2014-06426
Federal Register, Volume 79 Issue 58 (Wednesday, March 26, 2014)[Federal Register Volume 79, Number 58 (Wednesday, March 26, 2014)]
[Proposed Rules]
[Pages 16689-16698]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06426]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 79, No. 58 / Wednesday, March 26, 2014 /
Proposed Rules
[[Page 16689]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter I
RIN 3038-AE12
Review of Swap Data Recordkeeping and Reporting Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Request for comment.
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SUMMARY: On January 21, 2014, the Commodity Futures Trading Commission
(``Commission'' or ``CFTC'') announced the formation of an
interdivisional staff working group (``Working Group'') \1\ to review
its swap data reporting rules and related provisions set forth in part
45 of the Commission's regulations.\2\ Among other objectives, the
Working Group was asked to identify and make recommendations to resolve
reporting challenges, and to consider data field standardization and
consistency in reporting by market participants. Consistent with those
efforts, and informed by the Working Group's analysis to date, the
Commission today requests comment on specific swap data reporting and
recordkeeping rules to help determine how such rules are being applied
and to determine whether or what clarifications, enhancements or
guidance may be appropriate. This request for comment is limited to
part 45 and related provisions.
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\1\ The group includes staff from the Division of Market
Oversight, the Division of Clearing and Risk, the Division of Swap
Dealer and Intermediary Oversight, the Division of Enforcement, the
Office of the Chief Economist, the Office of Data and Technology,
and the Office of General Counsel.
\2\ Press Release, CFTC to Form an Interdivisional Working Group
to Review Regulatory Reporting (Jan. 21, 2014), available at http://www.cftc.gov/PressRoom/PressReleases/pr6837-14.
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DATES: Comments must be received on or before May 27, 2014.
ADDRESSES: You may submit comments, identified by RIN 3038-AE12, by any
of the following methods:
CFTC Web site: Via Comments Online, at http://comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: Melissa D. Jurgens, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
Hand Delivery/Courier: Same as ``Mail,'' above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method. All comments
must be submitted in English, or if not, accompanied by an English
translation. Comments may be posted as received to http://www.cftc.gov.
You should submit only information that you wish to make available
publicly. If you wish the Commission to consider information that may
be exempt from disclosure under the Freedom of Information Act, a
petition for confidential treatment of the exempt information may be
submitted according to the established procedures in CFTC Regulation
145.9 (17 CFR 145.9).
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse, or remove any or all of
your submission from www.cftc.gov that it may deem to be inappropriate
for publication, such as obscene language. All submissions that have
been redacted or removed that contain comments on the merits of the
rulemaking will be retained in the public comment file and will be
considered as required under the Administrative Procedure Act and other
applicable laws, and may be accessible under the Freedom of Information
Act.
FOR FURTHER INFORMATION CONTACT: Vincent McGonagle, Director, 202-418-
5387, [email protected], Stuart Armstrong, Special Counsel, 202-418-
5095, [email protected], Laurie Gussow, Special Counsel, 202-418-
7623, [email protected], Sebastian Pujol Schott, Associate Director,
202-418-5641, [email protected], Daniel Bucsa, Associate Director, 202-418-
5435, [email protected], Division of Market Oversight; Brian O'Keefe,
Deputy Director, 202-418-5658, [email protected], Eric Lashner, Special
Counsel, 202-418-5393, [email protected], Division of Clearing and
Risk; Rajal Patel, Special Counsel, 202-418-5261, [email protected],
Division of Swap Dealer and Intermediary Oversight; Jeffrey Burns,
Assistant General Counsel, 202-418-5051, [email protected], Office of
General Counsel, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Request for Comment
III. Issues and Questions
A. Confirmation Data
B. Continuation Data
C. Transaction Types, Entities, and Workflows
D. PET Data and Appendix 1
E. Reporting of Cleared Swaps
F. Other SDR and Counterparty Obligations
G. Swap Dealer/Major Swap Participant Registration and
Compliance
H. Risk
I. Ownership of Swap Data and Transfer of Data Across SDRs
J. Additional Comment
I. Introduction
Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the ``Dodd-Frank Act'') \3\ amended the Commodity
Exchange Act (``CEA'' or ``Act'') to establish a comprehensive new
regulatory framework for swaps. Amendments to the CEA included the
addition of provisions requiring the retention and reporting of data
regarding swap transactions, including provisions designed to enhance
transparency, promote standardization, and reduce systemic risk.
Section 727 of the Dodd-Frank Act added to the CEA new section
2(a)(13), which establishes requirements for the real-time reporting
and public availability of swap transaction data, and requires all
swaps, whether cleared or uncleared, to be reported to registered swap
data repositories (``SDRs'').\4\ Sections 723 and 729 of the Dodd-Frank
Act added to the CEA, respectively, sections 2(h)(5) and 4r, which,
among other things, establish reporting requirements for swaps in
effect as of the enactment of the Dodd-Frank Act, as well as swaps
entered into after such enactment but prior to the effective date for
compliance with final swap data
[[Page 16690]]
recordkeeping and reporting rules prescribed by the Commission.
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\3\ Public Law 111-203, 124 Stat. 1376 (2010).
\4\ See also CEA section 1a(40)(E), 7 U.S.C. 1a(40)(E).
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Section 728 of the Dodd-Frank Act added to the CEA new section 21,
which established SDRs as a new category of registered entity in order
to facilitate the collection and maintenance of swap data as prescribed
by the Commission, and to facilitate access to such data by
regulators.\5\ In addition, new section 21(b) directs the Commission to
prescribe standards for swap data recordkeeping and reporting.\6\ These
standards are to apply to both registered entities and counterparties
involved with swaps.\7\ CEA section 21(b) further directs the
Commission to prescribe data standards for SDRs \8\ and mandates that
such standards be comparable to those for derivatives clearing
organizations.\9\ CEA section 21(c)(3) provides that, once the data
elements prescribed by the Commission are reported to an SDR, the SDR
shall ``maintain the data [prescribed by the Commission for each swap]
in such form, in such manner, and for such period as may be required by
the Commission.''
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\5\ Regulations governing core principles and registration
requirements for, and the duties of, SDRs are set forth in part 49
the Commission's regulations. See Swap Data Repositories:
Registration Standards, Duties and Core Principles, 76 FR 54538
(Sept. 1, 2011).
\6\ CEA section 21(b)(1)(A), 7 U.S.C. 24a(b)(1)(A), provides
that ``the Commission shall prescribe standards that specify the
data elements for each swap that shall be collected and maintained
by each registered swap data repository.''
\7\ CEA section 21(b)(1)(B), 7 U.S.C. 24a(b)(1)(B), provides
that ``in carrying out [the duty to prescribe data element
standards], the Commission shall prescribe consistent data element
standards applicable to registered entities and reporting
counterparties.''
\8\ CEA section 21(b)(2), 7 U.S.C. 24a(b)(2), provides that
``the Commission shall prescribe data collection and data
maintenance standards for swap data repositories.''
\9\ CEA section 21(b)(3), 7 U.S.C. 24a(b)(3), provides that
``the [data] standards prescribed by the Commission under this
subsection shall be comparable to the data standards imposed by the
Commission on derivatives clearing organizations in connection with
their clearing of swaps.''
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After extensive consultation, opportunities for public comment, and
coordination with foreign and domestic regulators, the Commission added
a new part 43 to its regulations,\10\ which sets forth rules for the
free, real-time public reporting of swap transaction data; new part
45,\11\ which establishes swap data recordkeeping rules, as well as
rules for the reporting of swap transaction data to a registered SDR;
new part 46,\12\ which sets forth swap data recordkeeping and reporting
rules for pre-enactment swaps \13\ and transition swaps \14\
(collectively, ``historical swaps''); \15\ and new part 49, which
governs SDR operations and Commission access to SDR data (``SDR
Rules'').\16\ Collectively, these provisions provide the public and
market participants with an unprecedented level of transparency into
swaps markets, create rigorous recordkeeping and data reporting regimes
with respect to swaps, and enable Commission oversight of swap markets
and market participants.
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\10\ Real-Time Public Reporting of Swap Transaction Data, 77 FR
1182 (Jan. 9, 2012).
\11\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136 (Jan. 13, 2012).
\12\ Swap Data Recordkeeping and Reporting Requirements: Pre-
Enactment and Transition Swaps, 77 FR 35200 (June 12, 2012)
(``Historical Swap Reporting Rule'').
\13\ A ``pre-enactment swap'' is a swap entered into prior to
the enactment of the Dodd-Frank Act (July 21, 2010), the terms of
which have not expired as of the date of enactment of the Dodd-Frank
Act. See Historical Swap Reporting Rule at 35226.
\14\ A ``transition swap'' is a swap entered into on or after
the enactment of the Dodd-Frank Act (July 21, 2010), and prior to
the applicable compliance date for reporting historical swaps data
pursuant to part 46 of the Commission's regulations. See Historical
Swap Reporting Rule at 35227.
\15\ See also part 44 of the Commission's regulations (Interim
Final Rule for Reporting Pre-Enactment Swap Transactions, 75 FR
63080 (Oct. 14, 2010); and Reporting Certain Post-Enactment Swap
Transactions, 75 FR 78892 (Dec. 17, 2010)), which established
certain record retention requirements for historical swaps, pending
the adoption of the Commission's final rules, set forth at part 46,
regarding recordkeeping and reporting with respect to historical
swaps.
\16\ See SDR Rules, supra note 5.
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Swap counterparties, including those that are required to be
registered with the Commission as swap dealers (``SD'') or as major
swap participants (``MSP''), have swap data reporting obligations under
part 43, part 45 and part 46 (collectively, the ``swap data reporting
rules''). The swap data reporting rules also place reporting
obligations on derivatives clearing organizations (``DCOs'') that clear
swaps; designated contract markets (``DCMs'') that list swaps for
trading; and swap execution facilities (``SEFs''). At present there are
over 150 potential swap data reporting entities registered \17\ with
the Commission, each of which will have its own business and data
standards for listing, executing or clearing swaps in one or more of
the five asset classes recognized for the purposes of the swap data
reporting rules--interest rates, credit, equity, foreign exchange, and
other commodity. In addition, swaps data may currently be reported to
any registered SDR, each of which will also have its own data
standards.
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\17\ For purposes of this request for comment, the Commission
uses the term ``reporting entity'' to refer to any person,
registrant or non-registrant that has an obligation to report data
pursuant to part 45 of the Commission's regulations, including SDs,
MSPs, unregistered swap counterparties, SEFs, DCMs, and DCOs. The
Commission is also interested in receiving responses from persons
that are complying with part 45 reporting requirements pursuant to
the terms and conditions set forth in staff no-action relief such as
clearinghouses with no-action relief (``no-action CCPs'') or
qualified multilateral trading facilities (``QMTFs'') and foreign
boards of trade (``FBOTs'') complying with FBOT registration
regulations. See CFTC Division of Clearing and Risk, Letter to Eurex
Clearing AG, No-Action Letter No. 14-27 (Mar. 10, 2014); CFTC
Division of Market Oversight and Division of Swap Dealer and
Intermediary Oversight, Conditional No-Action Relief with respect to
Swaps Trading on Certain Multilateral Trading Facilities Overseen by
Competent Authorities Designated by European Union Member States,
No-Action Letter No. 14-16 (Feb. 12, 2014); CFTC Division of
Clearing and Risk, Letter to ASX Clear (Futures) Pty Limited, No-
Action Letter No. 14-07 (Feb. 6, 2014); CFTC Division of Clearing
and Risk, Letter to Japan Securities Clearing Corporation, No-Action
Letter No. 13-73 (Dec. 19, 2013); CFTC Division of Clearing and
Risk, Letter to LCH.Clearnet SA, No-Action Letter No. 13-43 (July
11, 2013), CFTC Division of Clearing and Risk, Letter to Singapore
Exchange Derivatives Clearing Limited, No-Action Letter No. 12-63
(Dec. 21, 2012); CFTC Division of Clearing and Risk, Letter to Japan
Securities Clearing Corporation, No-Action Letter No.12-56 (Dec. 17,
2012). Staff no-action letters (``NALs'') are available at http://www.cftc.gov/LawRegulation/DoddFrankAct/CurrentlyEffectiveStaffLetters/index.htm.
The list of registered entities with reporting obligations
includes reporting entities fully registered with the Commission and
entities that have received provisional registration and/or
temporary registration. Specifically, as of March 1, 2014, it
includes 98 SDs; 23 SEFs; 18 DCMs; 15 DCOs; and two MSPs. Not all
entities that are potential swap reporting entities currently
execute or clear swaps. For example, 9 of the 15 registered DCOs
currently clear swaps.
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The Commission remains committed to the regulatory objectives set
forth and established in these rules. However, to ensure that the swap
data reporting and SDR rules are effective, efficient, and provide the
necessary regulatory information, the Commission requests public
comment on the questions below, which focus on the swap data
recordkeeping and reporting requirements of part 45 and related
regulatory provisions.
II. Request for Comment
The Commission is soliciting comment from all interested parties
regarding part 45 and related provisions of the swap data reporting and
SDR rules. Questions are generally grouped according to the applicable
regulatory provision. Each series of questions includes a brief
explanatory paragraph intended to provide context for the questions
presented. Relevant topics include, among other things, the reporting
of primary economic terms (``PET''), confirmation, and continuation
data; the manner in which the reporting rules address diversity of
transaction types, business models, and data flows present in the swaps
market; the reporting of cleared swaps; and data ownership issues and
data harmonization.
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Commenters' responses should identify the specific question or sub-
question that they are addressing in each response. Responses should
consider the oversight functions performed by the Commission,
including, but not limited to, financial surveillance; market
surveillance; risk monitoring; and trade practice surveillance.
III. Issues and Questions
A. Confirmation Data (Sec. 45.3): What terms of a confirmation of a
swap transaction should be reported to an SDR as ``confirmation data''?
Part 45 requires the reporting of required swap creation data,\18\
which includes PET data \19\ and ``confirmation data,'' defined as
``all of the terms of a swap matched and agreed upon by the
counterparties in confirming the swap.'' \20\ The Commission requests
comment on the following questions regarding confirmation data that
memorializes the agreement of the party to all terms of a swap.
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\18\ 17 CFR 45.1 (defining required swap creation data as ``all
primary economic terms data for a swap in the swap asset class in
question, and all confirmation data for the swap'').
\19\ 17 CFR 45.1 (defining primary economic terms as ``all of
the data elements necessary to fully report all of the primary
economic terms of a swap in the swap asset class of the swap in
question'').
\20\ 17 CFR 45.1 (defining ``confirmation data'').
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1. What information should be reported to an SDR as confirmation
data? Please include specific data elements and any necessary
definitions of such elements.
a. For confirmations that incorporate terms by reference (e.g.,
ISDA Master Agreement; terms of an Emerging Markets Trade Association
(``EMTA'')), which of these terms should be reported to an SDR as
confirmation data?
2. Should the confirmation data reported to an SDR regarding
cleared swaps be different from the confirmation data reported to an
SDR regarding uncleared swaps? If so, how?
3. Should the confirmation data reported to an SDR regarding swaps
that are subject to the trade execution requirement in CEA section
2(h)(8) be different from the confirmation data reported to an SDR
regarding: (a) Swaps that are required to be cleared but not subject to
the trade execution requirement; (b) swaps that are not subject to the
clearing requirement but that are intended to be cleared at the time of
execution; (c) swaps that are voluntarily submitted to clearing at some
point after execution (e.g., backloaded trades); and (d) uncleared
swaps? If so, how?
4. More generally, please describe any operational, technological,
or other challenges faced in reporting confirmation data to an SDR.
B. Continuation Data (Sec. 45.4): How can the Commission ensure that
timely, complete and accurate continuation data is reported to SDRs,
and that such data tracks all relevant events in the life of a swap?
Part 45 of the Commission's regulations defines ``required swap
continuation data'' as ``all of the data elements that must be reported
during the existence of a swap to ensure that all data concerning the
swap in the SDR remains current and accurate, and includes all changes
to PET data occurring during the existence of the swap.'' \21\ A swap's
continuation data includes all lifecycle event data if the swap is
reported using the lifecycle reporting method,\22\ or all state data
\23\ if the swap is reported using the snapshot reporting method.\24\
In addition, continuation data also includes all valuation data for the
swap.\25\
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\21\ Id.
\22\ See generally, 17 CFR 45.4.
\23\ See 17 CFR 45.1 (defining ``state data'').
\24\ See generally, 17 CFR 45.4.
\25\ Id.
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Since implementation of part 45, market participants have raised a
number of questions with respect to how certain events in the life of a
swap should be represented when reporting continuation data. Divergent
methods of reporting continuation data may introduce challenges to
tracking the life of a swap. In addition, some non-SD/MSP
counterparties have indicated that they have sometimes encountered
difficulties in reporting continuation data to SDRs and in accessing
data reported on their behalf by SDs and MSPs. Accordingly, the
Commission requests comment on the following questions regarding
continuation data.
5. What processes and tools should reporting entities implement to
ensure that required swap continuation data remains current and
accurate?
6. Swaps should be linked when new swaps result from the
assignment, netting, compression, clearing, novation, allocation, or
option exercise of existing swaps (or other events wherein new swaps
result from existing swaps).
a. What is the most effective and efficient method for achieving
this link (including information regarding the time of the relevant
event)?
b. How should reporting entities identify the reason why two swaps
are linked (e.g., identify that swap A is linked to swaps B and C in an
SDR or across multiple SDRs because swaps B and C arose from the
clearing and novation of swap A)?
c. Aside from those events set forth in part 45, are there other
events that require linkage between related swap transactions?
d. How should related swaps reported to different SDRs be linked?
i. Snapshot/State/Lifecycle Methods (Sec. 45.4)
7. What are the benefits and/or disadvantages of reporting
continuation data using: (i) The lifecycle reporting method; and (ii)
the snapshot reporting method?
a. Are there events or information that can be represented more
effectively using one of the reporting methods rather than the other?
b. Should all SDRs be required to accept both the snapshot and
lifecycle methods for reporting continuation data?
ii. Valuation Data Reporting (Sec. Sec. 45.4(b), 45.4(c), and NALs 13-
34 and 12-55) \26\
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\26\ See CFTC Division of Market Oversight, Extension of Time-
Limited No-Action Relief for Swap Dealers and Major Swap
Participants from Compliance with Reporting Obligations Under 17 CFR
45.4(b)(2)(ii), No-Action Letter No. 13-34 (June 26, 2013); CFTC
Division of Market Oversight, Time-Limited No-Action Relief for Swap
Dealers and Major Swap Participants From Compliance With Reporting
Obligations Under 17 CFR 45.4(b)(2)(ii), No-Action Letter No. 12-55
(Dec. 10, 2013).
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8. How can valuation data most effectively be reported to SDRs to
facilitate Commission oversight? How can valuation data most
effectively be reported to SDRs (including specific data elements), and
how can it be made available to the Commission by SDRs?
a. Should SDs and MSPs continue to be required by the swap data
reporting rules to provide their own valuation data for cleared swaps
to SDRs? If so, what are the benefits and challenges associated with
this valuation reporting?
b. What challenges and benefits are associated with unregistered
swap counterparties (both financial entities \27\ and non-financial
entities) reporting valuation data for uncleared swaps to SDRs on a
quarterly basis?
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\27\ CEA section 2(h)(7)(C), 7 U.S.C. 2(h)(7)(C); see also 17
CFR 1.3(mmm).
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iii. Events in the Life of a Swap (Sec. 45.4)
9. Please: (i) Identify and (ii) describe the complete range of
events that can occur in the life of a swap. Please also address
whether, and if so how, reporting entities should report each such
event.
a. How should events in the life of a swap be represented in SDR
data? For
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example, should an ``event type'' identifier, as well as a description
of the specific event, be required?
10. Can swap data reporting be enhanced so that the current state
of a swap in an SDR (e.g., open, cancelled, terminated, or reached
maturity) can be determined more efficiently and, if so, how?
a. What role should SDRs play in auditing swaps data to help
identify the current state of a swap?
b. Should reporting entities and/or SDRs be required to take any
actions upon the termination or maturity of a swap so that the swap's
status is readily ascertainable and, if so what should those
requirements be?
c. Should swaps that are executed on or pursuant to the rules of a
DCM or SEF, but which are not accepted for clearing and are therefore
void ab initio, continue to be reported to and identified in SDR data?
Why or why not? If so, how? \28\
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\28\ See Staff Guidance on Swaps Straight-Through Processing
(Sept. 26, 2013), available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/stpguidance.pdf; CFTC Division of
Clearing and Risk and Division of Market Oversight, Time-Limited No-
Action Relief for Swap Execution Facilities from Compliance with
Certain Requirements of Commission Regulation 37.9(a)(2) and
37.203(a), No-Action Letter No. 13-66 (Oct. 25, 2013).
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i. Should the swap data reporting rules be enhanced or further
clarified to address void ab initio swaps?
11. Should the Commission require periodic reconciliation between
the data sets held by SDRs and those held by reporting entities?
iv. Change in Status of Reporting Counterparty (Sec. 45.8)
12. Commission regulation 45.8 establishes a process for
determining which counterparty to a swap shall be the reporting
counterparty. Taking into account statutory requirements, including the
reporting hierarchy in CEA section 4r(a)(3),\29\ what challenges arise
upon the occurrence of a change in a reporting counterparty's status,
such as a change in the counterparty's registration status? In such
circumstances, what regulatory approach best promotes uninterrupted and
accurate reporting to an SDR?
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\29\ See 7 U.S.C. 6r(a)(3) (providing that, with respect to a
swap in which only one counterparty is an SD or MSP, the SD or MSP
shall report the swap; with respect to a swap in which one
counterparty is an SD and the other an MSP, the SD shall report the
swap; and with respect to any other swap, the counterparties to the
swap shall select a counterparty to report the swap).
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C. Transaction Types, Entities, and Workflows: Can the Swap Data
Reporting Rules be Clarified or Enhanced to Better Accommodate Certain
Transactions and Workflows Present in the Swaps Market?
Market participants have requested clarification from Commission
staff regarding the appropriate manner to report certain swap
transactions and workflows that are not explicitly addressed in the
swap data reporting rules. Accordingly, the Commission requests comment
related to the specific questions below.
13. Please describe all data transmission processes arising from
the execution, confirmation, clearing, and termination of a swap, both
cleared and uncleared. Please include in your response any processes
arising from all relevant platforms and methods of execution.
14. Please identify any Commission rules outside of part 45 that
impact swap data reporting pursuant to part 45. How do such other rules
impact part 45 reporting?
15. What are the challenges presented to reporting entities and
other submitters of data when transmitting large data submissions to an
SDR? Please include the submission methods utilized and the
technological and timing challenges presented.
i. Bespoke Transactions (Sec. 45.3, Appendix 1 to Part 45, and NALs
13-35, and 12-39) \30\
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\30\ See CFTC Division of Market Oversight, Additional Time-
Limited No-Action Relief for Bespoke or Complex Swaps from Certain
Swap Data Reporting Requirements of Parts 43 and 45 of the
Commission's Regulations, No-Action Letter No. 13-35 (June 27, 2013)
(``NAL 13-35''); CFTC Division of Market Oversight, Time-Limited No-
Action Relief for Bespoke or Complex Swaps from Certain Swap Data
Reporting Requirements of Parts 43 and 45 of the Commission's
Regulations, No-Action Letter No.12-39 (Nov. 30, 2012) (``NAL 12-
39'').
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16. Market participants have indicated that they face challenges
electronically representing all required data elements for swap
transactions because those elements have not yet been incorporated into
standard industry representations (e.g., FpML, FIXML). In particular,
various market participants have indicated that these challenges impact
reporting to SDRs. What is the most efficient methodology or process to
standardize the data elements of a bespoke, exotic or complex swap, to
ensure that all required creation data is electronically represented
when reported to the SDR? Do these challenges vary depending on the
asset class? If so, how?
ii. Allocations and Compressions (Sec. Sec. 45.3, 45.4, NALs 13-01 and
12-50) \31\
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\31\ See CFTC Division of Clearing and Risk, No-Action Relief
from Required Clearing for Swaps Resulting from Multilateral
Portfolio Compression Exercises, No-Action Letter No. 13-01 (Mar.
18. 2013); CFTC Division of Market Oversight, Time-Limited No-Action
Relief for Agents from the Post-Allocation Swap Timing Requirement
of Sec. 45.3(e)(ii)(A) of the Commission's Regulations, No-Action
Letter No. 12-50 (Dec. 13, 2012).
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17. Please describe any challenges associated with the reporting of
allocations. How should allocation data elements (i.e., indications of
whether swaps will be allocated, as well as the identities of entities
to which portions of executed swaps are allocated) be reported to SDRs?
18. How should swaps resulting from compression exercises and risk
mitigation services be reported to, and identified in, an SDR so that
the Commission is able to effectively review these exercises and
determine what swaps result from a specific exercise?
a. Please describe any technological, operational, or logistical
challenges associated with reporting of such swap transactions.
iii. Prime Brokerage (NAL 12-53) \32\
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\32\ See CFTC Division of Market Oversight, Time-Limited No-
Action Relief from (i) Parts 43 and 45 Reporting for Prime Brokerage
Transactions, and (ii) Reporting of Unique Swap Identifiers in
Related Trades under Part 45 by Prime Brokers, No-Action Letter No.
12-53 (Dec. 17, 2012).
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19. Please describe any challenges associated with the reporting of
prime brokerage swap transactions (e.g., challenges related to
transactions executed either bilaterally or on a platform and/or
involving different asset classes)?
iv. Commodity Trade Options (NAL 13-08) \33\
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\33\ See CFTC Division of Market Oversight, Staff No-Action
Relief from the Reporting Requirements of Sec. 32.3(b)(1) of the
Commission's Regulations, and Certain Recordkeeping Requirements of
Sec. 32.3(b), for End Users Eligible for the Trade Option
Exemption, No-Action Letter No. 13-08 (Apr. 5, 2013).
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20. Under Commission regulation 32.3(b)(1), swap counterparties
generally are required to report trade options pursuant to the
reporting requirements of part 45 if, during the previous twelve
months, they have become obligated to report under part 45 as the
reporting counterparty in connection with any non-trade option swaps.
Under Commission regulation 32.3(b)(2), trade options that are not
otherwise required to be reported to an SDR under part 45 are required
to be reported to the Commission by both counterparties to the
transaction through an annual Form TO filing.
[[Page 16693]]
Please describe any challenges associated with the reporting of
commodity trade options, whether reported to an SDR or to the
Commission on Form TO.
v. Swaps Executed or Cleared on or by FBOTs, No-Action CCPs, QMTFs, and
Other Non-Registrants/Exempt Entities (Sec. Sec. 45.3, 45.4, 45.5, and
NALs 14-27, 14-16, 14-07, 13-73, 13-43, 13-33, 12-63, and 12-56) \34\
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\34\ See note 17, supra.
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21. Are there instances in which requirements of CFTC regulations
or reliance on exemptive or staff no-action relief \35\ result in more
than one party reporting data to an SDR regarding a particular swap? If
so, how should such duplicative reporting be addressed? What should be
the role of the reporting entities, as well as other submitters of
data, and SDRs in identifying and deleting duplicative reports? What
solutions should be implemented to prevent such duplicative reporting?
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\35\ Staff no-action letters are available at http://www.cftc.gov/LawRegulation/DoddFrankAct/CurrentlyEffectiveStaffLetters/index.htm.
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22. In addition to those entities enumerated in Commission
regulation 45.5, should other entities involved in swap transactions
also be permitted to create unique swap identifiers (``USIs'')? If so,
please describe those situations and the particular rationale for any
such expansion of the USI-creation authority.
23. How should data reported to SDRs identify trading venues such
as SEFs, DCMs, QMTFs, FBOTs, and any other venue?
vi. Inter-Affiliate Swaps (Sec. Sec. 45.3, 45.4, 45.6, and NAL 13-09)
\36\
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\36\ See CFTC Division of Market Oversight and Division of
Clearing and Risk, No-Action Relief for Swaps Between Affiliated
Counterparties That Are Neither Swap Dealers Nor Major Swap
Participants from Certain Swap Data Reporting Requirements Under
Parts 45, 46, and Regulation 50.50(b) of the Commission's
Regulations, No-Action Letter No. 13-09 (Apr. 5, 2013).
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24. In order to understand affiliate relationships and the combined
positions of an affiliated group of companies, should reporting
counterparties report and identify (and SDRs maintain) information
regarding inter-affiliate relationships? Should that reporting be
separate from, or in addition to, Level 2 reference data set forth in
Commission regulation 45.6? \37\ If so, how?
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\37\ Commission regulation 45.6 provides that level two
reference data for each swap counterparty, consisting of the
identity of the counterparty's ultimate parent, shall be reported
into a level two reference database. The Commission shall determine
the location of the level two reference database by means of a
Commission order that is published in the Federal Register and on
the Commission's Web site. The order shall include notice of the
location of the level two reference database and information
concerning the procedure and requirements for reporting level two
reference data to the database. The obligation to report level two
reference data does not apply until the Commission has determined
the location of the level two reference database. As of March 1,
2014, the obligation to report level two reference data pursuant to
Commission regulation 45.6 does not apply.
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vii. Reliance on No-Action Relief in General
25. To the extent that a reporting entity is, in reliance on
effective no-action relief issued by Commission staff, reporting to an
SDR in a time and/or manner that does not fully comply with the swap
data reporting rules (e.g., outside reporting rules' timeframe,
required data elements missing), how can the reporting entity most
effectively indicate its reliance upon such no-action relief for each
affected data element?
a. Are there any other challenges associated with the reliance on
staff no-action relief with respect to compliance with part 45? If so,
please describe them and explain how the swap data reporting rules
should address those challenges.
viii. Post-Priced Swaps (Sec. Sec. 45.3 and 45.4)
26. Under the swap data reporting rules, are there any challenges
presented by swaps for which the price, size, and/or other
characteristics of the swap are determined by a hedging or agreed upon
market observation period that may occur after the swap counterparties
have agreed to the PET terms for a swap (including the pricing
methodology)? If so, please describe those challenges.
ix. Complex Swap Transactions (NAL 14-12) \38\
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\38\ See CFTC Division of Market Oversight, No-Action Relief
from the Commodity Exchange Act Sections 2(h)(8) and 5(d)(9) and
from Commission Regulation Sec. 37.9 for Swaps Executed as Part of
a Package Transaction, No-Action Letter No. 14-12 (Feb. 10, 2014).
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27. Please describe how swap transactions such as strategies and
packages should be represented in swap data reporting such that it
enables the Commission to effectively understand timing and the
economics of the strategy or package and the component swap
transactions?
D. PET Data and Appendix 1 (Sec. 45.3 and Appendix 1): Monitoring the
Primary Economic Terms of a Swap
Appendix 1 to part 45 sets forth a list of minimum PET terms for
swap transactions within each of the five asset classes. Market
participants have indicated that there are circumstances in which they
face challenges in either the initial reporting of certain PET terms or
the subsequent reporting of modifications to these terms. Market
participants have also indicated that the data elements included in
Appendix 1 may not sufficiently reflect all necessary economic terms
for various swap transactions.
28. Please describe any challenges (including technological,
logistical or operational) associated with the reporting of required
data fields, including, but not limited to:
a. Cleared status;
b. Collateralization;
c. Execution timestamp;
d. Notional value;
e. U.S. person status; and
f. Registration status or categorization under the CEA (e.g., SD,
MSP, financial entity).
29. What additional data elements beyond the enumerated fields in
Appendix 1 of part 45, if any, are needed to ensure full, complete, and
accurate representation of swaps (both cleared and uncleared)? For
example, other fields could include additional timestamps (for each
lifecycle event, including clearing-related timestamps); clearing-
related information (identity of futures commission merchant, clearing
member, house vs. customer origin indication, mandatory clearing
indicator, or indication of exception or exemption from clearing); and/
or execution-specific terms (order type or executing broker). Responses
should consider the full range of oversight functions performed by the
Commission, including, but not limited to, financial surveillance;
market surveillance; risk monitoring; and trade practice surveillance.
a. Should the Commission require reporting of the identities,
registration status, and roles of all parties involved in a swap
transaction (e.g., special entity (as defined in Commission regulation
23.401(c)); executing broker; or voice/electronic systems)?
b. What, if any, additional fields would assist the Commission in
obtaining a more complete picture of swaps executed on SEFs or DCMs
(e.g., order entry time; request for quote (``RFQ''), or central limit
order book (``CLOB''), or order book; request for cross, blocks, and
other execution method indicators or broker identification)?
c. Are there additional data elements that could help the
Commission fulfill its oversight obligations, as described above?
d. Should the fact that a swap is guaranteed be a required data
element for SDR reporting? If so, what
[[Page 16694]]
information regarding the guarantee should be reported to the SDR? What
will be the challenges presented to the reporting party in capturing
this information?
30. Have reporting entities been unable to report to an SDR terms
or products that they believe are required under part 45 or related
provisions? If so, please generally describe the data elements and/or
products involved.
a. Where a single swap has more than two counterparties, please
comment on how such information should be provided within a single part
45 submission (i.e., one USI)?
31. Could the part 45 reporting requirements be modified to render
a fuller and more complete schedule of the underlying exchange of
payment flows reflected in a swap as agreed upon at the time of
execution? If so, how could the requirements be modified to capture
such a schedule?
32. Taking into account the European Union's reporting rules \39\
and Commission regulation 39.19, should the Commission require
additional reporting of collateral information? If so, how should
collateral be represented and reported? Should there be any differences
between how collateral is reported for cleared and uncleared swaps?
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\39\ See European Securities Markets Authority's European Market
Infrastructure Regulation (``EMIR'') and corresponding rules,
available at http://www.esma.europa.eu/page/European-Market-Infrastructure-Regulation-EMIR.
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E. Reporting of Cleared Swaps (Sec. Sec. 45.3, 45.4, 45.5, and 45.8):
How Should the Swap Data Reporting Rules Address Cleared Swaps?
The Commission has a strong regulatory interest in monitoring
transactions and risk in both the cleared and uncleared swap markets.
Information regarding cleared swaps (both voluntarily cleared and
required to be cleared) comes directly to the Commission daily in the
form of position information under Commission regulation 39.19. In
addition, pursuant to the swap data reporting rules, cleared swap
information is reported on a transaction basis to SDRs. The Commission
monitors the cleared swap market on a transaction and position basis to
ensure compliance with the Act and Commission rules, including those
associated with trade execution and clearing and the clearing
requirement in section 2(h)(1) of the Act.
Cleared swaps currently are reported as three separate swaps.\40\
Industry convention refers to the original swap as the ``alpha'' swap
and the two equal and opposite resulting swaps as the ``beta'' and
``gamma'' swaps. The Commission has previously determined that the
alpha, beta, and gamma swaps, although related, are reported as
separate swaps for purposes of part 45.\41\ Information regarding the
alpha, beta, and gamma swaps in an SDR must at all times be current and
accurate and include all changes to each swap throughout its
lifecycle.\42\
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\40\ Commission regulation 39.12(b)(6) requires a DCO to have a
rule providing that once a swap is accepted for clearing by a DCO
such swap is extinguished and is replaced by two equal and opposite
swaps. 17 CFR 39.12(b)(6).
\41\ See 77 FR 2136; Statement of the Commission on the Approval
of CME Rule 1001 at 6 (``A cleared swap in fact comprises three
separate swaps.''), available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/statementofthecommission.pdf.
\42\ See 17 CFR 45.4(a) (``[R]eporting counterparties and
derivatives clearing organizations required to report swap
continuation data must do so in a manner sufficient to ensure that
all data in the swap data repository concerning the swap remains
current and accurate, and includes all changes to the primary
economic terms of the swap occurring during the existence of the
swap.''); see 77 FR at 2153 (``[T]he final rule requires registered
entities and reporting counterparties to report continuation data in
a manner sufficient to ensure that the information in the SDR
concerning the swap is current and accurate, and includes all
changes to any of the primary economic terms of the swap.''); see
also 17 CFR 49.11 (confirmation of data accuracy).
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The Commission requests comment on the existing cleared swaps
reporting framework. The Commission is particularly interested in the
extent to which the reporting of cleared swaps can be improved to: (i)
Ensure consistency across the Commission's regulations; and (ii)
achieve efficiencies in both the Commission's review of cleared swaps
data and the DCOs' reporting of information to the Commission and SDRs.
In this regard, the Commission seeks comment on what additional data
elements, if any, should be reported to an SDR with respect to cleared
swaps that would provide the Commission with information necessary to
monitor and track swaps created through clearing and resulting
positions facing the DCO.
The Commission also requests comment related to the specific
questions below.
33. Part 45 requires the reporting of all swaps to SDRs. The
Commission requests comment on how cleared swaps should be reported.
Specifically:
a. For swaps that are subject to the trade execution requirement in
CEA section 2(h)(8), and ipso facto the clearing requirement, do
commenters believe that the part 45 reporting requirements with respect
to original swaps (alpha) should be modified or waived, given that the
two new resulting swaps (beta and gamma) will also be reported?
b. For swaps that are subject to the clearing requirement, but not
the trade execution requirement, do commenters believe that the part 45
reporting requirements with respect to alpha swaps should be modified
or waived, given that the beta and gamma swaps will also be reported?
c. For swaps that are not subject to the clearing requirement, but
are intended for clearing at the time of execution, do commenters
believe that the part 45 reporting requirements with respect to alpha
swaps should be modified or waived, given that the beta and gamma swaps
will also be reported?
d. Please discuss whether in each of the circumstances described
above there actually is an alpha swap.
34. In addressing the questions posed in items 33 (a)-(d),
commenters are also requested to address how any modifications to the
reporting of cleared swaps would be consistent with the swap reporting
requirement in CEA section 2(a)(13)(G) and the restrictions on CFTC
exemptive authority in CEA section 4(c)(1)(A)(i)(I).
35. Can the existing rules be improved to more clearly represent
how the clearing process impacts reporting obligations with respect to
both the original swap (alpha) and the two new resulting swaps (beta
and gamma)? If so, please explain.
a. Responses should address:
i. The reporting obligations applicable to alpha swaps;
ii. The reporting obligations applicable to beta and gamma swaps;
iii. Who holds the reporting obligation(s) for each swap;
iv. The reporting of the linkage of alpha, beta, and gamma swaps;
and
v. Who has the legal right to determine the SDR to which data is
reported?
36. What steps should reporting entities and/or SDRs undertake to
verify the absence of duplicate records across multiple SDRs for a
single cleared swap transaction?
37. How should cleared swap data be represented in the SDR to
facilitate the Commission's oversight of compliance with clearing-
related rules, including the clearing requirement (Commission
regulations 50.2 and 50.4) and straight-through processing requirements
(Commission regulations 1.74, 23.506, 37.702(b), 38.601, and
39.12(b)(7))?
38. What reporting technique, term, or flag is recommended to
identify a cleared swap?
[[Page 16695]]
i. CDS-Clearing Related Swaps and Open Offer (Part 45 and NALs 12-59,
13-36, and 13-86) \43\
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\43\ See CFTC Division of Market Oversight, Time-Limited No-
Action Relief for Swap Dealers and Major Swap Participants from the
Reporting Provisions of Part 45 for CDS Clearing-Related Swaps, No-
Action Letter No. 12-59 (Dec. 19, 2012); CFTC Division of Market
Oversight, Extension of Time-Limited No-Action Relief for Swap
Dealers and Major Swap Participants from the Reporting Requirements
of Part 45 for CDS Clearing-Related Swaps, No-Action Letter No. 13-
36 (June 27, 2013); CFTC Division of Market Oversight, Provision of
Time-Limited No-Action Relief to DCOs and their Clearing Members
from the SEF Registration Requirement and Trading Mandate under Part
37 and from Various Reporting Requirements under Part 45, all in
Connection with CDS Clearing-Related Swaps, No-Action Letter No. 13-
86 (Dec. 31, 2013).
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39. Swaps created by operation of a DCO's rules related to
determining the end-of-day settlement prices for cleared credit default
swaps (``CDS'') are also known as ``firm trades'' or ``clearing-related
swaps'' (see NAL 13-86). How should these swaps be reported pursuant to
the swap data reporting rules?
40. Aside from ``firm trades,'' some swaps may be created from
``open offer,'' meaning there is no original swap between two
counterparties, but only equal and opposite swaps between each of the
counterparties and the clearinghouse. How should the swap data
reporting rules address such swaps?
ii. DCO Reporting, Netting Processes, and Positions (Sec. Sec. 45.3
and 45.4)
41. As described above, DCOs provide position data to the
Commission pursuant to part 39 and report transactions to SDRs pursuant
to part 45. The Commission is aware of potential overlap in these data
sets. With respect to such overlap, how can reporting of swaps data be
made more efficient, while ensuring that the Commission continues to
receive all data necessary to fulfill its regulatory responsibilities?
42. For cleared swaps, how can the netting and compression of swaps
and positions by DCOs be most effectively represented?
a. Please provide recommendations regarding the reporting of
netting and compression, and describe any relevant differences in
reporting of netting and of compression.
b. Are netting and compression different concepts in the uncleared
swaps markets versus the cleared swap market? If so, how?
F. Other SDR and Counterparty Obligations (Sec. Sec. 45.9, 45.13,
45.14): How Should SDRs and Reporting Entities Ensure That Complete and
Accurate Information is Reported to, and Maintained by, SDRs?
When using swaps data reported to SDRs, the Commission must rely on
the accuracy and completeness of such data throughout the life of a
swap. Data accuracy can be achieved through, among other means, SDR
processes confirming the accuracy of data submitted, data
reconciliation exercises by reporting entities, and by the prompt
reporting of errors and omissions by reporting entities.
Commission regulation 45.14 requires registered entities and swap
counterparties to report any errors or omissions in data they
previously reported. Additionally, each non-reporting counterparty to a
swap that discovers an error or omission with respect to swap data
reported to an SDR must promptly notify the reporting counterparty of
the error or omission. Commission regulation 49.11 requires SDRs to
adopt policies and procedures to ensure the accuracy of swap data and
to confirm the accuracy of all swap data reported pursuant to part 45.
Commission regulation 49.11(b) provides--in pertinent part--that a
registered SDR ``has confirmed the accuracy of swap data submitted
directly by a counterparty if the [SDR] has notified both
counterparties of the data that was submitted and received from both
counterparties acknowledgement of the accuracy of the swap data and
corrections for any errors.''
43. The Commission requests comment that addresses whether
reporting entities face challenges with respect to complete and
accurate swap data reporting.
44. The Commission also requests comment regarding whether
clarifications or enhancements to swap data reporting requirements,
including requirements relating to the reporting of errors and
omissions and requirements for data reconciliation across reporting
entities, could facilitate accurate and complete reporting of data to
the SDRs, as well as data maintained in the SDRs.
45. Should third-party service providers that report part 45 data
to SDRs on behalf of reporting entities be required to register with
the Commission?
i. Confirmation of Data Accuracy and Errors and Omissions (Sec. 45.14)
46. Commission regulation 49.11(b) requires SDRs to verify with
both counterparties the accuracy of swaps data reported to an SDR
pursuant to part 45. What specific, affirmative steps should SDRs take
to verify the accuracy of data submitted? Please include in your
response steps that SDRs should take regarding data submitted by
reporting counterparties on behalf of non-reporting counterparties who
are not participants or users of the SDR.
47. In what situations should an SDR reject part 45 data from
entities due to errors or omissions in the data? How should the
Commission balance legal requirements for reporting as soon as
technologically practicable and the need for complete and accurate
data?
48. All data in an SDR must be current and accurate, and the
Commission expects SDRs, counterparties, and registered entities to
take proactive steps to ensure data accuracy. Are there challenges that
a reporting entity faces in confirming data accuracy? If so, how can
those challenges most effectively be addressed?
49. If an error or omission is discovered in the data reported to
an SDR, what remedies and systems should be in place to correct the
data? Within what time frame should a reporting entity be required to
identify an error in previously reported data and submit corrected
information to an SDR?
ii. SDR Required Data Standards (Sec. 45.13)
50. In addition to data harmonization, how can reporting entities
and SDRs improve data quality and standardization across all data
elements and asset classes within an SDR? Please provide examples of
how the presentation of data may be standardized, utilizing specific
data elements.
51. How should SDRs leverage the results of data elements
harmonization to help ensure regulatory reporting is more accurate and
consistent?
52. Are there additional existing swaps data standards (other than
the legal entity identifier (``LEI''), unique product identifier
(``UPI'') and USI) that the Commission should consider requiring as
part of any effort to harmonize SDR data with both domestic and foreign
regulators?
iii. Identifiers (Sec. Sec. 45.5, 45.6 and 45.7)
53. Please explain your experiences and any challenges associated
with obtaining and maintaining an LEI.
a. What additional steps can market participants and SDRs take to
help ensure counterparties have valid LEIs?
54. What principles should the Commission consider when designating
[[Page 16696]]
a UPI and product classification system pursuant to Sec. 45.7?
a. Are there any commonly used taxonomies that the Commission
should consider in connection with the designation process? Please
respond by asset class.
55. Please explain your experiences and any challenges associated
with the creation, transmission and reporting of USIs.
G. Swap Dealer/Major Swap Participant Registration and Compliance: How
Can the Commission Enhance Part 45 to Facilitate Oversight of Swap
Dealers and Major Swap Participants?
One Commission interest in swap data reporting is to evaluate
whether a market participant meets the definition of, and is required
to register as, an SD or MSP.\44\ The Commission can use swap data
reports to determine a market participant's aggregate gross notional
amount of swap transactions on a rolling 12-month basis, taking into
account, among other things, the definitions of SD and MSP and the
Commission's registration requirements.\45\ Additionally, swap data
reporting allows the Commission to assess a market participant's
compliance with the Commission's regulations, including, but not
limited to, part 23 requirements for SDs and MSPs (e.g., swap
confirmation,\46\ portfolio compression,\47\ and swap processing and
clearing requirements \48\).
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\44\ 17 CFR 1.3(ggg); see Further Definition of ``Swap Dealer,''
``Security-Based Swap Dealer,'' ``Major Swap Participant,'' ``Major
Security-Based Swap Participant,'' and ``Eligible Contract
Participant,'' 77 FR 30596 (May 23, 2012).
\45\ 17 CFR 3.10; see Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613 (Jan. 19, 2012).
\46\ 17 CFR 23.501; see Confirmation, Portfolio Reconciliation,
Portfolio Compression, and Swap Trading Relationship Documentation
Requirements for Swap Dealers and Major Swap Participants, 77 FR
55903 at 55917 (Jan. 19, 2012) (``Confirmation has been recognized
as an important post-trade processing mechanism for reducing risk
and improving operational efficiency by both market participants and
their regulators. Prudent practice requires that, after coming to an
agreement on the terms of a transaction, parties document the
transaction in a complete and definitive written record so there is
legal certainty about the terms of their agreement.'').
\47\ 17 CFR 23.503; see 77 FR at 55932 (``Portfolio compression
is an important, post-trade processing and netting mechanism that
can be an effective and efficient tool for the timely and accurate
processing and netting of swaps by market participants.'').
\48\ 17 CFR 23.506; see Customer Clearing Documentation, Timing
of Acceptance for Clearing, and Clearing Member Risk Management, 77
FR 21278 at 21281 (Apr. 9, 2012) (noting that the rule was adopted
``in order to ensure compliance with any mandatory clearing
requirement issued pursuant to section 2(h)(1) of the CEA and to
promote the mitigation of counterparty credit risk through the use
of central clearing'').
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The Commission requests comment on what clarifications or
enhancements, if any, should be made to the swap data reporting rules
so that it may better monitor SDs and MSPs. The Commission also
requests comment related to the specific questions below.
56. Should the Commission require an SDR to aggregate the number of
transactions by an entity, and the aggregate notional value of those
transactions, to reflect the entity's total swap position and its total
swap activity during a given period (e.g., for purposes of monitoring
the SD de minimis calculation)?
57. Should data elements be reported to the SDR to reflect whether
a swap is a dealing or non-dealing swap? If so, how should this
information be reflected in the SDR?
58. Where transactions are executed in non-U.S. dollar (``USD'')
denominations, should the SDR data reflect USD conversion information
for the notional values, as calculated by the counterparty at the time
of the transaction (rather than the conversion taking place at the
SDR)?
a. If so, how should the SDR data reflect this information?
b. Would this answer be different depending on the registration
status of the reporting counterparty (e.g., SD/MSP)?
H. Risk: How Can Part 45 Better Facilitate Risk Monitoring and
Surveillance?
Swap data reported to SDRs facilitates a number of Commission risk
monitoring and surveillance activities, including monitoring of both
financial and market risks resulting from the accumulation of large
positions in cleared and uncleared swaps.
The Commission has supervisory programs for DCOs, futures
commission merchants, SDs, MSPs, and other participants in the clearing
system. These programs monitor market participants' compliance with
applicable provisions of the Act and Commission regulations, including
parts 1, 22, 23, 39, and 50. A primary concern of these programs is to
monitor and mitigate potential risks that can arise from swaps
activities.
With respect to clearing, the Commission conducts periodic
examinations of DCOs, and Commission risk surveillance staff monitors,
on a daily basis, the risks posed to or by DCOs, clearing members, and
market participants. This analysis includes reviewing position data at
the trader, clearing member, and DCO levels.
The Commission requests comment on what clarifications or
enhancements, if any, should be made to the swap data reporting rules
so that it may better monitor risk and conduct related surveillance.
The Commission also requests comment on the specific questions below.
59. Should the Commission require SDRs to calculate market
participants' positions in cleared and uncleared swaps?
a. Given the definition of ``position'' in part 49 of the
Commission's regulations,\49\ and the transactional nature of swap data
reporting, how should an SDR calculate the positions of market
participants whose swaps are reported to it?
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\49\ See 17 CFR 49.2; SDR Rules at 54576.
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i. Please explain whether these calculations should differ by
underlying instrument, index or reference entity, counterparty, asset
class, long risk of underlying instrument, index, or reference entity,
or short risk of the underlying instrument, index or reference entity,
or any other attribute.
b. How should SDR positions or position calculation methods relate,
if at all, to positions calculated by DCOs and DCOs' position
calculation methods?
60. Are there data elements that should be reported on a
transaction basis to identify the linkage between a swap transaction
and a reporting counterparty's other positions in products regulated by
the Commission?
61. How can swap data reporting be enhanced to facilitate the
calculation of positions within SDRs?
a. How should position information within an individual SDR be
aggregated across multiple SDRs so that the Commission has a complete
view of a market participant's risk profile for swaps reportable under
Dodd-Frank?
b. How can the Commission efficiently aggregate information by
product and by market participant in order to understand positions
across cleared and uncleared markets?
62. How can the Commission best aggregate data across multiple
trade repositories (including registered SDRs)?
63. What international regulatory coordination would be necessary
to facilitate such data aggregation?
I. Ownership of Swap Data and Transfer of Data Across SDRs
Since the adoption of the swap data reporting and SDR rules,
questions have emerged whether a particular party or parties have the
legal authority to direct and/or use such swap data.
Commission regulation 49.17(g) generally prohibits a registered SDR
from using the data it maintains for
[[Page 16697]]
commercial or business purposes. As part of this prohibition,
Commission regulation 49.17(g) requires registered SDRs to adopt and
implement adequate ``firewalls'' to protect the swaps data from any
improper commercial use. Commission regulation 49.17(g)(2) provides a
limited exception if the submitters of the data provide express written
consent to the SDR.\50\
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\50\ The statutory basis for the regulation is set forth in
Sections 21(c)(6), 21(c)(7), and 21(f)(3) of the CEA adopted as part
of Section 728 of the Dodd-Frank Act, 7 U.S.C. 24a(c)(6), 24a(c)(7),
and 24a(f)(3).
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Because of the inherent conflicts in connection with maintaining
swap data and SDR operations (e.g., the incentive to develop ancillary
services using swap data), the Commission in part 49 required that
``commercial use'' of any data submitted to and maintained by an SDR be
restricted. Accordingly, Commission regulation 49.27 requires
registered SDRs to provide fair, open and equal access to their
services and provides that registered SDRs must not discriminate
against submitters of data regardless of whether such a submitter has
agreed to any ``commercial use'' of its data.
The basis for prohibiting SDRs from commercializing Core Data \51\
without the consent of the counterparties is based on (i) the duty of
the SDR set forth in Section 21(c)(6) of the CEA to keep swap
information private and confidential, and (ii) the inherent conflict of
interest for an SDR to use Core Data for commercial purposes. Core
Principle 3 set forth in Section 21(f)(3) of the CEA requires SDRs to
``establish and enforce rules to minimize conflicts of interest in the
decision-making process of the swap data repository.'' Commission
regulation 49.17(g) permits an SDR to disclose, consistent with Section
8 of the CEA, aggregated data information if such disclosure is not for
a commercial purpose. In sum, part 49 provides an SDR with an implied
license to use Core Data for regulatory purposes, and absent the
consent of the counterparties, an SDR would be prohibited from
commercially benefiting from the use of such Core Data. The Commission
is requesting industry and public input on whether the current
Commission regulations regarding ``commercialization'' of data are
consistent with legal property interests and industry practices.
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\51\ Core Data constitutes the two separate streams of data
received by SDRs: ``(i) Data related to real-time public reporting
which by its nature is publicly available and (ii) data that is
intended for use by the Commission and other regulators which is
subject to statutory confidential treatment.'' SDR Rules at 54550.
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Additionally, the Commission requests comment related to the
specific questions below.
64. The Commission seeks input from market participants regarding
the ownership of the transactional data resulting from a swap
transaction. Is the swap transaction data from a particular swap
transaction owned by the counterparties to the transaction?
a. If cleared, should a DCO have preferential ownership or
intellectual property rights to the data?
b. Should ownership or intellectual property rights change based on
whether the particular swap transaction is executed on a SEF or DCM?
c. What would be the basis for property rights in the data for each
of these scenarios?
d. What ownership interests, if any, are held by third-party
service providers?
e. What are the ownership interests of non-users/non-participants
of an SDR whose information is reported to the SDR by a reporting
counterparty or other reporting entity?
65. Is commercialization of swap transaction data consistent with
the regulatory objective of transparency?
a. In what circumstances should an SDR be permitted to
commercialize the data required to be reported to it?
b. Does commercialization of swap data increase potential data
fragmentation?
c. Is commercialization of swap data reported to an SDR, DCM or SEF
necessary for any such entity to be economically viable? If so, what
restraints or controls should be imposed on such commercialization?
66. Does the regulatory reporting of a swap transaction to an SDR
implicitly or explicitly provide ``consent'' to further distribution or
use of swap transaction data for commercial purpose by the SDR?
67. Even though swap data reported to an SDR must be available for
public real-time reporting, should any use of such real-time data or
commercialization of such data occur only with the specific consent of
the counterparties to the swap?
68. An ancillary issue relating to commercialization of data and
legal property rights relates to the ``portability'' of SDR data. This
issue relates to the operation of Commission regulation 45.10
(Reporting to a single SDR), which requires that all swap data for a
given swap must be reported to a single SDR, specifically, the SDR to
which creation data is first reported. The Commission did not, however,
directly address whether the data in one SDR may be moved, transferred
or ``ported'' to another SDR.\52\ The Commission seeks comment on
whether Sec. 45.10 should be re-evaluated and whether a viable
alternative exists. Should portability of data be permitted? If so,
should there be agreement by the counterparties to a swap prior to the
data being ported?
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\52\ The Commission did provide that SDR data could be
transferred or moved to another SDR in the case of an SDR ceasing to
operate as an SDR registered the Commission. See 17 CFR 49.4.
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J. Additional Comment
69. To the extent not addressed by any of the questions above,
please identify any challenges regarding: (i) The accurate reporting of
swap transaction data; (ii) efficient access to swap transaction data;
and (iii) effective analysis of swap transaction data. Please address
each issue and challenge as it pertains to reporting entities, SDRs,
and others. Please also discuss how such challenges can be resolved.
a. What challenges do Commission registrants (SDs, MSPs, SEFs,
DCMs, and DCOs) face as reporting entities and reporting counterparties
under the swap data reporting rules? What enhancements or
clarifications to the Commission's rules, if any, would help address
these challenges?
b. What challenges do financial entities face as reporting
counterparties and non-reporting counterparties under the swap data
reporting rules? What enhancements or clarifications to the
Commission's rules, if any, would help address these challenges?
c. What challenges do non-financial entities, including natural
persons, face as reporting counterparties and non-reporting
counterparties under the swap data reporting rules? What enhancements
or clarifications to the Commission's rules, if any, would help address
these challenges?
Issued in Washington, DC, on March 19, 2014, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
Appendices to Request for Comment on Part 45 and Related Provisions of
the Commission's Swap Data Reporting Rules
Appendix 1--Commission Voting Summary
On this matter, Acting Chairman Wetjen and Commissioners Chilton
and O'Malia voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2--Statement of Commissioner Scott D. O'Malia
I support the request for comment on part 45 and related
provisions of the
[[Page 16698]]
Commission's swap data reporting rules. I commend the cross-
divisional data team's effort to fix our reporting rules and enhance
the Commission's ability to use its data. I hope that the data team
and the Commission will carefully evaluate market participants'
comments and recommendations and develop workable solutions to
improve our data reporting regime.
At the same time, I urge market participants to carefully review
the Commission's questions, submit their comments, and alert the
Commission to other data reporting issues that have not been
included in this request for comment. This comment period is a
critical step in the Commission's effort to improve its data
utilization. I encourage all market participants to help the
Commission improve its data reporting regime.
[FR Doc. 2014-06426 Filed 3-25-14; 8:45 am]
BILLING CODE 6351-01-P