Swap Data Regulation
|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.|
|FINAL RULE: Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps approved on May 18, 2012.|
|Final Rule Issue||Effective Date||Compliance Date|
|December 20, 2011||March 9, 2012||December 31, 2012|
|Proposal Date||Final Rule Issue||Effective Date*|
|December 23, 2010||September 1, 2011||October 31, 2011|
|Final Rule Issue||Effective Date||No-Action Relief, Part 43/45||No-Action Relief, Part 23|
|January 13, 2012||March 13, 2012||July 1, 2013 (IRS, CDS); Aug. 19 for other swaps||June 30, 2013|
|Final Rule Issue||Effective Date||Compliance Date|
|June 12, 2012||August 13, 2012||April 10, 2013|
|Proposal Date||Comment Deadline||Reopened Comment Period Deadline|
|December 10, 2010||January 24, 2011||July 22, 2013|
|Proposal Date||Comment Deadline||Reopened Comment Period Deadline|
|December 2, 2010||January 18, 2011||July 22, 2013|
|Approval Date||Comment Deadline||Effective Date|
|October 20, 2010||December 20, 2010||January 12, 2012|
|Proposal Date||Final Rule Issue||Effective Date|
|February 23, 2012||May 31, 2013||July 20, 2013|
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.
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. 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).
On October 11, 2012, the CFTC issued a "Frequently Asked Questions" document to help market participants better understand how to report cleared swaps, who has the obligation to report and the timing of reporting. On November 28, 2012, the commission withdrew certain questions about the selection of a particular SDR for cleared swap reporting by a DCO, pending a request by CME Group, which owns both a DCO and SDR. For more information, click HERE.
No-action Summary, December 2012
While the compliance dates for most swap data rules was scheduled for December 31, 2012, throughout the month of December, the CFTC issued no-action letters that effectively delayed the compliance dates until later into 2013. In general, the delays are due to technological feasability - certain data elements are not currently able to be electronically represented in the FpML data standard. 
- Bespoke and complex swaps: Compliance extended until September 30, 2013 (Extended from June 30, 2013).
- Valuation Data for SD/MSPs: Compliance extended until June 30, 2013.
- Post-trade Allocation among Time Zones and Jurisdictions: Compliance extended until June 30, 2013.
- Exotic and Multi-leg Swap Transactions: Compliance extended until April 30, 2013, provided the firm can prove technological limitation.
- Branched Located in Emerging Markets: Compliance extended until April 30, 2013, provided the firm can prove technological limitation.
Reporting of Swap Transaction Data, January 2013
Effective December 31, 2012, swaps on interest rates and credit derivatives traded on a designated contract market (DCM) or traded "off-facility," in which one or more counterparty is a swap dealer, must report transaction and pricing data to an SDR; reporting will begin on February 28, 2013 for swap dealer transactions in the other three asset classes (equity, foreign exchange, and commodity swaps.
On April 10, 2013, reporting of all remaining off-facility swaps, excluding the real time reporting of off-facility swaps in the other commodity asset class as noted above will begin. Time delays will be phased in over a two-year period as shown in the table below.
|Entity/Platform||Year One||Phase-in Schedule|
|Swaps on DCM or SEF - all asset classes||30 minutes||15 minutes after October 12, 2013|
|Mandatory Cleared Swaps not on DCM or SEF, but one party is an SD/MSP||30 minutes||15 minutes after October 12, 2013|
|Mandatory Cleared Financial Swaps (no SD/MSP)||4 hours|| 2 hours from Oct. 12, 2013 - Oct. 12, 2014;|
1 hour after Oct. 12, 2014
|Financial Swaps Exempted from Mandatory Clearing, one party is an SD/MSP||1 hour||30 minutes after October 12, 2013|
|Other Swaps Exempted from Mandatory Clearing, one party is an SD/MSP||4 hours||2 hours after October 12, 2013|
|Exempted from Mandatory Clearing, no SD/MSP||48 hours|| 36 hours from Oct. 12, 2013 - Oct. 12, 2014;|
24 hours after Oct. 12, 2014
Finalized Swap Data Rules, with Links to Originally-Proposed Rule
CFTC Final Rule: Registration and Regulation of Swap Data Repositories, from CFTC Open Meeting, August 4, 2011
At its August 4, 2011 open meeting, the CFTC approved its final rulemaking on the registration and regulation of swap data repositories (SDRs). The provisions include sections on the accuracy of data, real-time reporting rules, SDR governance and compliance, and regulator access to data.
CFTC Final Rule: Real-Time Public Reporting of Swap Transaction Data, from CFTC Open Meeting, December 20, 2011
At its Decenber 20, 2011 open meeting, the CFTC approved
Under the rules, 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, which were part of the originally proposed rules, have been reproposed in a separate rulemaking.
CFTC Final Rule: Swap Data Recordkeeping and Reporting Requirements, from CFTC Open Meeting, December 20, 2011
At its December 20, 2011 open meeting, the CFTC approved its final rulemaking on swap data recordkeeping and reporting requirements. Provisions include sections on timing of submissions and data storage, who will be the counterparty responsible for reporting under various scenarios, descriptions of the required identifiers, and the prevention of data fragmentation.
CFTC Final Rule: Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps, June 2012
At its October 1, 2010 open meeting, the CFTC issued an interim final rule on pre-enactment transition ("historical") swaps, which are swap transactions entered into prior to the passage of the Dodd-Frank Act and subsequent regulatory rulemakings. The interim rule requires the registration of any unexpired swaps to be reported to a SDR at a date to be set by the commission, and to maintain certain transaction records that may be required once rules have been finalized. These terms were further defined in a subsequent proposal at the CFTC Open Meeting, April 12, 2011.
On June 12, 2012, the Federal Register published the CFTC's final rulemaking on historical swap recordkeeping and reporting. For swaps in existence on or after April 25, 2011, counterparties are required to keep records of specified, minimum primary economic terms for a swap of the asset class in question. Swap dealers and major swap participants (SD/MSPs) must keep the required records in electronic form (unless they were originally created and are exclusively maintained in paper form), while non-SD/MSP counterparties are permitted to keep them in either electronic or paper form. 
Proposed Rules Which Have Not Been Finalized
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."
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.
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.
- ↑ CFTC-SEC delivers report on mandating algorithmic description for derivatives. CommodityOnline. Retrieved on April 11, 2011.
- ↑ Open Meeting on Thirteenth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on April 15, 2011.
- ↑ CFTC Staff Responds to Frequently Asked Questions on the Reporting of Cleared Swaps. CFTC. Retrieved on November 30, 2012.
- ↑ CFTC’s Division of Market Oversight Issues Time-Limited No-Action Relief Concerning Bespoke or Complex Swaps. CFTC. Retrieved on December 4, 2012.
- ↑ CFTC Approves Final Rule on Swap Data Recordkeeping and Reporting Requirements for Pre-Dodd-Frank and Transition Swaps. CFTC. Retrieved on May 21, 2012.