Swap Data Regulation

From MarketsReformWiki

	FINAL RULE: At its August 24, 2011 open meeting, the CFTC approved the first of its swap data final rules - Registration and Regulation of Swap Data Repositories.

	FINAL RULE: At its December 20, 2011 open meeting, the CFTC approved two additional swap data rules: Swap Data Recordkeeping and Reporting Requirements and Real-Time Public Reporting of Swap Transaction Data.

Among the mandates of the Dodd-Frank Act are requirements that regulatory agencies such as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) create a framework for the transmission, submission, and storage of swap data. As of December 20, 2011, the CFTC had finalized three swap data rulemakings - Registration and Regulation of Swap Data Repositories, Swap Data Recordkeeping and Reporting Requirements and Real-Time Public Reporting of Swap Transaction Data.

The SEC has issued two rule proposals regarding the security-based swap data repositories (SDRs) and the reporting and dissemination of swap data through Regulation SBSR. Neither rulemaking has been finalized.

On April 7, 2011, the CFTC and the SEC released a joint study on the feasibility of creating computer readable, standardized algorithmic descriptions for derivatives. After conducting its analysis, which included meetings with industry leaders, regulators, and academics, as well as comments submitted by the public, the staff offered conclusions.^[1]

In conjunction with its April 12, 2011 proposed rule on swap data reporting and recordkeeping requirements, the Commodity Futures Trading Commission (CFTC) proposed the minimum swap data to be submitted to a data repository.^[2] Summary tables of minimum primary economic terms for equity, foreign exchange, interest rate, and credit swaps can be viewed HERE.

On May 1, 2012, the CFTC voted unanimously to approve a proposed interpretive order that would clarify the indemnification and confidentiality provisions in the Dodd-Frank Act. The proposal generally exempts foreign regulators from the indemnification and confidentiality provision in the Dodd-Frank Act, and ensures that foreign regulators have access to data in Swap Data Repositories (SDR).

Contents 1 Swap Data Proposal from the February 23, 2012 CFTC Meeting 2 Swap Data Proposal from the October 1, 2010 CFTC Meeting 3 Swap Data Proposals from the November 19, 2010 CFTC Meeting 4 Swap Data Proposal from the December 1, 2010 CFTC Meeting 5 Swap Data Proposal from the April 12, 2011 CFTC Meeting 6 Swap Data Proposal from the November 19, 2010 SEC Meeting 7 Swap Data Final Rule from the October 13, 2010 SEC Meeting 8 Video 9 Larry Tabb - TABB Group (Part 2) [INTERVIEW] 10 References

Swap Data Proposal from the February 23, 2012 CFTC Meeting

Procedures to Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades; Further Measures to Protect the Identities of Parties to Swap Transactions

On November 19, 2010, the commission issued its proposed rules for real-time reporting. The proposal included the reporting of data to a "real-time disseminator" such as a swap data repository, or to a third party such as a designated contract market (DCM) or swap execution facility (SEF) "as soon as technologically practicable."

The commission issued its final real-time reporting rules at its December 20, 2011 open meeting. The block trade rules were not part of the final rule, but rather have been re-proposed here.

Swap Data Proposal from the October 1, 2010 CFTC Meeting

Interim Final Rule Regarding Reporting of Pre-enactment Swap Transactions

In order to create consistency within the swaps market, the commission proposed that any swap transaction that has not expired as of the final rule implementation date ("pre-enactment swaps"), will be required to register the transaction with the appropriate SDR. Specifically, the rule requires:

• unexpired pre-enactment swaps to be reported no later than 60 days from the date the appropriate SDR is registered with the Commission, or by the compliance date established in the swap reporting rules required by the CEA, whichever comes first;
• counterparties specified in Section 4r(a)(3) report information concerning pre-enactment unexpired swaps to the Commission on request during the interim period.

The interim final rule also contained a note recommending which information should be retained by all parties to a swap agreement, in anticipation of the final rules:

• a copy of the transaction confirmation;
• the time executed, if available;
• price, and any other data related to the value of the swap; and
• if accepted for clearing, the name of the clearing entity.

Swap Data Proposals from the November 19, 2010 CFTC Meeting

Real Time Public Reporting of Swap Transaction and Pricing Data

The proposed rule would require the parties to a swap report the data to a "real-time disseminator" such as a swap data repository, or to a third party such as a designated contract market (DCM) or swap execution facility (SEF). The data shall be made public "as soon as technologically practicable." Block trades and "large notional swaps" transactions are allowed a time delay of up to 15 additional minutes before dissemination by the third party disseminator. The proposal also specifies tests to be conducted to determine the appropriate minimum block size for block trades and large notional transactions.

Registration and Regulation of Swap Data Repositories

In keeping with the requirements of the Dodd-Frank Act, the commission issued a proposed rule to establish registration and regulation requirements for a newly created entity, the "swap data repository" (SDR). In the proposal:

• registration requirements will include the adoption of a new registration form—Form SDR;
• SDR duties will include data acceptance; confirmation recordkeeping; real-time reporting, monitoring, screening and analyzing of data; maintenance of data privacy; regulator access; and adoption of emergency procedure requirements; and
• SDR core principles will include considerations for antitrust, governance, and conflicts of interest.

Swap Data Proposal from the December 1, 2010 CFTC Meeting

Swap Data Recordkeeping & Recording

The proposal will require:

• Establishment of reporting and recordkeeping requirements and daily trading records requirements for swap dealers and major swap participants.
• Swap dealers and major swap participants to ‘‘make such reports as are required by the Commission by rule or regulation regarding the transactions and positions and financial condition of the registered swap dealer or major swap participant.’’
• Prescription of the books and records requirements of ‘‘all activities related to the business of swap dealers or major swap participants,’’
• Daily maintenance of daily trading records of the swaps of the registered swap dealer and major swap participant and all related records, as well as a ‘‘complete audit trail for conducting comprehensive and accurate trade reconstructions.’’

Swap Data Proposal from the April 12, 2011 CFTC Meeting

Swap Data Recordkeeping and Reporting Requirements for Pre-Enactment and Transition Swaps

Swap Data Proposal from the November 19, 2010 SEC Meeting

Security-Based Swap Data Repository Registration, Duties, and Core Principles

The proposal will require that SDRs:

• "register with the Commission by filing a new Form SDR, and to update the filing when the information becomes inaccurate. The rules also would provide a process for the Commission to cancel or revoke the registration of an SDR;
• provide the Commission access to security-based swap data, provide reports to the Commission relating to this data, and provide security-based swap data to relevant authorities upon request;
• accept all security-based swaps reported to them (in asset classes that the SDR accepts);
• accept transaction data and maintain it for not less than five years after the expiration of the applicable swap, and to calculate positions and maintain them for not less than five years; [and]
• adopt policies and procedures reasonably designed to: 1) resolve disputes over the accuracy of security-based swap data; 2) ensure that their automated systems provide adequate levels of capacity, resiliency, and security; and 3) protect the privacy of security-based swap transaction information, material non-public information, and intellectual property."

The rules would also:

• "require SDRs to make certain disclosures to a market participant prior to accepting any security-based swap data from that market participant; [and]
• require an SDR's board of directors or a body performing a similar function to designate a chief compliance officer, who would be responsible for, among other things, preparing an annual compliance report, which must be filed with the Commission along with an annual audited financial report."

Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information

The proposed rules:

• "Parties to a security-based swap transaction would be required to report information about each transaction to a registered security-based swap data repository.
• The registered security-based swap repository would be required to publicly disseminate certain of that information in a timely fashion."

Swap Data Final Rule from the October 13, 2010 SEC Meeting

Reporting of Security-Based Swap Transaction Data

The final rule will require that parties to SBS transactions:

• "report certain information relating to pre-enactment security-based swaps to a registered security-based swap data repository after such registered security-based swap data repository is operational, or to the Commission;
• report information relating to pre-enactment security-based swaps to the Commission upon request;" and
• retain SBS information.

Video

CFTC Public Roundtable On Swap Data Recordkeeping and Reporting Requirement, June 8, 2011
On June 8, 2011, CFTC staff held a roundtable to discuss upcoming rules on swap data recordkeeping and reporting requirements, including technical aspects, infrastructure requirements, and maintenance of unique product identifiers (UPIs), as outlined in Part 45 of the commission's recordkeeping proposal.

A video of the event can be found HERE.

Larry Tabb - TABB Group (Part 2) [INTERVIEW]

Watch part 1 here. Larry Tabb is the founder and CEO of TABB Group, an advisory and research firm focusing on issues surrounding financial markets. His research and publication topics include trading and trade processing systems, market structure, regulatory issues, and technology trends. He is a contributing editor for Wall Street & Technology and Advanced Trading magazines, and is a frequent speaker at major business and industry conferences. John Lothian News editor-at-large Doug Ashburn spoke with Tabb about the infrastructure spending in OTC derivatives, data storage and transmission, and the state of the regulatory process in the U.S. and abroad. Published December 23, 2011. For more video, visit MarketsWiki.tv.

References

1. ↑ CFTC-SEC delivers report on mandating algorithmic description for derivatives. CommodityOnline. Retrieved on April 11, 2011.
2. ↑ Open Meeting on Thirteenth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on April 15, 2011.