CFTC’s Final Rules on Derivatives Trade Reporting

The CFTC issued three final rules in late 2020 relating to different components of the CFTC’s swap data reporting requirements: real-time public reporting (Part 43), swap data recordkeeping and reporting (Part 45) and data verification (Part 49).  These final rules will be implemented in two phases. Phase one with an implementation date of December 5, 2022, and phase two in 2023.  Below are a brief summary and key highlights of the changes adopted.

Amendments to the Real-Time Public Reporting Requirements – Part 43

The final rule provides real-time reporting of swap pricing and transaction data to swap data repositories (SDRs) and makes the data accessible to the public.  Reporting frequency determined to be as soon as technologically practical.  Part 43 also includes provisions relating to the treatment and reporting of large notional trades called “block trades” and to the capping of swap trades that reach a certain notional amount.  Below are key portions of the rule:

• Increased thresholds for block and cap trades.
• Revised the swaps categories on which block sizes are based.
• Revised Rule 43’s Appendix A list of swap terms that must be reported.
• Several definitions were added relating to swap transactions involving prime brokerage.
• The rule requires reporting of the “trigger” swap in prime brokerage transactions to avoid duplicative reporting.

Amendments to the Swap Data Recordkeeping and Reporting Requirements – Part 45

The final rule to Part 45 revises the CFTC’s regulations for regulatory reporting of swap data and recordkeeping requirements for SDRs, designated contract markets (DCMs), derivatives clearing organizations (DCOs), swap execution facilities (SEFs), swap dealers (SDs), and major swap participants (MSPs).  Highlights of the rule change are:

• Gives the CFTC access to uncleared margin data for registered entities like DCOs, SDs, and MSPs.
• Eases burdens on other reporting counterparties by removing the requirement to report valuation and not requiring margin reporting to these entities.
• Standardized 128 reporting fields based on guidance developed by the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO).
• Adopts the CPMI/IOSCOs UTI replacing the current Unique Swap Identifier.
• Requires SEFs DCMs and other reporting counterparties to report a single swap creation data report to avoid duplicative data in the SDR.

Amendments to the CFTCs Data Verification – Parts 43, 45 and 49

The final rule on data verification impacts Parts 43, 45 and 49, and is intended to improve the accuracy of the data reported.  Below are key portions of the rule:

• Requires SDs, MSPs, and DCOs to verify the accuracy of their swap data every 30 days, while all other reporting counterparties must review their data once per quarter.  Should an error be found at any time, SDs, MSPs, and DCOs must correct and resubmit the data.
• Requires SDs, MSPs, DCOs, and other reporting counterparties to keep a log of each verification and any corrections made.
• Reporting obligation considered incomplete until validation requirements are fulfilled.

Challenges

The changes described above will have tremendous impact on data sourcing and supply chains.  The source systems potentially relied upon may not be designed for the frequency and type of reporting required and additional controls will need to be designed and implemented to ensure accurate reporting.  For institutions that operate globally the burdens are doubly so as two distinct supply chains and data warehouses with unique data elements will need to be created and maintained, without global synergy in reporting requirements to leverage efficiency from.  Automation will be key here regardless of lack of global synergy in order to have a sustainable reporting process and will take considerable time to design test and implement, early planning is essential.

Katherine Tornarites – Regulatory Product Analyst