March 6, 2013
While I agree with the Commission's analysis that CME Rule 1001 is not inconsistent with the Commodity Exchange Act (Act) or the Commission's regulations and therefore voted to approve the rule, I would have preferred to have taken steps to amend the Commission's rules to provide explicitly that the Part 45 rules do not apply to cleared swaps. In our rush to promulgate thousands of pages of rules implementing the Dodd-Frank Act it is not surprising that market participants would come to differing conclusions regarding the Commission's intent in building the new regulatory structure for swaps.
Section 2(a)(13)(G) of the Act requires that "each swap (whether cleared or uncleared) shall be reported to a registered swap data repository." Section 4r(a)(3) establishes the reporting obligations of swap dealers (SDs), major swap participants (MSPs) and nonSDs/MSPs for uncleared swaps. While Section 4r(a)(3) sets forth a hierarchy for who must report an uncleared swap, depending on the nature of the counterparties, nothing in the Act or the Commission's regulations provides that the reporting party has a right to determine where the swap is reported, and the Act and regulations are silent as to who must report a cleared swap.
It is understandable that SDs and MSPs may prefer to report their swaps to certain swap data repositories (SDRs) because of the ancillary services a particular SDR may provide. The fundamental goal of reporting swaps to SDRs, however, is "to ensure that complete data concerning all swaps subject to the Commission's jurisdiction is maintained in SDRs, where it would be available to the Commission and other financial regulators for fulfillment of their various regulatory mandates, including systemic risk mitigation, market monitoring, and market abuse prevention." 77 Fed. Reg. 2136, 2138 (Jan. 13, 2012). From a regulator's perspective, there is an important distinction to be made between a cleared swap vs. an uncleared swap. The best record of the creation and continuing valuation data of the two new swaps resulting from a cleared swap is with the derivatives clearing organization (DCO), and the most efficient and accurate mechanism for reporting that data to an SDR lies with the DCO. The proper method to eliminate the confusion the Commission has created in this area would have been to amend our rules. By failing to do so we have missed an opportunity to eliminate any remaining doubt.
Last Updated: March 6, 2013