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2012-21612

  • Federal Register, Volume 77 Issue 171 (Tuesday, September 4, 2012)[Federal Register Volume 77, Number 171 (Tuesday, September 4, 2012)]

    [Notices]

    [Pages 53870-53873]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2012-21612]

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    COMMODITY FUTURES TRADING COMMISSION

    Availability of a Legal Entity Identifier Meeting the

    Requirements of the Regulations of the Commodity Futures Trading

    Commission and Designation of Provider of Legal Entity Identifiers To

    Be Used in the Recordkeeping and Swap Data Reporting

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Order.

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    SUMMARY: On July 23, 2012, the Commodity Futures Trading Commission

    issued an order designating DTCC-SWIFT as the provider of the legal

    entity identifiers (LEIs) which will be used by registered entities and

    swap counterparties in complying with the CFTC's swap data reporting

    regulations. These identifiers will be known as CFTC Interim Compliant

    Identifiers (CICIs) until establishment of a global LEI system, and

    will transition into the global LEI system when it is established. The

    order included findings of fact by the Commission that the CICI

    provided by DTCC-SWIFT is the only available identifier that satisfies

    all requirements of the Commission's swap data reporting rules, and can

    be provided to market participants sufficiently in advance of the

    initial compliance date for swap data reporting to enable compliance

    with the rules. The designation is made for a limited term of two

    years, and is subject to four conditions specified in the order.

    FOR FURTHER INFORMATION CONTACT: David Taylor, Associate Director,

    Division of Market Oversight, 202-418-5488, dtaylor@cftc.gov; or Srini

    Bangarbale, Chief Data Officer, Office of Data and Technology, 202-418-

    5315, sbangarbale@cftc.gov; Commodity Futures Trading Commission, Three

    Lafayette Centre, 1155 21st Street NW., Washington, DC 20851.

    SUPPLEMENTARY INFORMATION: Section 21(b) of the Commodity Exchange Act,

    (``CEA''), added to the CEA by Section 728 of the Dodd-Frank Act,

    directs the Commission to prescribe standards that specify the data

    elements for each swap that shall be reported to, and collected and

    maintained by, swap data repositories. Pursuant to this authority, part

    45 of the Commission's regulations establishes recordkeeping and data

    reporting requirements for swaps subject to the jurisdiction of the

    Commission.\1\ Section 45.6, Legal entity identifiers, includes a legal

    entity identifier (``LEI'') for each swap counterparty among the data

    elements required to be reported for each swap. That section provides

    that:

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    \1\ 17 CFR part 45, Swap Data Recordkeeping and Reporting

    Requirements, 77 FR 2136 (Jan. 13, 2012), http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2011-33199a.pdf.

    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.\2\

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    \2\ Sec. 45.6.

    As noted in part 45, and stated in the CPSS-IOSCO Report on OTC

    Derivatives Data Reporting and Aggregation Requirements, ``a standard

    system of LEIs is an essential tool for aggregation of OTC derivatives

    data.'' \3\

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    \3\ 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 (Dec. 2011).

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    In order to enable compliance with this requirement by registered

    entities and swap counterparties subject to the Commission's

    jurisdiction, part 45 provides that:

    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

    [[Page 53871]]

    available to provide legal entity identifiers for registered

    entities and swap counterparties required to comply with this

    part.\4\

    \4\ Sec. 45.6(e)(1).

    Section 45.6(e)(1)(i) specifies five factors that the Commission shall

    consider in making this determination.

    Section 45.6 emphasizes that making this determination and having

    LEIs available for identification of swap counterparties when swap data

    reporting commences as of the compliance dates set forth in part 45 is

    highly important to achieving the systemic risk mitigation,

    transparency, and market abuse prevention purposes of the Dodd-Frank

    Act. For this reason, Sec. 45.6(e)(1)(ii) provides that:

    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 counterparties in swap data reporting commencing as of the

    compliance dates set forth in this part.

    In addition, Sec. 45.6(e)(1)(iii) provides that:

    The Commission shall make this determination at a time it

    believes is sufficiently prior to the compliance dates set forth in

    this part to enable issuance of LEIs far enough in advance of those

    compliance dates to enable compliance with this part.

    If the Commission determines that a provider whose LEI system

    provides LEIs meeting the requirements of part 45 is available, the

    rule calls for the Commission to inform registered entities and swap

    counterparties subject to the Commission's jurisdiction of where they

    can obtain the LEIs needed for compliance with part 45, by issuing an

    order designating the provider of the LEIs to be used for that purpose.

    Section 45.6(e)(2) provides that:

    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.

    Once the Commission has determined that an LEI meeting the

    requirements of part 45 is available, and has designated its provider

    as set forth in Sec. 45.6(e)(2), registered entities and swap

    counterparties subject to the Commission's jurisdiction are required to

    use the LEIs furnished by that provider in recordkeeping and swap data

    reporting. Section 45.6(f)(1) provides that:

    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.

    II. Determination and Designation Process

    A. Request for Submissions

    Pursuant to these provisions of part 45, on March 9, 2012, the

    Commission issued a public request for submissions from industry

    participants that wished to be considered for designation by the

    Commission as the provider of LEIs to be used in complying with the

    rule.\5\

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    \5\ Commodity Futures Trading Commission Press Release, CFTC

    announces process to designate the provider of CFTC Interim

    Compliant Identifiers, March 9, 2012.

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    The Commission's request for submissions included provisions

    relating to international aspects of LEIs. It reiterated that part 45

    calls for issuance of the identifier used in recordkeeping and swap

    data reporting under CFTC jurisdiction, and for any utility formed to

    issue such identifiers, to be subject to international supervision 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. It noted the Commission's

    ongoing participation in an international process, coordinated by the

    Financial Stability Board (``FSB''), to establish governance principles

    and reference data requirements for a global legal entity identifier,

    to be contained in recommendations by an international regulatory LEI

    Expert Group (including the Commission) for consideration by the FSB in

    May 2012. In light of that process, and as requested by other

    international financial regulators, the request for submissions stated

    that the Commission would refer to the identifier to be used in

    reporting under part 45 as the CFTC Interim Compliant Identifier

    (``CICI'') until after the FSB Plenary meeting in May 2012, and would

    defer its designation of the provider of CICIs until after that

    meeting. The request also reiterated that, as provided in part 45, the

    Commission plans to adopt the governance principles and LEI reference

    data requirements endorsed by the FSB, making them applicable to

    identification of swap counterparties under CFTC jurisdiction. The

    request further stated that, once these steps are completed, the

    Commission anticipates that the identifier then called the CICI will

    transition into the global LEI, and be referred to as the LEI.

    In its request for submissions, the Commission stated that

    submitters must be prepared to demonstrate that they meet all of the

    requirements set forth in part 45. It further notified submitters that:

    (1) The Commission's determination and designation process would

    include an on-site, live demonstration for Commission staff of the

    process to be used for issuance of CICIs; (2) the Commission's

    designation will be for a limited term of two years, and be terminable

    on six months' notice if a different central utility for the global LEI

    is chosen later through the FSB process and becomes operational; and

    (3) subject to applicable confidentiality laws, the Commission's

    designation will require that the designated LEI utility must make

    public all CICI data, operations, identity validation processes and

    audit trail, and to pass to any successor LEI utility, free of charge,

    all CICI data and all CICI intellectual property rights.

    B. Requirements for Designation as the LEI Utility

    Four parties expressed an interest in becoming the LEI provider. To

    assess their suitability, the Commission required the submitters to

    provide both (1) a written demonstration of their ability to meet the

    Commission's part 45 requirements, and (2) an on-site, live

    demonstration of their process for issuing CICIs.

    1. Written Demonstration of Ability To Meet Commission Requirements

    Detailed requirements for the written demonstration were provided

    to each submitter. The requirements document stated that, as provided

    in Sec. 45.6(e)(1)(i) of the Commission's regulations, in determining

    whether a CICI meeting the requirements of part 45 is available, and if

    so designating its provider as the utility that will provide the CICI,

    the Commission would consider, without limitation, the following five

    factors:

    Whether the CICI provided by the utility is issued under,

    and conforms to, ISO Standard 17442, Legal Entity Identifier (LEI).

    Whether the CICI provided by the utility complies with all

    of the technical principles set forth in part 45.

    [[Page 53872]]

    Whether the CICI utility complies with all of the

    governance principles set forth in part 45.

    Whether the CICI utility has demonstrated that it in fact

    can provide CICIs for identification of swap counterparties in swap

    data reporting commencing as of the compliance dates set forth in part

    45.

    The acceptability of the CICI utility to industry

    participants required to use the LEI in complying with part 45.

    The requirements document also described the functions to be

    performed by the CICI system, including, but not limited to, the

    following:

    Utility Administration (e.g., accounting; audit; CICI fee

    collection; billing and payment; communications, human resources; and

    legal department).

    Data Management (e.g., receive registrant data; establish

    and maintain registrant data record; apply validation and data quality

    assurance processes to registrant data; issue unique CICI; transmit

    CICI to registrant; maintain and update data record history; maintain

    and update required metadata; maintain complete audit trail of all

    records, data, and messages; and maintain appropriate system

    safeguards).

    Verification of Entity Identification (e.g., cleanse and

    validate identification data submitted through both self-registration

    and third-party registration; connect to and communicate with national

    business registers in jurisdictions world-wide; provide identification

    data challenge services; verify uniqueness of submitted identification

    information; provide local verification in countries world-wide; visit

    provided addresses to verify entity presence; process entity messages

    regarding identification data, for example concerning corporate

    actions; perform periodic re-verification; and identify the

    verification level at which each record has been verified).

    Public Database (e.g., establish and maintain free public

    database of all CICIs; provide 24/7 internet query facility; provide

    near-real time response to queries; provide complete, current CICI

    directory; and provide help desk and assistance services for the

    public).

    CICI Registration Services (e.g., provide local language

    services world-wide; respond to market participant queries; receive and

    process both electronic and paper registration requests; and provide

    timely processing of CICI requests and timely assignment of CICIs).

    Compliance (e.g., monitor and ensure adherence to

    technical and governance principles, to operational and technical

    standards and protocols, to regulatory policies concerning access to

    hierarchical data; and to applicable laws; regulatory oversight

    reporting; compliance with directives of international Regulatory

    Oversight Committee, when established; and maintain capability to

    transfer all CICI data to international central utility when

    established).

    In addition, the requirements document provided that each submitter

    was required to provide detailed information concerning its relevant

    background and experience. This information was required to include

    details of the submitter's corporate and organization background and

    ownership and legal structure; its financial status; and its plan for

    financing establishment and operation of the CICI utility on a non-

    profit, cost-recovery basis, without charging market participants any

    fees that could reasonably be construed to constitute a barrier to

    participation in financial markets. Each submitter was also required to

    include a detailed description of its experience in assigning,

    maintaining, and managing validated corporate or legal entity

    identifiers, and its experience with gathering, cleansing, maintaining,

    and using reference data associated with identifying corporate or legal

    entities.

    Each submitter provided a document to the Commission in response to

    the requirement for a written demonstration, as set forth above.

    2. On-site, Live Demonstration of Complete CICI Issuance Process

    Each submitter was also required to provide an on-site, live

    demonstration of its systems, operations, and processes for obtaining,

    cleansing, and using reference data to validate the identity of a legal

    entity and for issuing a CICI to such an entity. Submitters were asked

    to provide examples of preliminary identifiers and test files or test

    identifiers already prepared for or provided to swap counterparties for

    use in automated system preparation and testing in preparation for swap

    data reporting beginning on the applicable compliance date established

    in part 45. The demonstration was required to include live presentation

    of the submitter's web portal, file transmission facilities, and test

    processes that would be available to registered entities and swap

    counterparties for use in the CICI issuance process. The demonstration

    was also required to include live presentation of the submitter's

    procedures and staffing for obtaining entity reference data, entity

    challenge with respect to reference data, de-duplication of preliminary

    identifiers, and assignment of unique identifiers to all swap

    counterparties subject to the Commission's jurisdiction.

    All four submitters provided some form of on-site, live

    demonstration to Commission staff.

    D. Evaluation Criteria

    The requirements document set forth criteria the Commission would

    use in evaluating the submitters and the CICIs they provide, for the

    purpose of determining whether a CICI meeting the requirements of part

    45 is available, and if so, designating its provider as the source of

    CICIs to be used in compliance with part 45. Among other things, the

    four submissions were evaluated based on the following criteria:

    1. Evidence that the submitter can in fact provide all CICIs

    required by market participants for the purpose of complying with part

    45 of the Commission's regulations, and can do so sufficiently in

    advance of July 16, 2012, to enable market participants to be ready to

    comply as of that date. As provided in Sec. 45.6 of the Commission's

    regulations, submitters that do not demonstrate this will not be

    considered further.

    2. Whether the written demonstration completely and satisfactorily

    addresses all of the Commission's requirements addressed in the

    requirements document. Incomplete submissions will not be considered

    further.

    3. Evidence of the submitter's satisfactory understanding of the

    Commission's requirements with respect to the CICI utility, as set

    forth in the requirements document.

    4. Evidence satisfying the Commission that the submitter has

    commenced setting up, will fully set up before June 1, 2012, and can

    satisfactorily manage and maintain, a CICI utility meeting all of the

    Commission's requirements, as set forth in the requirements document

    and in part 45 of the Commission's regulations. Submissions not

    providing such evidence will not be considered further.

    5. A successful, onsite, live, complete demonstration for

    Commission staff of the submitter's systems, operations, and processes

    for obtaining, cleansing, and using level one reference data to

    validate the identity of a legal entity and issuing a CICI to such an

    entity. Submitters who do not provide such a successful demonstration

    will not be considered further.

    6. The submitter's relevant experience, as described in the

    requirements document, in assigning, maintaining, and managing

    validated corporate or legal entity identifiers, and the submitter's

    experience with gathering, cleansing, maintaining, and

    [[Page 53873]]

    using reference data associated with identifying corporate or legal

    entities.

    7. A workable plan for financing the non-profit, cost-recovery-

    based establishment and operation of the CICI utility, without charging

    market participants any fee reasonably deemed to constitute a barrier

    to market participation.

    III. Findings and Order

    Now, therefore, based on the statutory provisions and Commission

    regulations cited above, and on the written submissions and on-site,

    live demonstrations provided by the submitters, the Commission makes

    the following findings and rulings:

    The Commission FINDS that:

    1. An LEI is available that: satisfies the requirements set forth

    in Sec. 45.6 of the Commission's regulations; is provided by a utility

    fully set up by June 1, 2012; and can be provided to market

    participants sufficiently in advance of the initial compliance date for

    swap data reporting to enable compliance with the Commission's

    regulations. That LEI is the LEI provided by DTCC-SWIFT. DTCC-SWIFT met

    all of the Commission's requirements and evaluation criteria set forth

    in part 45 of the Commission's regulations and the requirements

    document.

    2. The LEI provided by DTCC-SWIFT is the only available LEI that:

    satisfies the requirements set forth in Sec. 45.6 of the Commission's

    regulations; is provided by a utility fully set up by June 1, 2012; and

    can be provided to market participants sufficiently in advance of the

    initial compliance date for swap data reporting to enable compliance

    with the Commission's regulations.

    Therefore:

    It is hereby ordered that:

    1. DTCC-SWIFT is designated as the provider of legal entity

    identifiers (``LEIs''), to be known as CFTC Compliant Interim

    Identifiers (``CICIs'') until establishment of the global LEI system or

    further action by the Commission, to be used in recordkeeping and swap

    data reporting pursuant to parts 45 and 46 of the Commission's

    regulations.

    a. This designation is conditioned on modification of the DTCC-

    SWIFT Web site and other facilities and documents used to provide

    identifiers for use in complying with parts 45 and 46, to refer to the

    CICI and not to refer to the LEI, the preliminary LEI, or other similar

    terms including the term LEI. This shall include, without limitation,

    references to the CICI rather than the LEI on the utility logo,

    documentation, instructions and field labels used by DTCC-SWIFT.

    b. This designation is conditioned on DTCC-SWIFT's continuing

    compliance, for as long as it is authorized to provide LEIs (to be

    known as CICIs until establishment of the global LEI system), by this

    order or any future order of the Commission, with all of the legal

    entity identifier requirements of Part 45 of the Commission's

    regulations, and any related requirements as set forth in this order or

    in the requirements document provided to DTCC-SWIFT during the

    determination and designation process; including, without limitation,

    the requirement to be subject to supervision by a governance structure

    that includes the Commission and other financial regulators in any

    jurisdiction requiring use of legal entity identifiers pursuant to

    applicable law, for the purpose of ensuring that issuance and

    maintenance of CICIs and of associated reference data adheres on an

    ongoing basis to the Commission's requirements set forth in part 45.

    c. This designation is further conditioned on the requirement that,

    subject to applicable confidentiality laws and other applicable law,

    (1) DTCC-SWIFT shall make public all CICI identifiers and associated

    reference data, utility operations, and identity validation processes,

    and (2) following establishment of the global LEI system by means of a

    charter acceded to by the Commission, or following designation by the

    Commission of a successor CICI utility, DTCC-SWIFT shall pass to any

    successor CICI utility, or to the global LEI system, free of charge,

    all CICI identifiers and associated reference data and all CICI

    intellectual property rights.

    d. This designation is made for a limited term of two years from

    the date of this Order, and may be terminated by the Commission on six

    months' notice in connection with the establishment of a global LEI

    system. At the conclusion of the term of this designation, if the

    global LEI system is not yet operational, the Commission may consider

    the feasibility of having multiple CICI providers and the feasibility

    of coordination among them to avoid duplicative LEIs, and if it

    believes this is feasible, may consider submissions from DTCC-SWIFT as

    well as from other parties that seek to become CICI providers.

    2. Registered entities and swap counterparties subject to the

    Commission's jurisdiction shall use CICIs provided by DTCC-SWIFT to

    comply with the legal entity identifier requirements of parts 45 and 46

    of the Commission's regulations. For this purpose, registered entities

    and swap counterparties may contact DTCC-SWIFT at: The Depository Trust

    & Clearing Corporation, 55 Water Street, New York, NY 10041, 212-855-

    1000.

    Issued in Washington, DC, this 23rd day of July, 2012.

    By the Commission.

    Sauntia S. Warfield,

    Assistant Secretary of the Commission.

    [FR Doc. 2012-21612 Filed 8-31-12; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: May 1, 2013



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