Difference between revisions of "CFTC Proposed Rule: Amendments to the Definition of ‘‘Material Terms’’ for Purposes of Swap Portfolio Reconciliation"

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! class="final-rule-content"| '''FINAL RULE:''' This page refers to the proposed rule on amendments to the "material terms" definition for swap portfolio reconciliation. The [[CFTC Final Rule: Amendments to the Definition of ‘‘Material Terms’’ for Purposes of Swap Portfolio Reconciliation|final rule]] was approved May 2, 2016.
 
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Latest revision as of 18:19, 2 May 2016

Timeline, Amendments to the Definition of ‘‘Material Terms’’ for Purposes of Swap Portfolio Reconciliation
Proposal Date Comment Deadline Effective Date
September 22, 2015 November 23, 2015 May 6, 2016
Dodd-Frank Timeline, Confirmation, Reconciliation, and Compression, Swap Dealers and Major Swap Participants
Proposal Date Final Rule Issue Effective Date
December 28, 2010 September 11, 2012 November 13, 2012

On September 15, 2015, the CFTC approved a proposed rule that would amend the regulatory definition of “material terms” for purposes of swap portfolio reconciliation under Commission regulation 23.502.<ref>CFTC Announces Proposal to Amend the Definition of “Material Terms” for Purposes of Swap Portfolio Reconciliation. CFTC. Retrieved on October 1, 2015.</ref> The rule appeared in the Federal Register on September 22, 2015, and the deadline for public comment is November 23, 2015. Comments may be viewed HERE.

Also see statements from Chairman Tim Massad HERE and Commissioner J. Christopher Giancarlo HERE.

Background[edit]

On August 27, 2012, the CFTC issued its second round of final rulemakings related to internal business conduct standards for swap dealers and major swap participants (SD/MSPs), which included a final rule on requirements for confirmation, portfolio reconciliation and portfolio compression Requirements for swap dealers and major swap participants. The rule appeared in the Federal Register on September 11, 2012, and will become effective on November 13, 2012.

In 2013, the International Swaps and Derivatives Association, Inc. (‘‘ISDA’’) requested interpretive guidance from commission staff that would permit certain swap data elements to be excluded from portfolio reconciliation as required under the final rule. Specifically, ISDA requested that ‘‘the terms’’ of a swap that counterparties must exchange during portfolio reconciliation exercises be limited to the ‘‘material terms’’ of a swap, and that certain data fields be exempt from the definition of "material terms."

On June 27, 2013, after considering ISDA's request, the CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) issued a no-action letter relating to the terms that are included in portfolio reconciliations. Specifically, it requested that certain data not be considered "material terms" of the swap:

  • An indication that the swap will be allocated;
  • If the swap will be allocated, or is a post-allocation swap, the Legal Entity Identifier of the agent;
  • An indication that the swap is a post-allocation swap;
  • If the swap is a post-allocation swap, the unique swap identifier;
  • Block trade indicator;
  • Execution timestamp;
  • Timestamp for submission to swap data repository;
  • Clearing indicator;
  • Clearing venue;
  • If the swap will not be cleared, an indication of whether the clearing requirement exception in CEA section 2(h)(7) has been elected;
  • The identity of the counterparty electing the clearing requirement exception in CEA section 2(h)(7).

Summary of the Proposed Rule[edit]

The proposed rule essentially codifies most of the 2013 No-Action letter, with a few changes.

As amended, the following data fields would be excluded from the definition of ‘‘material terms’’:

  • An indication that the swap will be allocated;
  • If the swap will be allocated, or is a post-allocation swap, the legal entity identifier of the agent;
  • An indication that the swap is a post-allocation swap;
  • If the swap is a post-allocation swap, the unique swap identifier;
  • Block trade indicator;
  • With respect to a cleared swap, the execution timestamp;
  • With respect to a cleared swap, the timestamp for submission to SDR
  • Clearing indicator; and
  • Clearing venue.

The Proposed Excluded Data Fields modify the No-Action Excluded Data Fields by:

  • Amending the execution timestamp data field to be specific to cleared swaps;
  • amending the timestamp for submission to an SDR data field to be specific to cleared swaps;
  • removing the data field containing an indication of whether a clearing requirement exception has been elected with respect to an uncleared swap; and
  • removing the data field containing the identity of the counterparty electing the clearing requirement exception.

The Commission is proposing to retain these data fields for uncleared swaps as ‘‘material terms’’ because a discrepancy in this information in the records of the counterparties could mean that the related information is erroneous in the records of an SDR, which could have an impact on the Commission’s regulatory mission.

Related Document: Federal Register Entry, September 22, 2015[edit]

References[edit]

<references/>

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