Final Rules on Swap Data Recordkeeping/Reporting and Real-Time Reporting of Swap Transaction Data
December 20, 2011
Thank you, Chairman Gensler. Thank you also to the professional staff for their efforts on these rules. A tremendous amount of work has gone into these technical and detailed rulemakings, and I appreciate that you have remained open to changes concerning the recommendations before us.
The recent financial crisis was caused, in part, by a dearth of information about derivatives exposures throughout the financial markets. The two rules before us today are intended to increase transparency and to help us avoid the type of market disruption experienced in 2008. First, the regulatory reporting rules ensure that the Commission has the necessary information to monitor systemic risks and craft appropriate regulatory responses when needed. Second, the real-time reporting rules equalize access to pricing information, which will benefit commercial firms and consumers.
I will be supporting both final rules. But I am mindful of the potential effects of the public-reporting rule that have been raised in the comment letters and during my meetings with market participants. Congress itself recognized that post-trade transparency, though essential, could impair market liquidity in some circumstances and instructed that our final reporting rules account for this risk. We are therefore faced with potentially conflicting objectives. Congress directed us “to make swap transaction and pricing data available to the public,” but it also directed that we protect the anonymity of counterparties and avoid reporting requirements and timelines that diminish liquidity or adversely affect pricing.
I believe that the staff’s final recommendations strike an appropriate balance between these objectives. They set forth a measured reporting regime that is consistent with the language and intent of the Dodd-Frank Act. In order to protect market liquidity, the public reporting rules permit delayed reporting of swap transactions and will phase-in the implementation of shorter delays over a limited timeframe. In effect, all trades will be reported as block transactions until the Commission later establishes large notional and block thresholds — and does so in a manner that accounts for liquidity differences between and within asset classes.
Today’s regulations also establish specific rounding conventions and permit the masking of trades above preliminary thresholds to account for execution and hedging risks and to protect the identity of market participants. This draws on the success of the TRACE model in the fixed income markets. And I am pleased that the regulations were revised to differentiate between market participants and to further differentiate between asset classes, with important anonymity protections for swaps in certain physical commodities. Commercial end-users and small market participants will not carry the reporting obligations in most cases. Where they do, they will be given additional time and will be able to report in a single, coordinated transmission to the swap data repository of their choice.
With respect to the regulatory reporting rules, the Commission is taking important first steps that will lead to the development of universal legal entity, product, and swap identifiers. This information will enable the Commission and other regulators to aggregate data and effectively perform regulatory responsibilities. Having comprehensive swap data in a standardized format is essential to assessing systemic risk, conducting market surveillance, and supervising market participants.
As a final note, I am cognizant of the fact that these rules may not provide absolute clarity on every point, notwithstanding the staff’s laudable work to make them as comprehensive but flexible as possible. To be sure, there are a wide variety of participants in these markets. There must be reporting consistency if we are to fully realize the benefits of transparency, and the application of these rules likely will require ongoing guidance to those responsible for compliance. The staff has assured me that it will continue to engage with the public and market participants throughout the implementation process.
I want to again thank the staff for that commitment and for its hard work on these rules.
Last Updated: December 20, 2011