in ISO Standard
17442. Examples of level one reference data include, without
limitation, a legal entity's official legal name, its place of
incorporation, and the address and contact information of its corporate
headquarters.
Level two reference data means information concerning the corporate
affiliations or company hierarchy relationships of the legal entity to
which a legal entity identifier is assigned. Examples of level two
reference data include, without limitation, the identity of the legal
entity's ultimate parent.
Parent means, for the purposes of Sec. 45.6, a legal person that
controls a counterparty to a swap required to be reported pursuant to
this section, or that controls a legal entity identified or to be
identified by a legal entity identifier provided by the legal
identifier system designated by the Commission pursuant to this
section.
Self-registration means submission by a legal entity of its own
level one or level two reference data, as applicable.
Third-party registration means submission of level one or level two
reference data, as applicable, for a legal entity that is or may become
a swap counterparty, made by an entity or organization other than the
legal entity identified by the submitted reference data. Examples of
third-party registration include, without limitation, submission by a
swap dealer or major swap participant of level one or level two
reference data for its swap counterparties, and submission by a
national numbering agency, national registration agency, or data
service provider of level one or level two reference data concerning
legal entities with respect to which the agency or service provider
maintains information.
Ultimate parent means, for the purposes of Sec. 45.6, a legal
person that controls a counterparty to a swap required to be reported
pursuant to this section, or that controls a legal entity identified or
to be identified by a legal entity identifier provided by the legal
identifier system designated by the Commission pursuant to this
section, and that itself has no parent.
(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, following designation of the legal
entity identifier system as provided in paragraph (c)(2) of this
section, shall be issued under, and shall conform to, ISO Standard
17442, Legal Entity Identifier (LEI), issued by the International
Organisation for Standardisation.
(b) Technical principles for the legal entity identifier. The legal
entity identifier used in all recordkeeping and all swap data reporting
required by this part shall conform to the technical principles set
forth in paragraphs (b)(1) through (6) of this section.
(1) Uniqueness. Only one legal entity identifier shall be assigned
to any legal entity, and no legal entity identifier shall ever be
reused. Each entity within a corporate organization or group structure
that acts as a counterparty in
[[Page 2205]]
any swap shall have its own legal entity identifier.
(2) Neutrality. To ensure the persistence of the legal entity
identifier, it shall have a format consisting of a single data field,
and shall contain either no embedded intelligence or as little embedded
intelligence as practicable. Entity characteristics of swap
counterparties identified by legal entity identifiers shall constitute
separate elements within a reference data system as set forth in
paragraphs (a), (c)(2), (d), and (e) of this section.
(3) Reliability. The legal entity identifier shall be supported by
a trusted and auditable method of verifying the identity of the legal
entity to which it is assigned, both initially and at appropriate
intervals thereafter. The issuer of legal entity identifiers shall
maintain minimum reference or identification data sufficient to verify
that a user has been correctly identified. Issuance and maintenance of
the legal entity identifier, and storage and maintenance of all
associated data, shall involve robust quality assurance practices and
system safeguards. At a minimum, such system safeguards shall include
the system safeguards applied to swap data repositories by part 49 of
this chapter.
(4) Open Source. The schema for the legal entity identifier shall
have an open standard that ensures to the greatest extent practicable
that the legal entity identifier is compatible with existing automated
systems of financial market infrastructures, market participants, and
regulators.
(5) Extensibility. The legal entity identifier shall be capable of
becoming the single international standard for unique identification of
legal entities across the financial sector on a global basis.
Therefore, it shall be sufficiently extensible to cover all existing
and potential future legal entities of all types that may be
counterparties to swap, OTC derivative, or other financial
transactions; that may be involved in any aspect of the financial
issuance and transactions process; or that may be subject to required
due diligence by financial sector entities.
(6) Persistence. The legal entity identifier assigned to an entity
shall persist despite all corporate events. When a corporate event
results in a new entity, the new entity shall receive a new legal
entity identifier, while the previous legal entity identifier or
identifiers continue to identify the predecessor entity or entities in
the record.
(c) Governance principles for the legal entity identifier. The
legal entity identifier used in all recordkeeping and all swap data
reporting required by this part shall conform to the governance
principles set forth in paragraphs (c)(1) through (4) of this section.
(1) International governance. The issuance of the legal entity
identifier used pursuant to this section, and any legal entity
identifier utility formed for the purpose of issuing legal entity
identifiers that are used pursuant to this section, shall be subject to
international supervision as follows:
(i) With respect to operations, by a governance structure that
includes the Commission and other financial regulators in any
jurisdiction requiring use of the legal entity identifier pursuant to
applicable law. The governance structure shall have authority
sufficient to ensure, and shall ensure, that issuance and maintenance
of the legal entity identifier system adheres on an ongoing basis to
the principles set forth in this section.
(ii) With respect to adherence to ISO Standard 17442, by the
International Organisation for Standardisation.
(2) Reference data access. Access to reference data associated with
the legal entity identifier shall enable use of the legal entity
identifier as a public good, while respecting applicable law regarding
data confidentiality. Accordingly:
(i) Reference data associated with the legal entity identifier that
is public under applicable law shall be available publicly and free of
charge. Such data shall include, without limitation, level one
reference data (i.e., the minimum reference data needed to verify the
identity of the legal entity receiving each legal entity identifier),
and a current directory of all issued legal entity identifiers.
(ii) Collection and maintenance of, and access to, reference data
associated with the legal entity identifier shall comply with
applicable laws on data protection and confidentiality.
(3) Non-profit operation and funding. Funding of both start-up and
ongoing operation of the legal entity identifier system, including,
without limitation, any legal entity identifier utility formed for the
purpose of issuing legal entity identifiers that are used pursuant to
this section, shall be conducted on a non-profit, reasonable cost-
recovery basis, and shall be subject to international governance as
provided in paragraph (c)(1) of this section.
(4) Unbundling and non-restricted use. Issuance of the legal entity
identifier shall not be tied to other services, if any, offered by the
issuer, and information concerning the issuance process for new legal
entity identifiers must be available publicly and free of charge.
Restrictions shall not be imposed on use of the legal entity identifier
by any person in its own products and services, or on use of the legal
entity identifier and associated reference data by any financial
regulator. Any intellectual property created as part of the legal
entity identifier system shall be treated in a manner consistent with
open source principles.
(5) Commercial advantage prohibition. The legal entity identifier
utility providing legal entity identifiers for use in compliance with
this part shall not make any commercial or business use (other than the
operation of the utility) of any reference data associated with the
legal entity identifier that is not available to the public free of
charge. This restriction shall also apply to any entity or person that
participates in the utility, that is legally or otherwise affiliated or
associated with the utility, or that provides third-party services to
the utility or to any component, partner, affiliate, or associate
thereof.
(e) Designation of the legal entity identifier system. (1) The
Commission shall determine, as provided in paragraphs (e)(1)(i) through
(iii) of this section, whether a legal entity identifier system that
satisfies the requirements set forth in this section is available to
provide legal entity identifiers for registered entities and swap
counterparties required to comply with this part.
(i) In making this determination, the Commission shall consider,
without limitation, the following factors:
(A) Whether the LEI provided by the LEI utility is issued under,
and conforms to, ISO Standard 17442, Legal Entity Identifier (LEI).
(B) Whether the LEI provided by the LEI utility complies with all
of the technical principles set forth in this rule.
(C) Whether the LEI utility complies with all of the governance
principles set forth in this rule.
(D) Whether the LEI utility has demonstrated that it in fact can
provide LEIs complying with this section for identification of swap
counterparties in swap data reporting commencing as of the compliance
dates set forth in Sec. 45.5.
(E) The acceptability of the LEI utility to industry participants
required to use the LEI in complying with this part.
(ii) In making this determination, the Commission shall consider
all candidates meeting the criteria set forth in paragraph (e)(1)(i) of
this section, but shall not consider any candidate that does not
demonstrate that it in fact can provide LEIs for identification of swap
[[Page 2206]]
counterparties in swap data reporting commencing as of the compliance
dates set forth in this part.
(iii) The Commission shall make this determination at a time it
believes is sufficiently prior to the compliance dates set forth this
part to enable issuance of LEIs far enough in advance of those
compliance dates to enable compliance with this part.
(2) If the Commission determines pursuant to paragraph (e)(1) of
this section that such a legal entity identifier system is available,
the Commission shall designate the legal entity identifier system as
the provider of legal entity identifiers to be used in recordkeeping
and swap data reporting pursuant to this part, by means of a Commission
order that is published in the Federal Register and on the Web site of
the Commission, as soon as practicable after such determination is
made. The order shall include notice of this designation, the contact
information of the LEI utility, and information concerning the
procedure and requirements for obtaining legal entity identifiers.
(3) If the Commission determines pursuant to paragraph (e)(1) of
this section that such a legal entity identifier system is not yet
available, the Commission shall publish notice of the determination in
the Federal Register and on the Web site of the Commission, as soon as
practicable after the determination is made. If the Commission later
determines, pursuant to paragraphs (e)(1)(i) and (ii) of this section,
that such a legal entity identifier system has become available, the
Commission shall designate the legal entity identifier system as the
provider of legal entity identifiers to be used in recordkeeping and
swap data reporting pursuant to this part, by means of a Commission
order that is published in the Federal Register and on the Web site of
the Commission, as soon as practicable after such determination is
made. The order shall include notice of this designation, the contact
information of the LEI utility, and information concerning the
procedure and requirements for obtaining legal entity identifiers.
(e) Reference data reporting. (1) Reporting of level one reference
data. Level one reference data for each counterparty to any swap
subject to the jurisdiction of the Commission shall be reported, by
means of self-registration, third-party registration, or both, into a
public level one reference database maintained by the issuer of the
legal entity identifier designated by the Commission pursuant to
paragraph (d) of this section. Such level one reference data shall be
reported at a time sufficient to ensure that the counterparty's legal
entity identifier is available for inclusion in recordkeeping and swap
data reporting as required by this section. All subsequent changes and
corrections to level one reference data previously reported shall be
reported to the issuer, by means of self-registration, third-party
registration, or both, as soon as technologically practicable following
occurrence of any such change or discovery of the need for a
correction.
(2) Reporting of level two reference data. (i) Level two reference
data for each counterparty to any swap subject to the jurisdiction of
the Commission, consisting of the identity of the counterparty's
ultimate parent, shall be reported, by means of self-registration,
third-party registration, or both, into a level two reference database.
Where applicable law forbids such reporting, that fact and the citation
of the law in question shall be reported in place of the data to which
such law applies.
(ii) All non-public level two reference data reported to the level
two reference database shall be confidential, non-public, and available
only to financial regulators in any jurisdiction requiring use of the
legal entity identifier pursuant to applicable law.
(iii) The Commission shall determine the location of the level two
reference database by means of a Commission order that is published in
the Federal Register and on the Web site of the Commission, as soon as
practicable after such determination is made. The order shall include
notice of the location of the level two reference database, and
information concerning the procedure and requirements for reporting
level two reference data to the database.
(iv) The obligation to report level two reference data does not
apply until the Commission has determined the location of the level two
reference database as provided in paragraph (e)(2)(iii) of this
section.
(v) After the Commission determines the location of the level two
reference database pursuant to paragraph (e)(2)(iii) of this section,
required level two reference data shall be reported at a time
sufficient to ensure that it is included in the database when the
counterparty's legal entity identifier is included in recordkeeping and
swap data reporting as required by this section.
(vi) All subsequent changes and corrections to required level two
reference data previously reported shall be reported into the level two
reference database, by means of self-registration, third-party
registration, or both, as soon as technologically practicable following
occurrence of any such change or discovery of the need for a
correction.
(f) Use of the legal entity identifier system by registered
entities and swap counterparties. (1) When a legal entity identifier
system has been designated by the Commission pursuant to paragraph (e)
of this section, each registered entity and swap counterparty shall use
the legal entity identifier provided by that system in all
recordkeeping and swap data reporting pursuant to this part.
(2) 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 a swap
data repository in all recordkeeping and swap data reporting pursuant
to this part, as follows:
(i) When a swap involving one or more counterparties for which no
substitute counterparty identifier has yet been created and assigned is
reported to a swap data repository, the swap data repository shall
create a substitute counterparty identifier for each such counterparty
as provided in paragraph (f)(2)(ii) of this section, and assign the
substitute counterparty identifier to that counterparty, as soon as
technologically practicable after that swap is first reported to the
swap data repository. In lieu of creating a substitute identifier as
provided in paragraph (f)(2)(ii), the swap data repository may assign a
unique substitute identifier provided by a third party service
provider, if such identifier complies with all of the principles for
LEIs set forth in this part.
(ii) Each such substitute counterparty identifier created by a swap
data repository shall consist of a single data field that contains two
components, including:
(A) The unique alphanumeric code assigned to the swap data
repository by the Commission for the purpose of identifying the swap
data repository; and
(B) An alphanumeric code generated and assigned to that
counterparty by the automated systems of the swap data repository,
which shall be unique with respect to all such substitute counterparty
identifier codes generated and assigned by that swap data repository.
(iii) The swap data repository shall transmit each substitute
counterparty identifier thus created to each counterparty to the swap,
to each other registered entity associated with the swap, to each
registered entity or swap counterparty who has made any report of any
swap data to the swap data repository, and to each swap data repository
registered with the
[[Page 2207]]
Commission, as soon as technologically practicable after creation and
assignment of the substitute counterparty identifier.
(iv) Once any swap data repository has created and assigned such a
substitute counterparty identifier to a swap counterparty and has
transmitted it as required by paragraph (f)(2)(iii) of this section,
all registered entities and swap counterparties shall use that
substitute counterparty identifier to identify that counterparty in all
swap data recordkeeping and reporting, until such time as the
Commission designates a legal entity identifier system pursuant to
paragraph (e) of this section.
(3) For swaps reported pursuant to this part prior to Commission
designation of a legal entity identifier system, after such designation
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.
(4) Prior to October 15, 2012, if a legal entity identifier system
has been designated by the Commission as provided in this section, but
a reporting counterparty's automated systems are not yet prepared to
include legal entity identifiers in recordkeeping and swap data
reporting pursuant to this part, the counterparty shall be excused from
complying with paragraph (f)(1) of this section, and shall instead
comply with paragraph (f)(2) of this section, until its automated
systems are prepared with respect to legal entity identifiers, at which
time it must commence compliance with paragraph (f)(1) of this section.
This paragraph shall have no effect on or after October 15, 2012.
Sec. 45.7 Unique product identifiers.
Each swap subject to the jurisdiction of the Commission shall be
identified in all recordkeeping and all swap data reporting pursuant to
this part by means of a unique product identifier and product
classification system as specified in this section. Each swap
sufficiently standardized to receive a unique product identifier shall
be identified by a unique product identifier. Each swap not
sufficiently standardized for this purpose shall be identified by its
description using the product classification system.
(a) Requirements for the unique product identifier and product
classification system. The unique product identifier and product
classification system shall identify and describe the swap asset class
and the sub-type within that asset class to which the swap belongs, and
the underlying product for the swap, with sufficient distinctiveness
and specificity to enable the Commission and other financial regulators
to fulfill their regulatory responsibilities and to assist in real time
reporting of swaps as provided in the Act and part 43 of this chapter.
The level of distinctiveness and specificity which the unique product
identifier will provide shall be determined separately for each swap
asset class.
(b) Designation of the unique product identifier and product
classification system. (1) The Commission shall determine when a unique
product identifier and product classification system that is acceptable
to the Commission and satisfies the requirements set forth in this
section is available for use in compliance with this section.
(2) When the Commission determines that such a unique product
identifier and product classification system is available, the
Commission shall designate the unique product identifier and product
classification system to be used in recordkeeping and swap data
reporting pursuant to this part, by means of a Commission order that is
published in the Federal Register and on the Web site of the
Commission, as soon as practicable after such determination is made.
The order shall include notice of this designation, the contact
information of the issuer of such unique product identifiers, and
information concerning the procedure and requirements for obtaining
unique product identifiers and using the product classification system.
(c) Use of the unique product identifier and product classification
system by registered entities and swap counterparties. (1) When a
unique product identifier and product classification system has been
designated by the Commission pursuant to paragraph (b) of this section,
each registered entity and swap counterparty shall use the unique
product identifier and product classification system in all
recordkeeping and swap data reporting pursuant to this part.
(2) Before a unique product identifier and product classification
system has been designated by the Commission, each registered entity
and swap counterparty shall use the internal product identifier or
product description used by the swap data repository to which a swap is
reported in all recordkeeping and swap data reporting pursuant to this
part.
Sec. 45.8 Determination of which counterparty must report.
The determination of which counterparty is the reporting
counterparty for a swap shall be made as provided in this section.
(a) If only one counterparty is a swap dealer, the swap dealer
shall be the reporting counterparty.
(b) If neither counterparty is a swap dealer, and only one
counterparty is a major swap participant, the major swap participant
shall be the reporting counterparty.
(c) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a financial entity as defined in CEA section
2(h)(7)(C), the counterparty that is a financial entity shall be the
reporting counterparty.
(d) If both counterparties are swap dealers, or both counterparties
are major swap participants, or both counterparties are non-SD/MSP
counterparties that are financial entities as defined in CEA section
2(h)(7)(C), or both counterparties are non-SD/MSP counterparties and
neither counterparty is a financial entity as defined in CEA section
2(h)(7)(C):
(1) For a swap executed on or pursuant to the rules of a swap
execution facility or designated contract market, the counterparties
shall agree which counterparty shall be the reporting counterparty. The
counterparties shall make this agreement after the swap execution
facility or designated contract market notifies the counterparties, as
provided in paragraph (h)(2) of this section, that paragraph (d) of
this section applies to them, and not later than the end of the first
business day following the date of execution of the swap. After this
agreement is reached, the reporting counterparty shall report to the
swap data repository that it is the reporting counterparty.
(2) For an off-facility swap, the counterparties shall agree as one
term of their swap which counterparty shall be the reporting
counterparty.
(e) Notwithstanding the provisions of paragraphs (a) through (d) of
this section, if both counterparties to a swap are non-SD/MSP
counterparties and only one counterparty is a U.S. person, that
counterparty shall be the reporting counterparty.
(f) Notwithstanding the provisions of paragraphs (a) through (e) of
this section, if neither counterparty to a swap is a U.S. person, but
the swap is executed on a swap execution facility or designated
contract market or otherwise executed in the United States, or is
cleared by a derivatives clearing organization:
(1) For such a swap executed on or pursuant to the rules of a swap
execution facility or designated contract market, the counterparties
shall agree which counterparty shall be the reporting counterparty. The
[[Page 2208]]
counterparties shall make this agreement after the swap execution
facility or designated contract market notifies the counterparties, as
provided in paragraph (h)(2) of this section, that neither counterparty
is a U.S. person, and not later than the end of the first business day
following the date of execution of the swap. After this agreement is
reached, the reporting counterparty shall report to the swap data
repository that it is the reporting counterparty.
(2) For an off-facility swap, the counterparties shall agree as one
term of their swap which counterparty shall be the reporting
counterparty.
(g) If a reporting counterparty selected pursuant to paragraphs (a)
through (f) of this section ceases to be a counterparty to a swap due
to an assignment or novation, the reporting counterparty for reporting
of required swap continuation data following the assignment or novation
shall be selected from the two current counterparties as provided in
paragraphs (g)(1) through (4) of this section.
(1) If only one counterparty is a swap dealer, the swap dealer
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(2) If neither counterparty is a swap dealer, and only one
counterparty is a major swap participant, the major swap participant
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(3) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a U.S. person, that counterparty shall be the
reporting counterparty and shall fulfill all counterparty reporting
obligations.
(4) In all other cases, the counterparty that replaced the previous
reporting counterparty by reason of the assignment or novation shall be
the reporting counterparty, unless otherwise agreed by the
counterparties.
(h) For all swaps executed on or pursuant to the rules of a swap
execution facility or designated contract market, the rules of the swap
execution facility or designated contract market must require each swap
counterparty to provide sufficient information to the swap execution
facility or designated contract market to enable the swap execution
facility or designated contract market to report all swap creation data
as provided in this part.
(1) To achieve this, the rules of the swap execution facility or
designated contract market must require each market participant placing
an order with respect to any swap traded on the swap execution facility
or designated contract market to include in the order, without
limitation:
(i) The legal entity identifier of the market participant placing
the order, if available.
(ii) A yes/no indication of whether the market participant is a
swap dealer with respect to the product with respect to which the order
is placed.
(iii) A yes/no indication of whether the market participant is a
major swap participant with respect to the product with respect to
which the order is placed.
(iv) A yes/no indication of whether the market participant is a
financial entity as defined in CEA section (2)(h)(7)(C).
(v) A yes/no indication of whether the market participant is a U.S.
person.
(vi) If applicable, an indication that the market participant will
elect the clearing requirement exception in CEA section (2)(h)(7) for
any swap resulting from the order.
(vii) If the swap will be allocated:
(A) An indication that the swap will be allocated.
(B) The legal entity identifier of the agent.
(C) An indication of whether the swap is a post-allocation swap.
(D) If the swap is a post-allocation swap, the unique swap
identifier of the original transaction between the reporting
counterparty and the agent.
(2) To achieve this, the swap execution facility or designated
contract market must use the information obtained pursuant to paragraph
(h)(1) of this section to identify the counterparty that is the
reporting counterparty pursuant to the CEA and this section, wherever
possible. If the swap execution facility or designated contract market
cannot identify the reporting counterparty from the information
available to it as specified in paragraph (h) of this section, the swap
execution facility or designated contract market shall:
(i) Notify each counterparty, as soon as technologically
practicable after execution of the swap, that it cannot identify
whether that counterparty is the reporting counterparty, and, if
applicable, that neither counterparty is a U.S. person; and
(ii) Transmit to each counterparty the LEI (or substitute
identifier as provided in this section) of the other counterparty.
Sec. 45.9 Third-party facilitation of data reporting.
Registered entities and swap counterparties required by this part
to report required swap creation data or required swap continuation
data, while remaining fully responsible for reporting as required by
this part, may contract with third-party service providers to
facilitate reporting.
Sec. 45.10 Reporting to a single swap data repository.
All swap data for a given swap must be reported to a single swap
data repository, which shall be the swap data repository to which the
first report of required swap creation data is made pursuant to this
part.
(a) Swaps executed on a swap execution facility or designated
contract market. To ensure that all 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 that
reports required swap creation data as required by Sec. 45.3 shall
report all such data to a single swap data repository. As soon as
technologically practicable after execution, 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, both:
(i) The identity of the swap data repository to which required swap
creation data is reported by the swap execution facility or designated
contract market; and
(ii) The unique swap identifier for the swap, created pursuant to
Sec. 45.5.
(2) Thereafter, all required swap creation data and all required
swap continuation data reported for the swap reported by any registered
entity or counterparty shall be reported to that same swap data
repository (or to its successor in the event that it ceases to operate,
as provided in part 49 of this chapter).
(b) Off-facility swaps with a swap dealer or major swap participant
reporting counterparty. To ensure that all swap data for such swaps is
reported to a single swap data repository:
(1) If the reporting counterparty reports primary economic terms
data to a swap data repository as required by Sec. 45.3:
(i) The reporting counterparty shall report primary economic terms
data to a single swap data repository.
(ii) As soon as technologically practicable after execution, but no
later than as required pursuant to Sec. 45.3, the reporting
counterparty shall transmit to the other counterparty to the swap both
the identity of the swap data repository to which primary economic
terms data is reported by the reporting counterparty, and the unique
swap
[[Page 2209]]
identifier for the swap created pursuant to Sec. 45.5.
(iii) If the swap will be cleared, the reporting counterparty shall
transmit to the derivatives clearing organization at the time the swap
is submitted for clearing both the identity of the swap data repository
to which primary economic terms data is reported by the reporting
counterparty, and the unique swap identifier for the swap created
pursuant to Sec. 45.5.
(2) If the reporting counterparty is excused from reporting primary
economic terms data as provided in Sec. 45.3(b) or (c):
(i) Paragraph (b)(1) of this section shall not apply.
(ii) At the time the swap is submitted for clearing, the reporting
counterparty shall transmit to the derivatives clearing organization
the unique swap identifier for the swap created pursuant to Sec. 45.5,
and notify the derivatives clearing organization that the reporting
counterparty has not reported any required swap creation data for the
swap to a swap data repository.
(iii) The derivatives clearing organization shall report all
required swap creation data for the swap to a single swap data
repository. As soon as technologically practicable after clearing, the
derivatives clearing organization shall transmit to both counterparties
to the swap the identity of the swap data repository to which required
swap creation data is reported by the derivatives clearing
organization, and shall transmit to the non-reporting counterparty the
unique swap identifier for the swap.
(3) Thereafter, 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 swap data repository to which
swap data has been reported pursuant to paragraph (b)(1) or (b)(2) of
this section (or to its successor in the event that it ceases to
operate, as provided in part 49 of this chapter).
(c) Off-facility swaps with a non-SD/MSP reporting counterparty. To
ensure that all swap data for such swaps is reported to a single swap
data repository:
(1) If the reporting counterparty reports primary economic terms
data to a swap data repository as required by Sec. 45.3:
(i) The reporting counterparty shall report primary economic terms
data to a single swap data repository.
(ii) As soon as technologically practicable after execution, but no
later than as required pursuant to Sec. 45.3, the reporting
counterparty shall transmit to the other counterparty to the swap the
identity of the swap data repository to which primary economic terms
data was reported by the reporting counterparty.
(iii) If the swap will be cleared, the reporting counterparty shall
transmit to the derivatives clearing organization at the time the swap
is submitted for clearing the identity of the swap data repository to
which primary economic terms data was reported by the reporting
counterparty.
(2) If the reporting counterparty will be excused from reporting
primary economic terms data as provided in Sec. 45.3(b) or (c):
(i) Paragraph (c)(1) of this section shall not apply.
(ii) At the time the swap is submitted for clearing, the reporting
counterparty shall notify the derivatives clearing organization that
the reporting counterparty has not reported any required swap creation
data for the swap to a swap data repository.
(iii) The derivatives clearing organization shall report all
required swap creation data for the swap to a single swap data
repository. As soon as technologically practicable after clearing, the
derivatives clearing organization shall transmit to both counterparties
to the swap the identity of the swap data repository to which required
swap creation data is reported by the derivatives clearing
organization.
(3) The swap data repository to which the swap is reported as
provided in paragraph (c) of this section shall transmit the unique
swap identifier created pursuant to Sec. 45.5 to both counterparties
and to the derivatives clearing organization, if any, as soon as
technologically practicable after creation of the unique swap
identifier.
(4) Thereafter, 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 swap data repository to which
swap data has been reported pursuant to paragraph (c)(1) or (2) of this
section (or to its successor in the event that it ceases to operate, as
provided in part 49 of this chapter).
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 registered with the Commission currently accepts swap data,
each registered entity or 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 reported to the Commission pursuant to this section shall
be reported at times announced by the Commission and in an electronic
file in a format acceptable to the Commission.
(c) 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 (c)
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 paragraph (c) of this section 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 paragraphs (a) and (b)
of this section.
(2) The authority to determine whether the Commission may permit or
require use by reporting entities or counterparties in reporting
pursuant to this section 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.
(3) The dates and times at which required swap creation data or
required swap continuation data shall be reported pursuant to this
section.
(d) The Chief Information Officer shall publish from time to time
in the Federal Register and on the Web site 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 this
section.
Sec. 45.12 Voluntary supplemental reporting
(a) For purposes of this section, the term voluntary, supplemental
report means any report of swap data to a swap data repository that is
not required to be made pursuant to this part or any other part in this
chapter.
(b) A voluntary, supplemental report may be made only by a
counterparty to the swap in connection with which the voluntary,
supplemental report is made, or by a third-party service provider
acting on behalf of a counterparty to the swap.
[[Page 2210]]
(c) A voluntary, supplemental report may be made either to the swap
data repository to which all required swap creation data and all
required swap continuation data is reported for the swap pursuant to
Sec. Sec. 45.3 and 45.10, or to a different swap data repository.
(d) A voluntary, supplemental report must contain:
(1) An indication that the report is a voluntary, supplemental
report.
(2) The unique swap identifier created pursuant to Sec. Sec. 45.5
and 45.9. Therefore, no voluntary, supplemental report may be made
until after the unique swap identifier has been created pursuant to
Sec. Sec. 45.5 and 45.9 and has been transmitted to the counterparty
making the voluntary, supplemental report.
(3) The identity of the swap data repository to which all required
swap creation data and all required swap continuation data is reported
for the swap pursuant to Sec. Sec. 45.3 and 45.10, if the voluntary
supplemental report is made to a different swap data repository.
(4) The legal entity identifier (or substitute identifier) required
by Sec. 45.6 for the counterparty making the voluntary, supplemental
report.
(5) If applicable, an indication that the voluntary, supplemental
report is made pursuant to the laws or regulations of any jurisdiction
outside the United States.
(e) If a counterparty that has made a voluntary, supplemental
report discovers any errors in the swap data included in the voluntary,
supplemental report, the counterparty must report a correction of each
such error to the swap data repository to which the voluntary,
supplemental report was made, as soon as technologically practicable
after discovery of any such error.
Sec. 45.13 Required data standards.
(a) Data maintained and furnished to the commission by swap data
repositories. A swap data repository shall maintain all swap data
reported to it in a format acceptable to the Commission, and shall
transmit all swap data requested by the Commission to the Commission in
an electronic file in a format acceptable to the Commission.
(b) Data reported to swap data repositories. In reporting swap data
to a swap data repository as required by this part, each reporting
entity or counterparty 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. A swap data repository 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 paragraph (a) of this
section with respect to maintenance and transmission of swap data.
(c) 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 this paragraph
(c), 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 (c). 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 (c) 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 paragraph (a) of this
section.
(2) The authority to determine whether the Commission may permit or
require use by reporting entities or counterparties, or by swap data
repositories, 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, or to enable swap data
repositories to comply with paragraph (a) of this section.
(d) The Chief Information Officer shall publish from time to time
in the Federal Register and on the Web site of the Commission the
format, data schema, and electronic data transmission methods and
procedures acceptable to the Commission.
Sec. 45.14 Reporting of errors and omissions in previously reported
data.
(a) Each registered entity and swap counterparty required by this
part to report swap data to a swap data repository, to any other
registered entity or swap counterparty, or to the Commission shall
report any errors and omissions in the data so reported. Corrections of
errors or omissions shall be reported as soon as technologically
practicable after discovery of any such error or omission. With respect
to swaps for which required swap continuation data is reported using
the snapshot reporting method, reporting counterparties fulfill the
requirement to report errors or omissions in state data previously
reported by making appropriate corrections in their next daily report
of state data as required by this part.
(b) Each counterparty to a swap that is not the reporting
counterparty as determined pursuant to Sec. 45.8, and that discovers
any error or omission with respect to any swap data reported to a swap
data repository for that swap, shall promptly notify the reporting
counterparty of each such error or omission. Upon receiving such
notice, the reporting counterparty shall report a correction of each
such error or omission to the swap data repository as provided in
paragraph (a) of this section.
(c) Unless otherwise approved by the Commission, or by the Chief
Information Officer pursuant to Sec. 45.13, each registered entity or
swap counterparty reporting corrections to errors or omissions in data
previously reported as required by this section shall report such
corrections in the same format as it reported the erroneous or omitted
data. Unless otherwise approved by the Commission, or by the Chief
Information Officer pursuant to Sec. 45.13, a swap data repository
shall transmit corrections to errors or omission in data previously
transmitted to the Commission in the same format as it transmitted the
erroneous or omitted data.
BILLING CODE 6351-01-P
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BILLING CODE 6351-01-C
Issued in Washington, DC, on December 20, 2011, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Appendices To Swap Data Recordkeeping and Reporting Requirements--
Commission Voting Summary and Statements of Commissioners
Note: The following appendices will not appear in the Code of
Federal Regulations
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Sommers,
Chilton, O'Malia and Wetjen voted in the affirmative; no
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rule establishing swap data recordkeeping
and reporting requirements for registered entities and
counterparties involved in swaps transactions. The final rule will
ensure that complete, timely, and accurate data on all swaps is
available to the Commodity Futures Trading Commission and other
regulators.
The final rule requires that data be consistently maintained and
reported to swap data repositories (SDRs) by swap execution
facilities, designated contract markets, derivatives clearing
organizations, swap dealers, major swap participants, and other swap
counterparties. It requires reporting when the transaction is
executed and over the lifetime of the swap.
The rule has a streamlined data reporting regime--the entities
with the easiest, fastest, and cheapest access to the data will
report to SDRs. It also extends and phases in reporting deadlines,
particularly for counterparties that are not swap dealers or major
swap participants.
The rule's Legal Entity Identifier, Unique Swap Identifier and
Unique Product Identifier regimes will be crucial regulatory tools
for linking data together across counterparties, asset classes,
repositories, and transactions. They also will improve risk
management, operational efficiency, and data processing for market
participants. The rule phases in the start of compliance by both
asset class and counterparty type.
[FR Doc. 2011-33199 Filed 1-12-12; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: January 13, 2012
See Also:
