2011-33199

Federal Register, Volume 77 Issue 9 (Friday, January 13, 2012)[Federal Register Volume 77, Number 9 (Friday, January 13, 2012)]

[Rules and Regulations]

[Pages 2136-2224]

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

[FR Doc No: 2011-33199]

[[Page 2135]]

Vol. 77

Friday,

No. 9

January 13, 2012

Part II

Commodity Futures Trading Commission

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17 CFR Part 45

Swap Data Recordkeeping and Reporting Requirements; Final Rule

Federal Register / Vol. 77 , No. 9 / Friday, January 13, 2012 / Rules

and Regulations

[[Page 2136]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 45

RIN 3038-AD19

Swap Data Recordkeeping and Reporting Requirements

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

``CFTC'') is adopting rules to implement the Commodity Exchange Act

(``CEA'' or ``Act'') relating to swap data recordkeeping and reporting

requirements. These sections of the CEA were added by the Dodd-Frank

Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').

The rules being adopted apply to swap data recordkeeping and reporting

requirements for swap data repositories, derivatives clearing

organizations, designated contract markets, swap execution facilities,

swap dealers, major swap participants, and swap counterparties who are

neither swap dealers nor major swap participants. The recordkeeping and

reporting requirements of this rule further the goals of the Dodd-Frank

Act to reduce systemic risk, increase transparency and promote market

integrity within the financial system.

DATES: The effective date of this rule is March 13, 2012. Compliance

dates: (1) Swap execution facilities, designated contract markets,

derivatives clearing organizations, swap data repositories, swap

dealers, and major swap participants shall commence full compliance

with this part with respect to credit swaps and interest rate swaps on

the later of: July 16, 2012; or 60 calendar days after the publication

in the Federal Register of the later of the Commission's final rule

defining the term ``swap'' or the Commission's final rule defining the

terms ``swap dealer'' and ``major swap participant. '' (2) Swap

execution facilities, designated contract markets, derivatives clearing

organizations, swap data repositories, swap dealers, and major swap

participants shall commence full compliance with this part with respect

to equity swaps, foreign exchange swaps, and other commodity swaps on

or before 90 days after the compliance date for credit swaps and

interest rate swaps. (3) Non-SD/MSP counterparties shall commence full

compliance with this part with respect to all swaps on or before 90

days after the compliance date applicable to swap execution facilities,

designated contract markets, derivatives clearing organizations, swap

data repositories, swap dealers, and major swap participants with

respect to equity swaps, foreign exchange swaps, and other commodity

swaps.

FOR FURTHER INFORMATION CONTACT: David Taylor, Associate Director,

Division of Market Oversight, (202) 418-5488, [email protected], or Anne

Schubert, Economist, Division of Market Oversight, (202) 418-5436,

[email protected]; Commodity Futures Trading Commission, Three

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

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Introduction

B. Swap Data Provisions of the Dodd-Frank Act

C. International Considerations

D. Consultations With Other U.S. Financial Regulators

E. Summary of the Proposed Part 45 Rule

1. Fundamental Goal

2. Swap Recordkeeping

3. Swap Data Reporting: Creation Data and Continuation Data

4. Unique Identifiers

6. Third-Party Facilitation of Reporting

7. Reporting a Swap to a Single SDR

8. Reporting Swaps in an Asset Class Not Accepted by Any SDR

9. Data Standards

10. Reporting Errors and Omissions in Previously Reported Data

F. Overview of Comments Received

II. Part 45 of the Commission's Regulations: The Final Rules

A. Recordkeeping Requirements--Sec. 45.2

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.2

B. Swap Data Reporting: Creation Data--Sec. 45.3

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.3

C. Swap Data Reporting: Continuation Data--Sec. 45.4

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.4

D. Summary of Creation Data and Continuation Data Reporting--

Sec. Sec. 45.3 and 45.4

F. Unique Swap Identifiers--Sec. 45.5

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.5

G. Legal Entity Identifiers--Sec. 45.6

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.6

H. Unique Product Identifiers--Sec. 45.7

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.7

I. Determination of Which Counterparty Must Report--Sec. 45.8

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.8

J. Third-Party Facilitation of Swap Data Reporting--Sec. 45.9

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.9

K. Reporting to a Single Swap Data Repository--Sec. 45.10

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.10

L. Data Reporting for Swaps in a Swap Asset Class Not Accepted

by Any Swap Data Repository--Sec. 45.11

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.11

M. Voluntary Supplemental Reporting--Sec. 45.12

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.12

N. Required Data Standards--Sec. 45.13

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.13

O. Reporting of Errors and Omissions in Previously Reported

Data--Sec. 45.14

1. Proposed Rule

2. Comments Received

3. Final Rule: Sec. 45.14

III. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

1. Introduction

2. Proposed Information Collection

3. Comments on Proposed Information Collection

4. Revised Information Collection Estimates

C. Consideration of Costs and Benefits

1. Introduction

2. General Cost-Benefit Comments Received

3. Recordkeeping

4. Swap Data Reporting

5. Unique Identifiers

IV. Compliance Dates

A. Proposed Rule

B. Comments Received

1. Initial Compliance Date

2. Phasing in the Start of Reporting

C. Determination of Compliance Dates

1. Initial Compliance Dates

2. Phasing in the Start of Reporting

3. Compliance Dates

Final Rules

I. Background

A. Introduction

On July 21, 2010, President Obama signed into law the Dodd-Frank

Act.\1\ Title VII of the Dodd-Frank Act \2\ amended the CEA \3\ to

establish a comprehensive new regulatory framework for swaps and

security-based

[[Page 2137]]

swaps. The legislation was enacted to reduce systemic risk, increase

transparency, and promote market integrity within the financial

system by, among other things: Providing for the registration and

comprehensive regulation of swap dealers (``SDs'') and major swap

participants (``MSPs''); imposing clearing and trade execution

requirements on standardized derivative products; creating rigorous

recordkeeping and data reporting regimes with respect to swaps,

including real time reporting; and enhancing the Commission's

rulemaking and enforcement authorities with respect to, among

others, all registered entities, intermediaries, and swap

counterparties subject to the Commission's oversight.

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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Pub. L. 111-203, 124 Stat. 1376 (2010). The text of the Dodd-

Frank Act may be accessed at http://www.cftc.gov./LawRegulation/

OTCDERIVATIVES/index.htm.

\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

be cited as the ``Wall Street Transparency and Accountability Act of

2010.''

\3\ 7 U.S.C. 1, et seq.

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B. Swap Data Provisions of the Dodd-Frank Act

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)(G), which requires all swaps, whether cleared

or uncleared, to be reported to swap data repositories

(``SDRs''),\4\ which are new registered entities created by section

728 of the Dodd-Frank Act to collect and maintain data related to

swap transactions as prescribed by the Commission, and to make such

data electronically available to regulators.\5\ New section 21(b) of

the CEA, added by section 728 of the Dodd-Frank Act, directs the

Commission to prescribe standards for swap data recordkeeping and

reporting. Specifically, CEA section 21(b)(1)(A) provides that:

\4\ See also CEA section 1a(40)(E).

\5\ Regulations governing core principles and registration

requirements for, and the duties of, SDRs are the subject of part 49

of this chapter.

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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.

These standards are to apply to both registered entities and

counterparties involved with swaps.

CEA section 21(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.

CEA section 21 also directs the Commission to prescribe data

standards for SDRs. Specifically, CEA section 21(b)(2) provides that:

The Commission shall prescribe data collection and data

maintenance standards for swap data repositories.

These standards are to be comparable to those for clearing

organizations. CEA section 21(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.

In addition, 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.

Section 727 of the Dodd Frank Act, which added to the CEA new

section 2(a)(13), provides that ``Each swap (whether cleared or

uncleared) shall be reported to a registered swap data repository.''

\6\ Section 729 of the Dodd-Frank Act added to the CEA new section 4r,

which addresses reporting and recordkeeping requirements for uncleared

swaps. Pursuant to this section, each swap not accepted for clearing by

any derivatives clearing organization (``DCO'') must be reported to an

SDR (or to the Commission if no repository will accept the swap). In a

July 15, 2010 floor statement concerning swap data reporting as well as

other aspects of the Dodd-Frank Act, Senator Blanche Lincoln emphasized

that these provisions should be interpreted as complementary to one

another to assure consistency between them, stating that: ``All swap

trades, even those which are not cleared, would still be reported to

regulators, a swap data repository, and subject to the public reporting

requirements under the legislation.'' \7\

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\6\ CEA section 2(a)(13)(G).

\7\ Senator Blanche Lincoln, ``Wall Street Transparency and

Accountability Act,'' Congressional Record, July 15, 2010, at S5905.

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CEA section 4r ensures that at least one counterparty to a swap has

an obligation to report data concerning that swap. The determination of

this reporting counterparty depends on the status of the counterparties

involved. If only one counterparty is an SD, the SD is required to

report the swap. If one counterparty is an MSP, and the other

counterparty is neither an SD nor an MSP (``non-SD/MSP counterparty''),

the MSP must report. Where the counterparties have the same status--two

SDs, two MSPs, or two non-SD/MSP counterparties--the counterparties

must select a counterparty to report the swap.\8\

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\8\ See CEA section 4r(a)(3).

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In addition, CEA section 4r provides for reporting to the

Commission of swaps neither cleared nor accepted by any SDR. Under this

provision, counterparties to such swaps must maintain books and records

pertaining to their swaps in the manner and for the time required by

the Commission, and must make these books and records available for

inspection by the Commission or other specified regulators if requested

to do so.\9\ It also requires counterparties to such swaps to provide

reports concerning such swaps to the Commission upon its request, in

the form and manner specified by the Commission.\10\ Such reports must

be as comprehensive as the data required to be collected by SDRs.\11\

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\9\ CEA section 4r(c)(2) requires individuals or entities that

enter into a swap transaction that is neither cleared nor accepted

by an SDR to make required books and records open to inspection by

any representative of the Commission; an appropriate prudential

regulator; the Securities and Exchange Commission; the Financial

Stability Oversight Council; and the Department of Justice.

\10\ CEA sections 4r(a)(1)(B) and 4r(c).

\11\ CEA section 4r(d).

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C. International Considerations

Section 752 of the Dodd-Frank Act directs the Commission to consult

and coordinate with foreign regulatory authorities regarding

establishment of consistent international standards for the regulation

of swaps and swap entities. The Commission is committed to a

cooperative international approach to swap recordkeeping and swap data

reporting, and has consulted extensively with various foreign

regulatory authorities in the process of promulgating both its proposed

and final part 45 rules. During this process, the Commission has served

as Co-Chair of the Committee on Payment and Settlement Systems

(``CPSS'') and the International Organization of Securities Commissions

(``IOSCO'') Task Force that has prepared a Report on OTC Derivatives

Data Reporting and Aggregation Requirement for presentation to the

Financial Stability Board (``FSB'') in December 2011. The Commission

also served as a member of the organizing committee for the FSB Legal

Entity Identifier Workshop held in Basel, Switzerland in September

2011. In the course of preparing the proposed and final part 45 rules,

Commission staff met with financial regulatory authorities from

Argentina, Australia, Brazil, Canada, China, Dubai (United Arab

Emirates), France, Germany, Hong Kong, Indonesia, India, Italy, Japan,

Korea, Mexico, the Netherlands, Portugal, Russia, Saudi Arabia,

Singapore, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.

Staff also met with representatives of FSB, IOSCO, CPSS, the

International Monetary Fund, the FSB Data Gaps and Systemic Linkages

Group, the Bank for International Settlements, the Committee on the

Global Financial System, the OTC Derivatives Regulatory Forum, the OTC

Derivatives Supervisors Group, the European Central Bank, the European

Commission, the European Union, the

[[Page 2138]]

Commission of European Securities Regulators, the European Systemic

Risk Board, the International Organisation for Standardisation

(``ISO''), and the Association of National Numbering Agencies

(``ANNA'').

In September 2009, the G-20 \12\ leaders made a number of

commitments regarding OTC derivatives, including the statement that:

\12\ The G-20 include leaders and representatives of the core

members of the G-20 major economies, which comprises 19 countries

and the European Union which is represented by its two governing

bodies, the European Council and the European Commission.

All standardized OTC derivative contracts should be traded on

exchanges or electronic trading platforms, where appropriate, and

cleared through central counterparties by end-2012 at the latest.

OTC derivative contracts should be reported to trade

repositories.\13\

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\13\ Leaders' Statement, Pittsburgh Summit, September 25, 2009,

at 9; available at http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf.

The Commission's part 45 rules, if adopted by the Commission, which

requires reporting of swap data to SDRs to begin in mid-2012, may be

the first set of regulatory requirements in the world to fulfill this

commitment.

D. Consultations With Other U.S. Financial Regulators

In developing the swap data recordkeeping and reporting rule,

Commission staff has also engaged in extensive consultations with U.S.

domestic financial regulators. The agencies and institutions consulted

include the Federal Reserve Board of Governors (``Federal Reserve'')

(including the Federal Reserve Bank of New York), the Federal Deposit

Insurance Corporation (``FDIC''), the Office of Financial Research

(``OFR''), the Office of the Comptroller of Currency (``OCC''), the

Securities and Exchange Commission (``SEC''), and the Department of the

Treasury.

E. Summary of the Proposed Part 45 Rule

1. Fundamental Goal

The fundamental goal of the part 45 Notice of Proposed Rulemaking

(``NOPR'') was 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.

2. Swap Recordkeeping

The NOPR called for registered entities and swap counterparties to

keep records relating to swaps throughout the existence of each swap

and for five years following final termination or expiration of the

swap. These records would be required to be readily accessible during

the life of the swap and for two years thereafter, and retrievable from

storage within three business days during the remaining three years of

the retention period. The NOPR would require that data in SDRs be

readily accessible to the Commission throughout the retention period as

required by the Dodd-Frank Act.\14\

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\14\ The proposed rule also cross-referenced the detailed

recordkeeping requirements specific to DCMs, SEFs, DCOs, SDs, and

MSPs included in rulemakings specific to those entities and

counterparties.

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3. Swap Data Reporting: Creation Data and Continuation Data

In order to ensure that complete data concerning swaps is

maintained in SDRs and available to the Commission and other

regulators, the NOPR called for reporting of swap data from each of two

important stages of the existence of a swap: the creation of the swap,

and the continuation of the swap over its existence until its final

termination or expiration.

a. Creation data reporting. To ensure timeliness, accuracy, and

completeness with respect to data, the NOPR required reporting of two

types of data relating to the creation of a swap: the primary economic

terms of the swap verified or matched by the counterparties at or

shortly after the time of execution; and all of the terms of the swap

included in the legal confirmation of the swap. To ensure inclusion of

primary economic terms necessary for regulatory purposes, the rule

specified minimum data elements that must be reported for swaps in each

asset class.

b. Continuation data reporting. The NOPR provided that continuation

data reporting for credit and equity swaps would follow the life cycle

approach, and required reporting of all life cycle events affecting the

terms of a swap. The NOPR directed reporting of continuation data for

interest rate, currency, and other commodity swaps to follow the state

or snapshot approach, and required reporting of a daily snapshot of all

primary economic terms of a swap including any changes to such terms

occurring since the previous snapshot. For all asset classes, the NOPR

called for continuation data reporting to include specified valuation

data.

4. Unique Identifiers

The NOPR called for use of three unique identifiers in connection

with swap data reporting: a unique swap identifier (USI), a unique

counterparty identifier (UCI), and a unique product identifier (UPI).

The Commission proposed requiring use of these unique identifiers

because they would be crucial regulatory tools for linking data

together and enabling data aggregation by regulators across

counterparties, transactions, and asset classes, to fulfill the

systemic risk mitigation, market manipulation prevention, and other

important purposes of the Dodd-Frank Act. The Commission also noted

that such identifiers would have great benefits for financial

transaction processing, internal recordkeeping, compliance, due

diligence, and risk management by financial entities.

The NOPR called for the USI to be created at the time a swap is

executed, shared with all registered entities and counterparties

involved with the swap, and used to track that particular swap over its

life. The UCI would identify the legal entity that is a counterparty to

a swap. Pursuant to the NOPR, the Commission would require use of UCIs

in all swap data reporting, selecting an internationally-developed

legal entity identifier system for this purpose if one meeting the

Commission's requirements is available prior to the compliance date

when swap data reporting begins, or imposing a system created by the

Commission if that were needed. Confidential reference data concerning

the corporate or company affiliations of the legal entity involved

would allow regulators to monitor swap exposures. The UPI would

categorize or describe swaps with respect to the underlying products

referenced in them, allowing regulators to aggregate, analyze, and

report swap transactions by product type, and also enhancing position

limit enforcement and real time reporting.

5. Who Reports

In general, the NOPR called for reporting by the registered entity

or counterparty having the easiest, fastest, and cheapest access to the

data in question, and most likely to have automated systems suitable

for reporting. Swap execution facilities (``SEFs'') or designated

contract markets (``DCMs'') would report primary economic terms data

(``PET data'') for swaps executed on a trading facility, and DCOs would

report confirmation data for cleared swaps. Counterparty reporting

would follow the hierarchy outlined in the statute, giving SDs or MSPs

the duty to report when possible,

[[Page 2139]]

and limiting reporting by non-SD/MSP counterparties to situations where

there is no SD or MSP counterparty. Where both counterparties have the

same hierarchical status, the proposed rule would require them to agree

as one term of their swap which of them is to report, in order to avoid

reporting delays.

6. Third-Party Facilitation of Reporting

The NOPR would explicitly permit third-party facilitation of data

reporting, without removing the reporting responsibility from the

appropriate registered entity or counterparty.

7. Reporting a Swap to a Single SDR

To avoid fragmentation of data for a given swap across multiple

SDRs, the NOPR would require that all data for a particular swap must

be reported to the same SDR.

8. Reporting Swaps in an Asset Class Not Accepted by Any SDR

As required by the section 729 of the Dodd-Frank Act, the NOPR

provided that if there were an asset class for which no SDR currently

accepted data, registered entities or counterparties required to report

concerning swaps in such an asset class would be required to report the

same data to the Commission at a time and in a form and manner

determined by the Commission.

9. Data Standards

The NOPR would require SDRs to maintain data and transmit it to the

Commission in the format required by the Commission. It would permit an

SDR to allow those reporting data to it to use any data standard

acceptable to the SDR, so long as the SDR remains able to provide data

to the Commission in the Commission's required format.

10. Reporting Errors and Omissions in Previously Reported Data

Finally, the NOPR provided that registered entities and

counterparties required to report swap data must also report to the SDR

any errors or omissions in data previously reported, using the same

format used in the previous report. Non-reporting counterparties

discovering an error or omission would be required to notify the

reporting counterparty, for reporting to the SDR by the reporting

counterparty.

F. Overview of Comments Received

The comment period for the NOPR closed on February 7, 2011, but was

reopened pursuant to the Commission's Order Reopening and Extension of

Comment Periods for Rulemakings Implementing the Dodd-Frank Wall Street

Reform and Consumer Protection Act, dated May 4, 2011. The reopened

comment period closed on June 3, 2011. Seventy-five comment letters

submitted to the Commission addressed the proposed part 45 swap data

recordkeeping and reporting rule.\15\ Comments were provided by a broad

range of interested persons, including: Existing trade repositories,

DCMs, and DCOs; providers of various third party services related to

swaps; financial data and data management services and providers of

various types of identifiers; both buy side and sell side swap

counterparties of various types and sizes; trade associations involving

securities, futures, and foreign exchange markets and firms; banks and

mortgage lenders; managed funds and investment advisors; swap dealers;

swap ``end users''; energy producers; and non-profit

[[Page 2140]]

associations. Commission staff also held three public roundtables

relating to swap data reporting, on September 14, 2010, January 28,

2011, and June 6, 2011, which provided input from a broad cross-section

of industry and private sector experts concerning the issues addressed

in the NOPR. While many commenters expressed support for the proposed

part 45 rules, many also offered suggestions regarding swap data

recordkeeping and reporting, as well as recommendations for

clarification or modification of specific provisions of the proposed

rule. Comments are addressed as appropriate in connection with the

discussion below of the final rule provision or provisions to which

they relate. Some comments received by the Commission requested further

clarification relating to definitions provided in the NOPR, or

regarding the application of NOPR provisions in various contexts.

Definitions included in the final rule are provided for clarification

and do not impose new substantive obligations.

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\15\ All comment letters are available on the Commission Web

site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=920. Specific comment letters are identified by

CL and the submitter. Comments addressing the NOPR were received

from: (1) ACM Capital Management (``ACM'') June 15, 2011 (``CL-

ACM''); (2) Alice Corporation (``Alice'') June 1, 2011 (``CL-

Alice''); (3) American Bankers Association and the ABA Securities

Association (``ABA/ABASA'') June 3, 2011 (``CL-ABA/ABASA''); (4)

American Benefits Council (``ABC'') February 7, 2011 (``CL-ABC'');

(5) American Benefits Council (``ABC'') and Committee on Investment

of Employee Benefit Assets (``CIEBA'') February 7, 2011 (``CL-ABC/

CIEBA I''); (6) ABC and CIEBA March 25, 2011 (``CL-ABC/CIEBA II'');

(7) American Gas Association (``AGA'') February 3, 2011 (``CL-AGA

I''); (8) AGA June 3, 2011 (``CL-AGA II''); (9) Asset Management

Group (``AMG'') and Securities Industry and Financial Markets

Association (``SIFMA'') February 7, 2011 (``CL-AMG/SIFMA''); (10)

Japanese Banking Organizations--Bank of Tokyo-Mitsubishi UFJ, Ltd.

(``BTMU''), Mizuho Corporate Bank (``MHCB''), and Sumitomo Mitsui

Banking Corporation (``SMBC'') May 5, 2011 (``CL-Japanese Banks'');

(11) Better Markets, Inc. (``Better Markets'') February 7, 2011

(``CL-Better Markets I''); (12) Better Markets June 3, 2011 (``CL-

Better Markets II''); (13) BlackRock, Inc. (``BlackRock'') June 3,

2011 (``CL-BlackRock I''); (14) BlackRock June 3, 2011 (``CL-

BlackRock II''); (15) Bloomberg, LP (``Bloomberg'') June 3, 2011

(``CL-Bloomberg''); (16) Chatham Financial Corporation (``Chatham

Financial'') February 7, 2011 (``CL-Chatham Financial''); (17) Chris

Barnard (``Barnard'') May 17, 2011 (``CL-Barnard''); (18) Citadel,

LLC (``Citadel'') June 3, 2011 (``CL-Citadel''); (19) CME Group,

Inc. (``CME'') February 7, 2011 (``CL-CME I''); (20) CME June 3,

2011 (``CL-CME II''); (21) Coalition of Derivatives End-Users

(``CDEU'') February 25, 2011 (``CL-CDEU''); (22) Coalition of

Physical Energy Companies (``COPE'') February 7, 2011 (``CL-COPE

I''); (23) COPE June 3, 2011 (``CL-COPE II''); (24) Committee on

Capital Markets Regulation June 13, 2011 (``CL-Committee on Capital

Markets Regulation I''); (25) Committee on Capital Markets

Regulation June 24, 2011 (``CL-Committee on Capital Markets

Regulation II''); (26) Committee on Futures and Derivatives

Regulation, Bar Association of the City of New York June 13, 2011

(``CL-Committee on Futures and Derivatives Regulation''); (27)

Committee on the Investment of Employee Benefit Assets (``CIEBA'')

June 3, 2011 (``CL-CIEBA''); (28) Commodity Markets Council

(``CMC'') February 6, 2011 (``CL-CMC I''); (29) Commodity Markets

Council (``CMC'') February 7, 2011 (``CL-CMC II''); (30) Congressman

James Renacci (``Renacci'') June 10, 2011 (``CL-Renacci''); (31)

CUSIP Global Services (``CUSIP'') February 7, 2011 (``CL-CUSIP'');

(32) Customer Data Management Group (``CDMG'') April 1, 2011 (``CL-

CDMG''); (33) DC Energy, LLC (``DC Energy'') June 3, 2011 (``CL-DC

Energy''); (34) Dominion Resources, Inc. (``Dominion Resources'')

February 7, 2011 (``CL-Dominion Resources''); (35) The Depository

Trust & Clearing Corporation (``DTCC'') February 7, 2011 (``CL-DTCC

I''); (36) DTCCC June 3, 2011 (``CL-DTCC II''); (37) Edison Electric

Institute (``EEI'') June 3, 2011 (``CL-EEI''); (38) Edison Electric

Institute Electric Power Supply Association (``EPSA'') February 7,

2011 (``CL-EPSA''); (39) Encana Marketing (USA), Inc. (``Encana'')

February 7, 2011 (``CL-Encana''); (40) Eris Exchange, LLC (``Eris

Exchange'') June 3, 2011 (``CL-Eris''); (41) Futures Industry

Association (``FIA''), The Financial Services Roundtable (``FSR''),

Institute of International Bankers (``IIB''), Insured Retirement

Institute (``IRI''), International Swaps and Derivatives Association

(``ISDA''), Securities Industry and Financial Markets Association

(``SIFMA''), and U.S. Chamber of Commerce, (``Chamber of Commerce'')

June 1, 2011 (``CL-Chamber of Commerce''); (42) Foreign Banking

Organizations--Barclays, BNP Paribas, Deutsche Bank, Royal Bank of

Canada, The Royal Bank of Scotland Group, Societe Generale, Credit

Suisse, HSBC, UBS, Nomura Securities International, Inc., Rabobank

Nederland (``Foreign Banks'') January 11, 2011 (``CL-Foreign Banks

I''); (43) Foreign Banks February 17, 2011 (``CL-Foreign Banks

II''); (44) Freddie Mac February 7, 2011 (``CL-Freddie Mac''); (45)

The Federal Home Loan Banks (``FHLB'') February 7, 2011 (``CL-

FHLB''); (46) Global Foreign Exchange Division (``Global Forex'')

February 7, 2011 (``CL-Global Forex''); (47) Green Exchange, LLC

(``GreenEx'') June 3, 2011 (``CL-GreenEx''); (48) GS1 US (``GS1'')

February 7, 2011 (``CL-GS1''); (49) Intercontinental Exchange, Inc.

(``ICE'') February 7, 2011 (``CL-ICE''); (50) International Energy

Credit Association (``IECA'') February 7, 2011 (``CL-IECA''); (51)

International Swaps and Derivatives Association, Inc. (``ISDA'')

June 2, 2011 (``CL-ISDA''); (52) ISDA SIFMA February 7, 2011 (``CL-

ISDA SIFMA''); (53) Kansas City Board of Trade Clearing Corporation

(``KCBT'') February 7, 2011 (``CL-KCBT''); (54) Managed Funds

Association (``MFA'') February 7, 2011 (``CL-MFA''); (55) Markit

June 3, 2011 (``CL-Markit''); (56) MarkitSERV June 3, 2011 (``CL-

MarkitSERV I); (57) MarkitSERV June 3, 2011 (``CL-MarkitSERV II'');

(58) Minneapolis Grain Exchange (``MGEX'') June 3, 2011 (``CL-

MGEX''); (59) Not-For-Profit Electric End User Coalition consisting

of the National Rural Electric Cooperative Association, American

Public Power Association, Large Public Power Council, Edison

Electric Institute Electric Power Supply Association, (``Electric

Coalition'') February 7, 2011 (``CL-Electric Coalition I''); (60)

Electric Coalition June 3, 2011 (``CL-Electric Coalition II''); (61)

Noble Energy, Inc. (``Noble Energy'') July 7, 2011 (``CL-Noble

Energy''); (62) Office of the Comptroller of the Currency July 1,

2011 (``CL-Office of the Comptroller of the Currency''); (63) REGIS-

TR February 7, 2011 (``CL-REGIS-TR''); (64) Reval.com, Inc.

(``Reval'') January 24, 2011 (``CL-Reval''); (65) Shell Energy North

America (US), L.P. (``Shell Energy'') June 3, 2011 (``CL-Shell

Energy I''); (66) Shell Energy June 21, 2011 (``CL-Shell Energy

II''); (67) Society for Worldwide Interbank Financial

Telecommunication SCRL (``SWIFT'') February 14, 2011 (``CL-SWIFT'');

(68) SunGard Energy & Commodities (``SunGard'') February 7, 2011

(``CL-Sungard''); (69) Thomson Reuters February 7, 2011 (``CL-

Thomson Reuters''); (70) TradeWeb Markets, LLC (``TradeWeb'') June

3, 2011 (``CL-TradeWeb''); (71) TriOptima February 7, 2011 (``CL-

TriOptima''); (72) Senator Sherrod Brown (``Brown'') June 13, 2011

(``CL-Brown''); (73) Vanguard February 7, 2011 (``CL-Vanguard'');

(74) Working Group of Commercial Energy Firms (``WGCEF'') February

7, 2011 (``CL-WGCEF I''); (75) WGCEF June 3, 2011 (``CL-WGCEF II'').

---------------------------------------------------------------------------

II. Part 45 of the Commission's Regulations: The Final Rules

New part 45 contains provisions governing swap data recordkeeping

and reporting. Definitions are set forth in Sec. 45.1. Section 45.2

establishes swap recordkeeping requirements for registered entities and

swap counterparties. Sections 45.3 and 45.4 establish swap data

reporting requirements. Reporting of required swap creation data (the

data association with the creation or execution of a swap) is addressed

in Sec. 45.3, while reporting of required swap continuation data (the

data associated with the continued existence of a swap until its final

termination) is addressed in Sec. 45.4. Required use of unique

identifiers in swap data recordkeeping and reporting is addressed in

Sec. 45.5, which sets forth requirements regarding unique swap

identifiers (``USIs''); Sec. 45.6, which sets forth requirements

regarding legal entity identifiers (``LEIs''); and 45.7, which sets

forth requirements regarding unique product identifiers (``UPIs'').

Determination of which counterparty must report swap data for each swap

is established by Sec. 45.8. Third-party facilitation of swap data

reporting is addressed by Sec. 45.9. Section 45.11 establishes

requirements for reporting all data concerning a swap to a single SDR.

Section 45.11 addresses data reporting for swaps in a swap asset class

not accepted by any SDR. Section 45.12 sets forth requirements

concerning voluntary supplemental reporting of swap data to SDRs.

Section 45.13 establishes required data standards for swap data

reporting. Finally, Sec. 45.14 sets forth requirements for reporting

concerning errors and omissions in previously reported swap data.

A. Recordkeeping Requirements--Sec. 45.2

1. Proposed Rule

The NOPR provided that all SEFS, DCMs, DCOs, SDs, and MSPs must

keep full, complete, and systematic records, together with all

pertinent data and memoranda, of all activities relating to the

business of such entities or persons with respect to swaps, including,

without limitation, records of all data required to be reported in

connection with any swap. All such records would be required to be kept

throughout the existence of the swap and for five years following final

termination of the swap. Records would be required to be readily

accessible by the registered entity or counterparty in question via

real time electronic access throughout the life of the swap and for two

years following the final termination of the swap, and retrievable

within three business days through the remainder of the required

retention period.

The NOPR proposed lesser recordkeeping requirements for non-SD/MSP

counterparties, calling for them to keep full, complete, and systematic

records, including all pertinent data and memoranda, with respect to

each swap in which they are a counterparty (as opposed to all

activities relating to the business of such entities with respect to

swaps), in a way that makes the records retrievable by the counterparty

within three business days during the required retention period.

The NOPR provided that all records required to be kept by SDRs must

be kept by the SDR both: (a) throughout the existence of the swap and

for five years following final termination or expiration of the swap,

during which time the records must be readily accessible by the SDR and

available to the Commission via real time electronic access; and (b)

thereafter, for a period determined by the Commission, in archival

storage from which they are retrievable by the SDR within three

business days. This provision was intended to make effective the

statutory mandate that SDRs must ``provide direct electronic access to

the Commission (or any designee of the Commission including another

registered entity).'' \16\

---------------------------------------------------------------------------

\16\ CEA section 21(c)(4)(A).

---------------------------------------------------------------------------

As proposed, part 45 would also require that all records required

to be kept pursuant to the regulations must be open to inspection upon

request by any representative of the Commission, the Department of

Justice, or the SEC, or by any representative of a prudential regulator

as authorized by the Commission.

2. Comments Received

The Commission received comments concerning the proposed

recordkeeping provisions from both market participants who anticipated

that they could be SDs and MSPs and market participants who anticipated

that they could be non-SD/MSP counterparties. Many commenters asked

that non-SD/MSP counterparties be allowed to keep fewer records and to

keep records in paper form. Commenters suggested that required record

retention periods should be shortened, and that retrievability

requirements should be somewhat relaxed. Other commenters suggested

that recordkeeping requirements for non-SD/MSP counterparties should be

phased in.

a. Records required. American Gas Association (``AGA'') and Edison

Electric Institute (``EEI'') asked the Commission to specify more

precisely the information that non-SD/MSP counterparties will be

required to retain, defining in particular the meaning of ``all

pertinent data and memoranda,'' with examples. Arguing that non-SD/MSP

counterparties should not be required to keep records of swap terms

other than the final terms of the swap, EEI suggested that non-SD/MSP

counterparties be required to retain only ``master or bespoke

agreements, long or short-form confirmations, amendments and associated

swap transaction data stored in an end-user's trade capture system.''

The Committee on the Investment of Employee Benefit Assets (``CIEBA'')

suggested that a non-SD/MSP counterparty should only be required to

retain the final confirmation of any swap where the other counterparty

is an SD or MSP, and (presumably where no SD or MSP is involved) should

only be required to retain swap creation or continuation data that the

non-SD/MSP is required to report. The Working Group of Commercial

Energy Firms (``WGCEF'') asked that non-SD/MSP counterparties to

physical commodity swaps (or at least energy swaps) be excused from

recordkeeping requirements altogether, arguing that the final rule

should recognize ``the unique operational characteristics and abilities

of different participants in swap markets for physical commodities,''

since such counterparties may not presently have the necessary

technology, and the benefits of implementing it would not justify the

costs imposed. The Not-for-Profit Electric End User Coalition

(``Electric Coalition'') contended that the

[[Page 2141]]

rule should allow non-SD/MSP counterparties to keep records in paper

form.

b. Record retention periods. The International Swap Dealers

Association (``ISDA'') and the Securities Industry and Financial

Markets Association (``SIFMA'') suggested that the Commission should

analyze this requirement further before it is implemented. AGA argued

that record retention for the life of the swap plus five years would

impose substantial costs on non-SD/MSP counterparties such as gas

utilities, and asked that the record retention period for non-SD/MSP

counterparties be reduced to the life of the swap plus three years.

WGCEF commented that there would be no benefit to record retention

beyond five years following termination of a swap. Taking an opposite

view, Chris Barnard recommended that all registered entities and swap

counterparties should be required to keep records indefinitely.

c. Record retrievability. ISDA and SIFMA commented that current

recordkeeping practice for their members would normally mean

accessibility within a reasonable period of time, such as two working

days, and argued that instant access is impracticable to achieve.\17\

The Global Foreign Exchange Division of SIFMA (``Global Forex'')

suggested that after termination of the swap, real time access should

only be required for an additional 30 days. With respect to retrieval

by non-SD/MSP counterparties, AGA argued that the three-business-day

retrievability requirement is too onerous, and would preclude off-site

storage of business records, forcing end users to maintain on-site

record storage. The Electric Coalition suggested that the retrieval

period for non-SD/MSP counterparties be extended to 20 business days.

---------------------------------------------------------------------------

\17\ WGCEF asked the Commission to confirm that real time

accessibility refers to access by the counterparty, not the

Commission, and asked that the requirement be changed to require

record retrieval by the close of business the day following a

request.

---------------------------------------------------------------------------

d. Phasing in recordkeeping requirements for non-SD/MSP

counterparties. The Electric Coalition suggested that recordkeeping

requirements for non-SD/MSP counterparties be phased in. The Electric

Coalition also suggested that the Commission define two sub-categories

of non-SD/MSPs, namely financial and non-financial non-SD/MSPs, and

that it delay the beginning of compliance with recordkeeping

requirements even further for non-financial non-SD/MSP counterparties.

Dominion Resources commented that recordkeeping should focus first on

swaps involving platform execution or clearing, or involving SDs and

MSPs.

3. Final Rule: Sec. 45.2

a. Records required. The Commission believes that the final rule

should largely maintain the NOPR provisions regarding required records.

Those provisions call for recordkeeping with respect to swaps that

parallels the Commission's existing recordkeeping requirements with

respect to futures and options.\18\ Under those existing requirements,

all DCMs, DCOs, futures commission merchants (``FCMs''), introducing

brokers (``IBs''), and members of contract markets are generally

required to keep full and complete records, together with all pertinent

data and memoranda, of all activities relating to the business of the

entity or person that is subject to the Commission's authority. The

Commission believes that the rationale for requiring futures

registrants and counterparties subject to its jurisdiction to keep full

and complete records must also govern recordkeeping with respect to

swaps. Such records are essential to carrying out the regulatory

functions of not only the Commission but all other financial

regulators, and for appropriate risk management by registered entities

and swap counterparties themselves.\19\

---------------------------------------------------------------------------

\18\ Recordkeeping requirements relating to futures and options

are found in CEA sections 5(b) and 5(d); Sec. Sec. 1.31 and 1.35 of

this chapter; Appendix B to Part 38 of the Commission's Regulations,

Core Principle 17, Recordkeeping; and Appendix A to Part 39 of the

Commission's Regulations, Core Principle K, Recordkeeping.

\19\ The need for such records is also recognized

internationally. As CPSS has noted: ``it should be clear that the

data recorded in a TR [trade repository] cannot be a substitute for

the records of transactions at original counterparties. Therefore,

it is important that even where TRs have been established and used,

market participants maintain their own records of the transactions

that they are a counterparty to and reconcile them with their

counterparties or TRs on an ongoing basis (including for their own

risk management purposes).'' Committee on Payment and Settlement

Systems, Considerations for Trade Repositories in OTC Derivatives

Markets, May 2010, at 1.

---------------------------------------------------------------------------

The Commission notes that the NOPR placed narrower recordkeeping

obligations on non-SD/MSP counterparties subject to the Commission's

jurisdiction, requiring them to keep full, complete, and systematic

records, including all pertinent data and memoranda, with respect to

each swap to which they are a counterparty, rather than with respect to

their entire business relating to swaps. This narrower requirement was

designed to effectuate a policy choice made by the Commission to place

lesser burdens on non-SD/MSP counterparties to swaps, where this can be

done without damage to the fundamental systemic risk mitigation,

transparency, standardization, and market integrity purposes of the

legislation.

The Commission does not believe that it should further define or

reduce the records required to be kept. The Commission's existing

recordkeeping regulations in the futures context call for maintenance

of ``full and complete records.'' Complete records regarding each swap

should be required from all counterparties, including non-SD/MSP

counterparties to physical commodity swaps and other swaps, because

such records are essential for effective market oversight and

prosecution of violations by the Commission and other regulators.

Experience with recordkeeping requirements in the context of futures

suggests that all market participants are able to retain such records.

The Commission also does not believe that it should specifically

delineate the meaning of ``all pertinent data and memoranda.'' This

phrase is not further defined in the Commission's existing futures

regulations.

With respect to paper recordkeeping, the Commission agrees with the

comment suggesting that non-SD/MSP counterparties should be permitted

to keep required records in paper form, since this could serve to

reduce burdens on some such counterparties while still ensuring that

essential records are available.\20\ The final rule provides that non-

SD/MSP counterparties may keep records in either electronic or paper

form, so long as they are retrievable, and information in them is

reportable, as required by part 45. Because SEFS, DCMs, DCOs, SDs, and

MSPs are more likely to have automated systems suitable for electronic

recordkeeping, and because electronic production of records is

important to the Commission's enforcement functions, the final rule

will permit such registrants to keep records in paper form only if they

are originally created and exclusively maintained in paper form.

---------------------------------------------------------------------------

\20\ Although the final rule requires data reporting in

electronic form, a non-SD/MSP counterparty could achieve this by

entering information from paper records into a web interface

provided by an SDR.

---------------------------------------------------------------------------

b. Record retention periods. The Commission has determined that the

final rule should maintain the NOPR provision calling for required

records to be retained for the life of the swap plus five years. A swap

can continue to exist for a substantial period of time prior to its

final termination or expiration. During this time, which in some cases

can extend for many years, the key economic terms of the swap can

change. Thus, recordkeeping requirements with

[[Page 2142]]

respect to a swap must necessarily cover the entire period of time

during which the swap exists, as well as an appropriate period

following final termination or expiration of the swap. A five-year

retention period following termination of the swap will ensure document

retention consistent with the information that the Commission and other

regulators need to carry out their oversight and enforcement

responsibilities. It will also parallel the Commission's existing five-

year record retention requirement in the context of futures. Finally,

this five-year period is consistent with the Commission's final part 49

rules regarding SDR registration.

With respect to record retention by SDRs, the Commission has

determined that SDRs must retain all required records both: (a)

Throughout the existence of the swap and for five years following final

termination or expiration of the swap, during which time the records

must be readily accessible by the SDR and available to the Commission

via real time electronic access, as provided in the NOPR; and (b)

thereafter, for an archival storage period of ten additional years,

during which they must be retrievable by the SDR within three business

days. The Commission believes that extended retention of SDR records

will assist regulators in discharging their systemic risk and market

monitoring responsibilities, and aid market analysis. However, after a

substantial period of time has passed following final termination of a

swap, the data storage burden of retaining SDR records concerning the

swap could outweigh the remaining benefit involved, and accordingly the

Commission does not agree with the comment suggesting indefinite record

retention. The Commission may review the ten-year archival storage

requirement for SDRs at a future time, after experience with its

operation is available.

c. Record retrievability. The Commission does not believe that it

should reduce record retrievability requirements for SEFS, DCMs, DCOs,

SDs, and MSPs. The requirement that records be readily accessible for

the life of the swap plus two years parallels the Commission's

retrievability requirement during the first two years of the five-year

retention period for futures-related records.\21\ The Commission has

routinely interpreted ``readily accessible'' to mean retrievable in

real time or at least on the same day as the records are requested.

Moreover, Commission Regulation 1.31 requires records maintained

electronically to be produced immediately upon request. FCMs routinely

comply with this requirement, and the Commission does not believe that

SDs and MSPs should be unable to do so as well.

---------------------------------------------------------------------------

\21\ See Sec. 1.31 of this chapter.

---------------------------------------------------------------------------

With respect to record retrievability for non-SD/MSP

counterparties, the Commission accepts the comments suggesting that

retrieval from off-site storage within three business days could

possibly involve additional costs or limit off-site storage options for

some smaller non-SD/MSP counterparties. In order to lessen any burden

on non-SD/MSP counterparties while maintaining necessary accessibility

of pertinent records, the final rule will only require retrievability

of non-SD/MSP counterparty records within five business days throughout

the record retention period. The Commission believes that this will not

unduly compromise its ability to conduct investigations and carry out

its enforcement responsibilities.

d. Phasing in recordkeeping requirements for non-SD/MSP

counterparties. The Commission does not believe that it is necessary to

provide any phasing treatment with respect to recordkeeping

requirements for non-SD/MSP counterparties beyond the phasing by

counterparty type provided in the final rule with respect to compliance

dates. As noted above, the final rule provides less onerous

recordkeeping requirements and less onerous retrievability requirements

for non-SD/MSP counterparties, in order to ameliorate recordkeeping

burdens for them. Excusing non-SD/MSP counterparties from all

recordkeeping for an extended period could interfere with the ability

of the Commission and other regulators to carry out their oversight and

enforcement responsibilities. As previously noted, experience with

recordkeeping requirements in the context of futures suggests that all

market participants do retain records and that such recordkeeping is

essential for effective oversight and prosecution of violations.

B. Swap Data Reporting: Creation Data--Sec. 45.3

1. Proposed Rule

a. What creation data should be reported. In order to ensure

timeliness, accuracy, and completeness with respect to the swap data

available to regulators, the proposed rule called for reporting of swap

data from each of two important stages of the existence of a swap: the

creation of the swap, and the continuation of the swap over its

existence until its final termination or expiration. The NOPR required

reporting of two sets of data generated in connection with the swap's

creation: primary economic terms data, and confirmation data.

The NOPR defined primary economic terms as including all of the

terms of the swap verified or matched by the counterparties at or

shortly after the execution of the swap. In order to ensure that the

array of primary economic terms reported to an SDR for a swap is

sufficient in each case for regulatory purposes and is comparable

enough to permit data aggregation, the NOPR required that the primary

economic terms reported for each swap must include, at a minimum, all

of the data elements listed by the Commission in the asset class-

specific tables of minimum data elements appended to the NOPR. The

tables were designed to include data elements reflecting the basic

nature and essential economic terms of the product involved.

The NOPR defined confirmation as the full, signed, legal

confirmation by the counterparties of all of the terms of a swap, and

defined confirmation data as all of the terms of a swap matched and

agreed upon by the counterparties in confirming the swap. The NOPR

required reporting of confirmation data, in addition to the earlier

reporting of primary economic terms data, in order to help ensure the

completeness and accuracy of the data maintained in an SDR with respect

to a swap. Reporting of the terms of the confirmation, which has the

assent of both counterparties, also provides a means of fulfilling the

statutory directive that an SDR ``shall confirm with both

counterparties to the swap the accuracy of the data that was

submitted.'' \22\

---------------------------------------------------------------------------

\22\ CEA section 21(c)(2).

---------------------------------------------------------------------------

b. Who should report creation data. The NOPR's swap data reporting

provisions were designed to streamline and simplify the data reporting

approach, by calling for reporting by the registered entity or

counterparty that the Commission believes has the easiest, fastest, and

cheapest access to the data in question. As recognized in the NOPR,

such entities and counterparties are also the most likely to have

automated systems suitable for reporting.

Because the Commission anticipated that swap contract certification

process for swaps listed by SEFs and DCMs would define all or most of

the primary economic terms of a swap, the NOPR called for SEFs or DCMs

to report PET data for swaps executed on a trading platform, as soon as

technologically practicable after execution, with reporting

counterparties reporting only PET data that for any reason was not

[[Page 2143]]

available to the SEF or DCM. For off-facility swaps, where PET data is

created by the counterparties' verification of the primary economic

terms of the swap, the NOPR provided for the reporting counterparty (as

defined) to report the required PET data for the swap. The NOPR called

for this report to be made promptly, but in no event later than: 15

minutes after execution of a swap for which execution and verification

of primary economic terms occur electronically; 30 minutes after

execution of a swap which is not executed electronically but for which

verification of primary economic terms occurs electronically; or, in

the case of a swap for which neither execution nor verification of

primary economic terms occurs electronically, within a time after

execution to be determined by the Commission.

For cleared swaps, where confirmation data will be generated by

DCOs in the course of the normal clearing process, the NOPR called for

DCOs to report confirmation data, doing so as soon as technologically

practicable following clearing. For non-cleared swaps, where

confirmation will be done by the counterparties, the NOPR required the

reporting counterparty to report confirmation data, making this report

promptly following confirmation, but in no event later than: 15 minutes

after confirmation of a swap for which confirmation occurs

electronically; or, in the case of a swap for which confirmation was

done manually rather than electronically, within a time after

confirmation to be determined by the Commission.

The NOPR did not explicitly assign the right to select the SDR to

which a swap is reported, but it effectively determined who will make

this choice, through the interaction of two key aspects of the rule.

First, in order to prevent fragmentation of data for a single swap

across multiple SDRs, which would seriously impair the ability of the

Commission and other regulators to view or aggregate all of the data

concerning the swap, the proposed rule provided that, once an initial

data report concerning a swap is made to an SDR, all data reported for

that swap thereafter must be reported to that same SDR.\23\ Second, in

order to ensure that PET data concerning the swap is reported as soon

as technologically practicable following execution--in part to

facilitate real time reporting--the proposed rule required the SEF or

DCM to make the initial PET data report for swap executed on such a

facility, and required the reporting counterparty (in the majority of

cases, an SD or MSP) to make the initial report for an off-facility

swap. Because subsequent reports must go to the SDR that received the

initial report, in practice this meant that the SEF or DCM would select

the SDR for platform-executed swaps, and the reporting counterparty

would choose the SDR for off-facility swaps.

---------------------------------------------------------------------------

\23\ This requirement received universal approbation in both

comments and roundtables as appropriate and necessary.

---------------------------------------------------------------------------

c. Deadlines for creation data reporting. The NOPR established

reporting deadlines for creation data reporting, including both PET

data reporting and confirmation data reporting, determined by whether

the swap is platform-executed and/or cleared, whether verification

(matching) of primary economic terms by the counterparties occurs

electronically, and whether the reporting counterparty is an SD or MSP

on the one hand or a non-SD/MSP counterparty on the other. The

resulting deadlines were as shown in the following tables.

Proposed Rule--Reporting Counterparty: SD or MSP

----------------------------------------------------------------------------------------------------------------

Execution and clearing Report Reporter Reporting time

----------------------------------------------------------------------------------------------------------------

SEF or DCM, DCO................... PET data............. SEF or DCM........... As soon as technologically

practicable following

execution.

Any PET data not SD or MSP............ After execution:

reported by SEF or * 15 minutes if execution and

DCM. verification electronic.

* 30 minutes if execution non-

electronic but verification

electronic.

* 24 hours if neither

execution nor verification

electronic.

Confirmation data.... DCO.................. As soon as technologically

practicable following

clearing.

SEF, Not cleared.................. PET data............. SEF.................. As soon as technologically

practicable following

execution.

Any PET data not SD or MSP............ After execution:

reported by SEF. * 15 minutes if execution and

verification electronic.

* 30 minutes if execution non-

electronic but verification

electronic.

* 24 hours if neither

execution nor verification

electronic.

Confirmation data.... SD or MSP............ After confirmation:

* 15 minutes if confirmation

electronic.

* 24 hours if confirmation non-

electronic.

No platform, DCO.................. PET data............. SD or MSP............ After execution:

* 30 minutes if verification

electronic.

* 24 hours if verification non-

electronic.

Confirmation data.... DCO.................. As soon as technologically

practicable following

clearing.

No platform, Not cleared.......... PET data............. SD or MSP............ After execution:

* 30 minutes if verification

electronic.

* 24 hours if verification non-

electronic.

Confirmation data.... SD or MSP............ After confirmation:

* 15 minutes if confirmation

electronic.

* 24 hours if confirmation non-

electronic.

----------------------------------------------------------------------------------------------------------------

Proposed Rule--Reporting Counterparty: Non-SD/MSP

----------------------------------------------------------------------------------------------------------------

Execution and clearing Report Reporter Reporting time

----------------------------------------------------------------------------------------------------------------

SEF or DCM, DCO................... PET data............. SEF or DCM........... As soon as technologically

practicable following

execution.

[[Page 2144]]

Any PET data not Non-SD/MSP........... After execution:

reported by SEF or * 15 minutes if execution and

DCM. verification electronic.

* 30 minutes if execution non-

electronic but verification

electronic.

* 24 hours if neither

execution nor verification

electronic.

Confirmation data.... DCO.................. As soon as technologically

practicable following

clearing.

SEF, Not cleared.................. PET data............. SEF.................. As soon as technologically

practicable following

execution.

Any PET data not SD or MSP............ After execution:

reported by SEF. * 15 minutes if execution and

verification electronic.

* 30 minutes if execution non-

electronic but verification

electronic.

* 24 hours if neither

execution nor verification

electronic.

Confirmation data.... Non-SD/MSP........... After confirmation:

* To be determined by the

Commission prior to final

rule.

No platform, DCO.................. PET data............. Non-SD/MSP........... After execution:

* 30 minutes if verification

electronic.

* 24 hours if verification non-

electronic.

Confirmation data.... DCO.................. As soon as technologically

practicable following

clearing.

No platform, Not cleared.......... PET data............. Non-SD/MSP........... After execution:

* 30 minutes if verification

electronic.

* 24 hours if verification non-

electronic.

Confirmation data.... Non-SD/MSP........... After confirmation:

* To be determined by the

Commission prior to final

rule.

----------------------------------------------------------------------------------------------------------------

d. Reporting for multi-asset swaps and mixed swaps. As noted in the

NOPR, a mixed swap is in part a security-based swap subject to SEC

jurisdiction, and in part a swap subject to CFTC jurisdiction.\24\

Multi-asset swaps are those that do not have one easily identifiable

primary underlying asset, but instead involve multiple underlying

assets belonging to different asset classes that are all within CFTC's

jurisdiction. One way of stating the distinction between these two

types of swaps is that SEC and CFTC will each have jurisdiction over

part of a mixed swap, but only CFTC will have jurisdiction over the

different parts of a multi-asset swap. The NOPR requested comment on

how multi-asset and mixed swaps should be reported.

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\24\ The Dodd-Frank Act defines ``mixed swap'' as follows: ``The

term `security-based swap' includes any agreement, contract, or

transaction that is as described in section 3(a)(68)(A) of the

Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and is

also based on the value of 1 [sic] or more interest or other rates,

currencies, commodities, instruments of indebtedness, indices,

quantitative measures, other financial or economic interest or

property of any kind (other than a single security or a narrow-based

security index), or the occurrence, non-occurrence, or the extent of

the occurrence of an event or contingency associated with a

potential financial, economic, or commercial consequence (other than

an event described in subparagraph (A)(iii).'' Dodd-Frank Sec.

721(21), CEA section 1a(47)(D).

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2. Comments Received

The Commission received numerous comments from a variety of

commenters concerning the proposed rule's provisions addressing

creation data reporting. The broad themes of these comments addressed

what should be included in required primary economic terms data, who

should make the initial creation data report, what deadlines should be

set for making creation data reports, and how creation data should be

reported with respect to multi-asset swaps, mixed swaps, and

international swaps.

a. What should be included in required PET data. Comments

concerning various aspects of required minimum PET data are discussed

below.

Clarification of the catch-all PET data category. The tables of

minimum PET data for each asset class appended to the NOPR included a

field for reporting ``any other primary economic terms of the swap

matched by the counterparties in verifying the swap.'' ISDA and SIFMA

commented that the Commission should clarify or provide examples of

what this requirement means.

Clarification of particular PET data terms for other commodity

swaps. Electric energy providers including EEI, the Electric Power

Supply Association (``EPSA''), the Coalition of Physical Energy

Companies (``COPE''), and Dominion Resources suggested that the terms

``timestamp,'' ``settlement method,'' ``grade,'' and ``total quantity''

should be clarified or else should not be included in the minimum PET

data for other commodity swaps. They asserted that timestamps are not

typically recorded under current energy market practice. They argued

that the settlement method field implies a swap potentially involving

physical delivery, whereas they believe that swaps are not agreements

intended to be physically settled. They also argued that the ``total

quantity'' of a commodity in a swap is not a term typically captured by

swap counterparties, who instead typically express the size of a swap

in terms of the quantity aligned with a settlement period.

Elimination or clarification of calculation and reporting of

futures equivalents. The NOPR called for minimum PET data reporting to

include futures contract equivalents and futures contract equivalent

units of measure. Better Markets expressed support for required

reporting of futures equivalents. However, the Depository Trust &

Clearing Corporation (``DTCC'') commented that OTC derivatives cannot

be mapped readily to futures contracts, and thus this data will not

necessarily be able to be aggregated in a meaningful fashion. Global

Forex asked the Commission to provide guidance on how to report futures

equivalents for swaps whose tenor sits between two futures contracts

dates; guidance on the case where multiple futures contracts exist for

the same underlying product; and guidance on products for which no

corresponding futures contracts exist.

Clarification of creation data reporting in the context of

structured transactions. ISDA and SIFMA commented that ``execution,''

``affirmation,'' and ``confirmation'' may have somewhat different

meanings in different asset classes, and requested clarification of the

application of these terms with respect to creation data

[[Page 2145]]

reporting. More specifically, Global Forex requested clarification of

creation data in the context of structured transactions, noting that

the meaning given these terms under prevalent foreign exchange market

conventions, which frequently involve structured transactions, may

differ from their application in other contexts.

Clarifications regarding foreign exchange transactions. Contending

that cross-currency swaps should be classified as interest rate swaps

rather than foreign exchange swaps, Global Forex argues that cross-

currency swaps in fact are interest rate products with multi-payment

schedules, that they are most often traded by interest rate desks with

interest rate participants, and that they are captured and managed in

interest rate systems and infrastructure using interest rate

conventions. Global Forex notes that foreign exchange swaps are

products traded by distinct foreign exchange desks with market

participants and internal and external systems infrastructure that are

different from the participants and infrastructure involved in cross-

currency swaps. Existing trade repositories including TriOptima and

DTCC also suggest that the Commission classify cross-currency swaps as

interest rate swaps.

Global Forex notes that foreign exchange swaps consist of a near

and a far leg, and that the foreign exchange swap market currently

lacks market conventions that suggest how to select a reporting

counterparty responsible for reporting both legs, in situations where

both parties have the same hierarchical level (e.g., two SDs). Global

Forex also notes that current trade capture systems differ in how they

handle foreign exchange swaps, and that some may book a foreign

exchange swap as a single trade, but split it in back-office systems

into two trades with separate trade identifiers. Global Forex does not

advocate reporting both legs separately; it simply points out this

potential issue in light of current, differing market practices.

Combining all PET data and confirmation data reporting in a single

report. Several comments suggest consolidating the requirements to

report both PET data and confirmation data. Dominion Resources and

Global Forex suggest a single report providing PET data plus

confirmation status (rather than all terms confirmed). ISDA and SIFMA

suggest replacing all creation data reporting with end-of-day snapshot

reporting (including the first-day report). The Kansas City Board of

Trade (``KCBT'') suggests that for swaps that are platform-executed and

cleared, the DCO's clearing report should replace confirmation

reporting. \25\ DTCC suggests creation data reporting for fully-

electronic trades should be limited to confirmation reporting, in the

belief that fully electronic trades can be confirmed within 15 minutes.

Thomson Reuters believes that creation data reporting should be limited

to confirmation reporting for all swaps whether platform executed or

voice executed. The Managed Funds Association (``MFA'') suggests

defining ``time of execution'' to mean 24 hours after manual

confirmation of the swap, arguing that the benefits of data reporting

within minutes of execution as presently defined do not outweigh either

the infrastructure costs or error risks involved.

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\25\ KCBT also suggests that DCOs should be allowed to report a

day's cleared swaps in a single daily data file, rather than

individually.

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Harmonizing the data fields require for real time and regulatory

reporting. ISDA, SIFMA, WGCEF, and Dominion Resources recommended

harmonizing the Commission's required PET data fields and real time

reporting data fields. The Electric Coalition suggested a need to

coordinate these two types of reporting with respect to reporting

triggers and the words used to define them (e.g. verification or

confirmation), and requested clarification concerning the data elements

required by the real time reporting rule and the swap data reporting

rule.

Allowing non-SD/MSP counterparties to report less data. The NOPR

requires the same minimum PET data fields to be reported for each swap

in an asset class, regardless of the nature of the reporting entity or

counterparty. Various energy producers commented concerning potential

burdens for non-SD/MSP counterparties in this regard. AGA suggested the

rule should minimize the burdens of reporting for non-SD/MSP

counterparties, and EEI supported the principle that responsibility for

reporting should rest with those having the best technology, such as

SEFs, DCMs, SDs and MSPs.\26\ EEI, EPSA, and COPE suggested limiting

data reporting for non-SD/MSP counterparties in physical energy to data

they already maintain under current data capture practices, limiting

their reporting of confirmation data to the confirmation information

currently captured in their systems, rather than requiring them to

report all confirmation terms. The International Energy Credit

Association (``IECA'') suggested exempting physical energy

counterparties from reporting requirements entirely, or at least

imposing ``lesser'' reporting requirements for them. The Electric

Coalition suggested that non-SD/MSP counterparties be subject only to a

``CFTC Lite'' reporting regime.

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\26\ The NOPR takes this approach, calling for SEFs and DCMs to

report all creation data in their possession for on-facility swaps,

and making SDs and MSPs the reporting counterparties when they are

involved.

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Miscellaneous aspects of PET data. The NOPR specifies minimum PET

data fields for each asset class. The SEC's proposed data reporting

rule for swaps under the SEC's jurisdiction, i.e., security-based swaps

in the credit and equity asset classes, sets out categories of required

data rather than specific data fields. ISDA and SIFMA suggested that

the Commission should adopt the SEC's approach, and expressed concern

that the Commission's approach could negatively affect FpML development

and result in some products not being adequately described. Eris

Exchange suggested that the Commission determine where prescriptive

rules are absolutely necessary to address systemic risk, and the

Commodity Markets Council suggested that the Commission avoid a

prescriptive regulatory model which would create detailed reporting

requirements and thus require different reporting methods.

SunGard Energy & Commodities (``SunGard'') suggested that for swaps

executed on SEFs and DCMs, having the SEF or DCM report position

changes to each account, instead of reporting individual swap

transactions, would be more efficient and more advantageous for

monitoring of positions and of risk.\27\

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\27\ SunGard suggested that such position reports could be

accompanied by a reference to the primary economic terms of the

contract, rather than by data reflecting all primary economic terms.

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b. Who makes the initial creation data report and selects the SDR.

The NOPR did not explicitly assign the right to select the SDR to which

a swap is reported, but it effectively determined who will make this

choice, through the interaction of two key aspects of the proposed

rule. First, in order to prevent fragmentation of data for a single

swap across multiple SDRs, which would seriously impair regulators'

ability to view or aggregate all of the data concerning the swap, the

NOPR provided that, once an initial data report concerning a swap is

made to an SDR, all data reported for that swap thereafter must be

reported to that same SDR.\28\ Second, in order to ensure that PET data

concerning the swap is reported as soon as practicable following

execution--in part to facilitate real time reporting--the NOPR required

the SEF or DCM to make the initial PET data report for swap

[[Page 2146]]

executed on such a facility, and required the reporting counterparty

(in the majority of cases, an SD or MSP) to make the initial report for

an off-facility swap. Because subsequent reports must go to the SDR

that received the initial report, in practice this meant that the SEF

or DCM would select the SDR for platform-executed swaps, and the

reporting counterparty would choose the SDR for off-facility swaps.

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\28\ This requirement received universal approbation in both

comments and roundtables as appropriate and necessary.

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The Commission received a number of comments concerning who should

select the SDR to which a swap is reported. WGCEF, COPE, EEI, and EPSA

supported the NOPR approach of giving reporting obligations to SEFs,

DCMs, and DCOs, arguing that this approach simplifies reporting and

eases burdens on counterparties, which is especially important in the

case of non-SD/MSP counterparties. EEI and EPSA emphasized that the

rules should ensure that SDR selection by a SEF, DCM, SD, or MSP does

not result in costs or burdens for non-SD/MSP counterparties. WGCEF

also suggested that DCOs should make the initial report for cleared

swaps executed off-platform, since (in WGCEF's view) execution

technically will not occur until such a swap is accepted for clearing.

Global Forex observed that if a platform makes the initial report and

thus selects the SDR, other entities or counterparties with reporting

obligations during the life of the swap would need to ensure that they

can connect to the chosen SDR. ABC and CIEBA suggested that for swaps

involving a benefit plan as a counterparty, the SDR selection should

always be made by the plan. ISDA and SIFMA suggested that the reporting

counterparty should always select the SDR, arguing that this would

permit the market to determine and follow the most efficient manner of

reporting. REGIS-TR opposed having reporting obligations assigned based

on platform execution or clearing.

DTCC and ICE recommended that the reporting counterparty--an SD or

MSP in the majority of cases--should always select the SDR, even for

platform-executed swaps. ICE also suggested that if a SEF or DCM makes

the first report and thus selects the SDR for a swap that is to be

cleared, the SEF or DCM should be permitted to select a DCO that is

also registered as an SDR as both the DCO that will clear the swap and

the SDR to which the swap is reported. Going further in this direction,

CME contended that the final rule should require the initial report for

each cleared swap to be made to a DCO that is also registered as an SDR

or an SDR chosen by such a DCO. CME argued that the structure and

wording of the Dodd-Frank Act demonstrate that this was Congress's

intent, and that limiting reporting for cleared swaps to DCOs that are

dually registered as SDRs or to SDRs chosen by a DCO would involve the

lowest cost and least burden. The Commodity Markets Council echoed

CME's cost-benefit argument, asserting that DCOs are the ``natural

choice'' to act as SDRs for cleared trades, and that it would be

costly, inefficient and unnecessary to require industry to establish a

redundant set of expensive connections with non-DCO SDRs for the

purpose of making regulatory reports for cleared trades.

c. Creation data reporting deadlines and deadline phasing.

Extended creation data reporting deadlines. The Commission received

a number of comments recommending extended deadlines for both PET data

reporting and confirmation data reporting. The Electric Coalition

commented that the NOPR reporting deadlines are far too short if the

reporting party is a non-financial entity, because such an entity would

need to manually extract reportable data elements from a customized

swap.

Several commenters urged the Commission to extend deadlines for PET

data reporting, particularly in the case of non-SD/MSP counterparties.

EEI suggested a PET data report deadline of T+1 (i.e., by the close of

business on the business day following the day of execution) in the

case of either electronic or manual verification. CIEBA asked that the

24-hour deadline for PET data reporting where both execution and

verification are non-electronic include only business days. COPE

concurred that the 24-hour deadline where verification is non-

electronic is too short for non-SD/MSP counterparties, and asked the

Commission not to set a deadline in the final rule, but to determine

the deadline through ongoing consultations with industry following

issuance of the final rule.

Commenters also urged extension of the deadlines for confirmation

data reporting. AGA asked that the confirmation data reporting deadline

for non-SD/MSP counterparties be set at T+1 for swaps electronically

confirmed, and at T+2 (i.e., by the close of business on the second

business day following the day of execution) for swaps not

electronically confirmed. The Federal Home Loan Banks (``FHLB'')

suggested a deadline of 24 hours following confirmation for reporting

confirmation of a swap electronically confirmed, and a deadline of five

business days following confirmation for a swap manually confirmed.

DTCC suggested that a 15-minute deadline for reporting confirmation of

an electronically executed swap would require a level of straight-

through processing not yet available, and that for similar reasons a

somewhat longer deadline would be needed where the swap was not

electronically executed but electronically cleared. DTCC recommended

setting the initial deadline for confirmation data reporting for

electronically executed swaps at 30 minutes, setting the deadline for

swaps not electronically executed but electronically cleared at two

hours, and phasing in confirmation data reporting deadlines. For

manually confirmed swaps, DTCC advocated a confirmation data reporting

deadline of five days after execution.

Streamlined regulatory and real time reporting. The Commission also

received comments from DTCC and from roundtable participants suggesting

that it consider minimizing the number of swap creation data reports to

be required of any given registered entity or swap counterparty, either

by combining PET data reporting and confirmation data reporting in a

single report, or by allowing a single PET data report to fulfill both

regulatory reporting requirements under part 45 and real time reporting

requirements under part 43.

Phasing in reporting deadlines. DTCC suggested that the Commission

consider phasing in creation data reporting deadlines where possible.

d. Reporting of multi-asset swaps and mixed swaps. As noted in the

preamble of the NOPR, generally, a mixed swap is in part a security-

based swap subject to SEC jurisdiction, and in part a swap belonging to

an asset class subject to CFTC jurisdiction.\29\ Multi-asset swaps are

those that do not have one easily identifiable primary underlying

notional item, but instead involve multiple underlying notional items

belonging to different asset classes that are all within CFTC's

jurisdiction. One way of stating the distinction between these two

types of swaps is that SEC and CFTC will each have jurisdiction over

part of a mixed

[[Page 2147]]

swap, but only CFTC will have jurisdiction over the different parts of

a multi-asset swap. The NOPR requested comment on how multi-asset and

mixed swaps should be reported, but did not directly address such

reporting in the text of the proposed rule.

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\29\ The Dodd-Frank Act defines ``mixed swap'' as follows: ``The

term `security-based swap' includes any agreement, contract, or

transaction that is as described in section 3(a)(68)(A) of the

Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and is

also based on the value of 1 [sic] or more interest or other rates,

currencies, commodities, instruments of indebtedness, indices,

quantitative measures, other financial or economic interest or

property of any kind (other than a single security or a narrow-based

security index), or the occurrence, non-occurrence, or the extent of

the occurrence of an event or contingency associated with a

potential financial, economic, or commercial consequence (other than

an event described in subparagraph (A)(iii).'' Dodd-Frank Sec.

721(21), CEA section 1a(47)(D).

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Commenters provided differing views concerning reporting of mixed

swaps and multi-asset swaps. Better Markets suggested that the

different legs of mixed swaps and multi-asset swaps should be reported

separately. ISDA and SIFMA suggested that multi-asset swaps should not

be decomposed into their underlying asset classes but should be

reported to an SDR that accepts swaps in the most significant asset

class component of the swap, as determined by the reporting

counterparty (in practice, usually the asset class of the desk that

trades the swap). DTCC suggested that swaps in asset classes subject to

joint SEC-CFTC regulation could be reported to an SDR registered with

both Commissions (except in cases where no such SDR is available), or

that a practicable reporting regime for mixed swaps and multi-asset

swaps may be to have the reporting counterparty for a mixed swap or

multi-asset swap report the swap to an SDR serving each asset class,

including the USI assigned in the context of the report to the first

SDR in the report made to the second SDR.

i. Reporting of international swaps. As noted above, the Dodd-Frank

Act directs the Commission to consult and coordinate with foreign

regulatory authorities regarding establishment of consistent

international standards for the regulation of swaps and swap entities.

The Commission is committed to a cooperative international approach to

swap recordkeeping and swap data reporting, and has consulted

extensively with various foreign regulatory authorities in the process

of preparing this final rule. International regulators consulted by the

Commission have urged the Commission to include provisions in its final

swap data reporting rules concerning ``international swaps,'' i.e.,

those swaps that may be required by U.S. law and the law of another

jurisdiction to be reported both to an SDR registered with the

Commission and to a different trade repository registered with the

other jurisdiction.

3. Final Rule: Sec. 45.3

a. What should be included in required PET data.

Clarification of the catch-all PET data category. The Commission's

purpose in including in the tables of minimum PET data a field for

reporting ``any other primary economic terms of the swap matched by the

counterparties in verifying the swap'' is to provide a ``catch all''

category necessary to (1) ensure reporting of all price-forming terms

agreed on at the time of swap verification, including any such terms

not listed in the minimum PET data tables for the asset class in

question, and (2) keep pace with market innovation and new varieties of

swaps for which the Commission has not enumerated all relevant data

fields. To clarify that this field is intended to include all terms

agreed on at the time of swap verification, the final rule eliminates

the words ``primary economic'' from the field description, specifies

reporting of ``any other terms of the swap matched by the

counterparties in verifying the swap,'' and adds some possible examples

of such terms. This aligns the field description with the NOPR and

final rule definition of ``primary economic terms'' as meaning ``all of

the terms of a swap matched or affirmed by the counterparties in

verifying the swap.''

Clarification of particular PET data terms for other commodity

swaps.

The Commission disagrees with comments suggesting that execution

date and time should not be required to be reported for certain types

of other commodity swaps. The Commission believes that the date and

time of the execution of a swap constitute a basic primary economic

term and a fundamental audit trail component for all swaps. This

information is essential to the ability of the Commission and other

regulators to fulfill their obligations to supervise swap markets and

prosecute abuses. For swaps executed on a SEF or DCM, and for off-

facility swaps executed via an automated system, a timestamp will be

created automatically by the system involved. For off-facility swaps

executed manually, counterparties can and must manually record and

report the date and time of execution. Where current market practice

does not include recording the date and time of execution of a swap,

adjustment will be necessary.

While the Commission notes that the parameters of what constitutes

a swap will be provided by the final definition of ``swap'' issued

jointly by the Commission and the SEC, the Commission believes that

``settlement method'' should be retained as a PET data field. The

definition of a swap in CEA section 1a(47) could include options that

potentially could require physical delivery of a commodity. Thus, while

certain transactions that require delivery of a commodity, e.g.,

forward contracts or spot transactions that are excluded from the

definition of a swap, may not constitute swaps (as commenters argue),

other derivative transactions involving delivery would be required to

be reported as swaps.

The Commission believes that ``grade'' should also be retained as a

PET data field for other commodity swaps. ``Grade'' would typically be

applicable as a defining characteristic of the swap for both physically

delivered and cash settled transactions, in that this term is intended

to identify the quality and other characteristics of the commodity that

underlies the swap. For a cash settled swap, the Commission believes

that separately accounting for grade in the terms reported is also

necessary as a means of classifying and identifying the quality

characteristics of the commodity underlying the swap. The Commission

recognizes that in certain cases--electricity being one example--a

grade may not exist. The final rule will indicate that where a

particular PET data field does not apply to a given swap, the reporting

entity or counterparty should report ``Not applicable'' for that field.

As noted in the comments, some commodity swap counterparties use

the convention of identifying the notional amount of a swap by

specifying the quantity in terms of dollars or units of the commodity,

whichever is used to calculate settlement period payment obligations.

However, other counterparties account for the size of a swap by

referring to the total quantity involved in a swap over its entire

existence. Because a single convention does not apply in all cases, the

final minimum PET data tables will retain the terms ``Quantity'' and

``Total quantity, '' but will also add the terms ``Quantity units'' and

``Notional quantity.'' Notional quantity will be defined as the amount

of the underlying commodity that is used to calculate periodic

settlement payments during the life of the swap. Quantity units will be

defined as the units in which the notional quantity is expressed, e.g.,

bushels, gallons, barrels, pounds, or tons.

Elimination or clarification of calculation and reporting of

futures equivalents. The NOPR provision for reporting of futures

contract equivalents was intended to assist the Commission in

monitoring the positions of traders for the purpose of enforcing

position limits mandated by the Dodd-Frank Act. However, in July 2011,

subsequent to publication of the NOPR, the Commission adopted new

reporting requirements for physical commodity swaps and swaptions. Part

150 of this chapter now requires routine position reports from clearing

organizations, clearing members and swap dealers, and

[[Page 2148]]

also applies to reportable swap trader positions. It also provides

guidelines on how swaps should be converted into futures equivalents.

The new regulations were issued in part to cover the period between the

present, when the date by which SDRs registered with the Commission

will be operational in all asset classes is not yet certain, and a

future time when the Commission may be able to obtain swap position

data by aggregating data across SDRs.\30\ Accordingly, the final part

45 rule will drop ``futures contract equivalent'' and ``futures

contract equivalent unit of measure'' from its minimum PET data tables.

The Commission may revisit possible reporting of futures equivalents at

a later time, after Commission staff has had an opportunity to evaluate

the Commission's experience in collecting futures equivalent data under

the new part 150 regulations.

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\30\ An SDR would be able to report position data to the

Commission only if it were the single SDR for an entire asset class.

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Clarification of creation data reporting in the context of

structured transactions. In response to comments requesting

clarification of creation data reporting in the context of structured

transactions, the Commission provides the following explanation.

As discussed below in the context of who reports creation data, for

swaps executed on a SEF or DCM, the final rule requires the SEF or DCM

to report all required swap creation data, as soon as technologically

practicable after execution, in a single report that includes all

primary economic terms data and all confirmation data for the swap.

This will address some of the concerns raised in these comments for

swaps executed on a SEF or DCM.

For off-facility swaps, the final rule requires the reporting

counterparty to report both (1) all primary economic terms data, within

specified times following execution, and (2) all confirmation data,

within specified times following confirmation by the

counterparties.\31\ The final rule requires both a PET data report and

a confirmation data report in recognition that the elapsed time between

execution and verification of primary economic terms on the one hand,

and confirmation of all terms of the swap on the other, may differ for

a given swap depending on context.

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\31\ The final rule will further provide that if an off-facility

swap is accepted for clearing within the applicable deadline for PET

data reporting by the reporting counterparty, and before the

reporting counterparty reports any primary economic terms data, then

the reporting counterparty will be excused from reporting creation

data, and the DCO will report all required creation data in a single

report that includes both confirmation data and PET data. The final

rule will also define ``confirmation'' as the consummation of

legally binding documentation memorializing the agreement of the

parties to all terms of the swap.

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The Commission understands that a major concern underlying these

comments reflects uncertainty as to what reporting the final rule

requires (a) in situations where give-up arrangements or block trade

details may not be entirely finalized as of the time the counterparties

verify primary economic terms, or (b) in the case of structured

transactions, where the counterparties may negotiate primary economic

terms in stages over a period of time before reaching agreement on

their entire deal. The Commission therefore wishes to clarify that for

off-facility swaps where execution and confirmation are not

simultaneous, the final rule requires PET data reporting when execution

has occurred and verification of primary economic terms is completed,

even though details such as give-ups may still be in process. It also

wishes to clarify that PET data reporting is to follow agreement on all

primary economic terms of the complete transaction, and is not required

or desired after each stage of negotiating a structured transaction or

after agreement on some but not all of the primary economic terms of

the swap.

Clarifications regarding foreign exchange transactions. The

Commission has considered and agrees with comments suggesting that

cross-currency swaps should be classified and reported as interest rate

swaps, in line with prevailing market practice concerning the trading

of such swaps. The final rule provides for reporting of cross-currency

swaps as interest rate swaps. The Commission has also considered

comments noting differences in current foreign exchange market practice

concerning the booking of the near and far legs of some foreign

exchange transactions. The Commission understands that a firm's

financial statements will address both legs of a foreign exchange swap,

and that confirmation is performed with respect to the whole swap

rather than separately for each leg. The final rule provides for

reporting of foreign exchange swaps as a single transaction by a single

reporting counterparty selected as provided in Sec. 45.8. The

Commission notes that foreign exchange market conventions may need to

adjust to this requirement.\32\

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\32\ The Commission also notes that the final rule addresses the

reporting of ``foreign exchange instruments,'' defined as

instruments that are both defined as a swap in part 1 of this

chapter and included in the foreign exchange asset class. The

definition specifies that instruments in the foreign exchange asset

class include: any currency option, foreign currency option, foreign

exchange option, or foreign exchange rate option; any foreign

exchange forward as defined in CEA section 1a(24); any foreign

exchange swap as defined in CEA section 1a(25); and any non-

deliverable forward involving foreign exchange. This definition and

this approach to reporting are required by the fact that the Dodd-

Frank Act defines the term ``foreign exchange swap,'' and the fact

that foreign exchange swaps as so defined are only a subset of the

foreign exchange instruments that will be defined as swaps.

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Combining all PET data and confirmation data reporting in a single

report. The Commission has considered the numerous comments suggesting

that the final rule should provide for PET data and confirmation data

reporting to be combined in a single report. The Commission agrees with

these comments with respect to swaps executed on a SEF or DCM. As noted

above, the final rule provides that for swaps executed on a SEF or DCM,

a single report by the SEF or DCM, made as soon as technologically

practicable after execution, will fulfill all creation data reporting

that would otherwise be required of reporting counterparties.

The Commission disagrees with these comments as they apply to off-

facility swaps. The NOPR requirements for both PET data reporting and

confirmation data reporting are designed to ensure both (a) timeliness

of reporting, served by the initial PET data report, and (b) data

accuracy and completeness, served by confirmation data reporting.\33\

In addition, as noted above, the NOPR requirement for both a PET data

report and a confirmation data report recognizes that the elapsed time

between verification of primary economic terms and confirmation of all

terms may differ in different contexts, and in some cases may be

substantial. In a number of cases, delaying the initial data report for

a swap until confirmation has occurred could prevent regulators from

seeing a current picture of the entire swap market in the data present

in SDRs. As provided in the NOPR and the final rule, reporting

counterparties for off-facility swaps will be free to contract with

third-party services providers to fulfill either or both of these

reporting obligations, which could reduce costs associated with making

these reports. The Commission notes that, for off-facility swaps not

accepted for clearing within the applicable deadline for the reporting

counterparty to report PET data, the reporting counterparty can avoid

the

[[Page 2149]]

need for a separate confirmation data reporting by confirming the swap

within the applicable deadline for PET data reporting, and reporting

both PET data and confirmation data in a single report.

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\33\ The Commission notes that it is working to align the

timeframes for regulatory swap data reporting pursuant to this part

and the dissemination delays for real time swap data reporting

pursuant to part 43, in order to permit a reporting entity or

counterparty to fulfill both obligations by making a single report,

should the reporting entity or counterparty choose to do so.

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Harmonizing the data fields required for real time and regulatory

reporting. The Commission agrees in principle with comments suggesting

harmonization of the data fields required for real time reporting

pursuant to part 43 and those required for regulatory reporting

pursuant to this part. While registered entities and reporting

counterparties subject to the Commission's jurisdiction will remain

responsible for complying with both part 43 and part 45, the Commission

is working to substantially align the minimum PET data fields required

by this part and the real time reporting data fields required by part

43, in order to reduce reporting burdens to the extent possible.

Allowing non-SD/MSP counterparties to report less data. The

Commission disagrees with comments suggesting that it should require

less data to be reported for a swap with respect to which a non-SD/MSP

counterparty is the reporting counterparty. The Commission believes

that fulfilling the purposes of the Dodd-Frank Act requires that

regulators have access to the same information for all swaps reported

to SDRs. To address commenters' concerns to the extent possible, the

final rule will lessen burdens on non-SD/MSP counterparties by phasing

in their reporting--which will begin as of a compliance date later than

the compliance dates for other registered entities and counterparties--

and by providing extended deadlines for their reporting once it begins.

Miscellaneous aspects of PET data. The Commission disagrees with

comments suggesting that the final rule should only provide categories

of data to be reported, rather than minimum PET data fields. The

Commission believes the approach taken by the NOPR in this respect is

appropriate. It is designed to ensure uniformity of essential data

concerning swaps across all of the asset classes over which the

Commission has jurisdiction, and across different SDRs, and to ensure

that the Commission has the necessary information to characterize and

understand the nature of reported swaps. Commission staff have

consulted with SEC staff regarding data reporting for swaps in the

credit and equity asset classes where the Commission and the SEC share

jurisdiction, and the Commission has substantially aligned its data

requirements in those asset classes with the data sought by the SEC. As

a result, the Commission does not believe that SDRs and security-based

SDRs will have difficulty in collecting the data needed by the two

Commissions. The inclusion in minimum PET data of all terms of the swap

matched by the counterparties in verifying the swap provides an avenue

for reporting for newly-developed swap products. The Commission will

also have the ability to amend its tables of required minimum PET data

at futures times when this is desirable.

The Commission disagrees with the comment suggesting that SEFs and

DCMs should report positions rather than swap transactions. The Dodd-

Frank Act requires ``each swap'' to be reported to an SDR, and does not

address position reporting to an SDR. In addition, unlike most current

futures exchanges, SEFs and DCMs will not necessarily have access to

all of the transactions of a given counterparty in a particular

product, and thus would be unable to report positions.

b. Who makes the initial creation data report and selects the SDR.

The Commission has considered the various comments received concerning

who should make the initial creation data report for a swap, and by

operation of the various parts of the rule thus select the SDR to which

the swap is reported. The Commission has determined that the final rule

should maintain the NOPR's approach, calling for initial creation data

reporting by the registered entity or reporting counterparty that the

Commission believes has the easiest and fastest access to the data

required, and requiring that, once an initial data report concerning a

swap is made to an SDR, all data reported for that swap thereafter must

be reported to that same SDR. Cumulatively, these provisions prevent

fragmentation of swap data that would impair the ability of the

Commission and other regulators to use the swap data in SDRs for the

purposes of the Dodd-Frank Act. Under this approach, competition may

lead SEFs and DCMs to establish connections to multiple SDRs, and

result in lower SDR fees charged, not only to SEFs and DCMs for swaps

executed on such facilities, but also to reporting counterparties for

off-facility swaps. The Commission believes that requiring that all

cleared swaps be reported only to DCOs registered as SDRs or to SDRs

chosen by a DCO would create a non-level playing field for competition

between DCO-SDRs and non-DCO SDRs. The Commission also believes that it

would make DCOs collectively, and could in time make a single DCO-SDR,

the sole recipient of data reported concerning cleared swaps. On the

other hand, the Commission believes that giving the choice of the SDR

to the reporting counterparty in all cases could in practice give an

SDR substantially owned by SDs a dominant market position with respect

to swap data reporting within an asset class or even with respect to

all swaps. The Commission believes that the rule as proposed favors

market competition, avoids injecting the Commission into a market

decision, and leaves the choice of SDR to be influenced by market

forces and possible market innovations. The rule as proposed also

addresses the major substance of the concerns expressed by non-SD/MSP

counterparties, since it calls for the initial data report to be made

by a non-SD/MSP counterparty only in the case of an off-facility swap

between two non-SD/MSP counterparties.

c. Creation data reporting deadlines and deadline phasing.

Extended creation data reporting deadlines. The Commission

continues to believe, as it stated in the NOPR, that in order to

fulfill the purposes of the Dodd-Frank Act while minimizing burdens for

registered entities and swap counterparties, particularly including

non-SD/MSP counterparties, the final rule should establish a swap data

reporting regime calling for reporting by the registered entity or

counterparty that has the easiest, fastest, and cheapest access to the

set of data in question. The Commission has also considered and

evaluated the comments it has received regarding ways that reporting

burdens could be reduced, either by allowing a single report to serve

different required functions or by extending and phasing in reporting

deadlines. The Commission has determined that the reporting regime

established by the final rule should maintain many fundamental aspects

of the reporting called for in the NOPR, while adjusting other aspects

of that regime to streamline reporting and minimize reporting burdens

where possible, while continuing to ensure that swap data for all swaps

is reported to SDRs in a manner that ensures the ability of the

Commission and other regulators to fulfill the systemic risk

mitigation, market transparency, position limit monitoring and market

surveillance objectives of the Dodd-Frank Act.

Streamlined regulatory and real time reporting. The Commission

agrees with comments suggesting that, where possible, the number of

swap creation data reports should be minimized and streamlined by

combining PET data reporting and confirmation data reporting in a

single report.

[[Page 2150]]

The Dodd-Frank Act does not specify the timeframes for reporting of

swap data to SDRs for regulatory purposes. However, to further the

objectives of the Dodd-Frank Act, the Commission believes it is

important that swap data be reported to SDRs either immediately

following execution of the swap or within a short but reasonable time

following execution. The Commission does not believe that PET data

reporting can wait until it is possible to report confirmation data in

all cases, because in an appreciable number of instances confirmation

of a swap can occur days, weeks, or even months after execution.

Where execution and confirmation are simultaneous or nearly so,

however, the Commission agrees with commenters' suggestion that

reporting both PET data and confirmation data in a single report would

reduce reporting burdens without impairing regulatory purposes. The

Commission is working to adopt final rules for SEFs and DCMs, and final

rules with respect to straight-through processing, providing that

execution of a swap on a SEF or DCM will constitute confirmation of all

of the terms of the swap. This final part 45 rule requires that the

terms of such contracts must include all of the minimum PET data

required by part 45 for a swap in the asset class in question. The

final rule therefore provides for a single creation data report,

including both PET data and confirmation data, in the case of swaps

executed on or pursuant to the rules of a SEF or DCM. Accordingly, no

counterparty will be required to report creation data for a swap

executed on or pursuant to the rules of a SEF or DCM.

The Commission agrees with commenters that a reporting regime that,

to the extent possible and practicable, permits reporting entities and

counterparties to comply with the regulatory data reporting

requirements of part 45 and the real time reporting requirements of

part 43 by making a single report can reduce reporting burdens while

still ensuring fulfillment of the purposes for which the Dodd-Frank Act

requires such reporting. The Commission is working to align the

reporting deadlines in this final rule with the public dissemination

delays provided in the final part 43 real time reporting rule, to the

extent possible and practicable, in order to achieve this goal.

The Commission's final clearing rules in part 39 of this chapter

provide that acceptance of the swap for clearing by a DCO constitutes

confirmation of all of the terms of the swap. This final part 45 rule

provides that the terms of such contracts must include all of the

minimum PET data required by part 45 for a swap in the asset class in

question. Because acceptance for clearing constitutes confirmation, the

final rule provides that if an off-facility swap is accepted for

clearing within the reporting deadlines applicable to the reporting

counterparty, the reporting counterparty shall be excused for creation

data reporting for the swap, and the DCO shall report all creation data

report, including both PET data and confirmation data, in a single

report made as technologically practicable after clearing. In such

cases, reporting will be further streamlined, and burdens for

counterparties will be further reduced.

Phasing in and extending reporting deadlines. As noted above,

counterparties will not be required to report creation data for swaps

executed on a SEF or DCM, or for swaps accepted for clearing by a DCO

within the applicable reporting deadlines. After considering comments

advocating the extension and phasing in of counterparty reporting

deadlines, the Commission has decided to extend and phase in such

deadlines in the final rule with respect to off-facility swaps not

accepted for clearing within such deadlines.

PET data reporting deadlines for SD or MSP reporting

counterparties will be phased in over two years.

PET data reporting deadlines for non-SD/MSP reporting

counterparties will be extended and phased in over three years, and

will exclude weekend days and legal holidays. For example, while the

NOPR set the non-SD/MSP reporting counterparty PET data reporting

deadline for an uncleared swap at 24 hours, the final rule calls for

reporting no later than 48 business hours after execution (during the

first year of reporting), 36 business hours after execution (during the

second year of reporting), or 24 business hours after execution

(thereafter).

To reduce possible burdens on small non-SD/MSP

counterparties entering into a swap with an SD or MSP, if the non-

reporting counterparty is a non-SD/MSP counterparty that is not a

financial entity, and if primary economic terms are not verified

electronically, PET data reporting deadlines for the SD or MSP

reporting counterparty will be further extended and phased in over

three years, and will exclude weekend days and legal holidays.

Confirmation data reporting deadlines for SD or MSP

reporting counterparties where confirmation is non-electronic will be

extended, and will exclude weekend days and legal holidays.

Confirmation data reporting deadlines for non-SD/MSP

reporting counterparties will be extended and phased in over three

years, and will exclude weekend days and legal holidays. The final rule

calls for such counterparties to report confirmation data no later than

48 business hours after confirmation (during the first year of

reporting), 36 business hours after confirmation (during the second

year of reporting), or 24 business hours after confirmation

(thereafter).

For off-facility, uncleared swaps, during the first six

months following the applicable compliance date, while PET data will

have to be reported electronically with data normalized in data fields,

reporting counterparties for whom reporting confirmation data

normalized in data fields is not yet technologically practicable may

report required confirmation data by transmitting an image of all

documents recording the confirmation. This will allow needed additional

time for development of schemas for data reporting and implementation

by non-SD/MSP counterparties. Electronic reporting of all confirmation

data normalized in data fields will be required after this six month

period.

Charts showing the final rule reporting requirements with respect

to both creation data reporting and continuation data reporting can be

seen below at pages 70 and71.

Reporting burden reductions for non-SD/MSP reporting

counterparties. As a result of the streamlined reporting regime and

extended, phased-in reporting deadlines noted above, the final rule

eliminates all reporting obligations for non-SD/MSP reporting

counterparties in many cases, and phases in or reduces them in

virtually all other cases. Non-SD/MSP reporting counterparties must

report data only for the small minority of swaps in which both

counterparties are non-SD/MSP counterparties. Even within this small

minority of swaps, a non-SD/MSP reporting counterparty will have no

reporting obligations for on-facility, cleared swaps, or for off-

facility swaps accepted for clearing within the applicable deadline for

PET data reporting. If an off-facility swap is accepted for clearing

after the PET data reporting deadline, the non-SD/MSP reporting

counterparty is excused from reporting confirmation data and

continuation data, which instead will be reported by the DCO. For on-

facility, uncleared swaps, a non-SD/MSP reporting counterparty's

reporting obligations are limited to reporting continuation data during

the existence of the swap. For off-facility, uncleared

[[Page 2151]]

swaps, creation data reporting deadlines for a non-SD/MSP reporting

counterparty have been extended and phased in as noted above, and no

longer include weekend days or holidays. The deadline for a non-SD/MSP

reporting counterparty to report changes to primary economic terms over

the life of the swap has been lengthened from reporting on the day such

a change occurs to reporting by the end of the second business day

following the date of such a change; and a non-SD/MSP reporting

counterparty will be required to report valuation data on only a

quarterly rather than a daily basis.

d. Allocations. As set forth more fully below in the discussion of

USIs, the Commission received and has considered comments and industry

requests for clarification concerning USI creation and swap creation

data reporting in the case of swaps involving allocation by an agent to

its clients who are the actual counterparties on one side of the swap.

In response to these requests, the final rule will address both USI

creation and creation data reporting for swaps involving allocation, as

set forth in the discussion of USIs below.

e. Reporting of multi-asset swaps and mixed swaps. After

considering comments concerning how multi-asset swaps and mixed swaps

should be reported, the Commission has determined that the final rule

should provide for mixed swaps to be reported to both an SDR registered

with CFTC and an SDR registered with SEC.\34\ Reporting to a dual-

registered SDR would satisfy this requirement, but would not be

required. To ensure regulatory ability to track mixed swaps and

aggregate data concerning them, the final rule will add a ``mixed

swap'' checkbox field to the tables of minimum primary economic terms.

To avoid double-counting of mixed swaps, the final rule requires the

reporting entity or counterparty to obtain a USI for the swap from the

first SDR to which the swap is reported, and to include that USI in the

data concerning the swap reported to the second SDR to which the swap

is reported.

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\34\ Such dual reporting would avoid any need for an SDR

accepting swaps only in a CFTC-regulated asset class to dual-

register with the SEC merely because it might receive a report for a

mixed swap in part subject to SEC jurisdiction.

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For multi-asset swaps, the final rule requires reporting to a

single SDR accepting swaps in the asset class determined by the

registered entity or counterparty reporting the swap to be the first or

primary asset class involved in the swap. To ensure regulatory ability

to track the swap in all asset classes involved, the final rule will

add two data fields to the tables of minimum primary economic terms,

one for indication of the first or primary asset class involved in the

swap (which must be an asset class accepted by the SDR), and the second

for indication of the other asset class or classes involved in the

swap.

f. Reporting of international swaps. The Commission agrees with

international regulators with whom the Commission has consulted who

have suggested that it is important for the final rule to include a

mechanism that enables the Commission and other regulators to identify

international swaps reported to multiple repositories, so that such

swaps are not double-counted by regulators. The Commission is mindful

of the fact that the Dodd-Frank Act directs the Commission to consult

and coordinate with foreign regulatory authorities regarding

establishment of consistent international standards for the regulation

of swaps and swap entities. The Commission also believes that providing

an accurate picture of the swap market to regulators is one of the

fundamental purposes of the Dodd-Frank Act. For these reasons, and in

order to clarify its intent concerning swap data reporting in this

context, the Commission has determined that the final rule will address

the reporting of ``international swaps,'' defined for clarity as those

swaps that may be required by U.S. law and the law of another

jurisdiction to be reported both to an SDR registered with the

Commission and to a different trade repository registered with the

other jurisdiction.\35\ In order to help provide for international

swaps the consistent international standards sought by the Dodd-Frank

Act, the final rule provides that for each international swap that is

reported to both a U.S.-registered SDR and a foreign trade repository,

the reporting counterparty shall report to the U.S.-registered SDR, as

soon as practicable, the identity of the foreign trade repository, and

the swap identifier used by that foreign trade repository to identify

that swap.\36\ If necessary, the reporting counterparty shall obtain

this information from the non-reporting counterparty. The Commission

believes that these provisions are a logical outgrowth of the swap data

reporting provisions of the NOPR and of the statutory call for

international consultation and consistent international standards.

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\35\ This definition does not add a new requirement for the

reporting of swaps not otherwise required to be reported.

\36\ Under the final rule provisions in Sec. 45.6 of this part

concerning unique swap identifiers, the non-reporting counterparty

will receive the USI for the swap from the SDR, and thus will be

able to provide it to the non-U.S. trade repository on request.

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C. Swap Data Reporting: Continuation Data--Sec. 45.4

1. Proposed Rule

As noted above, in order to ensure timeliness, accuracy, and

completeness with respect to the swap data available to regulators, the

proposed rule called for reporting of swap data from each of two

important stages of the existence of a swap: The creation of the swap,

and the continuation of the swap over its existence until its final

termination or expiration. During the continued existence of the swap,

the NOPR required reporting of three types of continuation data: (a)

Either life cycle event data or state data (depending on the reporting

method involved) that reflects all changes to the swap; (b) contract-

intrinsic data, meaning scheduled, anticipated events that do not

change the contractual terms of the swap, such as an anticipated rate

adjustment; and (c) valuation data that reflects the current value of

the swap, such as the daily mark-to-market.

As proposed, the rule specified the reporting method to be used in

each asset class for reporting all changes to the swap. For credit

swaps and equity swaps, the NOPR called for reporting life-cycle

events--meaning any event resulting in a change to data previously

reported in connection with the swap, such as an assignment or

novation, a partial or full termination of the swap, or a change in the

cash flows originally reported--on the day that such an event occurs.

For foreign exchange transactions, interest rate swaps, and other

commodity swaps, the NOPR called for a daily report of state data--

meaning all data necessary to provide a daily snapshot view of the

primary economic terms of the swap, including any changes since the

last snapshot.

For cleared swaps, the NOPR required daily valuation data reporting

by the DCO, daily valuation data reporting by SD or MSP reporting

counterparties, and valuation data reporting by non-SD/MSP reporting

counterparties at intervals to be determined prior to issuance of the

final rule.

2. Comments Received

The Commission received several comments from a variety of

commenters concerning the proposed rule's continuation data reporting

provisions. These comments addressed reporting with respect to changes

to the terms of the swap, contract intrinsic events,

[[Page 2152]]

valuation, and master agreements and collateral.

a. Reporting changes to a swap. The broad themes of the comments

received concerning reporting changes to a swap addressed the reporting

method--life cycle or snapshot--to be used, the timing and frequency of

reports, and the choice of who should make the required reports.

Reporting method. As noted above, the NOPR prescribed the data

reporting method to be used in each asset class to report changes to

the primary economic terms of the swap. TriOptima and the Electric

Coalition agreed that the rule should specify the method used in each

asset class, and supported the NOPR's choices in that respect. ICE

recommended adopting the lifecycle method rather than the snapshot

method for the other commodity asset class. ISDA, SIFMA, REGIS-TR, and

DTCC recommended having the rule not make the choice between the

lifecycle and the snapshot reporting method for each asset class, but

rather allowing SDRs to decide whether to accept data by either or both

methods. SunGard recommended that the Commission delegate the choice to

a self-regulatory organization or standards board.

Timing for reporting changes. Various non-SD/MSPs involved in

energy markets, including AGA, COPE, EEI, EPSA, and the Electric

Coalition, argued that daily snapshot reporting would be unduly

burdensome for non-SD/MSP reporting counterparties. COPE, EEI, and EPSA

advocated requiring a snapshot only when a change to primary economic

terms has occurred. AGA suggested reporting a monthly snapshot, while

the Electric Coalition advocated a quarterly snapshot.

Change reporting for cleared swaps. ICE, a number of non-SD/MSPs

involved in energy markets including WGCEF, EEI, EPSA, and Chris

Barnard recommended having continuation data reporting for cleared

swaps done solely by DCOs. WGCEF noted that counterparties to swaps

that are both platform-executed and cleared, the counterparties may not

know each other's identity, which could make determination of the

reporting counterparty difficult.

Reporting of contract-intrinsic events. ISDA and SIFMA suggested

that the Commission should not require reporting of contract-intrinsic

events, i.e., events that do not result in any change to the

contractual terms of the swap. These commenters noted that the SEC's

proposed data reporting rule for security-based swaps does not include

such a requirement, and argued that reporting of such events is

unnecessary if they are in the public domain. At a minimum, ISDA and

SIFMA suggested limiting reporting of such events to reporting along

with the next required life cycle event report.

Reporting corporate events of the non-reporting counterparty. For

non-cleared swaps, ISDA and SIFMA requested that the final rule allow

additional time for the reporting counterparty to report corporate

events of the non-reporting counterparty, arguing that the reporting

counterparty may not know of such events on the same day that they

happen.

b. Valuation data reporting. The themes of the comments received

regarding valuation data reporting included: Who should report

valuation data for cleared swaps; valuation data reporting by non-SD/

MSP reporting counterparties; what valuation data should be reported;

requiring independent valuations; and acceptable valuation methods.

Who should report valuation data for cleared swaps. A number of

commenters, including ICE, WGCEF, EEI, EPSA, and Chris Barnard,

recommended that all valuation data reporting for cleared swaps should

be done by the DCO. COPE, EEI, EPSA, and the Electric Coalition

suggested that non-SD/MSP reporting counterparties should not have to

report valuation data for either cleared or uncleared swaps.

Valuation data reporting by non-SD/MSP reporting counterparties.

The NOPR required non-SD/MSP reporting counterparties to report

valuation data for both cleared and non-cleared swaps, at intervals to

be determined by the Commission prior to issuance of the final rule.

FHLB and a number of commenters in the energy sector suggested that

valuation reporting requirements for non-SD/MSP counterparties be

either loosened or eliminated. FHLB recommended weekly valuation

reporting by non-SD/MSP reporting counterparties, arguing that this

should be sufficient for regulatory purposes and would avoid forcing

end users to implement the costly infrastructure needed to generate

daily valuation reports. AGA suggested monthly valuation reporting by

non-SDs/MSPs, since daily reporting would be unduly burdensome for

them. The Electric Coalition recommended quarterly reporting. Chatham

Financial supported valuation reporting only when swap portfolios are

reconciled, since (in their view) non-SD/MSP counterparties will lack

the systems and staff necessary to produce valuations and thus would

have to pay third-party service providers for them. As noted above,

COPE, EEI, EPSA, and the Electric Coalition urged that non-SD/MSP

reporting counterparties should not have to report valuation data at

all.\37\

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\37\ These commenters argued that valuation of swaps between

non-SD/MSP counterparties did not cause the financial crisis and was

not the target of the Dodd Frank Act, and contended that the Dodd-

Frank Act does not authorize requiring non-SD/MSP counterparties

(especially those that are not financial entities) to report

valuation data. They also contended that the value of standardized

swaps is transparent from market data, while the value of illiquid,

non-standard swaps is merely based on a business judgment.

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What valuation data should be reported. ISDA and SIFMA asked the

Commission to note that valuation data for uncleared swaps will not be

``same day,'' but will refer to portfolio valuation on the close of the

preceding day, since these valuations are typically performed

overnight. Reval urged required reporting of all data elements

necessary to determine the market value of the swap, and suggested that

independent valuation calculations by third parties such as SDRs should

be required. Reval also suggested requiring that valuation data be

reported on a portfolio basis rather than a transaction basis. ICE

suggested that DCO valuation data reports should consist solely of

daily price marks, and that SDRs should be required to calculate

valuation amounts for each open trade. SunGard asked the Commission to

provide guidance on acceptable methods of valuation for uncleared

swaps, either in the final rule or by industry consensus.

c. Possible reporting of master agreements or collateral. The NOPR

required registered entities and swap counterparties to keep full and

complete records concerning swaps, which would include records of

master agreements. The NOPR did not require reporting the terms of such

agreements to SDRs, but requested comment on whether a separate master

agreement library system should be established as part of an SDR.

Should a master agreement library system be established? Commenters

disagreed on whether master agreement reporting should be required.

Chatham Financial and the Coalition of Derivatives End-Users (``CDEU'')

recommended that the Commission carefully consider the costs and

benefits of master agreement reporting prior to instituting such a

requirement. They noted that if such reporting went beyond submission

of PDF copies of master agreements, market participants (especially end

users) would find it labor intensive and tedious to extract legal terms

from the documents. The Electric Coalition, American Benefits Council

(``ABC''), and CIEBA also emphasized the need to minimize

[[Page 2153]]

burdens involved in any required master agreement reporting. ISDA and

SIFMA recommended against a master agreement library, stating that a

centralized effort to capture documentation would need to be much wider

than master agreements; would be duplicative of existing industry

investments; would not provide regulators with particularly meaningful

data given the slow rate of change of these documents; and would not

provide information above and beyond that which would be readily

obtained from regulated firms. Reval suggested establishment of a

separate SDR for master agreements and related credit support

agreements, in order to enhance regulators' ability to measure systemic

risk. ABC and CIEBA suggested that master agreements be reported once

to a separate library at an SDR, with amendments reported to the same

SDR. The Electric Coalition recommended limiting master agreement-

related reporting to the reporting of master agreement identifiers

rather than of agreements themselves, in order to lessen reporting

burdens.

Should a collateral warehouse system be established? The NOPR

required registered entities and swap counterparties to keep full and

complete records concerning swaps, which would include records

concerning collateral. It did not require reporting concerning

collateral, but requested comment on whether a separate collateral

warehouse system should be established as part of an SDR, to enable

prudential regulators to monitor collateral management and gross

exposure on a portfolio level. SunGard, ISDA, SIFMA, DTCC, and

TriOptima recommended establishing a separate collateral repository,

noting that collateral information is important for systemic risk

management, but not possible in transaction-based reporting since

collateral is dealt with at a portfolio level. They suggested that this

would also provide a superior form of valuation information. Chatham

Financial suggested that the benefits of a collateral warehouse and

reporting concerning collateral may not outweigh the costs involved,

due to the potential for highly customized terms and the complexity and

difficulty of representing the terms of relevant agreements

electronically.

3. Final Rule: Sec. 45.4

The Commission has considered and evaluated these comments, and has

made a number of changes in the final rule. Accordingly, the

continuation data provisions of the final rule will include the

following changes from the NOPR.

a. Reporting changes to a swap.

Reporting method. The Commission believes the general principle

applicable to continuation data reporting should be that current

information concerning all swaps must be available to regulators in

SDRs in order to fulfill the purposes of the Dodd-Frank Act. Based on

comments, meetings with market participants, roundtable discussions,

and consultation with other regulators, the Commission has determined

that the final rule can serve this principle without mandating one

particular reporting method, whether life cycle or snapshot, for

continuation data reporting. Accordingly, the 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. The final rule will

leave to the SDR and registered entity and reporting counterparty

marketplace the choice of the method, whether life cycle or snapshot,

for reporting continuation data that is sufficient to meet this

requirement. This approach could also help to address reporting time

concerns raised by commenters, since reporting counterparties would not

be required to report on a daily basis if the SDR in question accepts

life cycle reporting.\38\

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\38\ The flexibility of this approach should also ensure

harmonization of the final rule with SEC rules in this respect: even

if the SEC rules specify a reporting method for reporting to

security-based swap data repositories, SDRs that accept mixed swaps

will be free to accept reporting by any reporting method mandated by

the SEC.

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Timing for reporting changes. Given the regulatory importance of

ensuring that information in SDRs is current, and, in the Commission's

view, the availability of automated systems and staff to DCOs, SDs, and

MSPs, the Commission believes it is necessary to require DCOs and SD or

MSP reporting counterparties to make continuation data reports, by

either reporting method, no later than the same day a relevant change

occurs. The Commission has considered comments suggesting that same-day

reporting could impose greater burdens on non-SD/MSP reporting

counterparties than on SDs or MSPs, due to comparative differences in

automated systems and staff, and the Commission is aware that swaps

between non-SD/MSP counterparties are likely to constitute only a

minority of all swaps. Accordingly, the final rule will call for non-

SD/MSP reporting counterparties to report continuation data no later

than the end of the second business day following the date of a

relevant change during the first year of reporting, and no later than

the end of the first business day following the date of a relevant

change thereafter. The Commission has determined that this approach

will lighten burdens on non-SD/MSP reporting counterparties without

unduly degrading the currency of the information available to

regulators in SDRs.

Change reporting for cleared swaps. The Commission has considered,

and agrees with, commenters' suggestion that continuation data

reporting will be best done by DCOs. For cleared swaps in all asset

classes, the final rule will make DCOs the sole reporters of

continuation data other than valuation data.

Reporting of contract-intrinsic events. The Commission has

considered the comments addressing reporting of contract-intrinsic

events. In light of the fact that contract-intrinsic events do not

involve changes to the primary economic terms of a swap, and that most

such events are in the public domain, and in order to reduce reporting

burdens to the extent this can be done without impairing the purposes

for which the Dodd-Frank Act requires swap data reporting, the

Commission has determined that the final rule will not require

reporting of contract-intrinsic events.

Reporting corporate events of the non-reporting counterparty. The

Commission has considered the comments relating to the time when

corporate events of the non-reporting counterparty must be reported,

and has made a number of changes in the final rule. As noted above, the

final rule requires reporting of changes to primary economic terms by

SDs or MSPs on the day they occur, and (after a one-year phase in

period) by non-SDs/MSPs by the end of the business day after they

occur. With respect to reporting corporate events of the non-reporting

counterparty, the final rule provides that SD and MSP reporting

counterparties must report their own corporate events on the day they

occur, and must report corporate events of the non-reporting

counterparty by the end of the business day following the date when

they occur. In order to further reduce related burdens for non-SD/MSP

reporting counterparties, the rule requires non-SD/MSP reporting

counterparties to report their own corporate events by the end of the

business day after the date on which they occur, and to report

corporate events of the non-reporting counterparty by the end of the

second business day following the date on which they occur. In

complying with the final rule, reporting counterparties should use due

[[Page 2154]]

diligence to ensure that the non-reporting counterparty notifies the

reporting counterparty promptly of the non-reporting counterparty's

corporate events affecting any primary economic term of the swap.\39\

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\39\ Such due diligence could consist of requiring as one term

of the swap agreement that the non-reporting counterparty notify the

reporting counterparty promptly of corporate events of the non-

reporting counterparty.

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b. Valuation data reporting for cleared swaps.

Who should report valuation data for cleared swaps. After

considering comments received, the Commission has determined that for

cleared swaps where the reporting counterparty is a non-SD/MSP, a DCO's

valuation is sufficient for regulatory purposes. The final rule

therefore will not require non-SD/MSP reporting counterparties to

report valuation data for cleared swaps. Because prudential regulators

have informed the Commission that counterparty valuations are useful

for systemic risk monitoring even where valuations differ, the final

rule requires SD and MSP reporting counterparties to report the daily

mark for each of their swaps, on a daily basis.\40\ The Commission

notes that SDs and MSPs may choose, though they are not required, to

provide to SDRs and to counterparties, in addition to the daily mark,

methodologies and assumptions sufficient to independently validate the

output from a model generating the daily mark, collectively referred to

as the ``reference model. Provision of a ``reference model'' does not

require an SD or MSP to disclose proprietary information.

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\40\ The Commission notes that SDs and MSPs may choose, though

they are not required, to provide to SDRs and to counterparties, in

addition to the daily mark, methodologies and assumptions suffcient

to validate the output from a model used to generate the daily mark,

collectively referred to as the ``reference model.'' Non-SD/MSP

counterparties may also choose, thought they are not required, to

provide a ``reference model'' in connection with valuation data

reporting. Provision of a ``reference model'' does not require an

SD, MSP, or non-SD/MSP counterparty to disclose proprietary

information.

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Valuation data reporting by non-SD/MSP reporting counterparties.

The Commission has considered the comments concerning valuation data

reporting by non-SD/MSP counterparties. As noted above, the final rule

will lessen valuation data reporting burdens for non-SD/MSP

counterparties by eliminating the requirement that they report

valuation data for cleared swaps. With respect to uncleared swaps

between non-SD/MSP counterparties, the Commission has determined that

the final rule should lessen valuation data reporting burdens for the

non-SD/MSP reporting counterparty by requiring such reports less

frequently than proposed, but should not eliminate such reporting

entirely. While this category represents a minority of all swaps, the

Commission believes that some valuation information should be present

in SDRs for all swaps for regulatory purposes. The final rule requires

non-SD/MSP reporting counterparties to report valuation data consisting

of the current daily mark of the transaction as of the last day of each

fiscal quarter, transmitting this report to the SDR within 30 calendar

days of the end of each fiscal quarter. The Commission notes that non-

SD/MSP reporting counterparties may choose, though they are not

required, to provide to SDRs and to counterparties, in addition to the

daily mark, methodologies and assumptions sufficient to independently

validate the output from a model generating the daily mark,

collectively referred to as the ``reference model. Provision of a

``reference model'' does not require a non-SD/MSP reporting

counterparty to disclose proprietary information. The final rule will

further provide that if a daily mark of the transaction is not

available, the reporting counterparty satisfies the valuation data

reporting requirement by reporting the current valuation of the swap

recorded on its books in accordance with applicable accounting

standards. The Commission believes that requiring valuation data

reporting by non-SD/MSP reporting counterparties on a quarterly basis,

when applicable law and accounting standards may require them to value

their swaps for purposes of their own accounting, will minimize

reporting burdens for such counterparties to the greatest extent

commensurable with ensuring that valuation data essential for

regulatory purposes is reported for such swaps.

What valuation data should be reported. The Commission is aware, as

comments noted, that valuations of swaps are typically performed

overnight. Accordingly, the final rule provides that the appropriate

daily mark to report when a valuation data report is required is the

most current daily mark available. The Commission disagrees with

comments suggesting required reporting of all data necessary for an

independent valuation of each swap and required performance of such

valuations by SDRs or other third parties, calling for portfolio-level

valuation data reporting, or suggesting that the final swap data

reporting rule should determine the acceptable methods for valuing

uncleared swaps. The Commission believes valuation is fundamentally in

the purview of the market. Prudential regulators have informed the

Commission that counterparty valuations are useful for systemic risk

monitoring even where such valuations represent the view of one party,

and even where such valuations may differ. The Commission believes that

daily mark to market, the valuation required by the final rule, is the

valuation appropriate for reporting on a transaction basis.

c. Possible reporting of master agreements or collateral.

Should a master agreement library system be established? After

considering relevant comments, the Commission has determined that it

should not require master agreement reporting in its first swap data

reporting final rule. As noted in the Joint Study on the Feasibility of

Mandating Algorithmic Descriptions for Derivatives released by the CFTC

and SEC in April 2011, at present the terms of such agreements are not

readily reportable in an electronic format, as the industry has not

developed electronic fields representing terms of a master

agreement.\41\ The Commission also understands that reporting of master

agreements could be initiated by the other regulators pursuant to

separate and different regulatory authority. The Commission may choose

to revisit this issue at some point in the future, if and when industry

and SDRs develop ways to represent the terms of such agreements

electronically.

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\41\ Commodity Futures Trading Commission and Securities and

Exchange Commission, Joint Study on the Feasibility of Mandating

Algorithmic Descriptions for Derivatives, April 7, 2011, available

at http://www.sec.gov/news/studies/2011/719b-study.pdf.

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Should a collateral warehouse system be established? After

considering relevant comments, the Commission has determined that it

should not require establishment of a collateral warehouse or reporting

concerning collateral in its first swap data reporting final rule. As

is the case with respect to the terms of master agreements, the

industry has not yet developed electronic fields suitable for

representing the terms required to report collateral. The Commission

also understands that reporting with respect to collateral could be

initiated by other regulators pursuant to separate and different

regulatory authority. The Commission may choose to revisit this issue

at some point in the future, if and when industry and SDRs develop ways

to represent electronically the terms required for reporting concerning

collateral.

[[Page 2155]]

D. Summary of Creation Data and Continuation Data Reporting--Sec. Sec.

45.3 and 45.4

As discussed above, the Commission is responding to comments

concerning creation data reporting by creating a streamlined reporting

regime that requires reporting by the registered entities or swap

counterparties that the Commission believes have the easiest, fastest,

and cheapest data access and those most likely to have the necessary

automated systems; that minimizes burdens and costs for counterparties

to the extent possible; and that provides certainty to the market. The

final rule provisions regarding creation data reporting obligations and

deadlines for SD or MSP reporting counterparties, and for non-SD/MSP

reporting counterparties, are summarized in the charts on the following

two pages, respectively.

BILLING CODE 6351-01-P

[[Page 2156]]

[GRAPHIC] [TIFF OMITTED] TR13JA12.000

[[Page 2157]]

[GRAPHIC] [TIFF OMITTED] TR13JA12.001

[[Page 2158]]

BILLING CODE 6351-01-C

F. Unique Swap Identifiers--Sec. 45.5

1. Proposed Rule

The NOPR required that each swap subject to the Commission's

jurisdiction be identified in all swap recordkeeping and data reporting

by a unique swap identifier (``USI''). The NOPR provided for a ``first-

touch'' approach to USI creation, with the USI created by SEFs and DCMs

for facility-executed swaps, by SDs and MSPs for off-facility swaps in

which they are the reporting counterparty, and by SDRs for off-facility

swaps between non-SD/MSP counterparties (who may lack the requisite

systems for USI creation).

2. Comments Received

a. First-touch creation of USIs. Most comments concerning the USI

received by the Commission via comment letters, roundtables, and

meetings with industry and other regulators supported use of a USI that

will enable regulators to track and aggregate all information

concerning a single swap throughout its existence, and supported the

NOPR's first-touch approach to USI creation. DTCC supported the first-

touch approach, while noting that SDRs could also create USIs and

transmit them to the counterparties to the swap (as the NOPR provides

for swaps between non-SD/MSP counterparties). WGCEF approved having

USIs assigned when a swap is executed. Global Forex supported USI

creation at the time the swap is executed, while pointing out that in

the foreign exchange context, where some pre-trade allocation occurs

and some firms book the trade upon receipt of a message that their

price has been hit, it could be necessary in some cases to append the

USI to an already-created record in a firm's automated systems.\42\ CME

suggested that USIs should not be created and issued by a single

coordinating registry, but should be created by market participants as

provided in the NOPR, using common standards that can be applied free

of charge. TriOptima indicated a preference for having SDRs create the

USI, with reporting entities or counterparties using their own local

trade identifiers in reporting to the SDR, which can map the local

identifiers to the USI. ISDA, SIFMA, and CME asked the Commission to

clarify further the purpose and intended use of USIs. Some roundtable

participants suggested that one way to ensure the uniqueness of USI

codes created by different registered entities would be for the

registered entity creating a USI to use an appropriate random number

generator.

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\42\ Global Forex still preferred USI creation at the time of

execution over creation at the point of order submission, since the

latter would create a risk of cancelled and non-sequential USIs in

the event a trade is cancelled.

---------------------------------------------------------------------------

b. Impact of allocation on USIs. TriOptima suggested that the

Commission should clarify the creation and use of USIs in the context

of allocation, observing that where allocation follows execution, it

may not be obvious whether or not a new USI should be assigned.

TriOptima suggested that rules addressing this issue are needed. Other

market participants also requested clarification concerning USI

creation and swap creation data reporting in the context of allocation.

c. Impact of post-execution events on USIs. Thomson Reuters,

TriOptima, and the WGCEF requested clarification regarding the impact

on USI codes of events such as compression, assignments, partial

terminations, changes to counterparty names, purchases, acquisitions,

or deactivation. Thomson Reuters suggested that when multiple swaps are

combined during their existence, the unique swap identifier should have

alternative tracking numbers externally linked to the original USI.

d. USIs for historical swaps. Although this issue pertains to part

46 rather than part 45, TriOptima suggested in its part 45 comment that

USIs should be assigned to historical swaps when they are first

reported to an SDR. TriOptima noted that giving USIs only to swaps

entered into after the applicable compliance date would create a long

transition period during which there are live contracts with and

without USIs, which TriOptima believed would be technologically

problematic. TriOptima recognized that introducing USIs for existing

transactions would be a large undertaking. It suggested that reporting

entities create USIs for historical swaps using the name-space method

(combining a code for the assigning entity and a USI code unique within

that entity).

3. Final Rule: Sec. 45.5

a. First-touch creation of USIs. After considering the comments

received, the Commission has determined that, as provided in the NOPR,

the final rule requires each swap subject to the Commission's

jurisdiction to be identified in all recordkeeping and swap data

reporting pursuant to this part by a USI, created through a first-touch

approach. The Commission believes that USIs will benefit both

regulators and counterparties, by facilitating aggregation of all data

concerning a given swap (including creation data, continuation data,

and error corrections, reported by execution platforms, clearing

houses, and counterparties) into a single, accurate data record that

tracks the swap over its duration. USIs are essential to giving

regulators the ability to track swap transactions throughout their

lives. In addition, USIs provide an efficient means of assuring that

transactions are not double counted when producing summary reports.

This is particularly important where transactions may be reported to

multiple SDRs, for example where a counterparty may be required to

report a transaction to a foreign SDR.

Having the USI created when the swap is executed, i.e., at the

earliest possible point, will best ensure that all market participants

involved with the swap, from counterparties to platforms to

clearinghouses to SDRS, will have the same USI for the swap, and have

it as soon as possible. This will avoid confusion and potential

errors.\43\ It will avoid delays in submitting an executed swap for

clearing while waiting for receipt of a USI from creation at a later

time, and will minimize to the extent possible the need to alter pre-

existing records concerning the swap in various automated systems to

add the USI. As the sole exception to first-touch USI creation,

designed to reduce burdens on non-SD/MSP reporting counterparties who

may lack the technical sophistication or automated systems needed for

USI creation, the final rule will maintain the NOPR provision calling

for the USI for each swap between non-SD/MSP counterparties to be

created by the SDR to which the swap is reported.

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\43\ The Commission disagrees with TriOptima's suggestion that

reporting entities should always use their own identifiers in

reporting to SDRs during the life of a swap. This would require the

SDR to match the entity's internal ID with the USI every time data

is submitted, and is not the more efficient approach.

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To ensure the uniqueness of USIs created by registered entities as

provided in the final rule, the final rule will follow the NOPR in

prescribing USI creation through what is known as the ``name space''

method. Under this method, the first characters of each USI will

consist of a unique code that identifies the registered entity creating

the USI, given to the registered entity by the Commission during the

registration process.\44\ The remaining characters of the USI will

consist of a code created by the registered entity that must be unique

with respect to all other USIs created by that registered entity. While

the

[[Page 2159]]

Commission will not prescribe the means for ensuring the uniqueness of

each USI created by a registered entity, Commission staff may work with

registered entities to identify random number generators sufficiently

capable for this purpose.

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\44\ The registration paperwork established pursuant to the SEF,

DCM, SD, MSP, and SDR registration rules will include provision of

such a code to the registrant.

---------------------------------------------------------------------------

b. Impact of allocation on USIs. The Commission has considered the

comments and industry requests for clarification it received concerning

USI creation and swap creation data reporting in the case of swaps

involving allocation by an agent to its clients who are the actual

counterparties on one side of the swap. In response to these requests,

the final rule will address both USI creation and creation data

reporting for swaps involving allocation.

The Commission understands that in the allocation context, a firm

acting as an agent enters into a swap, typically with an SD (or

possibly an MSP), and then allocates its side of the swap to its

clients on whose behalf it arranged the swap. The clients of the agent,

who are the actual counterparties to the SD, must have pre-existing

ISDA agreements or similar agreements with the SD in order for the

transaction to take place. At the time of execution, the SD knows that

the firm acting as agent as only an agent and is not the SD's actual

counterparty for the swap, and it knows that the agent's clients are

its actual counterparties; but it does not yet know for this particular

swap the identity of the agent's clients that are its counterparties.

The agent firm allocates its side of the swap within a relatively short

time after execution, and the agent (or a third party service provider

acting on its behalf) then informs the SD of the identities of its

counterparties.\45\ Market participants have informed the Commission

that allocation is not algorithmic, due to particular requirements of

the agent's clients, and that it typically requires two or more hours

but is always completed by the end of the business day on which the

swap was executed. The result of allocation is that a single swap

transaction created at the moment of execution is replaced by several

swaps, for each of which the counterparties are the SD and one of the

agent's clients.\46\

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\45\ In the case of cleared swaps, allocation precedes

submission to the DCO for clearing.

\46\ This situation is distinct from cases where, for example, a

hedge fund enters into a swap as a principal, and later enters into

separate swaps with its own clients (who often are funds) to offset

its risk from the first swap in which it was a principal.

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To provide the clarification requested by commenters as noted

above, the Commission has determined that the final rule should

specifically address the creation of USIs and the reporting of required

swap creation data in the context of allocation.\47\ Because real time

reporting must occur as soon as technologically practicable after

execution of a swap, and because it is important for the exposure of

the reporting counterparty to be available to regulators in an SDR as

soon as technologically practicable after execution, the Commission

believes it is necessary for the original transaction between the SD

and the agent to be reported. However, because the SD's actual

counterparties are the clients of the agent and not the agent, the

Commission believes it is also necessary for each individual swap

between the SD and one of the agent's clients to also be reported. To

avoid double-counting of swaps in the allocation context, it is

necessary to be able to map together the original transaction and the

post-allocation swaps.

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\47\ The allocation provisions of the final rule do not create

reporting requirements additional to those included in the NOPR,

since the NOPR required, as mandated by CEA section 2(a)(13)(G),

that all swaps must be reported.

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Accordingly, the final rule provides that, in the context of

allocation, the reporting counterparty must create a USI for the swap

arranged between it and the agent, and report that swap to an SDR as

soon as technologically practicable after execution. The PET data for

such a swap will include an indication that the swap will be allocated,

and include the LEI (or substitute identifier) of the agent, but not

the LEIs of the clients who are the non-reporting counterparties, since

they will not yet be known to the reporting counterparty.

The final rule will also allow the agent to inform the reporting

counterparty of the identities of its actual counterparties as soon as

technologically practicable after execution, but not later than eight

business hours after execution. The Commission understands that major

firms acting as agents in the allocation context can allocate in a

shorter time, but that smaller firms acting as agents typically

allocate by the end of the business day. The Commission believes that a

deadline of eight business hours will appropriately take into account

the needs of such smaller firms.

Finally, the final rule requires the reporting counterparty to

create a USI for each of the individual swaps resulting from

allocation, and to report each such swap as soon as technologically

practicable after it is informed by the agent of the identities of its

actual counterparties, the clients of the agent (which must occur as

soon as technologically practicable after execution or at least within

eight business hours of execution, as provided above). To prevent

confusion or errors with respect to the data reported, and to avoid

double-counting, the final rule requires that the report to the SDR for

each post-allocation swap must include: An indication that the swap is

a post-allocation swap; the USI of the original transaction; the USI of

the post-allocation swap; the LEI of the actual counterparty; and the

LEI of the agent. The final rule will also require the SDR to which the

swaps are reported--which must be the same SDR to which the original

transaction is reported--to map together the USIs of the original swap

and of each of the post-allocation swaps.

The Commission is adopting these USI and creation data reporting

requirements in the context of allocation in response to comments

seeking clarification on reporting in this context, as noted above, and

in order to ensure that the Commission and other regulators can track

the entire history of swaps in the context of allocation.

c. Impact of post-execution events on USIs. The Commission has

noted comments requesting that the final address the impact of post-

execution events on USIs. In response to these comments, the final rule

provides that USI codes created at the time of execution using the

first-touch approach will only be replaced where a new swap takes the

place of an old swap, such as where a compression or full novation has

occurred. Under the final rule, in such cases a new USI will be

assigned to the new swap, and the SDR to which the swap has been

reported will be required to map the new USI back to the USIs of the

swaps from which the new swap originated, in a manner sufficient to

allow the Commission and other regulators to follow the entire history

and audit trail of each affected swap. In the case of events that do

not result in the creation of a new swap, such as partial terminations

or changes to counterparty names, the swap in question will retain the

USI code originally assigned to it.

d. USIs for historical swaps. The Commission agrees with the

comment suggesting that it would undesirable and possibly

technologically problematic to have live swaps both with and without

USIs recorded in SDRs for an extended period. The Commission believes

that for historical swaps, SDRs will be the best creators of USIs. The

Commission will address this issue in its final part 46 rule for

historical swaps.

[[Page 2160]]

G. Legal Entity Identifiers--Sec. 45.6

1. Proposed Rule

The NOPR required that each counterparty to any swap subject to the

Commission's jurisdiction be identified in all swap recordkeeping and

data reporting by a legal entity identifier (``LEI'') (referred to in

the NOPR as a unique counterparty identifier or ``UCI'') approved by

the Commission. The NOPR established principles that an LEI must follow

for it to be designated by the Commission as the LEI to be used in swap

data recordkeeping and reporting pursuant to the Commission's

Regulations.\48\ These principles included:

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\48\ In this summary of the principles that were discussed in

the NOPR preamble concerning Unique Counterparty Identifiers and set

forth in Sec. 45.4(b) of the NOPR, paragraph headings that have

come into common use in international discussions of principles for

the LEI, but that do not change the substance of the principles

stated in the NOPR, have been added for clarity.

Uniqueness (one LEI per legal entity, never re-used).

Neutrality (a single-field identifier format containing

no embedded intelligence).

Verifiability (a reliable method of verifying the

identity of holders of LEIs, avoiding assignment of duplicate

identifiers, and maintaining accurate reference data).

Reliability (data protection and system safeguards).

Open source (an open data standard and format capable

of broad use, that enables data aggregation by regulators).

Extensibility (capability of becoming the single

international standard for unique identification of legal entities

in the financial sector on a global basis).

Persistence (each LEI remains permanently in the

record, regardless of corporate events, while a new entity resulting

from a corporate event receives a new LEI).

Development and issuance acceptable to the Commission

(development via an international voluntary consensus standards body

such as the International Organisation for Standardisation, and

issuance through such a body and an associated registration

authority).

Governance and funding acceptable to the Commission

(ensuring LEI availability to all, on a royalty-free or reasonable

royalty basis, through an LEI issuance system operated on a non-

profit basis).

The NOPR also called for establishment of a confidential, non-

public LEI reference database, to which each swap counterparty

receiving an LEI would be required to report reference data that would

be associated with its LEI. Such reference data would include

information sufficient to verify the identity of the counterparty

receiving an LEI, both initially and at appropriate intervals

thereafter (commonly called validation data or level one reference

data).\49\ It would also include information concerning the corporate

affiliations of the counterparty, in order to enable the Commission and

other financial regulators to aggregate data concerning all swap

transactions within the same ownership group (commonly called hierarchy

data or level two reference data). As provided in the NOPR, data in the

reference database would be available only to the Commission, and to

other regulators via the same data access procedures applicable to data

in SDRs.

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\49\ As noted, the NOPR called for reference data including both

(1) information sufficient to verify the identity of the

counterparty receiving an LEI, both initially and on an ongoing

basis, as set forth in section 45.4(b)(3)(iv) of the NOPR, and (2)

information concerning the corporate affiliations and ownership

group of the counterparty, as set forth in section 45.4(b)(2) of the

NOPR. For clarity, the final rule uses the terms ``level one'' and

``level two'' reference data, which have come into common

international use in discussions of the LEI and LEI reference data,

to refer to these two types of reference information addressed in

the NOPR. These terms do not represent new data requirements beyond

those proposed in the NOPR, but instead provide a succinct way to

refer to the two types of reference data required in the NOPR.

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The NOPR stated the Commission's belief that optimum effectiveness

of LEIs for achieving the systemic risk protection and transparency

goals of the Dodd-Frank Act--goals shared by financial regulators

world-wide, and repeatedly endorsed by the G-20 Leaders--would come

from a global LEI created on an international basis through an

international voluntary-consensus standards body such as ISO. The NOPR

also announced the Commission's intention to have the final part 45

rule prescribe use of such an international LEI in complying with the

final rule, if an LEI meeting the principles established in the NOPR is

available sufficiently prior to the compliance date on which swap data

reporting will first begin pursuant to the final rule.

Accordingly, the NOPR provided that the Commission would determine,

prior to the initial compliance date, whether such an LEI is available.

If it were, the NOPR called for the Commission to designate that LEI as

the LEI approved by the Commission for use in complying with the final

rule, and to publish notice of that designation to inform registered

entities and swap counterparties where they can obtain LEIs for use

pursuant to the final rule.\50\

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\50\ The NOPR called for the Commission to make this

determination at least 100 days prior to the initial compliance

date, and to publish notice no later than 90 days prior to the

initial compliance date, in order to give registered entities and

swap counterparties subject to the final rule reasonable time in

which to obtain LEIs for use as prescribed by the final rule.

---------------------------------------------------------------------------

In the event that the Commission were to find when it makes this

determination that an LEI meeting the criteria set forth in the NOPR is

not then available, the NOPR provided that until such time as the

Commission determines that such an LEI is available, registered

entities and swap counterparties should comply with the final rule by

using a unique counterparty identifier created and assigned by an SDR

as described in the NOPR.

2. Comments Received

a. Endorsement of the LEI. The great majority of comments

concerning the LEI received by the Commission via comment letters,

roundtables, and meetings with both industry and other regulators

strongly supported establishing an LEI to identify derivatives

transaction counterparties and other financial firms involved in the

world financial sector. Commenters supporting the LEI in comment

letters included ISDA, SIFMA, Global Forex, GS1, Thomson Reuters, CME,

ABC, Customer Data Management Group, CIEBA, and the Committee on

Capital Markets Regulation.

The Commission also received input from both U.S. and international

financial regulators, international regulatory organizations, and world

leaders endorsing creation of the LEI addressed in the NOPR. The CPSS-

IOSCO Report on OTC Derivatives Data Reporting and Aggregation

Requirements recommends expeditious development of a global LEI,

stating that:

[A] standard system of LEIs is an essential tool for aggregation

of OTC derivatives data. An LEI would contribute to the ability of

authorities to fulfill the systemic risk mitigation, transparency,

and market abuse protection goals established by the G20 commitments

related to OTC derivatives, and would benefit efficiency and

transparency in many other areas. As a universally available system

for uniquely identifying legal entities in multiple financial data

applications, LEIs would constitute a global public good. The Task

Force recommends the expeditious development and implementation of a

standard LEI that is capable of achieving the data aggregation

purposes discussed in this report, suitable for aggregation of OTC

derivatives data in and across TRs [trade repositories] on a global

basis, and capable of eventual extension to identification of legal

entities involved in various other aspects of the financial system

across the world financial sector.\51\

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\51\ 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. Issuance of this report by CPSS and IOSCO

is anticipated during December 2012.

[[Page 2161]]

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The LEI technical principles recommended in the Report, and the

Report's statements concerning governance and funding for the LEI

issuance system, closely parallel the LEI principles set forth in the

NOPR, as do the principles set forth by the OFR in its Statement of

Policy concerning the LEI,\52\ and those discussed in the SEC's

proposed rule on data reporting for security-based swaps.\53\ Both the

FSB Plenary and the G-20 Finance Ministers and Central Bank Governors

have endorsed and supported creation and implementation of a global

LEI.\54\ At the conclusion of their November 2011 meeting in Cannes,

France, the G20 Leaders announced their strong support for the LEI,

stating in the Cannes Summit Final Declaration that: ``We support the

creation of a global legal entity identifier (LEI) which uniquely

identifies parties to financial transactions.'' \55\ Following the

meeting, the White House underscored President Obama's support for the

LEI, stating that:

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\52\ Department of the Treasury, Office of Financial Research,

Statement on Legal Entity Identification for Financial Contracts,

November 23, 2010, available at http://www.treasury.gov/initiatives/Documents/OFR_LEI_Policy_Statement-FINAL.PDF.

\53\ See Securities and Exchange Commission, Proposed Regulation

SBSR--Reporting and Dissemination of Security-Based Swap

Information, 17 CFT part 240 (November 19, 2010).

\54\ At its July 2011 meeting, the FSB Plenary ``welcomed the

progress of financial regulators and industry to establish a single

global system for uniquely identifying parties to financial

transactions.'' FSB Press Release, July 18, 2011, available at

https://www.financialstabilityboard.org/press/pr_110718.pdf. In

their Communiqu[eacute] at the conclusion of their October 2011

meeting, the Finance Ministers and Central Bank Governors of the G-

20 said, ``We underscored our support for a global legal entity

identifier system which uniquely identifies parties to financial

transactions with an appropriate governance structure representing

public interest.'' Communiqu[eacute] of Finance Ministers and

Central Bank Governors of the G-20, Paris, France, October 14-15,

2011, available at http://www.g20.org/Documents2011/10/G20%20communiqu[eacute]%2014-15%20October%202011-EN.pdf.

\55\ Cannes Summit Final Declaration, November 4, 2011, at 7,

paragraph 31, available at http://www.g20.org/Documents2011/11/Cannes%20Declaration%204%20November%202011.pdf.

The Legal Entity Identifier (LEI) initiative will support better

understanding of true exposures and interconnectedness among and

across financial institutions. We need such understanding to assess

and reduce risks to the financial system.\56\

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\56\ The White House, G-20: Fact Sheet on U.S. Financial Reform

and the G-20 Leaders' Agenda, November 4, 2011, available at http://www.whitehouse.gov/the-press-office/2011/11/04/g-20-fact-sheet-us-financial-reform-and-g-20-leaders-agenda.

b. LEI suggestions. Several comment letters received by the

Commission also made specific suggestions and requests for

clarification relating to the LEI. ISDA and SIFMA, Thomson Reuters, and

AMG suggested that the unique counterparty identifier required by the

final rule should be the same identifier as the legal entity identifier

being developed under principles stated in the OFR policy statement

concerning LEIs. Roundtable participants also suggested referring to

the identifier as the LEI rather than the UCI, to avoid confusion. CME,

Thomson Reuters, and most roundtable participants supported the NOPR

principle calling for a neutral LEI with no embedded intelligence.

WGCEF and TriOptima asked for guidance on how the LEI would relate to

corporate events such as mergers and acquisitions. The Asset Management

Group advocated assigning LEIs at the individual fund or account level

rather than the legal entity level. ISDA, SIFMA and CME suggested that

the LEI should be administered by a not-for-profit industry utility,

and that an international directory of LEI holders should be available

at no cost. CUSIP and GS1 suggested that they might be potential

providers of a future LEI.

c. LEI reference data. With respect to level two or hierarchical

reference data for the LEI, CME suggested clarifying whether the LEI is

intended to simply identify a specific counterparty or to establish a

counterparty's relationship with other entities. Global Forex noted

that data confidentiality law in different jurisdictions could raise

issues regarding access to level two reference data. The Asset

Management Group recommended that the definition of control for

purposes of reporting level two reference data should require at least

majority ownership. DTCC recommended that SDRs should have access to

the non-public LEI reference database for use in the construction of

reports to regulators, such as reports based on net or aggregated

positions.

d. Progress toward a global LEI. Since the Commission issued the

proposed rule requiring use of LEIs in swap data reporting under CFTC

jurisdiction, both international financial regulators and industry have

made significant progress toward creation of the global LEI called for

in the NOPR.

Voluntary consensus body standard. In response to the Commission's

preference, set forth in the NOPR as noted above, to have swap

counterparties identified by a universally-available LEI created on an

international basis through an international ``voluntary consensus

standards body,'' the International Organisation for Standardisation

has developed a new international technical standard for the LEI, ISO

17442 Legal Entity Identifier (LEI). ISO is the world's principal

voluntary consensus standards body, which includes 162 member

countries. Through its Technical Committee 68 (``TC 68''), the expert

committee for standardization in the field of banking, securities, and

other financial services, ISO has published 48 key standards for the

financial sector, ranging the international securities identification

numbering (``ISIN'') code for securities, and the business

identification code (``BIC'') for banking telecommunication messages to

the codes for exchange and market identification (``MIC''), and for

classification of financial instruments (``CFI'').\57\ The ISO 17442

LEI standard received unanimous approval from TC 68 in June 2011, and

it received unanimous support in the second round of voting by member

countries in the ISO approval process that concluded on December 14,

2011.\58\

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\57\ During the process of developing ISO 17442, ISO determined

that existing codes for other financial sector purposes, such as BIC

codes and ISIN codes, were not suited by design to provide unique

identification of legal entities across the world financial sector,

and that a new standard was needed for this purpose.

\58\ TC 68 will address comments received during the approval

process in January 2012.

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Industry recommendations. Also in response to the NOPR's call for

an international, universally-adopted LEI, in January 2011 a global

coalition of financial sector trade associations and organizations came

together to develop an industry consensus on requirements and standards

for the LEI, and make a recommendation concerning formation of an LEI

utility to issue LEIs and validate the identity of their holders.\59\

[[Page 2162]]

After extended discussions involving a broad cross-section of financial

trade associations and both buy-side and sell-side firms from a wide

range of countries, during the spring and summer of 2011 the global

coalition issued a comprehensive set of requirements for a viable,

international LEI; initiated a Solicitation of Interest process to

identify one or more solution providers able to build, manage, and run

an LEI utility to issue LEIs; evaluated formal responses from more than

10 potential providers; and issued three recommendations concerning

implementation of the global LEI system. First, the global coalition

recommended that the international technical standard for the LEI code

itself be the new international standard developed by ISO, ISO 17442

Legal Entity Identifier (LEI). Second, the coalition recommended that

the LEI utility that conducts LEI reference data collection and

maintenance, LEI assignment, and quality assurance be operated as a

joint venture including SWIFT (the Registration Authority selected by

ISO for the ISO 17442 standard) and DTCC and its subsidiary AVOX

Limited (to be the facilities manager for the LEI utility). Finally,

the coalition recommended that the Association of National Numbering

Agencies (``ANNA''), through its global network of national numbering

agencies, be a partner in federated LEI issuance in the home countries

of legal entities receiving LEIs. At the FSB LEI Workshop (discussed

below) and elsewhere, the global coalition has stated its willingness

to have the structure of the joint venture created to serve as the LEI

utility include a governing board controlled by international financial

regulators including the Commission, with authority over the operations

of the joint venture sufficient to ensure that the LEI utility

maintains compliance with the principles established for the LEI by

international financial regulators, including the principles

established by the Commission.

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\59\ The global coalition included twelve trade association who

endorsed the industry's Requirements for a Global Legal Entity

Identifier (LEI) Solution, available at http://www.sifma.org/LEI-Industry-Requirements/. The included trade associations were the

Association for Financial Markets in Europe, Asia Securities

Industry and Financial Markets Association, British Bankers

Association, Customer Data Management Group, The Clearing House

Association L.L.C., Enterprise Data Management Council, Financial

Services Roundtable, Futures Industry Association, Global Regulatory

Identifier Steering Group, International Swaps and Derivatives

Association, Investment Company Institute, and Securities Industry

and Financial Markets Association. In addition, the following firms

were party to the discussions leading to creation of Requirements

for a Global Legal Entity Identifier (LEI) Solution:

AllianceBernstein, Bank of America Merrill Lynch, Bank of New York

Mellon-Pershing, Barclays Capital, Branch Banking & Trust Company,

BlackRock, BNP Paribas, CIBC Wholesale Banking, Citi, Credit Suisse,

Deutsche Bank, E*Trade Financial, Edward Jones, Federated

Investments, Fidelity, GE Asset Management, GE Capital, Goldman

Sachs, HSBC, Janney Montgomery Scott LLC, Jefferies, JP Morgan

Chase, JWG, KeyBank, Loomis Sayles, Morgan Stanley, New York Life,

Nomura, Northern Trust, Prudential, Royal Bank of Canada, Royal Bank

of Scotland, R-Cube, Renaissance Technologies, Soci[eacute]t[eacute]

G[eacute]n[eacute]rale, State Street, T Rowe Price, Tradeweb, UBS,

and Wells Fargo.

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The Commission understands that, in order to ensure as far as

possible that LEIs can in fact be issued to swap counterparties subject

to the Commission's jurisdiction prior to the initial compliance date

for swap data reporting pursuant to this final rule, SWIFT, DTCC, AVOX,

and ANNA are moving forward to cleanse already-available data

sufficient to validate the identity of legal entities to receive an

LEI; to collect and cleanse such validation data for other swap

counterparties; and to issue temporary identifiers readily convertible

into LEIs if their joint venture is designated by the Commission as the

provider of LEIs to be used pursuant to this rule. They have also

informed Commission staff that they anticipate being able to provide

LEIs to swap counterparties by the summer of 2012 if they are so

designated.

International developments. In September 2011, the FSB convened an

international LEI Workshop including over 50 private sector experts and

over 60 representatives from the international financial regulatory

community, including the Commission, to further educate participants

and elicit their input concerning the LEI, and to guide preparation of

a roadmap leading to recommendations concerning implementation of a

global LEI system. Workshop participants discussed possible technical

and governance principles for the LEI drawn from the CPSS-IOSCO Report

on OTC Derivatives Data Reporting and Aggregation Requirements, which

as noted above closely parallel those included in the NOPR. The

Workshop revealed strong support for the LEI initiative from both

private sector and official sector participants. Industry

representatives emphasized the vital importance of support and

leadership from the global regulatory community, and the many potential

benefits of a global LEI that would only be realized if regulators

support the LEI initiative. Presenters at the Workshop also supported

the timely phasing of LEI implementation, likely to begin with use of

the LEI in reporting OTC derivatives data to trade repositories.

When the G-20 Leaders endorsed the LEI initiative following the

Workshop, they stated that:

We call on the FSB to take the lead in helping coordinate work

among the regulatory community to prepare recommendations for the

appropriate governance framework, representing the public interest,

for such a global LEI by our next Summit.\60\

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\60\ Cannes Summit Final Declaration, November 4, 2011, at 7,

paragraph 31, available at http://www.g20.org/Documents2011/11/Cannes%20Declaration%204%20November%202011.pdf.

Following the request from the G20, the FSB decided in December to

create a time-limited, ad-hoc expert group of authorities, including

the Commission, to carry forward work on key outstanding issues

relevant to implementation of a global LEI, in order to fulfill the G-

20 mandate. The group held its first meeting on December 13 and 14,

2011. The issues to be addressed by the expert group include: (1) The

governance framework for the global LEI; (2) the operational model for

the LEI system; (3) the scope of LEI reference data; (4) reference data

access and confidentiality; (5) the funding model for the LEI system;

and (6) global implementation and phasing of the LEI. It is anticipated

that the expert group will deliver clear recommendations with respect

to implementation of a global LEI system to the FSB Plenary for

endorsement in April or May 2012. This process is designed to allow

first-phase implementation of the LEI in OTC derivatives data reporting

to trade repositories, including swap data reporting to SDRs pursuant

to this final rule, to proceed, if possible, on the basis of globally

agreed principles concerning governance, funding, and access to

reference data.

3. Final Rule: Sec. 45.6

a. Important factors in the Commission's decision. The Commission

has considered and evaluated the comments and international input it

has received concerning the LEI and the principles which should govern

the LEI system, and has taken such comments and input into account in

the LEI provisions of the final rule. It has also considered the

progress made by the international financial regulatory community and

industry toward creation of a global LEI, created on an international

basis through an international voluntary consensus standards body, that

meets the requirements provided in the NOPR, and is suitable for

designation by the Commission for use in recordkeeping and swap data

reporting pursuant to this final rule as set forth in the NOPR.

Broad endorsement of the LEI. The Commission agrees with the

recommendation of commenters, roundtable participants, industry, U.S.

and international financial regulators, international regulatory

organizations, and world leaders calling for creation of a global LEI.

It also believes, as recommended by roundtable participants, the CPSS-

IOSCO Report on OTC Derivatives Data Reporting and Aggregation

Requirements, and many FSB LEI Workshop participants, that the LEI

should first be used for identification of swap counterparties in data

reported to SDRs.

LEI suggestions by commenters. The Commission accepts the

suggestion of various commenters and roundtable participants that the

unique

[[Page 2163]]

counterparty identifier required by the final rule should be the same

identifier as the legal entity identifier (``LEI'') being developed by

industry and international regulators as described above, and should be

referred to as the LEI (rather than the UCI as in the NOPR) in order to

avoid confusion. The Commission agrees with commenters that the

neutrality principle set forth in the NOPR and elsewhere, calling for a

neutral LEI with no embedded intelligence should be maintained. The

persistence principle in the final rule addresses commenters' requests

for guidance on how the LEI will relate to corporate events such as

mergers and acquisitions.\61\ The Commission disagrees with the

suggestion of one commenter that LEIs should be assigned at the

individual fund or account level rather than the legal entity level,

since LEIs by nature are legal entity identifiers. The Commission

agrees with comments calling for the LEI to be administered by a not-

for-profit industry utility, and for an international directory of LEI

holders to publicly available free of charge. The criteria for the

Commission's designation of the LEI utility that will provide LEIs to

be used in compliance with the rule are discussed below.

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\61\ In determining whether a new entity requiring a new LEI has

resulted from a corporate event, the LEI utility may consider

whether the primary regulator (if any) of the entity or entities

involved in the corporate event considers the result to be a new

entity; whether market data vendors consider the result to be a new

entity; or whether ownership has changed as a result of the

corporate event.

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LEI reference data considerations. The Commission believes that

level one LEI reference data is essential to the ability of the issuer

of LEIs to validate the identity of a legal entity receiving an LEI. As

recognized by the participants in the FSB LEI Workshop, the Commission

understands that such data by its nature is public, and presents no

confidentiality or access issues. The Commission also believes, as also

recognized by participants in the Workshop and in the CPSS-IOSCO Report

on OTC Derivatives Data Reporting and Aggregation Requirements, that

level two LEI reference data concerning the hierarchical relationships

or company affiliations of legal entities is needed by regulators for

use of the LEI as a tool to aggregate the data in trade repositories in

order to enhance systemic risk mitigation and market supervision. The

Commission understands, as recognized by Workshop participants, that

some level two reference data is public and does not pose

confidentiality concerns. However, the Commission is also aware, as

pointed out by commenters and Workshop participants, that financial

data confidentiality law in different jurisdictions could raise issues

regarding access by regulators outside those jurisdictions, or by the

public, to some level two reference data.\62\

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\62\ The Commission has considered comments concerning the

definition of control it should employ in connection with level two

reference data, and concerning SDR access to level two reference

data for the purpose of constructing reports for regulators.

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LEI standard. The Commission recognizes that ISO, the international

voluntary consensus standards body cited in the NOPR, has developed an

international standard for a global LEI, ISO 17442 Legal Entity

Identifier (LEI).

Industry recommendations. The Commission also recognizes that a

global coalition of financial sector trade associations and

organizations has developed a broad-based industry consensus on

requirements and standards for the LEI, and has recommended that (1)

the international standard for the LEI code itself should be ISO

standard 17442; and (2) the LEI utility for LEI issuance, reference

data collection and maintenance, and quality assurance should be

operated as a joint venture including SWIFT, DTCC, AVOX, and ANNA. The

Commission notes that the coalition has publicly stated its willingness

for this joint venture to include a governing board controlled by

international financial regulators including the Commission, with power

to ensure that the LEI utility maintains compliance with the principles

established for the LEI by international financial regulators,

including the principles established by the Commission in this final

rule.

Timely availability of LEIs. The Commission understands that the

recommended joint venture partners are moving forward to obtain and

process the reference data necessary to validate the identity of legal

entities to be identified by LEIs, so that if the joint venture is

designated by the Commission as the issuer of LEIs to be used in swap

data reporting, it can in fact be able to issue LEIs to swap

counterparties subject to the Commission's jurisdiction prior to the

commencement of swap data reporting pursuant to this final rule. At

this time, the Commission is not aware of any other candidate to be the

LEI utility designated to provide LEIs for use in compliance with this

final rule that would in fact be able to provide the required LEIs on a

timely basis.

The Commission is aware that the ability of any LEI utility

designated by the Commission to provide the LEIs to be used in

compliance with this final rule to provide such LEIs when swap data

reporting commences pursuant to this rule will depend in part on the

Commission making such a designation, as called for in the NOPR,

sufficiently prior to the commencement of swap data reporting to enable

the LEI utility to issue the LEIs needed for compliance with this rule

on a timely basis.

Need for an internationally-established LEI. As stated in the NOPR,

the Commission recognizes that optimum effectiveness of LEIs as a tool

for achieving the systemic risk mitigation, transparency, and market

protection goals of the Dodd-Frank Act--goals shared by financial

regulators world-wide--would come from creation of a global LEI, on an

international basis, that is capable of becoming the single

international standard for unique identification of legal entities

across the world financial sector. The Commission has participated in

all of the work of the global financial regulatory community to date

concerning implementation of a global LEI, and has carefully considered

the results of this work. One reason the Commission has done so is that

it recognizes the importance of having first-phase implementation of a

global LEI follow principles that are forward-compatible with later

phases of LEI implementation.\63\ The Commission welcomes, and is

participating in, the work of the FSB-coordinated, ad-hoc expert group

of authorities working to deliver clear recommendations on

implementation of a global LEI system to the FSB Plenary for

endorsement in April or May 2012. The Commission understands that an

important purpose of FSB endorsement of these recommendations would be

to allow first-phase implementation of the LEI, including its use in

swap data reporting to SDRs pursuant to this final rule, to proceed, if

possible, on the basis of globally agreed principles concerning

governance and funding of the LEI and access to LEI reference data.

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\63\ This is particularly true in light of the fact that, once

industry builds or adapts automated systems for use in swap data

reporting to include the LEI, it could be inadvisable to require

registered entities and swap counterparties to incur the additional

burden and cost that could come from changing the LEI system in ways

that were not compatible with first-phase implementation of the LEI.

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b. Final rule LEI provisions. In light of these considerations, the

Commission has determined that Sec. 45.6 will include the following

provisions.

Standard for the LEI code. The LEI to be used in all recordkeeping

and all swap data reporting required by this part, once the Commission

has

[[Page 2164]]

designated the LEI utility that will provide the LEI to be used in

complying with this part, as set forth below, must be issued under, and

conform to, ISO Standard 17442, Legal Entity Identifier (LEI). This

standard is the sole existing LEI standard created by a voluntary

consensus standards body, and is the standard created by ISO, the

voluntary consensus standards body cited in the NOPR as the optimum

source for the LEI standard.

LEI principles. The final rule includes both technical and

governance principles that must be followed by the LEI used for

compliance with the rule. These principles are based on those set forth

in the NOPR, as complemented by the closely-parallel principles and

governance considerations recommended in the CPSS-IOSCO Report on OTC

Derivatives Data Reporting and Aggregation Requirements and the

principles discussed at the FSB LEI Workshop.\64\ The final rule

principles, set forth in detail in the text of section 45.6, are

summarized below.

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\64\ As noted above, all of these principles closely parallel

those set forth by the OFR in its Statement of Policy concerning the

LEI, see footnote 52 above, and those discussed in the SEC's

proposed rule on data reporting for security-based swaps, see

footnote 53 above.

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Technical Principles

Uniqueness (one LEI per legal entity, never re-used).

Neutrality (a single-field identifier format containing

no embedded intelligence).

Reliability (a reliable method of verifying the

identity of holders of LEIs, based on reference data necessary for

this purpose; as well as robust quality assurance practices and

system safeguards, including the system safeguards applicable to

SDRs under part 49 of this chapter).

Open source (an open data standard and format capable

of broad use, that enables data aggregation by regulators).

Extensibility (capability of becoming the single

international standard for unique identification of legal entities

in the financial sector on a global basis).

Persistence (each LEI remains permanently in the

record, regardless of corporate events, while a new entity resulting

from a corporate event receives a new LEI).

Governance Principles

International governance (for operations, a governance

structure for the LEI utility giving the Commission and other

financial regulators requiring use of the LEI power to ensure that

the LEI system adheres to these principles) (for compliance with ISO

17442, governance by ISO).

Reference data access (access to LEI reference data

must enable use of the LEI as a public good, while respecting

applicable law regarding data confidentiality).

Non-profit operation and funding (funding and operation

on a non-profit, reasonable cost-recovery basis, subject to

international governance).

Unbundling and non-restricted use (LEI issuance not

tied to other services; no restrictions on use of the LEI;

intellectual property consistent with open source principles).

Commercial advantage prohibition (no commercial use by

the utility of LEI reference data that is not available to the

public free of charge).

Designation of the LEI utility. As called for in the NOPR, the

final rule provides for the Commission to designate the LEI utility

that will provide the LEI to be used in complying with this rule, once

the Commission determines that an LEI system satisfying the

requirements of the rule is available, making this designation in a

Commission order. In determining whether an LEI system satisfying the

Commission's requirements is available, the Commission will consider,

without limitation, the following factors:

Whether the LEI provided by the utility is issued

under, and conforms to, ISO Standard 17442, Legal Entity Identifier

(LEI).

Whether the LEI provided by the utility complies with

all of the technical principles set forth in this rule.

Whether the LEI utility complies with all of the

governance principles set forth in this rule.

Whether the LEI utility has demonstrated 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 rule.

The acceptability of the LEI utility to industry

participants required to use the LEI in complying with the rule.

In making its determination, the Commission will consider all

candidates meeting these criteria, but it will not consider any

candidate that does not demonstrate that it in fact can provide LEIs

for identification of swap counterparties in swap data reporting

pursuant to this rule as of the compliance dates set forth in this

rule.

The Commission will make this determination and designate the LEI

utility at a time sufficiently prior to the commencement of swap data

reporting to enable the designated utility to issue LEIs far enough in

advance of the compliance dates set forth in the rule to enable

compliance with the rule.

Reference data reporting. When an LEI utility has been designated

by the Commission, the final rule requires reporting of both level one

and level two reference data concerning the legal entity identified by

an LEI. Level one reference data means the minimum information needed

to identify, on a verifiable basis, the legal entity to which an LEI is

assigned. Level two reference data means information concerning the

corporate affiliations or company hierarchy relationships of the legal

entity receiving an LEI. As provided in the NOPR, the final rule

requires reporting of both types of reference data for each

counterparty to any swap subject to the Commission's jurisdiction.

The rule provides that level one reference data must be reported

into a publicly-available level one reference database maintained by

the issuer of the LEI designated by the Commission, at a time

sufficient to ensure that the counterparty's legal entity identifier is

available for inclusion in recordkeeping and swap data reporting as

required by the rule. Such reference data is essential to verifying the

identity of the legal entity receiving an LEI. Level one reference data

can be reported into the database by the entity itself (self-

registration), or by another entity or organization such as a swap

dealer reporting on behalf of its counterparties or a national number

agency or data service provider reporting on behalf of its clients

(third-party registration). Subsequent changes and corrections to level

one reference data must also be reported.

While the NOPR required reporting of level two reference data

concerning all of a counterparty's corporate or company affiliation

relationships, the Commission has determined that the final rule will

reduce this requirement, and call for reporting of only a single piece

of level two reference data, the identity of the counterparty's

``ultimate parent'' as defined in the final rule. In making this

determination, the Commission has taken into account comments

suggesting that the Commission should coordinate with the SEC and

international regulators to ensure where possible against material,

substantive difference in reporting requirements, as well as comments

suggesting that it should establish an ownership threshold for

affiliations required to be reported, in order to reduce burdens for

counterparties. The definitions of ``control,'' ``parent,'' and

``ultimate parent'' adopted in the final rule are closely aligned with

the SEC's definitions, including a 25% ownership threshold.\65\ These

definitions are provided both to reduce burdens for counterparties, in

relation to the full affiliation reporting proposed in the NOPR, and to

provide clarity as to the

[[Page 2165]]

single affiliation required to be reported. The Commission believes

that reporting of level two reference data consisting of the identity

of a counterparty's ultimate parent is essential to the ability of the

Commission and other regulators to aggregate swap data in order to

fulfill the purposes of the Dodd-Frank Act. The Commission may revisit

the issue of what additional level two reference data should be

reported at a later time, when an international consensus concerning

the reporting of additional level two reference data has had time to be

developed.

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\65\ The Commission disagrees with the 50% ownership threshold

suggested by one commenter. The Commission believes that a 50%

threshold would result in no ultimate parent being reported in a

notable number of cases, and believes that the 25% threshold used by

the SEC is more appropriate.

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Accordingly, the final rule also requires reporting of level two

reference data, consisting of the identity of the counterparty's

ultimate parent. Level two reference data must be reported to a level

two reference database. All non-public level two reference data

reported to the level two reference database will be available only to

the Commission and other financial regulators in any jurisdiction

requiring LEI use. Where applicable law forbids such reporting, the

rule requires reporting that fact, and the citation of the law in

question, in place of the data to which such law applies. The rule

provides that the location of the level two database will be determined

at a future time by a Commission order, and that the obligation to

report level two reference data will not apply until that order is

issued. The rule also provides that, once the order is issued, level

two reference data must be reported at a time sufficient to ensure that

it is included in the database when the counterparty's LEI is included

in recordkeeping and swap data reporting as required by the rule. Level

two reference data may also be reported via either self-registration or

third-party registration. Changes and corrections must also be

reported.

Use of the LEI by registered entities and swap counterparties. The

final rule provides that, when an LEI utility has been designated by

the Commission, each registered entity and swap counterparty subject to

the Commission's jurisdiction must use the LEI provided by the

designated LEI utility in all recordkeeping and swap data reporting

pursuant to this part.\66\

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\66\ The final rule provides a grace period until October 15,

2012, for reporting counterparties whose systems are not yet

prepared to include LEIs.

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Swap counterparty identification prior to LEI availability.

Finally, the final rule provides that, before the LEI utility has been

designated by the Commission, registered entities and swap

counterparties subject to the Commission's jurisdiction shall use a

substitute counterparty identifier created and assigned by an SDR, as

provided in the final rule.

c. Incorporation of international principles and recommendations.

Because this final rule is being issued prior to completion of the work

of the FSB-coordinated, ad-hoc expert group of authorities that will

make recommendations to the FSB Plenary in April 2012 concerning LEI

governance, funding, and reference data, it has been written, of

necessity, to provide the principles and requirements that will apply

to the LEI, when its use pursuant to this rule begins, in the absence

of globally agreed principles for these aspects of the LEI system. As

noted above, the Commission shares the goal of a global LEI capable of

becoming the single international standard for unique identification of

legal entities across the world financial sector. Therefore, if LEI

principles that the Commission determines are forward-compatible with

the principles set forth in this rule, or recommendations concerning

LEI governance and funding and access to LEI reference data that are

acceptable to the Commission, are endorsed by the FSB in April or May

2012, the Commission may issue an interim final rule addressing LEI

governance, funding, and reference data, that includes such principles

and recommendations. Such an interim final rule, if issued, would

replace affected provisions of this final rule, pending notice and

comment and possible later adoption of the interim final rule by the

Commission as a final rule.\67\

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\67\ The Commission believes that the provisions of such an

interim final rule must not impair the availability of LEIs for use

in swap data reporting when such reporting commences pursuant to

this rule. Accordingly, the Commission does not intend that such an

interim final rule would alter the requirement for the LEI to be

issued pursuant to ISO Standard 17442, or would alter the

Commission's designation of the LEI utility once that designation

has been made.

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H. Unique Product Identifiers--Sec. 45.7

1. Proposed Rule

The NOPR required that each swap subject to CFTC jurisdiction be

identified in all swap recordkeeping and data reporting by a unique

product identifier (``UPI'') and a product classification system, as

determined by the Commission, for the purpose of categorizing swaps

with respect to the underlying products referenced in them. The NOPR

called for the UPI and product classification system to identify both

the swap asset class and the subtype within that asset class to which

the swap belongs, with sufficient specificity and distinctiveness (as

determined separately for each asset class) to enable regulators to

fulfill their regulatory responsibilities and to enhance real time

reporting. As provided in the NOPR, UPIs would be assigned to swaps at

a particular, asset class-specific level of the robust swap taxonomy

used by the product classification system, and the use of UPIs and the

classification system would enable regulators to aggregate and report

swap activity at a variety of product type levels, and to prepare

reports required by the Dodd-Frank Act regarding swap market activity.

2. Comments Received

The majority of comments concerning the UPI received via comment

letters, roundtables, and meetings with both industry and other

regulators supported creation of a product classification system that

provides a universally-accepted means of describing all swaps, whether

standardized or bespoke, and permits creation of UPIs for sufficiently

standardized swaps. As noted in the CPSS-IOSCO Report on OTC

Derivatives Data Reporting and Aggregation Requirements, development of

a standard product classification system is needed as a first step

toward both a system of product identifiers for standardized

derivatives products and an internationally-accepted semantic for

describing non-standardized instruments. DTCC and Thomson Reuters

pointed out that creation of a product taxonomy is a significant

undertaking, and Thomson Reuters suggested that a pilot program for

developing UPIs could be useful.

An industry initiative to create a product classification system is

being led by the creators of FpML, in cooperation with experts in FIX.

The data subcommittee of the CFTC Technology Advisory Committee

(``TAC'') has taken up this subject as well. Industry experts involved

in the industry initiative and the TAC data subcommittee anticipate

that it may be possible, once a product classification system is

developed, to assign a UPI to approximately 80 to 95 percent of swaps

(depending on the asset class involved), while approximately 5 to 20

percent of swaps may be sufficiently bespoke that they can only be

described rather than identified by a UPI. The CPSS-IOSCO Report on OTC

Derivatives Data Reporting and Aggregation Requirements recommends

CPSS-IOSCO and FSB support for timely development of a standard product

classification system that can be used as a common basis for

classifying and describing OTC derivatives products, and recommends

that the FSB direct further international consultation and

[[Page 2166]]

coordination by financial and data experts from both regulators and

industry concerning this work.

3. Final Rule: Sec. 45.7

After considering the comments and input received concerning the

UPI and product classification system, the Commission has determined

that, as called for in the NOPR, the final rule provides that each swap

subject to the Commission's jurisdiction must be identified in

recordkeeping and swap data reporting pursuant to this part by means of

a unique product identifier and product classification system

acceptable to the Commission, when such an identifier and

classification system are designated by the Commission for this

purpose. The unique product identifier and product classification

system will be required to identify and describe the swap asset class

and the sub-type within that asset class to which the swap belongs, and

the underlying product for the swap, with sufficient distinctiveness

and specificity to enable the Commission and other financial regulators

to fulfill their regulatory responsibilities.

The final rule provides that the Commission will determine when a

unique product identifier and product classification acceptable to the

Commission and satisfying these requirements is available, and when it

so determines will designate the unique product identifier and product

classification system for use in compliance with this part, making this

designation in a Commission order. The final rule requires registered

entities and swap counterparties subject to the Commission's

jurisdiction to use the unique product identifier and product

classification system in compliance with this part when this

designation is made. Prior to this designation, each registered entity

and swap counterparty must use the internal product identifier or

product description used by the SDR in all recordkeeping and swap data

reporting pursuant to this part.

I. Determination of Which Counterparty Must Report--Sec. 45.8

1. Proposed Rule

The NOPR followed the reporting counterparty hierarchy outlined in

Sec. 4r(a)(3) of the CEA, which provides that where only one

counterparty is an SD or MSP, the SD or MSP is the reporting

counterparty, and where one counterparty is an SD and the other is an

MSP, the SD is the reporting counterparty.\68\ The effect of this

provision is to establish a hierarchy of counterparty types for

reporting obligation purposes, in which SDs outrank MSPs, who outrank

non-SD/MSP counterparties. Where both counterparties are at the same

hierarchical level, the NOPR followed the statute in calling for them

to select the counterparty obligated to report. In order to prevent

confusion and delay concerning this choice, the NOPR provided a

mechanism for counterparties to use in making this selection, by

requiring counterparties at the same hierarchical level to agree as one

term of their swap which counterparty will fulfill reporting

obligations for that swap. In cases where only one counterparty is a

U.S. person, the NOPR requires the U.S. person to be the reporting

counterparty, in order to ensure compliance with reporting obligations

in such situations.

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\68\ As stated in the NOPR, the Commission believes that, while

CEA section 4r(a) applies explicitly to swaps not accepted for

clearing by a DCO, the duty to report should be borne by the same

counterparty regardless of whether the swap is cleared or uncleared,

for the sake of uniformity and ease of applicability. This approach

also effectuates a policy choice made by Congress in the Dodd-Frank

Act to place lesser burdens on non-SD/MSP counterparties to swaps,

where this can be done without damage to the fundamental systemic

risk mitigation, transparency, standardization, and market integrity

purposes of the legislation. The Commission believes it is

appropriate for SDs and MSPs to have the responsibility of reporting

with respect to the majority of swaps, because they are more likely

than non-SD/MSP counterparties to have automated systems in place

that can facilitate reporting. The Commission notes that the SEC

followed the same approach in its proposed regulations for security-

based swap data reporting.

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2. Comments Received

The Commission received several comments concerning determination

of the reporting counterparty. The two themes addressed in these

comments were the need for a selection mechanism or deciding factor for

cases where both counterparties are at the same hierarchical level, and

who should be the reporting counterparty when only one counterparty is

a U.S. person.

a. Deciding factor between two counterparties at the same

hierarchical level. Commenters asked the Commission to provide in the

final rule a mechanism for determining which counterparty is the

reporting counterparty in cases where both counterparties are at the

same hierarchical level, and suggested various deciding factors for use

in such cases. The Electric Coalition recommended that for swaps

between two non-SD/MSP counterparties where only one counterparty is a

``financial entity,'' the final rule should make the financial entity

the reporting counterparty. AGA suggested that, between counterparties

at the same hierarchical level, the entity that is the ``calculation

agent'' under the applicable ISDA documentation should be the reporting

counterparty, unless the parties agree otherwise. ICE suggested that

the seller of the swap should be the reporting counterparty in such

situations, arguing that there is too much uncertainty when parties are

required to select the reporting counterparty, particularly for

platform-executed swaps where counterparties are unknown to each other

at the time of execution. WGCEF raised the issue of whether entities

designated as SDs or MSPs for some but not all swaps should be treated

as non-SDs/MSPs with respect to reporting counterparty determinations

regarding swaps for which they are not designated as SDs or MSPs. WGCEF

suggested that a ``limited'' SD or ``limited'' MSP should only be

required to be the reporting counterparty for swaps within the

particular asset class for which it is designated an SD or MSP. FHLB

recommended that when an SD is transacting with a limited SD, the SD

should be designated the reporting counterparty, because it would be

burdensome for a limited SD to comply with requirements meant for

entities for which swap dealing is a primary business. Where a limited

SD is the reporting counterparty, FHLB asked that it be treated as a

non-SD/MSP with respect to reporting deadlines.

b. Non-U.S. counterparties. The Commission received a number of

comments on which counterparty should be the reporting counterparty

when only one counterparty is a U.S. person. The Foreign Banks, ISDA,

SIFMA, DTCC, MarkitServ, Freddie Mac, Vanguard, EEI, Chatham Financial,

ABC, CIEBA, and the Electric Coalition recommended requiring non-U.S.

SDs or MSPs to be the reporting counterparty for swaps with U.S. non-

SD/MSP counterparties.\69\ The commenters pointed to the superior

technology and technical expertise of SDs and MSPs, the benefits of a

consistent approach to reporting, and concerns regarding whether U.S.

non-SD/MSP counterparties would be discouraged from transacting with

foreign SDs and MSPs if they were required to bear the burden of

reporting. EEI and Vanguard suggested allowing the counterparties in

this situation to agree on which of them will be the reporting

counterparty, and MarkitServ suggested allowing non-SD/MSP

counterparties to delegate the

[[Page 2167]]

reporting obligation to the non-U.S. SD counterparty.

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\69\ ABC and CIEBA argued that making a U.S. non-SD/MSP

counterparty the reporting counterparty where the other counterparty

is a foreign SD or MSP is contrary to Sec. 729 of the Dodd-Frank

Act.

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3. Final Rule: Sec. 45.8

a. Deciding factor between two counterparties at the same

hierarchical level. The Commission has considered comments calling for

the final rule to provide a mechanism for determining which

counterparty is the reporting counterparty in cases where both

counterparties are at the same hierarchical level, and agrees that this

would be beneficial where a deciding factor can be applicable for all

swaps. The Commission has determined that the final rule provides that

for swaps between non-SD/MSP counterparties where only one counterparty

is a ``financial entity'' as defined in CEA section 2(h)(7)(C), the

financial entity shall be the reporting counterparty. The Commission

believes it is appropriate for financial entities, as defined by the

Dodd-Frank Act, to have the responsibility of reporting in such cases,

because, in the Commission's view, they are more likely than non-SD/MSP

counterparties who are not financial entities to have automated systems

in place that can facilitate reporting. The Commission has not found

any other factor usable for automatic choice of the reporting

counterparty between two counterparties at the same hierarchical level

that applies across all markets and all asset classes.

For off-platform swaps, the final rule retains the NOPR requirement

that counterparties at the same hierarchical level agree, as one term

of the swap, which of them is the reporting counterparty.

For swaps executed on a SEF or DCM, determination of the reporting

counterparty is necessary for purposes of continuation data reporting,

despite the fact that the SEF or DCM will report all creation data for

the swap under the streamlined reporting schema adopted in the final

rule as discussed above. For on-facility swaps where counterparties at

the same hierarchical level know the identity of the other

counterparty, the final rule adopts the NOPR requirement that the

counterparties agree as one term of the swap which of them is the

reporting counterparty. For on-facility swaps where counterparties at

the same hierarchical level do not know the identity of the other

counterparty, the final rule provides that: (a) the SEF or DCM must

transmit to each counterparty the LEI (or substitute identifier as

provided in Sec. 45.6) of the other counterparty that is at the same

hierarchical level;\70\ (b) the counterparties must agree which

counterparty will be the reporting counterparty, after receiving such

notice from the SEF or the DCM and before the end of the next business

day following the date of execution of the swap; and (c) the reporting

counterparty must report to the SDR to which the SEF or DCM has

reported the swap that it is the reporting counterparty.

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\70\ The SEF or DCM will know that both counterparties are at

the same hierarchical level because the final rule requires the

terms of the contract on the SEF or DCM to include all minimum PET

data, and the tables of minimum PET data include an indication of

whether a counterparty is an SD, an MSP, or a non-SD/MSP

counterparty.

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b. Non-U.S. counterparties. The Commission has considered the large

number of comments recommending that a non-U.S. SD or MSP in a swap

with a U.S. counterparty at a lower hierarchical level should be the

reporting counterparty despite its status as a non-U.S. person. The

Commission has determined that, because non-U.S. SDs and MSPs will be

required to register with the Commission in this connection, the

Commission will have sufficient oversight and enforcement authority

with respect to such counterparties. The Commission understands that

the SEC has made a similar determination in the context of security-

based swap data reporting. Accordingly, the final rule provides that,

with a single exception, the determination of the reporting

counterparty in situations where only one counterparty is a U.S. person

must be made by applying the normal counterparty determination

procedure set forth in Sec. 45.8. The Commission believes this is

appropriate because it places the burden of reporting on the

counterparty that in the Commission's view is more likely to have

automated systems suitable for reporting. In cases where both

counterparties are non-SD/MSP counterparties and only one counterparty

is a U.S. person, the final rule will adopt the NOPR provision

requiring the U.S. person to be the reporting counterparty. This is

necessary in such situations because the non-U.S. non-SD/MSP

counterparty will not be required to register with the Commission.

Where neither counterparty to a swap executed on a SEF or DCM,

otherwise executed in the U.S., or cleared on a DCO is a U.S. person,

the final rule applies the same hierarchical selection criteria as for

other swaps.

c. Reporting counterparty determination after a change of

counterparty. In light of the various comments calling for clear

direction from the Commission regarding determination of the reporting

counterparty, and calling for the statutory preference for SD or MSP

reporting counterparties where this is possible, the Commission has

determined that the final rule provides for determination of the

reporting counterparty in cases where, during the life of a swap, the

reporting counterparty ceases to be a counterparty due to an assignment

or novation. In such cases, the final rule provides for the reporting

counterparty to be selected from the two current counterparties to the

swap, as follows: If only one counterparty is an SD, the SD is the

reporting counterparty; if neither counterparty is an SD and only one

is an MSP, the MSP is the reporting counterparty; if both

counterparties are non-SD/MSP counterparties and only one is a U.S.

person, the U.S. person is the reporting counterparty; and in all other

cases, the counterparty replacing the previous reporting counterparty

is the reporting counterparty, unless otherwise agreed by the

counterparties.

J. Third-Party Facilitation of Swap Data Reporting--Sec. 45.9

1. Proposed Rule. The NOPR provided that registered entities and

counterparties required to report pursuant to this part may contract

with third-party service providers to facilitate reporting, but,

nonetheless, remain fully responsible for reporting as required.

2. Comments Received. Roundtable participants generally endorsed

the NOPR provision permitting third-party facilitation of swap data

reporting, and no comment letters suggested any changes to this

provision.

3. Final Rule: Sec. 45.9. The Commission recognizes, as stated in

the NOPR, that while the various reporting obligations established in

the final rule fall explicitly on registered entities and swap

counterparties, efficiencies and decreased cost may in some

circumstances be gained by engaging third parties to facilitate the

actual reporting of information. The Commission believes that the use

of such third-party facilitators, however, should not allow the

registered entity or counterparty with the obligation to report to

avoid its responsibility to report swap data in a timely and accurate

manner. Accordingly, the Commission has adopted the regulation on

third-party facilitation of swap data reporting as proposed.

[[Page 2168]]

K. Reporting to a Single Swap Data Repository--Sec. 45.10

1. Proposed Rule. The NOPR required that all swap data for a given

swap must be reported to a single SDR, which must be the SDR to which

required primary economic terms data for that swap is first reported.

2. Comments Received. Roundtable participants generally endorsed

the NOPR provision requiring that all swap data for a given swap must

be reported to a single SDR, and no comment letters suggested changing

this requirement. Comments addressing who should make the first swap

data report for a swap, and thus in effect choose the SDR, are

discussed above in the section concerning creation data reporting.

3. Final Rule: Sec. 45.10. The Commission believes that important

regulatory purposes of the Dodd-Frank Act would be frustrated, and that

regulators' ability to see necessary information concerning swaps could

be impeded, if data concerning a given swap was spread over multiple

SDRs. Accordingly, the final rule adopts the NOPR provision requiring

that all swap data for a given swap must be reported to a single SDR,

which shall be the SDR to which creation data for that swap is first

reported.

As discussed above, the Commission is responding to comments

concerning creation data reporting by adopting in the final rule a

streamlined reporting regime that requires reporting by the registered

entities or swap counterparties with the easiest, fastest, and cheapest

data access and those most likely to have the necessary automated

systems; that minimizes burdens and costs for counterparties to the

extent possible; and that provides certainty to the market. To

effectuate this streamlined reporting regime, Sec. 45.3 and Sec.

45.10 of the final rule provides that the initial report of creation

data for a swap will be made as follows:

For swaps executed on a SEF or DCM, the SEF or DCM

reports all creation data to a single SDR, as soon as

technologically practicable after execution.

For off-facility swaps, the reporting counterparty

reports all PET data to a single SDR, within the deadlines provided

in the final rule.

For off-facility swaps, if the reporting counterparty

is excused from reporting, as provided in the final rule, because

the swap is accepted for clearing before the reporting deadline and

before any report made by the reporting counterparty, the DCO

reports all creation data to a single SDR, as soon as

technologically practicable after execution.

L. Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any

Swap Data Repository--Sec. 45.11

1. Proposed Rule. As noted in the NOPR, CEA section 4r(a)(1)(B)

recognizes that in some circumstances there may be no SDR that will

accept swap data for certain swap transactions. This category of swaps

should be limited, since the Commission's final part 49 regulations

require an SDR that accepts swap data for any swap in an asset class to

accept data for all swaps in that asset class. However, situations

could arise where a novel product does not fit into any existing asset

class, or where no SDR yet accepts swap data for any swap in an

existing asset class. The NOPR provided that in such cases, the

reporting counterparty must report to the Commission all swap data

concerning that swap required by this part to be reported to an SDR,

making this report at a time and in a form determined by the

Commission.

2. Comments Received. The Commission received no comments

concerning this provision.

3. Final Rule: Sec. 45.11. The Commission has determined to adopt

the NOPR provision requiring that, should there be a swap asset class

for which no SDR currently accepts swap data, each registered entity or

swap counterparty required to report swap data for such a swap must

report to the Commission all swap data required by this part to be

reported to an SDR, making this report at times announced by the

Commission and in an electronic file in a format acceptable to the

Commission. The Commission has recently reorganized its divisional

structure to facilitate discharge of its responsibilities under the

Dodd Frank Act, and as part of that reorganization, the Commission's

Chief Information Officer is responsible for all matters concerning

data received by the Commission. Accordingly, the Commission has

determined that the final rule will delegate to the Chief Information

Officer the authority to determine the format, data standards, and

electronic transmission standards and procedures acceptable to the

Commission for such reporting, and the dates and times at which data

for such swaps shall be reported to the Commission. The determinations

made by the Commission through the Chief Information Officer in these

respects will be published in the Federal Register and on the

Commission's Web site.

M. Voluntary Supplemental Reporting--Sec. 45.12

1. Proposed Rule. As discussed above, the Dodd-Frank Act provides

for designation of one counterparty to a swap as the reporting

counterparty for that swap. Neither the Dodd-Frank act nor the NOPR

addresses additional, voluntary reporting of swap data to an SDR by the

other counterparty to the swap. Nothing in the Dodd-Frank Act prohibits

such additional, voluntary reporting.

2. Comments Received. The Commission received several comments

recommending that the final rule should confirm that voluntary data

reporting by market participants not required to report is permitted,

and should provide for such voluntary supplemental reporting. WGCEF

asked the Commission to clarify that a market participant has the

option to report any and all transaction data even where it is not

required to report by Commission rules. REGIS-TR recommended that both

counterparties be allowed to report a swap and confirm their PET data

and confirmation data, via SDR systems that allow regulators to see

which counterparty entered the information, and argued this would lower

overall compliance costs. DTCC stated that voluntary reporting by

participants not required to report is technologically feasible and

would ensure greater data accuracy. ISDA and SIFMA observed that

reporting by both counterparties is not essential to the accuracy of

data in SDRs, since confirmations require the consent of both

counterparties and the NOPR required confirmation data reporting.

TriOptima suggested that both parties should be required to report some

types of transaction data, such as that relating to systemic risk

monitoring, arguing that one-party reporting can raise risks of

inaccurate data. Most of the international regulators consulted by the

Commission concerning the final rule have informed the Commission that

they believe reporting by both counterparties is desirable, and that

reporting regimes outside the U.S. are likely to require such dual

reporting. Roundtable participants noted that some counterparties may

prefer to report whether or not they are the reporting counterparty, in

order to simplify their business processes, and have data concerning

all their swaps present in a single SDR.

3. Final Rule: Sec. 45.12. The Commission has considered these

comments, and agrees that voluntary supplemental reporting by

counterparties not designated as the reporting counterparty is

[[Page 2169]]

technologically feasible and may have benefits for both data accuracy

and counterparty business processes. While the Dodd-Frank Act requires

swap data reporting by only one counterparty and establishes a

hierarchy for choosing the reporting counterparty, it does not prohibit

voluntary swap data reporting to an SDR that supplements required

reporting. The Commission also notes that its final part 49 rules

permit counterparties to access to information in SDRs concerning their

own swaps, and notes that nothing forbids swap counterparties to use an

SDR as a provider of third-party services going beyond acceptance of

required swap data reports for regulatory purposes. For these reasons,

the Commission has determined that the final rule provides for

voluntary supplemental reporting to any SDR by either counterparty of

swap data that this part does not require that counterparty to report.

The Commission has also determined that, to avoid double-counting

of the same swap due to voluntary supplemental reports, and to ensure

that data reported via a voluntary supplemental report (``VSR'') to the

same SDR to which required data is reported is integrated into that

SDR's record for the swap, each VSR must include minimum VSR

information that ensures achievement of these purposes. This required

VSR information includes: an indication that the report is a VSR; the

USI for the swap that has been created as required by this part; the

identity of the SDR to which all required creation data and

continuation data is reported for the swap, if the VSR is made to a

different SDR; the LEI (or substitute identifier) of the counterparty

making the VSR; and if applicable, an indication that the VSR is made

pursuant to the law of a jurisdiction outside the U.S. To avoid

confusion and double-counting, and to ensure that each VSR includes the

USI for the swap, the rule will also provide that a VSR may not be made

until after the USI for the swap has been created as provided in Sec.

45.5 and transmitted to the counterparty making the VSR.

N. Required Data Standards--Sec. 45.13

1. Proposed Rule. CEA section 21(b)(2) directs the Commission to

prescribe data collection and data maintenance standards for swap data

repositories. The CEA also provides that SDRs shall maintain swap data

reported to them ``in such form, in such manner, and for such period as

may be required by the Commission,'' and directs SDRs to ``provide

direct electronic access to the Commission.'' \71\ These requirements

are designed to effectuate the fundamental purpose for the

legislation's swap data reporting requirements: making swap data

available to the Commission and other financial regulators so as to

enable them to better fulfill their market oversight and other

regulatory functions, increase market transparency, and mitigate

systemic risk. Pursuant to these provisions, the NOPR required SDRs to

be able to transmit data to the Commission using the data standards and

formats required by Commission. The NOPR did not mandate use of a

specific data standard for reporting to SDRs, but left SDRs free to

make their own business decisions in this regard, so long as they

remain able to transmit data to the Commission as required.

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\71\ CEA section 21(c)(3) and (4).

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2. Comments Received. DTCC and WGCEF both suggested that using

existing standards and formats would facilitate implementation of Dodd-

Frank. DTCC also noted that SDRs will need to adapt to a changing

marketplace, and therefore will need the flexibility to specify

acceptable data formats, connectivity, and protocols for reporting to

them. DTCC recommended that SDRs make their data formats publicly

available, and develop application programming interfaces (``APIs'') to

enable direct submission of data by participants. WGCEF argued that

SDRs should be required to develop and use a common standard for data

reporting, suggesting that this will reduce costs and opportunities for

inaccuracy.

3. Final Rule: Sec. 45.13. The Commission considered whether it

would be preferable, as suggested by one commenter, to require that all

swap data reporting to SDRs use a uniform reporting format or single

data standard, but has decided not to impose such a requirement. Doing

so would be likely to require changes to the existing automated systems

of some entities and counterparties, which in some cases could impose

additional burdens and costs. The Commission agrees with the comment

suggesting that SDRs will need flexibility with respect to data

standards used by them in receiving data. The Commission has been

advised by existing trade repositories that they are able to accept

data in multiple formats or data standards from different

counterparties, and to map the data they receive into a common data

standard within the repository, without undue difficulty, delay, or

cost. The Commission notes that automated systems and data standards

evolve over time, and that it may be desirable for regulations

concerning data standards to avoid locking reporting entities,

reporting counterparties, and SDRs into particular data standards that

could become less appropriate in the future.\72\ In addition, the

Commission anticipates that the degree of flexibility offered by SDRs

concerning data standards for swap data reporting could become an

element of marketplace competition with respect to SDRs. Accordingly,

the final rule gives SDRs flexibility to use a variety of data

standards to receive data reported to them, provided that they are able

to transmit data to the Commission in a manner that meets the

Commission's needs. This flexibility is designed to allow the most

cost-effective application of both existing and evolving data

standards.

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\72\ CEA section 21(f)(4)(B) explicitly permits the Commission

to ``take into consideration any evolving standard of the United

States or the international community.''

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The Commission also agrees with the comment suggesting that it

would be beneficial for the data formats used by SDRs to be publicly

available. The Commission encourages SDRs to make public the

documentation of their data formats and any APIs or service interfaces

they develop for reporting data.

For the reasons discussed above, the Commission has determined to

adopt the NOPR provisions regarding data standards in the final rule.

The final rule requires an SDR to maintain all swap data reported to it

in a format acceptable to the Commission, and to transmit all swap data

requested by the Commission to the Commission in an electronic file in

a format acceptable to the Commission. It requires reporting entities

and counterparties to use the facilities, methods, or data standards

provided or required by an SDR to which they report data, but also

allows an SDR to permit reporting via various facilities, methods, or

data standards, provided that its requirements in this regard enable it

to maintain swap data and transmit it to the Commission as the

Commission requires.

As noted above, the Commission has recently reorganized its

divisional structure to facilitate discharge of its responsibilities

under the Dodd-Frank Act, and as part of that reorganization, the

Commission's Chief Information Officer is responsible for all matters

concerning data received by the Commission. Accordingly, the Commission

has determined that the final rule will delegate to the Chief

Information Officer (a) the authority to determine the format, data

standards,

[[Page 2170]]

and electronic transmission standards and procedures acceptable to the

Commission for provision of data to the Commission by SDRs; and (b) the

authority to determine whether the Commission may permit or require use

of one or more particular data standards by SDRs or reporting entities

and counterparties in order to ensure that SDRs can provide data to the

Commission as required. The determinations made by the Commission

through the Chief Information Officer in these respects will be

published in the Federal Register and on the Commission's Web site.

O. Reporting of Errors and Omissions in Previously Reported Data--Sec.

45.14

1. Proposed Rule

The NOPR directed all entities and counterparties required to

report data to SDRs to report any errors and omissions in the data so

reported, as soon as technologically practicable after discovery of any

such error or omission. It also required non-reporting counterparties

discovering a data error or omission to notify the reporting

counterparty promptly, and required the reporting counterparty to then

report it. The NOPR required reports of errors and omissions to be made

using the same format used to report the erroneous or omitted data.

2. Comments Received

a. Error reporting. WGCEF and MFA suggested that the final rule

should permit (but not require) non-reporting counterparties to report

errors they discover to the SDR. MFA argued this is needed in the event

of a dispute between the reporting and non-reporting counterparties.

ISDA and SIFMA recommended the reasons for an error correction should

not be reported, on the basis that recording the reason for an

adjustment is not current market practice. Encana requested

clarification of the interaction of error reporting under this section

and the part 49 provisions requiring an SDR to confirm with the

counterparties the accuracy of the data submitted.

b. Liability for errors. WGCEF, AGA, ISDA, and SIFMA suggested that

safe harbors should be created for good-faith mistakes made by either

counterparty in reporting swap data, and for errors of which the

counterparties are not aware. AGA asked the Commission to state

explicitly that it will not penalize parties for inadvertent errors in

reporting, and that good faith efforts to comply with new requirements

will not result in exposure to enforcement actions. ISDA and SIFMA

asked the Commission to clarify that a party has no obligation to

correct errors of which it is not aware, and suggested having the final

rule provide that reporting parties are not responsible for data errors

that occur after submission to an SDR.

3. Final Rule: Sec. 45.14

The Commission has considered the above comments, and has

determined to adopt the NOPR provisions concerning error reporting

substantially as proposed. Accurate swap data is essential to effective

fulfillment of the various regulatory functions of financial

regulators, and the final rule provisions are designed to ensure data

accuracy to the extent possible.

a. Error reporting. As noted above, the Commission agrees that

voluntary supplemental reporting may have benefits for data accuracy,

and has added Sec. 45.12 to the final rule expressly permitting

voluntary supplemental reporting, which is not limited in scope and can

include error reporting. The Commission believes that it is a business

decision of an SDR whether it should require reporting the reasons for

an error correction, and has decided not to address that issue by rule.

Records required to be kept pursuant to this part should provide

sufficient information when necessary regarding the reasons for an

error correction.\73\ The Commission intends Sec. 45.14 to work

together in a complementary fashion with the provisions of part 49

directing SDRs to obtain acknowledgment from counterparties of the

accuracy of reported data within a short time after it is submitted.

Both provisions are intended to protect the integrity and accuracy of

the data in SDRs.

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\73\ The Commission does not believe it is necessary or

appropriate for the final rule to further address potential disputes

between reporting and non-reporting counterparties, which could

involve legal disputes between counterparties affecting the validity

or terms of a swap.

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To help ensure data accuracy, the final rule requires registered

entities and swap counterparties that report swap data to an SDR or to

any other registered entity or swap counterparty to report any errors

or omissions in the data they report, as soon as technologically

practicable after discovery of any error or omission.\74\ The final

rule requires a non-reporting swap counterparty that discovers any

error or omission with respect to any swap data reported to an SDR for

its swaps to notify the reporting counterparty promptly of each such

error or omission, and requires the reporting counterparty, upon

receiving such notice, to report a correction of each such error or

omission to the SDR, as soon as technologically practicable after

receiving notice of it from the non-reporting counterparty. The

Commission believes that this provision is an appropriate measure to

ensure data accuracy.

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\74\ Because daily snapshot reports of state data by reporting

counterparties by their nature can correct errors or omissions in

previous snapshot reports, the final rule provides that for swaps

reported via the snapshot reporting method, reporting counterparties

fulfill the requirement to report errors or omissions in state data

previously reported by making corrections in their next daily report

of state data.

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To ensure consistency of data within an SDR with respect to error

corrections, the final rule requires an entity or counterparty

correcting an error or omission to do so in the same data format it

used in making the erroneous report. To similarly ensure consistency of

data transmitted to the Commission with respect to error corrections,

the final rule imposes the same requirement on SDRs with respect to

transmission of error corrections.

b. Liability for errors. The Commission has determined that the

final rule should not provide a safe harbor for good-faith mistakes

made in reporting data. It is the reporting party's responsibility to

report data accurately and develop processes to achieve this goal. The

Commission will continue to carry out its oversight and enforcement

responsibilities in a reasonable and appropriate manner. The final rule

does not require swap counterparties to monitor data in an SDR, but

does require them to report all data errors of which they become aware.

As noted above, the Commission believes this is an appropriate measure

to ensure data accuracy.

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

requires that agencies consider the impact of their rules on ``small

entities.'' As provided in the NOPR, this part will have a direct

effect on SDRs, DCOs, SEFs, DCMs, SDs, MSPs, and non-SD/MSP

counterparties who are counterparties to one or more swaps and subject

to the Commission's jurisdiction.

As stated in the NOPR, the Commission has previously established

that DCMs are not small entities for purposes of the RFA. The

Commission also proposed that certain entities for which the Commission

had not previously made a determination for RFA purposes--namely SDRs,

DCOs, SEFs, SDs, and MSPs--should not be considered to be small

entities, for reasons set forth in the NOPR.

[[Page 2171]]

As noted in the NOPR, this part requires swap data reporting by a

non-SD/MSP counterparty only with respect to swaps in which neither

counterparty is an SD or MSP. With respect to such swaps, which

represent a minority of swap transactions, only one of the swap non-SD/

MSP counterparties will be required to report--the counterparty

designated as the reporting counterparty. In addition, the Commission

has determined that the final rule provides that for swaps between non-

SD/MSP counterparties where only one counterparty is a ``financial

entity'' as defined in CEA section 2(h)(7)(C), the financial entity

shall be the reporting counterparty. The Commission believes these

provisions of the final rule reduce the economic impact on any non-SD/

MSP counterparties that may be considered to be small entities under

the RFA.

Due to the operation of certain provisions of the CEA and the final

rule, non-SD/MSP counterparties who may be considered small entities

for RFA purposes are never required to report any swap creation data.

Under the CEA, a non-SD/MSP counterparty is required to transact on a

SEF or DCM unless that non-SD/MSP is an Eligible Contract Participant

(``ECP'').\75\ The Commission has previously determined that ECPs are

not ``small entities'' for RFA purposes.\76\ For all swaps executed on

a SEF or DCM, the final rule requires the SEF or DCM to report all

required swap creation data. Therefore, no ``small entities'' for RFA

purposes are required to report any swap creation data under the final

rule.

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\75\ CEA section 2(e) provides that ``It shall be unlawful for

any person, other than an eligible contract participant, to enter

into a swap unless the swap is entered into on, or subject to the

rules of, a [SEF or DCM].'' Congress created the ECP category in the

Commodity Futures Modernization Act in 2000, to include individuals

and entities that Congress determined to be sufficiently

sophisticated in financial matters that they should be permitted to

trade over-the-counter swaps without the protection of federal

regulation. See, e.g., ``Report of the President's Working Group on

Financial Markets'' (Nov. 1999) at 16 (recommending that

``sophisticated counterparties that use OTC derivatives simply do

not require the same protections under the CEA as those required by

retail investors''). In the Dodd-Frank Act, Congress made two

changes to the statutory ECP definition, both of which increased the

thresholds to qualify as an ECP, making it harder for some entities

and individuals to qualify. Compare CEA section 1a(12), 7 U.S.C.

1a(12) (2009), with Sec. Sec. 721(a)(1) and (9) of the Dodd-Frank

Act, respectively redesignating section 1a(12) as section 1a(18) and

increasing thresholds for certain categories of ECP.

\76\ 66 FR 20740, 20743, Apr. 25, 2001.

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With respect to reporting of swap continuation data, the Commission

has attempted to minimize the burden on non-SD/MSP counterparties who

may be considered small entities for purposes of the RFA. As noted

above, in the final rule the Commission is responding to comments

concerning swap data reporting by creating a streamlined reporting

regime that requires reporting by the registered entities or swap

counterparties that the Commission believes will have the easiest,

fastest, and cheapest data access and will be most likely to have the

necessary automated systems, in order to minimize burdens and costs, to

the extent possible, for swap counterparties and particularly for non-

SD/MSP counterparties. Under the final rule reporting regime, non-SD/

MSP reporting counterparties will not have to report either creation

data or continuation data for any swap executed on a SEF or DCM and

cleared on a DCO. In addition, non-SD/MSP counterparties will not have

to report either creation data or continuation data for any off-

facility swap accepted by a DCO for clearing within the deadline for

the initial data report for the swap, as the DCO is then required to

report all swap data for the swap. The Commission believes that these

provisions of the final rule further reduce the economic impact on any

non-SD/MSP counterparties that may be considered to be small entities

under the RFA.

In the NOPR, the Chairman, on behalf of the Commission, certified

that the rulemaking would not have a significant economic effect on a

substantial number of small entities. Nonetheless, the Commission

specifically requested comment on the impact these proposed rules may

have on small entities. The Commission received one comment on its RFA

statement, from the Electric Coalition, stating that the vast majority

of members of the National Rural Electric Cooperative Association and

the American Public Power Association are considered small entities for

purposes of the RFA. The Electric Coalition suggested that the

Commission should consider the overall impact of its Dodd-Frank Act

rules on nonfinancial entities, including small entities, and conduct a

comprehensive analysis under the RFA.

In response to this comment, and to other comments by non-SD/MSP

counterparties, the Commission has adjusted the final reporting regime

to reduce burdens and costs for non-SD/MSP counterparties in a variety

of ways, as set forth in detail in the discussion above concerning

Sec. Sec. 45.3 and 45.4 of the final rule. The Commission notes that

the commenter did not dispute the reasons for the Commission's

conclusion that this part does not have a significant impact on a

substantial number of small entities. For these reasons, and for the

reasons stated above and in the NOPR, the Commission continues to

believe that this part will not have a significant impact on a

substantial number of small entities. Therefore, the Chairman, on

behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.

605(b), that this part as finally adopted will not have a significant

economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

1. Introduction

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless it displays a

currently valid control number issued by the Office of Management and

Budget (``OMB''). Provisions of Commission Regulations 45.2, 45.3,

45.4, 45.5, 45.6, 45.7, and 45.14 result in information collection

requirements within the meaning of the Paperwork Reduction Act

(``PRA'').\77\ The Commission submitted the NOPR and supporting

documentation to OMB for review in accordance with 44 U.S.C. 3507(d)

and 5 CFR 1320.11. The Commission requested that OMB approve, and

assign a new control number for, the collections of information covered

by the NOPR.

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\77\ 44 U.S.C. 3301 et seq.

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The title for the proposed collection of information under part 45

is ``Swap Data Recordkeeping and Reporting Requirements.'' To the

extent that the recordkeeping and reporting requirements in this

rulemaking overlap with the requirements of other rulemakings for which

the Commission prepared and submitted an information collection request

to OMB, the burdens associated with the requirements are not being

accounted for in the information collection request for this

rulemaking, to avoid unnecessary duplication of information collection

burdens.

2. Proposed Information Collection

In its proposed rulemaking, the Commission provided burden

estimates for the new collections of information contained in proposed

Sec. Sec. 45.2, 45.3, and 45.4.

In the NOPR, it was estimated that 30,384 SDRs, SEFs, DCMs, DCOs,

SDs, MSPs, and non-SD/MSP counterparties \78\ would be required to

[[Page 2172]]

keep records of all activities relating to swaps. Specifically, the

NOPR required SDRs, SEFs, DCMs, DCOs, SDs, and MSPs to keep complete

records of all activities relating to their business with respect to

swaps. The NOPR required non-SD/MSP counterparties to keep complete

records with respect to each swap in which they would be a

counterparty. For SDs and MSPs, the Commission determined that the

proposed recordkeeping requirements would not impose any new

recordkeeping or information collection requirements, or other

collections of information, as requirements for maintaining and

recording swap transaction data by SDs and MSPs would be addressed in

related rulemakings associated with business conduct standards for SDs

and MSPs. For SDRs, SEFs, DCMs, DCOs (an estimated 84 entities or

persons), which were anticipated to have higher levels of swap

recording activity \79\ than non-SD/MSP counterparties, the Commission

estimates that there may be approximately 40 annual burden hours per

entity, excluding customary and usual business practices. And for non-

SD/MSP reporting counterparties (an estimated 30,000 entities or

persons), who were anticipated to have lower levels of swap recording

activity, the Commission estimated that there would be approximately 10

annual burden hours per entity, excluding customary and usual business

practices. Accordingly, 303,360 estimated aggregate annual burden hours

were estimated.

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\78\ Because SDRs, MSPs, SDs, DCOs, and SEFs are new entities,

the following estimates were made in the NOPR: 15 SDRs, 50 MSPs, 250

SDs, 12 DCOs, and 40 SEFs. The number of DCMs was estimated to be 17

DCMs based on the current (as of October 18, 2010) number of

designated DCMs. Additionally, for purposes of the Paperwork

Reduction Act, the Commission estimated that there would be 30,000

non-SD/MSP counterparties who would be subject annually to the

recordkeeping requirements of proposed Regulation 45.1.

\79\ The Commission estimated that ``high activity'' entities or

persons would be those persons who would process or enter into

hundreds or thousands of swaps per week that would be subject to the

jurisdiction of the Commission. Low activity users were estimated to

be those who would process or enter into substantially fewer than

the high activity users.

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Under the NOPR's swap data reporting provisions, SEFs, DCMs, DCOs,

MSPs, SDs, and non-SD/MSP counterparties were required to provide

reports to SDRs regarding swap transactions. SEFs and DCMs were

required to report certain information once at the time of swap

execution. DCOs, SDs, MSPs, and non-SD/MSP counterparties were required

to report certain information once, as well as other information on a

daily basis. With respect to proposed reporting by SDs, MSPs, and non-

SD/MSP counterparties, only one counterparty was required to report,

typically an SD or an MSP. The Commission anticipated that the

reporting would to a significant extent be automatically completed by

electronic computer systems, and calculated burden hours based on the

annual burden hours necessary to oversee and maintain the reporting

functionality.\80\ SEFs, DCMs, DCOs, MSPs, and SDs (an estimated 369

entities or persons) were anticipated to have high levels of reporting

activity, with the Commission estimating that the average annual burden

would be approximately 2,080 hours.\81\ Non-SD/MSP counterparties

required to report under the proposed rules--estimated at 1,500

entities \82\--were anticipated to have lower levels of activity with

respect to reporting. For such entities, the Commission estimated that

the annual burden would be approximately 75 hours. In sum, the

Commission estimated 880,020 aggregate annual burden hours for proposed

regulation 45.3.

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\80\ Estimated burden hours were obtained through consultation

with the Commission's information technology staff.

\81\ The Commission estimated 2,080 hours by assuming that a

significant number of SEFs, DCMs, DCOs, MSPs, and SDs would dedicate

the equivalent of at least one full-time employee to ensuring

compliance with the reporting obligations of Regulation 45.3 (2,080

hours = 52 weeks x 5 days x 8 hours). The Commission believed that

this was a reasonable assumption due to the volume of swap

transactions that would be processed by these entities, the varied

nature of the information required to be reported by Regulation

45.3, and the frequency (daily) with which some reports would be

required to be made.

\82\ This is the estimated number of non-SD/MSP counterparties

who would be required to report in a given year. Only one

counterparty to a swap would be required to report, most frequently

anticipated to be an SD or a MSP.

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Under the NOPR's unique identifier provisions, SDRs, SEFs, DCMs,

SDs, and MSPs were required to report a unique swap identifier to other

registered entities and swap participants. SEFs and DCMs were expected

to have higher levels of activity than SDRs, SDs, and MSPs with respect

to unique swap identifier reporting. The Commission anticipated that

the reporting of the unique swap identifier would be automatically

completed by electronic computer systems. Accordingly, the burden hours

estimates in the proposal were based on the estimated burden hours

necessary to oversee and maintain the electronic functionality of

unique swap ID reporting.\83\ In accord, the Commission estimated that

SEFs and DCMs (an estimated 57 entities or persons) would expend

approximately 22 annual burden hours per entity. The Commission

estimated that SDRs, SDs, and MSPs (an estimated 315 entities or

persons) would expend approximately 6 annual burden hours per entity.

Therefore, 3,144 estimated aggregated annual burden hours were

estimated.

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\83\ Estimated burden hours were obtained through consultation

with the Commission's information technology staff.

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The NOPR's unique identifier provisions also required SDs, MSPs,

and non-SD/MSP counterparties (an estimated 30,300 entities and

persons) to report into a confidential database their ownership and

affiliations information (as well as changes to ownership and

affiliations). The report would be made once at the time of the first

swap reported to an SDR, and would be made anytime thereafter that the

entity's legal affiliations change. The burden hours per report were

estimated to be approximately two hours per entity, excluding customary

and usual business practices. The number of reports required to be made

per year was estimated to vary between zero and four, depending on the

number of changes an entity would have in its legal affiliations in

that year. The estimated annual burden per entity therefore was

estimated to vary between zero and eight burden hours, with aggregate

annual burden hours estimated to be between 0 and 242,400 hours.

3. Comments on Proposed Information Collection

Swap data reporting is required by the CEA as amended by Title VII

of the Dodd-Frank Act. The Commission received numerous comments

supporting the overall goals of swap data reporting, including systemic

risk protection, market integrity, and transparency goals. The

Commission also received general comments and suggestions regarding the

information collections set forth in the NOPR. The comments concerned,

among other things, the type of information that should be collected;

the entity or entities that should be responsible for reporting the

information; the manner in which the data should be required to be

reported (snapshot or lifecycle method of reporting); and the timeframe

in which such data should be required to be reported. The comments

received by the Commission are set forth in detail above in the

discussions of each section of the final rule as well as the discussion

below on the consideration of the costs and benefits of the final rule.

In response, the Commission amended the information collection

requirements set forth in the NOPR in a variety of ways in order to

address concerns of the commenters and reduce the burden of the

information collections on registered entities and counterparties. The

Commission amended the information collection

[[Page 2173]]

requirements of the NOPR by, among other things, reducing the types of

information to be collected (e.g., the final rule does not require

reporting of contract intrinsic data, master agreements, certain

collateral information, or certain valuation information); streamlining

the entity or entities responsible for reporting the information in

order to assign reporting responsibilities to the entity or entities

with the easiest, fastest, and cheapest access to the data in question

(e.g., the final rule does not require non-SD/MSP counterparties to

report any additional swap data for swaps that are both executed on a

platform and cleared, as the SEF/DCM reports all creation data and the

DCO reports all continuation data); providing greater flexibility in

the manner in which information is to be reported (the final rule

permits either the snapshot or lifecycle method of reporting may be

used for any asset class); and modifying the timeframe in which

information is to be collected (e.g., the final rule requires non-SD/

MSP counterparties to report valuation data for uncleared swaps only on

a quarterly basis, and provides phasing to all SDs, MSPs, and non-SD/

MSP counterparties with respect to the timeframe in which information

must be reported).

The Commission is also clarifying in the final rule that non-SD/MSP

counterparties are permitted to fulfill their part 45 recordkeeping

responsibilities by keeping records in paper, rather than electronic,

form. The final rule also provides that other counterparties and

registered entities are also permitted to keep paper, rather than

electronic, records, if such records were originally created and

exclusively maintained in paper form. These provisions concerning the

recordkeeping information collection provisions are intended to address

concerns raised by several commenters

4. Revised Information Collection Estimates

Under the final rules, reporting entities and persons will provide

information under sections 45.2, 45.3, 45.4, 45.5, 45.6, 45.7, and

45.14 of this part. The information provided under each regulation is

set forth below, together with burden estimates that were calculated,

through research and through consultation with the Commission's

technology staff, using wage rate estimates based on salary information

for the securities industry compiled by the Securities Industry and

Financial Markets Association (``SIFMA'').\84\

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\84\ These wage estimates are derived from an industry-wide

survey of participants and thus reflect an average across entities;

the Commission notes that the actual costs for any individual

company or sector may vary from the average. The Commission

estimated the dollar costs of hourly burdens for each type of

professional using the following calculations:

(1) [(2009 salary + bonus) * (salary growth per professional

type, 2009-2010)] = Estimated 2010 total annual compensation. The

most recent data provided by the SIFMA report describe the 2009

total compensation (salary + bonus) by professional type, the growth

in base salary from 2009 to 2010 for each professional type, and the

2010 base salary for each professional type; thus, the Commission

estimated the 2010 total compensation for each professional type,

but, in the absence of similarly granular data on salary growth or

compensation from 2010 to 2011 and beyond, did not estimate dollar

costs beyond 2010.

(2) [(Estimated 2010 total annual compensation)/(1,800 annual

work hours)] = Hourly wage per professional type.]

(3) [Hourly wage) * (Adjustment factor for overhead and other

benefits, which the Commission has estimated to be 1.3)] = Adjusted

hourly wage per professional type.]

(4) [(Adjusted hourly wage) * (Estimated hour burden for

compliance)] = Dollar cost of compliance for each hour burden

estimate per professional type.]

The sum of each of these calculations for all professional types

involved in compliance with a given element of the final rule

represents the total cost for each counterparty, reporting

counterparty, SD, MSP, SEF, DCM, or SDR, as applicable to that

element of the final rule.

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a. Section 45.2. Under Sec. 45.2, SDRs, SEFs, DCMs, DCOs, SDs,

MSPs, and non-SD/MSP counterparties--which presently would include an

estimated 30,210 entities or persons \85\--are required to keep records

of all activities relating to swaps. Specifically, Sec. 45.2 requires

SDRs, SEFs, DCMs, DCOs, SDs, and MSPs to keep complete records of all

activities relating to their business with respect to swaps. The rule

requires non-SD/MSP counterparties to keep complete records with

respect to each swap in which they are a counterparty.

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\85\ Because SDRs, MSPs, SDs, DCOs, and SEFs are new entities,

estimates were made by the Commission: 15 SDRs, 50 MSPs, 250 SDs, 12

DCOs, and 40 SEFs. The number of DCMs was estimated to be 17 DCMs

based on the current (as of October 18, 2010) number of designated

DCMs. Additionally, for purposes of the Paperwork Reduction Act, the

Commission estimates that there would be 30,000 non-SD/MSP

counterparties who would annually be subject to the recordkeeping

requirements of proposed Regulation 45.1. The Commission is revising

its estimate of SDs and MSPs from a total of 300 in the proposed

rule to 125 for this final rule, and is revising its DCM estimate

from 17 to 18 to account for the designation of a new DCM.

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With respect to SDs and MSPs, the Commission has determined that

Sec. 45.2 will not impose any new recordkeeping or information

collection requirements, or other collections of information that

require approval of the Office of Management and Budget under the

Paperwork Reduction Act. The burden associated with the requirements

for maintaining and recording swap transaction data by SDs and MSPs are

also contained in separate rulemakings proposed by the Commission

concerning business conduct standards for SDs and MSPs, for which the

Commission has prepared an information collection request for review

and approval by OMB.

The Commission believes that some percentage of the estimated

30,000 non-SD/MSP counterparties who would be subject to the

recordkeeping requirements of section 45.2 would contract with third-

party service providers to fulfill these requirements, and would

therefore pay some fee to such providers in lieu of incurring the

Commission's estimated costs of reporting. The identity of such third

parties, the composition of the marketplace for third party services,

and the costs to third parties to provide recordkeeping services given

the economies of scale and scope they may realize in providing those

services are all presently unknowable. Therefore, the Commission does

not believe it is feasible to quantify the fees charged by third

parties to non-SD/MSPs at the present time, but believes that they will

likely vary with the volume of records to be retained. The remaining

non-SD/MSP counterparties would elect to perform these functions

themselves and incur the costs enumerated below. The Commission notes

that this final rule allows non-SD/MSP counterparties to retain records

in either an electronic or paper form, which could facilitate

recordkeeping for less technologically resourced counterparties, and

thus encourage a greater percentage of non-SD/MSP counterparties to

retain records themselves.

For purposes of calculating recordkeeping burdens with respect to

the PRA, the Commission is assuming that all 30,000 non-SD/MSP

counterparties required to keep records will incur the cost of doing so

themselves. The Commission estimates that this requirement would impose

an initial non-recurring burden of 480 hours per reporting counterparty

at a cost of $32,820, and investments in technological infrastructure

of $50,000, and a recurring annual burden of 165 hours per reporting

counterparty at a cost of $12,125 and a technological infrastructure

maintenance cost of $25,000. This would present an aggregate non-

recurring burden of $2,484,600,000 for all non-SD/MSP counterparties,

and an aggregate recurring annual burden of $1,113,750,000 for all non-

SD/MSP counterparties.

[[Page 2174]]

With respect to SEFs, DCMs, DCOs, SDs, and MSPs (an estimated 195

entities or persons), which will have higher levels of swap recording

activity \86\ than non-SD/MSP counterparties, the Commission estimates

that this requirement would impose an initial non-recurring burden of

1,560 hours per SEF, DCO, or DCM at a cost of $111,917, and investments

in technological infrastructure of $100,000, and a recurring annual

burden of 700 hours per SEF, DCO, DCM, SD, or MSP at a cost of $49,798,

and a technological infrastructure maintenance cost of $50,000.

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\86\ For purposes of this Paperwork Reduction Act analysis, the

Commission estimates that ``high activity'' entities or persons are

those who process or enter into hundreds or thousands of swaps per

week that are subject to the jurisdiction of the Commission. Low

activity users would be those who process or enter into

substantially fewer than the high activity users.

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The Commission also estimates that Sec. 45.2 will result in

retrieval costs for registered entities and swap counterparties that do

not currently have the ability to retrieve records within the required

timeframe. The Commission expects that this requirement will present

costs to registered entities and swap counterparties in the form of

non-recurring investments in technological systems and personnel

associated with establishing data retrieval processes, and recurring

expenses associated with the actual retrieval of swap data records.

With respect to non-SD/MSP reporting counterparties that do not

contract with a third party, the Commission estimates that this

requirement would impose an initial non-recurring burden of 310 hours

per reporting counterparty at a cost of $25,534 and a recurring annual

burden of 115 hours per reporting counterparty at a cost of $9,510.

With respect to SEFs, DCOs, DCMs, SDs, and MSPs, the Commission

estimates that this requirement would impose an initial non-recurring

burden of 350 hours per SEF, DCO, DCM, SD, or MSP at a cost of $28,745,

and a recurring annual burden of 175 hours per SEF, DCO, DCM, SD, or

MSP at a cost of $14,373.

b. Sections 45.3 and 45.4. Pursuant to Sec. Sec. 45.3 and 45.4,

SEFs, DCMs, DCOs, MSPs, SDs, and non-SD/MSP counterparties are required

to provide reports to SDRs regarding swap transactions. SEFs and DCMs

are required to report certain information (swap creation data) once at

the time of swap execution. DCOs, SDs, MSPs, and non-SD/MSP

counterparties are required to report certain information (swap

creation data) once, as well as other information (swap continuation

data) throughout the life of a swap--whenever a reportable event or a

reportable change occurs. With respect to reporting by SDs, MSPs, and

non-SD/MSP counterparties, only one counterparty to a swap is required

to report information concerning that swap, typically an SD or an MSP,

as determined by Sec. 45.8.

The Commission anticipates that the reporting required by

Sec. Sec. 45.3 and 45.4 will to a significant extent be automatically

completed by electronic computer systems; the following burden hours

are calculated based on the annual burden hours necessary to oversee,

maintain, and utilize the reporting functionality. SEFs, DCMs, DCOs,

MSPs, and SDs (an estimated 195 entities or persons) are anticipated to

have high levels of reporting activity; the Commission estimates that

their average annual burden may be approximately 2,080 hours per SEF,

DCO, DCM, MSP, or SD.\87\ The Commission estimated 2,080 hours by

assuming that a significant number of SEFs, DCMs, DCOs, MSPs, and SDs

will dedicate the equivalent of least one full-time employee to

ensuring compliance with the reporting obligations of Sec. Sec. 45.3

and 45.4 (2,080 hours = 52 weeks x 5 days x 8 hours). The Commission

believes that this is a reasonable assumption due to the volume of swap

transactions that will be processed or entered into by these entities,

the varied nature of the information required to be reported, and the

frequency with which information may be required to be reported.\88\

The Commission notes, however, that these burdens should not be

considered additional to the costs of compliance with Part 43, because

the basic data reporting technology, processes, and personnel hours and

expertise necessary to fulfill the requirements of Part 43 encompass

both the data stream necessary for real-time public reporting and the

creation data stream necessary for regulatory reporting.\89\

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\87\ The Commission obtained this estimate in consultation with

the Commission's information technology staff.

\88\ The estimated burden hours were obtained in consultation

with the Commission's information technology staff.

\89\ The Commission notes that DCOs are not dicussed in Part 43.

The costs to DCOs for compliance with this final rule are thus

unique to this rule, but identical to the costs addressed in Part

43.

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Non-SD/MSP counterparties who would be required to report--which

presently would include an estimated 1,000 entities \90\--are

anticipated to have lower levels of activity with respect to reporting.

Of those 1,000 non-SD/MSPs, the Commission believes that a majority,

estimated now at 75%, or 750 entities, will contract with third parties

to satisfy their reporting obligations. The identity of such third

parties, the composition of the marketplace for third party services,

and the costs to third parties to provide reporting services given the

economies of scale and scope they may realize in providing those

services are all presently unknowable. Therefore, the Commission does

not believe it is feasibly to quantify the fees charged by third

parties to non-SD/MSPs at the present time, but believes that they will

likely vary with the volume of reports to be made. For those non-SDs/

non-MSPs who are required to report swap transaction and pricing data

to an SDR and contract with a third party, the Commission estimates

that such non-SD/MSP counterparties will incur a recurring burden for

reporting errors and omissions should errors or omissions be noticed by

the counterparty or the SDR; however, the Commission has already

considered these burdens in Part 43, and thus has not reapplied them to

this rule. The costs of reporting to the remaining 250 non-SD/MSP

counterparties that do not contract with a third party are addressed

below.

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\90\ This is the estimated number of non-SD/MSP counterparties

who will be required to report in a given year. Only one

counterparty to a swap is required to report, typically an SD or a

MSP as determined by Sec. 45.8. Therefore, a non-SD/MSP

counterparty that is in a swap with an SD or MSP counterparty will

not be subject to the reporting obligations of Sec. Sec. 45.3 and

45.4.

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The Commission estimates that costs applicable to reporting

counterparties will include maintenance of an internal order management

system (``OMS'') and the personnel hours needed to maintain a

compliance program in support of that system. With respect to all

reporting counterparties, including SEFs, DCOs, DCMs, SDs, MSPs, and

non-SD/MSP counterparties that do not contract with a third party for

reporting, the Commission estimates that the additional implementation

of the OMS and the associated compliance and support program for the

reporting of swap continuation data would impose an initial non-

recurring burden of 350 hours per reporting counterparty at a cost of

$28,745, and a recurring annual burden of 175 hours per reporting

counterparty at a cost of $14,373.

In addition to the burden estimates presented here, reporting

counterparties will incur costs associates with establishing and

maintaining connectivity to an SDR for the purposes of effecting

reporting. Connectivity costs have been accounted for in the

[[Page 2175]]

information collection prepared by the Commission with respect to its

proposed part 43 rules, in which the information collection costs

applicable to SDRs also have been estimated.\91\ To avoid creating

duplicative PRA estimates, the Commission is not accounting again for

those costs with respect to this rulemaking. And in the event that

there is a swap asset class for which no SDR accepts swap data, swap

data for a swap in that class must be reported to the Commission. With

respect to all reporting counterparties, including SEFs, DCOs, DCMs,

SDs, MSPs, and non-SD/MSP reporting counterparties that do not contract

with a third party for reporting, the Commission estimates that the

annual cost to maintain connectivity to the Commission would be

approximately $100,000 for each reporting counterparty or registered

entity that transacts in swap asset classes that are not accepted by

any registered SDR.\92\

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\91\ The Commission estimated the annual recurring technology-

related burden of maintaining connectivity to an SDR at

approximately $100,000 per reporting entity. The Commission also

estimated the non-recurring personnel hour burden of establishing

connectivity to an SDR from the perspective of a non-financial end-

user counterparty with no initial infrastructure or personnel

training to leverage to be approximately 172 burden hours at a cost

of approximately $12,824 for each non-financial end-user. This

estimate represents the costs of developing information capture and

transmission systems, correspondence testing and operational

support. The Commission notes that with respect to both part 43 and

part 45, the cost to a non-financial end-user with no initial

infrastructure or personnel training represents a high-end estimate,

and that the costs of establishing and maintaining connectivity to

an SDR will likely be considerably lower for SEFs, DCMs, SDs, and

MSPs that likely have greater levels of technological sophistication

and existing personnel training to leverage.

\92\ This estimate is calculated as follows: [($100,000 in

hardware- and software-related expenses, including necessary back-up

and redundancy, per SDR connection) x (1 SDR connections per

reporting counterparty)] = $100,000 per non-financial end-user. The

Commission notes that there are circumstances under which a non-

financial end-user serving as a reporting counterparty would be

required to incur additional costs to maintain connectivity to both

the Commission and one or more SDRs. Specifically, if a reporting

counterparty engages in swap transactions in multiple asset classes,

and an SDR exists that accepts data for at least one of those asset

classes, but no SDR exists that accepts data for one or more of

these asset classes, the reporting counterparty would then incur the

costs of establishing and maintaining connectivity to both an SDR

and the Commission. The Commission believes that the costs of

establishing and maintaining connectivity to a second data

repository would be some percentage of, but not equal to, the costs

of establishing and maintaining connectivity to the first data

repository, because the reporting counterparty would likely be able

to leverage existing technology and expertise in the process. The

Commission does not believe that the percentage of the initial costs

that this additional cost represents is readily quantifiable,

because it will likely vary with the volume of swaps, and thus the

volume of data to be reported, that the reporting counterparty

transacts in the secondary asset classes.

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c. Section 45.5. Pursuant to Sec. 45.5, SDRs, SEFs, DCMs, SDs, and

MSPs will be required to report a unique swap identifier to other

registered entities and swap participants. SEFs and DCMs are

anticipated to have higher levels of activity than SDRs, SDs, and MSPs

with respect to unique swap identifier reporting. The Commission

anticipates that the reporting of the unique swap identifier will be

automatically completed by electronic computer systems. The following

burden hours are based on the estimated burden hours necessary to

oversee, maintain, and utilize the electronic functionality of unique

swap ID reporting.\93\

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\93\ The estimated burden hours were obtained in consultation

with the Commission's information technology staff.

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The Commission estimates that USI-related costs will be highest for

SEFs, DCOs, and DCMs, because they will have to create the greatest

number of USIs. The Commission estimates the requirement for SEFs,

DCOs, and DCMs to create and transmit USIs to counterparties and other

registered entities to present a total marginal non-recurring burden of

1,000 personnel hours at a total cost of $81,869 per entity, and a

recurring annual burden of 470 personnel hours at a total cost of

$37,741 per entity.

For off-facility swaps with an SD or MSP reporting counterparty,

the Commission estimates the requirement for SDs and MSPs to create and

transmit USIs to counterparties and other registered entities to

present a total marginal non-recurring burden of 750 personnel hours at

a cost of $61,402 per entity, and a recurring annual burden of 353

hours of annual personnel hours at a total cost of $28,386 per entity.

For off-facility swaps between non-SD/MSP counterparties, the

Commission estimates the requirement for SDRs to create and transmit

USIs to counterparties and other registered entities to present a total

marginal non-recurring burden of 500 annual personnel hours at a cost

of $40,935 per entity, and a recurring annual burden of 235 annual

personnel hours for a total cost of $18,871 per entity.

d. Section 45.6. Pursuant to Sec. 45.6, each SD, MSP, and non-SD/

MSP counterparty (an estimated 30,125 entities and persons), will be

required to report both level one and level two reference data

concerning itself to a public level one reference database and a

confidential level two reference database, respectively. The report

will be made once at the time of the first swap data report to an SDR

involving the SD, MSP, or non-SD/MSP counterparty. A similar report

will be required whenever an update or correction to the previously

reported reference data is required. For any such report, the estimated

number of burden hours is approximately two hours per entity, excluding

customary and usual business practices. The number of reports required

to be made per year is estimated to vary between zero and four,

depending on when the SD, MSP or non-SD/MSP counterparty is required to

make either the initial report or a report of an update or

correction.\94\ Thus, the estimated annual burden per entity varies

between zero and eight burden hours. Therefore, there are between 0 and

241,000 estimated aggregate annual burden hours.

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\94\ The estimated burden hours and the estimated number of

reports were obtained in consultation with the Commission's

information technology staff.

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Additionally, the Commission anticipates that an LEI meeting the

requirement of the final rule will be available before the commencement

of swap data reporting. However, the Commission has also considered the

potential burden that will be imposed on SDRs for creating, assigning

and transmitting substitute identifiers if they should be required. The

Commission estimates the cost to SDRs to create, assign and transmit

substitute identifiers to counterparties and other registered entities

to present a total marginal non-recurring burden of 500 annual

personnel hours at a cost of $40,935 and a recurring annual burden of

235 annual personnel hours for a total cost of $18,871.

e. Section 45.7. Pursuant to Sec. 45.7, each swap subject to the

Commission's jurisdiction will need to be identified in all

recordkeeping and swap data reporting by means of a unique product

identifier and product classification system, which shall be designated

at a later date by the Commission. The Commission expects that this

will result in a one-time retrieval burden for each SEF and DCM for

each swap product traded on its platform, either at the time the

Commission designates the system for currently listed products or at

the time a product is listed for trading. SDs, MSPs, and non-SD/MSP

reporting counterparties also will be subject to a one-time retrieval

burden for each swap product that they are required to report to an SDR

or the Commission. As with unique swap identifiers, the Commission

anticipates that the reporting of the unique swap identifier will be

automatically completed by

[[Page 2176]]

electronic computer systems. Until such time as a system is designated,

however, the Commission cannot estimate the aggregate annual burden

hours associated with the retrieval necessary to populate the records

and reports. The Commission therefore will establish a burden estimate

associated with the collection of information resulting from Sec. 45.7

on the designation of a system.

f. Sec. 45.14. Pursuant to Sec. 45.14, a registered SDR is

required to develop protocols regarding the reporting and correction of

erroneous information. The Commission anticipates that this requirement

will result in costs to SDRs associated with the reporting of both

creation and continuation data in the form of non-recurring investments

in technological systems and personnel during the development of the

formatting procedure, and recurring expenses associated with data

processing, systems maintenance, and personnel hours to format new

data. However, the burden associated with Sec. 45.14 are contained in

the real time public reporting rules proposed by the Commission, for

which the Commission has prepared an information collection request for

review and approval by OMB. To avoid duplication of PRA burdens, those

costs are not being accounted for in the information collection request

associated with this rulemaking.

C. Consideration of Costs and Benefits

1. Introduction

The swap markets, which have grown exponentially in recent years,

are now an integral part of the nation's financial system. As the

financial crisis of 2008 demonstrated, the absence of transparency in

the swap markets can pose significant risk to this system.\95\ The

Dodd-Frank Act seeks in part to promote the financial stability of the

United States by improving financial system accountability and

transparency. More specifically, Title VII of the Dodd-Frank Act

directs the Commission to oversee the swap markets and to develop and

promulgate regulations to increase swap market transparency and thereby

reduce the potential for counterparty and systemic risk.\96\

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\95\ As the U.S. Senate Committee on Banking, Housing, and Urban

Affairs explained concerning the 2008 financial crisis:

Information on prices and quantities [in ``over-the-counter'',

or ``OTC'', derivatives contracts] is opaque. This can lead to

inefficient pricing and risk assessment for derivatives users and

leave regulators ill-informed about risks building up throughout the

financial system. Lack of transparency in the massive OTC market

intensified systemic fears during the crisis about interrelated

derivatives exposures from counterparty risk. These counterparty

risk concerns played an important role in freezing up credit markets

around the failures of Bear Stearns, AIG, and Lehman Brothers.

S. Rep. No. 111-176, at 30 (2010). More specifically with

respect to credit default swaps (``CDSs''), the Government

Accountability Office found that ``comprehensive and consistent data

on the overall market have not been readily available,'' that

``authoritative information about the actual size of the CDS market

is generally not available,'' and that regulators currently are

unable ``to monitor activities across the market.'' Government

Accountability Office, ``Systemic Risk: Regulatory Oversight and

Recent Initiatives to Address Risk Posed by Credit Default Swaps,''

GAO-09-397T (March 2009), at 2, 5, 27.

\96\ See Mark Jickling and Kathleen Ann Ruane, Cong. Research

Serv., The Dodd-Frank Wall Street Reform and Consumer Protection

Act: Title VII, Derivatives 1 (2010); Financial Regulatory Reform--A

New Foundation: Rebuilding Financial Supervision and Regulation,

U.S. Department of the Treasury, at 47-48 (June 17, 2009).

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Transaction reporting is a fundamental component of the

legislation's objective to reduce risk, increase transparency, and

promote market integrity within the financial system generally, and the

swap market in particular. Specifically, the Dodd-Frank Act requires

that ``each swap (whether cleared or uncleared) * * * be reported to a

registered swap data repository.'' \97\ The Dodd-Frank Act also

requires SDRs to collect and maintain swap transaction data as

prescribed by the Commission, and to make such data electronically

available to regulators.\98\

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\97\ CEA section 2(a)(13)(G).

\98\ Regulations governing core principles, registration

requirements, and duties of SDRs are contained in part 49 of this

chapter.

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CEA section 21(b)(1)(A), added by section 728 of the Dodd-Frank

Act, addresses the content of the swap transaction data that registered

entities and reporting counterparties must report to a registered SDR

and directs the Commission to ``prescribe standards that specify the

data elements for each swap that shall be collected and maintained by

each registered swap data repository.'' In fulfilling this statutory

mandate, CEA section 21(b)(1)(B) also directs the Commission to

``prescribe consistent data element standards applicable to registered

entities and reporting counterparties.'' In promulgating this part 45,

the Commission implements Congress's mandate that swap transaction and

pricing data is reported to registered SDRs. Part 45 achieves the

statutory objectives of transparency by, inter alia, requiring that

market participants report swap transaction data to an SDR, possibly

through intermediaries.\99\

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\99\ CEA section 4r(a)(1)(B), added by section 729 of the Dodd-

Frank Act, requires that each swap not accepted for clearing by any

DCO must be reported to a registered SDR or, in the case in which

there is no SDR that would accept the swap, to the Commission.

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As discussed in more detail below, the Commission anticipates that

the requirements of part 45 will generate several overarching, if

presently unquantifiable, benefits to swap market participants and the

general public. These include (a) Increased transparency; (b) improved

regulatory understanding of concentrations of risk within the market;

(c) more effective monitoring of risk profiles by regulators and by

regulated entities themselves through the use of unique identifiers;

(d) improved regulatory oversight, and (e) more robust data management

systems.

The Commission believes these benefits, made possible by the timely

reporting of comprehensive swap transaction data, consistent data

standards for recordkeeping, and identification of products, entities

and transactions through unique identifiers, will accrue to market

participants in a number of ways:

Increased transparency of derivatives markets.

Improved risk management: a transfer of the costs

associated with systemic risk from the public to private entities,

particularly to those that are better positioned to realize

economies of scale and scope in assuming those costs.

More robust risk monitoring and management capabilities

for market participants as a result of the systems required under

part 45. This will improve the monitoring of the participant's

current swap market position.

New tools to process transactions at a lower expense

per transaction given the systems required under part 45. These

tools will enable participants to handle the same or an increased

volume of swaps at a lower marginal expense.

More robust standards for the financial services

industry, such as utilizing UTC and unique identifiers.

Swap transaction reporting under the final rules

provides a means for the Commission to gain a better understanding

of the swap markets--including aggregate positions both in specific

swap instruments and positions taken by individual entities or

groups--by requiring transaction data for currently opaque markets,

and then aggregating that data in useful ways. For example, having

such data would help Commission staff monitor and analyze the swap

market in a more comprehensive manner. In this way, the final rule

would support Congress' mandate that the Commission supervise the

swap markets; in addition, transaction reporting aids the Commission

in the development of the mandated semiannual reports on swap

trading activity.

In the NOPR, the Commission requested comment on whether a phase-in

approach should be used for the time of reporting of confirmation by

non-SD/MSP counterparties. The Commission also requested comment on

whether

[[Page 2177]]

there was sufficient infrastructure to support lifecycle or alternative

approaches for data reporting. The Commission received a number of

comments on the implementation of the proposed rules that included

cost-benefit considerations.

Global Forex commented that the phase-in period should take into

account the work needed for FX market participants to establish

connectivity to the SDR and for the SDR to develop unique identifiers

and become established. Similarly, CME added that the compliance date

must take into account the scope of implementation, which could take in

its view several years. The Electric Coalition recommended that the

Commission clarify its regulatory needs before setting forth specific

reporting rules. Thomson Reuters recommended that the Commission

implement rules consistent with proposals by the European Commission in

their Markets in Financial Instruments Directive (MiFID). DTCC

recommended a nearly year-long phase-in with products with the greatest

automation being required first. ISDA recommended that legal entity

identifiers and unique product identifiers be implemented prior to

reporting.

The Electric Coalition presented a detailed three-step

implementation proposal that it stated would reduce burdens for

commercial energy firms. The Electric Coalition recommended that

reporting be implemented in three phases: first for on-facility,

cleared swaps; second for standardized but off-facility and uncleared

swaps; and third for bespoke off-facility and uncleared swaps.

Similarly, Chatham Financial presented a detailed implementation

schedule in four stages by counterparty. Under Chatham Financial's

approach, DCMs, SEFs and DCOs would be required to report in the first

stage; financial SDs would begin reporting in the second stage; non-

financial SDs and MSPs would commence reporting in the third stage; and

non-SD/MSP reporting counterparties would begin reporting in the fourth

stage. CDEU agreed with Chatham Financial's approach. Dominion

Resources recommended a phase-in approach for non-SD/MSP

counterparties.

As discussed above, the Commission agrees with comments

recommending phasing in reporting by asset class and by counterparty

type, and has determined that the final rule provides for such a phase-

in approach. The Commission anticipates that this approach will result

in cost reductions for reporting counterparties relative to an

immediate implementation of all of the reporting provisions of the

rule. In particular, as discussed above, the phase-in approach adopted

in the final rule will reduce costs for non-SD/MSP reporting

counterparties by giving them six additional months to prepare for

reporting. In response to comments, the Commission has also set forth a

mechanism for voluntary supplemental reporting in Sec. 45.12. As

discussed in more detail above, the Commission believes Sec. 45.12 may

have benefits for both data accuracy and business processes.

In the sections that follow, the Commission considers the costs and

benefits of part 45 as required by CEA section 15(a).

a. Background

Pursuant to CEA section 15(a), before promulgating a regulation

under the CEA the Commission generally must consider the costs and

benefits of its actions in the context of five broad areas of market

and public concern: (1) Protection of market participants and the

public; (2) efficiency, competitiveness, and financial integrity of

markets; (3) price discovery; (4) sound risk management practices; and

(5) other public interest considerations. The Commission, in its

discretion, may give greater weight to any one of the five enumerated

factors and may determine that, notwithstanding costs, a particular

rule protects the public interest.\100\

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\100\ See, e.g., Fisherman's Doc Co-op., Inc. v. Brown, 75 F.3d

164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336

(DC Cir. 1985) (noting that an agency has discretion to weigh

factors in undertaking cost-benefit analysis).

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In the NOPR, the Commission stated that the proposed reporting and

recordkeeping requirements could impose significant compliance costs on

some SDRs, SEFs, DCMs, DCOs, SDs, MSPs, and non-SD/MSP counterparties.

In particular, the Commission noted that the proposed recordkeeping and

reporting requirements could require capital expenditures for some such

entities that could affect their ability to compete in the global

marketplace because of reductions in available resources. The

Commission solicited comment on its consideration of costs and benefits

and specifically invited commenters to submit any data or other

information that they may have quantifying or qualifying the costs and

benefits of the proposed requirements. The Commission also requested

comments on the overall costs and benefits of the proposed rules

implementing the Dodd-Frank Act.

In considering the costs and benefits of this final rule as well as

its other final rules implementing the Dodd-Frank Act, the Commission

has, wherever feasible, endeavored to estimate or quantify the costs

and benefits of the final rules. Where this is not feasible, the

Commission provides a qualitative assessment of such costs and

benefits. In this respect, the Commission notes that public comment

letters did not provide quantitative data regarding the costs and

benefits associated with the Proposed Rules.

In the following discussion, the Commission addresses the costs and

benefits of the final rule, considers comments regarding the costs and

benefits of the final rule, and subsequently considers the five broad

areas of market and public concern as required by section 15(a) of the

CEA. Moreover, as this rulemaking contains numerous reporting and

recordkeeping requirements, many of the costs of the rulemaking are

associated with collections of information. The Commission is obligated

to estimate the burden of and provide supporting statements for any

collections of information it seeks to establish under considerations

contained in the PRA, 44 U.S.C. 3501 et seq., and to seek approval of

those requirements from the OMB. Therefore, the estimated burden for

the collections of information in this rulemaking, as well as the

consideration of comments thereto, are discussed in the PRA section of

this rulemaking and the information collection request filed with OMB

as required by that statute. Otherwise, the costs and benefits of the

Commission's determinations are considered in light of the five factors

set forth in CEA section 15(a).

In this final rulemaking, the Commission is adopting regulations

mandated by section 21(b) to specify ``consistent data element

standards'' for reporting swaps to registered SDRs.

b. Cost-Estimation Methodology

The Commission has chosen to use as the reference point for its

cost estimates a non-SD/MSP counterparty that is not a financial entity

as defined in CEA section (2)(h)(7)(C), and does not have the technical

capability and other infrastructure to comply with the part 45

requirements--in other words, a new market entrant with no prior swap

market participation or infrastructure.

However, the Commission expects that the actual costs to

established market participants will often be lower than this reference

point--perhaps significantly so, depending on the type,

[[Page 2178]]

flexibility, and scalability of systems already in place.\101\

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\101\ ``The submission of information to trade repositories is

an activity that takes place in many OTC markets today and will not

unduly burden those who must comply with the requirement.'' CL-WMBAA

at 6. In contrast, as commenters highlighted, the costs of complying

with part 43 can be expected to be higher for non-financial end-

users and others currently lacking the resources and systems of

large financial institutions that transact swaps more frequently.

See, e.g., CL-COPE. ``Swap Dealers have books of business that

typically are much larger because they encompass a much broader

universe of types of swaps and because it is the core of their

regular business * * * of necessity, swap dealers have and will

continue to develop sophisticated and highly complex computer

systems powered by highly customized software to enable them to keep

track of and manage their books of business. * * * End-users simply

do not have these systems and capabilities.'' CL-Coalition of Energy

End-Users at 4.

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The Commission recognizes that the costs of complying with part 45

are largely attributable to the reporting and recordkeeping

requirements of this rule. As discussed above, the Commission has

determined that the final rule will adopt a streamlined reporting

regime that requires reporting by the registered entities or swap

counterparties with the easiest, fastest, and cheapest data access and

those most likely to have the necessary automated systems. Under this

reporting regime, reporting obligations for non-SD/MSP counterparties

are entirely eliminated in many cases, and are phased in or reduced in

all other cases.

Non-SD/MSP counterparties can be required to report data only for

the small minority of swaps in which both counterparties are non-SD/MSP

counterparties.

Even within this small minority of swaps, the non-SD/MSP reporting

counterparty will have no reporting obligations for swaps executed on a

SEF or DCM and cleared by a DCO, or for off-facility swaps accepted for

clearing by a DCO within the extended deadline for PET data reporting

by the non-SD/MSP reporting counterparty.\102\

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\102\ If an off-facility swap is accepted for clearing after the

deadline for PET data reporting by the non-SD/MSP reporting

counterparty, the non-SD/MSP counterparty is excused from reporting

confirmation data, which will instead be reported by the DCO.

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For swaps executed on a SEF or DCM but not cleared, the non-SD/MSP

reporting counterparty's reporting obligations are limited to reporting

required swap continuation data during the existence of the swap. Here

the final rule provides reporting deadlines for non-SD/MSP reporting

counterparties that are extended and phased in: a change to the primary

economic terms of the swap must be reported by the end of the second

business day following the date of the change during the first year of

reporting, and by the end of the first business day following the date

of the change thereafter; and valuation data is only required to be

reported on a quarterly basis.

A non-SD/MSP counterparty will be required to report both swap

creation data and swap continuation data only for off-facility,

uncleared swaps between non-SD/MSP counterparties; and this obligation

can apply only if the non-SD/MSP counterparty is an ECP, since CEA

section 2(e) restricts swap trading by non-ECP counterparties to on-

facility swaps. For the small number of off-facility, uncleared swaps

for which a non-SD/MSP that is an ECP is the reporting counterparty,

the final rule also provides reporting deadlines that are extended and

phased in.\103\

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\103\ In such cases, PET data must be reported within 48 hours

after execution during the first year of reporting, within 36

business hours after execution during the second year of reporting,

and within 24 business hours after execution thereafter.

Confirmation data must be reported within 48 hours after

confirmation during the first year of reporting, within 36 business

hours after confirmation during the second year of reporting, and

within 24 business hours after confirmation thereafter. During the

existence of the swap, changes to primary economic terms must be

reported by the end of the second business day following the date of

the change during the first year of reporting, and by the end of the

first business day following the date of the change thereafter; and

valuation data is only required to be reported on a quarterly basis.

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Furthermore, costs for non-SD/MSP counterparties that are not a

``financial entity'' as defined in CEA section 2(h)(7)(C) will be

further reduced by the fact that the final rule provides that for swaps

between non-SD/MSP counterparties where only one counterparty is a

financial entity, the financial entity will be the reporting

counterparty. Because financial non-SD/MSP counterparties are more

likely than non-SD/MSP counterparties that are not financial entities

to have in place some or all of the personnel and technological

infrastructure necessary to serve as the reporting counterparty, and to

be able to realize economies of scale with respect to reporting,

placing the burden of reporting in this context on the counterparty

that is a financial entity is likely to provide a more cost-effective

overall reporting process.

These provisions of the final rule either eliminate or

substantially reduce the cost and burden of reporting for non-SD/MSP

counterparties.

To address costs specific to SDRs, the Commission has estimated the

incremental costs SDRs would incur to comply with the reporting and

recordkeeping requirements of this rulemaking above the base operating

costs for SDRs reflected in a separate rulemaking.\104\ These

incremental costs include the creation and transmission of unique

identifiers.

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\104\ See Commission, Swap Data Repositories: Registration

Standards, Duties and Core Principles: Final Rule. 76 FR 54538 (Sep.

1, 2011) at 54572 (SDR Final Rule).

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2. General Cost-Benefit Comments Received

This rulemaking has generated an extensive record, which is

discussed at length throughout this notice as it relates to the

substantive provisions in the final rules. A number of commenters

suggested that implementing and complying with the proposed rules would

incur significant costs. Because of its concern about the potential

level of costs, the Minneapolis Grain Exchange (``MGEX'') requested an

extensive and realistic cost-benefit analysis of each regulation before

adoption. The Commission also received general comments from Chatham

Financial, Vanguard, ABC, EEI, WGCEF, Dominion Resources, FHLB, DTCC,

the Electric Coalition, and CDEU, recommending that the Commission

consider the costs and burdens of the proposed rules on non-registered,

small entities. The Foreign Banks, Global Forex, CME, ISDA and SIFMA

requested that the Commission consider the cost implications of the

proposed regulations on all applicable entities and in some instances,

recommended alternative approaches. The Commission has carefully

considered alternatives suggested by commenters, and in a number of

instances, has adopted alternatives or modifications to the proposed

rules where, in the Commission's judgment, the alternative or modified

standard accomplishes the same regulatory objective in a more cost-

effective manner.

In response to the Commission's invitation in the NOPR for comments

on the overall costs and benefits of the proposed rules, Better Markets

stated that the Commission's cost-benefit analyses in the notices of

proposed rulemaking may have understated the benefits of the proposed

rules. Better Markets argued that adequate assessment of the costs and

benefits of any single proposed rule or element of such a rule would be

difficult or impossible without considering the integrated regulatory

system of the Dodd-Frank Act as a whole. According to Better Markets:

It is undeniable that the Proposed Rules are intended and

designed to work as a system. Costing-out individual components of

the Proposed Rules inevitably double counts

[[Page 2179]]

costs which are applicable to multiple individual rules. It also

prevents the consideration of the full range of benefits that arise

from the system as a whole that provides for greater stability,

reduces systemic risk and protects taxpayers and the public treasury

from future bailouts.\105\

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\105\ CL-Better Markets II, at 3.

Better Markets also stated that an accurate cost benefit assessment

must include the avoided risk of a new financial crisis. One measure of

this is the still accumulating cost of the 2008 financial crisis. The

comment letter cited a statement by Andrew G. Haldane, Executive

Director for Financial Stability at the Bank of England, who estimated

the worldwide cost of the crisis in terms of lost output at between $60

trillion and $200 trillion, depending primarily on the long term

persistence of the effects.

Notwithstanding that it must (and does) conduct a cost-benefit

analysis with respect to this rulemaking, the Commission agrees with

Better Markets that the proposed rules should operate in a coordinated

manner to improve and protect financial markets. In that regard, the

costs and benefits associated with this final rule are in some

instances not readily separable from the costs and benefits associated

with other Commission rulemakings implementing the Dodd-Frank Act, most

notably those governing real-time public reporting of swap transaction

and pricing data (part 43) and registration and regulation of swap data

repositories (part 49). Swap data recordkeeping and reporting, will,

for instance, provide information to enable regulatory agencies to more

fully understand the mechanisms and risks of the swap market. Access to

previously unavailable data will allow these agencies to better model

and analyze swap markets to mitigate systemic risk, detect potential

market manipulation, and expand their capabilities in efficient market

oversight. Acknowledging this, the Commission must conduct a cost-

benefit analysis with respect to specific rulemaking.

In a broad sense, the costs presented to market participants by the

requirements of this rule represent the internalization by financial

market participants of a negative externality--the costs generated by

systemically risky behavior on the part of market participants, which

had previously been internalized by the taxpaying public in the form of

government bailouts of failed financial firms that were brought down in

part by this risky behavior.

In analyzing the costs and benefits of this rulemaking, it is

important to note that many elements of the rule are mandated by Dodd-

Frank Act and are thus outside the Commission's discretion. For

example:

Information about all swaps, cleared or uncleared, must

be reported to a registered SDR (or, in the event that a swap is not

is not accepted by an SDR, to the Commission).

The Commission must prescribe consistent data element

standards for SDRs, registered entities, and reporting

counterparties.

The Commission must determine the hierarchy of

reporting responsibility for uncleared swaps.

3. Recordkeeping

As discussed throughout this release, the CEA as amended by the

Dodd-Frank Act establishes recordkeeping requirements for registered

entities.

a. Benefits of Recordkeeping

The recordkeeping requirements of part 45 will allow the Commission

and other regulatory agencies to develop an accurate picture of swap

markets in a timely fashion. This serves the public interest. From an

enforcement perspective, the recordkeeping requirements of part 45

enable investigators and attorneys to reconstruct a comprehensive,

sequenced record of swap transactions that will be an essential tool in

ensuring the fairness of swap markets. The recordkeeping requirements

of part 45 will also facilitate examinations and investigations by the

Commission and other regulators to ensure that registered entities are

in compliance with core principles.

The requirement to retain records for the life of the swap plus

five years provides be of substantial benefit to the economists

employed by the Commission and to other regulators. In general,

economic analysis benefits from a broader body of data; in particular,

time-series analysis (a fundamental element of economic and statistical

analysis in which the value of a variable is charted over time) may

benefit from a body of data that represents a longer time horizon.

b. Costs of Recordkeeping

The Commission received several comments related to the costs of

swap recordkeeping. With respect to recordkeeping by non-SD/MSP

counterparties, the Electric Coalition recommended that the Commission

reduce recordkeeping requirements to the minimum necessary and phase

requirements relative to the cost of implementation. Shell Energy

requested clarification that non-SD/MSP counterparties are not subject

to the recordkeeping requirements. WGCEF requested that the Commission

consider participants who transact in non-financial markets when

adopting its recordkeeping proposals, and further evaluate the actual

costs, availability of technology, and ability of market participants

to deploy the technology required to comply with such requirements.

With respect to record retention, AGA contended that requiring

records to be kept through the life of a swap plus five years would

impose substantive costs on end-users such as gas utilities. AGA also

stated that the proposed three-day accessibility requirement

effectively would require an off-site storage provider, which if

available at all, could be cost-prohibitive. Reasoning that

transactions between non-SD/MSP counterparties would represent only a

small portion of regulated activity, AGA recommended that the

Commission reduce its recordkeeping requirements for non-SD/MSPs so

that they would only have to maintain such records for three years

following expiration of the swap. CIEBA and WGCEF supported the

proposed five-year post-expiration retention period, but also

recommended not extending it further. ISDA and SIFMA requested

clarification that the phrase ``via real-time electronic access'' does

not mean ``instantly accessible'' which it characterized as

impracticable given the volume of day to day reporting.

As discussed above, the Commission has determined that the final

rule requires SEFS, DCMs, DCOs, SDs, and MSPs to keep full, complete,

and systematic records, together with all pertinent data and memoranda,

of all activities relating to the business of such entities or persons

with respect to swaps. Such records must be kept in electronic rather

than paper form unless they are originally created and exclusively

maintained in paper form. The final rule limits the parallel

requirement for non-SD/MSP counterparties to full, complete, and

systematic records, together with all pertinent data and memoranda,

with respect to each swap in which they are a counterparty. In response

to comments, the Commission has determined that non-SD/MSP

counterparties may keep records in either electronic or paper form.

With respect to record retention, the final rule provides that all

records required to be kept by SEFS, DCMs, DCOs, SDs, and MSPs must be

kept with respect to each swap throughout the life of the swap and for

at least five years following final termination of the swap, or for at

least ten years following the date of creation of the swap, whichever

is greater. Non-SD/MSP counterparties

[[Page 2180]]

must keep required records throughout the existence of the swap and for

five years following final termination of the swap.

With respect to record retrieval, the final rule provides that

required records maintained by SEFs, DCMs, DCOs, SDs, and MSPs must be

readily accessible by the registered entity in question via real time

electronic access throughout the life of the swap and for two years

following the final termination of the swap, and must be retrievable

within three business days throughout the remainder of the required

retention period. Record retrieval requirements are lower in the case

of non-SD/MSP counterparties: in response to comments, the Commission

has determined that non-SD/MSP counterparties need only be able to

retrieve records within five business days throughout the required

retention period.

As discussed above, the Commission has determined that the

compliance date for non-SD/MSP counterparties will be six months after

the compliance date for other registered entities and counterparties.

The Commission has determined that compliance with the requirement to

begin recordkeeping should not be further phased in for non-SD/MSP

counterparties. As noted, the final rule provides lesser recordkeeping

requirements and lesser retrieval requirements for non-SD/MSP

counterparties, in order to reduce recordkeeping costs and burdens for

them. The Commission believes that delaying the requirement to comply

with recordkeeping requirements could interfere with the ability of the

Commission and other regulators to carry out their oversight and

enforcement responsibilities. As noted above, the Commission's

experience with recordkeeping requirements in the context of futures

suggests that all market participants do retain records, and that such

recordkeeping is essential for effective oversight and prosecution of

violations.

The Commission anticipates that the recordkeeping requirements in

Sec. 45.2 will present additional costs to registered entities and

swap counterparties that currently do not retain swap records for the

required period of time. Costs for recordkeeping costs will include

non-recurring investments in technological systems and personnel

associated with establishing data capture and storage systems, and

recurring expenses associated with personnel, data storage and

maintenance of data storage systems. The Commission has not identified

any quantifiable costs of recordkeeping that are not associated with an

information collection subject to the PRA. Quantifiable costs

associated with the same are reflected in the PRA. The Commission

believes that this cost will be substantially reduced or effectively

eliminated for registered entities and swap counterparties that already

engage in the recordkeeping as required by the final rule.

The Commission anticipates that the retrieval requirements set

forth in part 45.2 will result in additional costs to registered

entities and swap counterparties that do not currently have the ability

to retrieve records within the required timeframe. The Commission

expects that this requirement will present costs to registered entities

and swap counterparties in the form of non-recurring investments in

technological systems and personnel associated with establishing data

retrieval processes, and recurring expenses associated with the actual

retrieval of swap data records. Quantifiable costs associated with the

same are reflected in the PRA. The Commission believes that these costs

will be substantially reduced or effectively eliminated for registered

entities and swap counterparties with an existing infrastructure

capable of record retrieval within the timeframe set forth in this

requirement.

The Commission also believes that its determination to allow non-

SD/MSP counterparties to keep records in either electronic or paper

form will generally reduce the cost and burden of recordkeeping for

such counterparties. While many non-SD/MSP counterparties may choose to

keep records in electronic form, some such counterparties that

currently do not have electronic recordkeeping systems may prefer, as

suggested by comments, to avoid the cost of acquiring such systems by

continuing to maintain paper records. The Commission believes that the

final rule provision lengthening the record retrieval period for non-

SD/MSP counterparties to five business days will give such

counterparties adequate time to retrieve such paper records in the

event that the records are requested by the Commission or another

regulator in the course of an investigation. The Commission generally

believes that the pre-Dodd-Frank rationale for requiring Commission

registrants to keep all records relating to their business similarly

applies to swaps by registered entities and swap counterparties. The

Commission requires these records to perform its regulatory function.

Retaining readily accessible records may also improve the risk

management practices of complying entities that wish to consult or

analyze swap transactions as part of their proprietary risk management

strategies.

c. Recordkeeping Requirements in Light of CEA Section 15(a)

The Commission has evaluated the benefits of the recordkeeping

provisions of Sec. 45.2 in light of the specific considerations

identified in section 15(a) of the CEA as follows:

Protection of market participants and the public. As discussed

above, the Commission has endeavored to limit the costs attributable to

discretionary implementation decisions to the maximum degree consistent

with statutory requirements and their intended benefits. The Commission

has endeavored to match the costs of the post-implementation

marketplace with the sizes, levels of sophistication, and levels of

systemic importance of the affected participants, so that the

associated benefits may be realized by the public.

With respect to recordkeeping, the Commission believes the benefits

include the protection of market participants and the public. The

Commission believes that the recordkeeping requirements in the final

rule will enable the Commission and other regulatory agencies to

fulfill their oversight and enforcement responsibilities. The record

retention periods in the final rule are consistent with both the

Commission's existing retention requirement in the context of futures,

pursuant to Commission Regulation 1.31, and with applicable statutes of

limitation. Such record retention will give the Commission ready access

to data essential to its mission to protect market participants and the

public from violations of the CEA and Commission regulations. The

build-up of systemic risk in the largely opaque swap market played a

significant role in the financial crisis of 2007-2008; accordingly, the

Commission believes that the introduction of transparency to these

markets will be critical to regulators' efforts to inform and protect

market participants and the public in the future.

Efficiency, competiveness, and financial integrity. As discussed

above, the Commission has endeavored to limit the costs attributable to

discretionary implementation decisions to the maximum degree consistent

with statutory requirements and their intended benefits. The Commission

has endeavored to match the costs of the post-implementation

marketplace with the sizes, levels of sophistication, and

[[Page 2181]]

levels of systemic importance of the affected participants, so that the

associated benefits may be realized by the public.

The Commission believes that the recordkeeping requirements

provided in the final rule will serve to protect the financial

integrity of swap markets, through increased transparency. This

transparency will provide the Commission and other regulators enhanced

enforcement abilities, aiding the prosecution and deterrence of market

abuses. The Commission acknowledges the costs associated with the

recordkeeping requirement (discussed above), and has attempted to

minimize costs to the extent consistent with fulfillment of the

purposes of the Dodd-Frank Act. The final rule adopts the NOPR

provision for lesser recordkeeping requirements for non-SD/MSP

counterparties. While other registered entities and counterparties must

keep records of all activities relating to their businesses with

respect to swaps, non-SD/MSP counterparties are only required to keep

records with respect to each swap in which they are a counterparty.

Recordkeeping by all swap counterparties, including non-SD/MSP

counterparties, is essential to the Commission's enforcement and market

supervision functions. The Commission also notes that current lapses in

recordkeeping by institutions may generate implicit integrity costs to

financial transactions and the wider public; the final rule attempts to

mitigate these current costs through various recordkeeping requirements

(including universal identifiers), aiding financial integrity.

The Commission believes that, by improving the integrity of the

U.S. swap markets in the manner described above, this final rule may

make participation in the U.S. swap markets more appealing to entities

that currently do not participate, and thus could enhance demand for

access to the U.S. swap market and its participants both domestically

and internationally. This potential increase in swap market

participation may improve the competitiveness of the swap marketplace

as more parties demand sources of risk transference.

Furthermore, the Commission does not anticipate that the

recordkeeping requirements of this final rule present any costs that

would impede the efficiency of swap markets. Required recordkeeping may

aid internal audits and dispute resolution. Electronic recordkeeping,

which will aid required electronic reporting, may improve efficiency

and reduce initiation and maintenance costs over the long run.

Price discovery. The Commission does not believe that this

requirement has a material effect on the price discovery process.

Sound risk management practices. The Commission believes that the

final rule recordkeeping requirements may serve to improve the

soundness of the risk management practices of market participants. The

Commission is essentially requiring the maintenance of accurate records

in a manner such that records are readily available for reproduction to

regulators, but the Commission anticipates an ancillary risk management

benefit. That is, market participants will now have access to a highly

organized and streamlined internal records system when analyzing or

otherwise developing their risk management practices. The Commission

does not believe that the costs associated with its discretionary

implementation decisions are of a magnitude to impede sound risk

management. Moreover, the cost of implementation of the recordkeeping

rule may be partially compensated by error avoidance and the mitigation

of internal risk.

Other public interest considerations. As discussed throughout the

preamble, the Commission believes that the greater market transparency,

enhanced market monitoring, and increased systemic risk mitigation that

will be enabled by the swap recordkeeping required by the final rule

are in the public interest.

4. Swap Data Reporting

a. Benefits of Swap Data Reporting

The Commission anticipates that the part 45 reporting requirements

will generate several overarching, if presently unquantifiable,

benefits to swap market participants and the general public. These

include(i) Improved risk management; (ii) a transfer of the costs

associated with systemic risk from the public to private entities,

particularly to those that are better positioned to realize economies

of scale and scope in assuming those costs; and (iii) improved

regulatory oversight.

The Commission believes these benefits, made possible by the timely

reporting of comprehensive swap transaction data, will accrue to market

participants in a number of ways:

More robust risk monitoring and management capabilities

for market participants as a result of the systems required under

part 45. This will improve the monitoring of the participant's

current swap market position.

New tools to process transactions at a lower expense

per transaction given the systems required under part 45. These

tools will enable participants to handle the same or an increased

volume of swaps at a lower marginal expense both at trade inception

and during its life.

More robust standards for the financial services

industry, such as utilizing UTC and unique identifiers for products

and legal entities.

Transaction reporting under part 45 also benefits the general

public by supporting the Commission's supervision of the swap market,

as well as the broader supervisory responsibilities of U.S. financial

regulators to protect against financial market systemic risk. The

reporting and recordkeeping requirements provide a means for the

Commission to gain a better understanding of the swap market--including

the pricing patterns of certain commodities. As bespoke swaps move onto

more standardized, and in some cases, electronic platforms, more

numerous trade participants will likely enter these markets. Timely,

comprehensive, and standardized regulatory reporting is especially

crucial for successful oversight of these marketplaces.

Transparency facilitated by transaction reporting to SDRs also will

help provide a check against a reoccurrence of the type of systemic

risk build-up that occurred in 2008, when ``the market permitted

enormous exposure to risk to grow out of the sight of regulators and

other traders and derivatives exposures that could not be readily

quantified exacerbated panic and uncertainty about the true financial

condition of other market participants, contributing to the freezing of

credit markets.'' \106\ The ability to monitor and quantify these

levels of risk assumption provides one additional line of defense

against another occurrence of crippling financial costs.

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\106\ Mark Jickling and Kathleen Ann Ruane, Cong. Research

Serv., The Dodd-Frank Wall Street Reform and Consumer Protection

Act: Title VII, Derivatives 1 (2010).

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Pursuant to this final rule, reporting counterparties will be

required to report allocation information when a swap is transacted by

an agent on behalf of clients. The Commission believes that this

requirement will enable regulators to better understand swaps in the

context of allocation, and to more accurately assess their associated

systemic risk, by enabling regulators to see the full record of each

such swap all the way back to both the original transaction and the

actual counterparties.

The Commission believes requiring all data to be reported in the

same SDR following the initial report from a SEF or DCM would reduce

data fragmentation and improve regulatory

[[Page 2182]]

oversight. The costs and benefits of the Commission's approach are

addressed in more detail below in the discussion of the section 15(a)

factors. The Commission is harmonizing its initial PET data reporting

with the part 43 real-time public reporting requirements to the extent

possible and setting forth identical timeframes so that counterparties

and registered entities may be able to, in most cases, submit data for

both requirements in a single report.\107\

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\107\ The phase-in and implementation of these requirements may

differ.

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The Commission notes that there is a cost reduction associated with

the improved harmonization between the approach to PET data reporting

of this final rule and the part 43 real-time public reporting

requirements that were made by the Commission between the issuance of

the NOPR and this final rule. These requirements have been harmonized

to the extent possible, including the imposition of identical

timeframes, so that counterparties and registered entities will be able

to make one initial report. The Commission anticipates that this

harmonization will result in a significant reduction in cost to

counterparties and registered entities.

The Commission believes that part 45 will yield significant

benefits to the public and swap market participants. As discussed more

fully below, however, the Commission is mindful of the costs of its

rules and has carefully considered comments concerning the potential

costs of its proposed recordkeeping and reporting rules. To the extent

possible and consistent with the statutory and regulatory objectives of

this rulemaking, the Commission has adopted cost-mitigating

alternatives presented by commenters. In the following paragraphs, the

Commission first estimates the costs of reporting and next considers

those costs and the aforementioned benefits in light of the five public

interest factors of CEA section 15(a).

b. Costs of Swap Data Reporting

As discussed in detail above, the Commission received a number of

comments supporting the proposed reporting rules, and others suggesting

alternatives or refinements. Commenters did not provide any

quantitative data regarding the costs to registered entities, reporting

counterparties and the public. The Commission addressed those comments

above and, where deemed appropriate, the final rules reflect

commenters' suggestions.

Costs of Reporting Requirements

The Commission anticipates that the direct, quantifiable costs of

complying with the requirement for SEFs, DCMs, DCOs, and reporting

counterparties to report creation data will take the forms of (i)

nonrecurring expenditures in technology and personnel; and (ii)

recurring expenses associated with systems maintenance, support, and

compliance. Each of these quantifiable costs of swap data reporting is

associated with an information collection subject to the PRA. These

costs therefore have been accounted for in the information collection

requests filed with OMB as required by the PRA.

The Commission estimates that the initial costs for its reference

point, a non-SD/MSP reporting counterparty that is not a ``financial

entity'' as defined in CEA section 2(h)(7)(C), and does not contract

with a third party to report swap data, will likely consist of (i)

Developing an internal OMS capable of capturing all relevant swap data

in real-time; (ii) establishing connectivity with an SDR that accepts

data; (iii) developing written policies and procedures to ensure

compliance with part 45; and (iv) compliance with error correction

procedures.\108\

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\108\ As noted above, most data reporting pursuant to Part 45

will be performed by SDs, MSPs, SEFs, DCMs, or DCOs. However, when

estimating costs to market participants for this final rule, the

Commission anticipates that the technological infrastructure and

personnel costs will likely be highest for an unsophisticated non-

SD/MSP reporting counterparty that is not a financial entity, has no

existing infrastructure for reporting, and does not contract with a

third-party service provider to facilitate reporting. Accordingly

the Commission considered costs from this perspective. The

Commission anticipates that these costs will be lower, and in many

cases significantly reduced or completely eliminated, for larger or

more sophisticated entities that already have technological and

personnel systems developed and operational.

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The Commission anticipates, however, that the costs of creation

data reporting for the reporting entities and counterparties listed

above are already largely addressed by the costs of reporting the real-

time data stream for compliance with part 43. Accordingly, the costs of

creation data reporting presented by part 45 should not be considered

incremental to the costs of capturing and transmitting the real-time

data stream pursuant to part 43 except in certain instances, which are

addressed below. In general, the Commission estimates that the

processes necessary for capturing and transmitting the real-time data

stream pursuant to part 43 will encompass the costs of capturing and

transmitting creation data pursuant to part 45. The Commission

anticipates that a reporting entity or counterparty will use its OMS to

capture all of the information that pertains to a given swap. This body

of information will be used to produce the fields necessary for

compliance with both part 43 and part 45. Therefore, the Commission

believes that, in general, the costs of developing and maintaining an

OMS necessary for compliance with part 45 should not be considered to

be incremental to the costs of developing and maintaining an OMS for

compliance with part 43.

Similarly, under both part 43 and part 45 the reporting entity will

be required to establish and maintain connectivity with an SDR for the

transmission of data. The Commission anticipates that, in order to

streamline the data reporting process, reporting entities will transmit

both the real-time data stream and the regulatory data stream

simultaneously to the same SDR via the same connection.\109\ The

Commission has aligned the reporting deadlines provided in part 45 and

the public dissemination delays set forth in part 43 in order to reduce

costs and burdens by permitting registered entities and reporting

counterparties to fulfill their swap data reporting obligations with

respect to both part 45 and part 43 by transmitting a single

report.\110\ Given simultaneous transmission of the data streams

necessary for compliance with parts 43 and 45, the Commission believes

that, in general, the costs of establishing and maintaining

connectivity to an SDR in order to comply with part 45 should not be

considered to be additional to the costs of establishing and

maintaining connectivity to an SDR in order to comply with part 43.

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\109\ Should a reporting entity elect to transmit these streams

separately, its cost to transmit data to an SDR would likely

increase; however, it is for precisely this reason that the

Commission anticipates that reporting entities would, in fact,

eliminate duplicative reporting of data streams for a given swap by

transmitting both streams simultaneously.

\110\ For off-facility swaps that are not accepted for clearing

within the applicable deadline for the reporting counterparty to

report PET data, the reporting counterparty can combine required PET

data reporting and required real time reporting in a single report,

but would still have to report confirmation data separately if it is

not reported along with PET data. Reporting counterparties can avoid

the need for a separate confirmation data report by confirming their

swaps within the applicable deadline for PET data reporting.

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The Commission anticipates that the same logic may be applied to

the costs of developing written compliance policies and procedures, as

well as the costs of developing and implementing error correction

procedures. Because the data streams necessary for compliance with

parts 43 and 45 for a given swap

[[Page 2183]]

originate from the same set of information, the Commission anticipates

that reporting entities will likely consider the management of both

streams when developing compliance and error correction procedures. The

Commission therefore believes that in general, the costs of developing

and implementing compliance and error correction procedures presented

by part 45 should not be considered additional to the costs of

developing and implementing compliance and error correction procedures

presented by part 43.

The Commission acknowledges that part 43 does not address the costs

of reporting by DCOs. The Commission estimates that the incremental

costs to DCOs of compliance with this final rule would be comparable to

the costs either (a) a SEF or DCM, if the DCO makes the creation data

report for an off-facility, cleared swap,\111\ or (b) an SDR, if the

DCO registers as such. In the event that a DCO registers as an SDR, it

will also incur the costs of registering as such pursuant to part 49.

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\111\ The costs to a DCO will be similar to those of a SEF or

DCM in this instance because the initial report to the Commission by

the registered entity will include the same data fields reported in

the same timeframe; thus, the non-recurring and recurring costs to a

DCO of processing and reporting those data should be similar, if not

identical, to those incurred by a SEF or DCM.

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Costs of Reporting Timelines

The reporting timelines and requirements established in this part

were designed to accommodate the needs of reporting counterparties and

registered entities of varying size and sophistication. The Commission

believes that these reporting timelines and requirements have been

tailored appropriately to the sizes and levels of technological and

personnel sophistication of the affected entities, and will not impose

any additional costs to reporting counterparties or registered entities

above the costs associated with their reporting obligations. Costs

associated with reporting obligations are discussed below in the

sections addressing the costs of creation data reporting and

continuation data reporting.

Several commenters addressed the timeframes allotted for reporting

creation and continuation data. The AGA requested at least 24 hours for

PET data reports by non-SD/MSP reporting counterparties, both initially

and when required to supplement an incomplete SEF or DCM report. AGA

also requested more than the 24 hour timeframe allotted for PET data

reporting for swaps that are neither electronically executed nor

verified, because in certain instances the reports could be required

outside normal business hours, which would increase reporting costs.

Similarly, ABC asked the Commission to clarify that the 24 hour

timeframe did not include non-business days, such as a national or

state holiday or a national or state period of emergency.

MFA commented generally that it believed that the policy benefits

of providing swap data within minutes of execution do not outweigh the

costs in terms of the high likelihood of errors, or the infrastructure

costs to establish a mechanism to report swaps information in these

short timeframes. Specifically, MFA recommended that the Commission

define ``execution'' as being coterminous with ``confirmation'' for on-

facility swaps. It also urged that, for swaps not executed or confirmed

electronically, the 24-hour timeframe in the NOPR should commence

following manual confirmation. Similarly, COPE, EEI, and IECA commented

that the 24 hour timeframe was too short for non-SD/MSP counterparties.

Specifically, IECA recommended weekly reports for all required creation

data and weekly or biweekly for continuation data.

Chatham Financial and CDEU recommended a timeline of the next

business day following execution for electronically executed non-SD/MSP

reportable swaps and second business day following execution for non-

electronically executed and confirmed non-SD/MSP reportable swaps.

The Electric Coalition recommended that non-SD/MSP reporting

counterparties be required to report no more than quarterly, and

generally commented that the timelines were too short for non-financial

entities. Similarly, CDEU commented that, for valuation data (a subset

of continuation data reporting), non-SD/MSP end-users should not be

required no more frequently than they are required to reconcile their

portfolios.

As discussed above, after considering these comments, the

Commission has determined that the final rule will adopt a streamlined

reporting regime that requires reporting by the registered entities or

swap counterparties with the easiest, fastest, and cheapest data access

and those most likely to have the necessary automated systems.

Under this reporting regime, in the case of swaps executed on a SEF

or DCM and cleared on a DCO, and in the case of off-facility swaps

accepted for clearing by a DCO within the deadlines for reporting

counterparties to report PET data, reporting obligations for non-SD/MSP

reporting counterparties are entirely eliminated, and the only

reporting obligation for SD or MSP reporting counterparties is the

requirement to report valuation data during the existence of the swap.

For on-facility swaps that are not cleared, reporting

counterparties must report only required swap continuation data,

including reports of changes to primary economic terms of the swap made

after occurrence of such a change, and reports of valuation data. As

noted above, the deadlines for such reports by non-SD/MSP reporting

counterparties have been substantially extended.

For off-facility swaps not accepted for clearing within the

applicable counterparty reporting deadline, but eventually cleared, SD

or MSP reporting counterparties are required to report only PET data

and valuation data, and non-SD/MSP reporting counterparties are

required to report only PET data.

A non-SD/MSP counterparty will be required to report both swap

creation data and swap continuation data only for off-facility,

uncleared swaps between non-SD/MSP counterparties; and this obligation

can apply only if the non-SD/MSP counterparty is an ECP, since CEA

section 2(e) restricts swap trading by non-ECP counterparties to on-

facility swaps. For the extremely small number of off-facility,

uncleared swaps for which a non-SD/MSP that is an ECP is the reporting

counterparty, the final rule also provides reporting deadlines that are

extended and phased in. In such cases, PET data must be reported by the

non-SD/MSP reporting counterparty within 48 hours after execution

during the first year of reporting, within 36 business hours after

execution during the second year of reporting, and within 24 business

hours after execution thereafter. Confirmation data must be reported

within 48 hours after confirmation during the first year of reporting,

within 36 business hours after confirmation during the second year of

reporting, and within 24 business hours after confirmation thereafter.

During the existence of the swap, changes to primary economic terms

must be reported by the end of the second business day following the

date of the change during the first year of reporting, and by the end

of the first business day following the date of the change thereafter;

and valuation data is only required to be reported on a quarterly

basis.

Finally, for off-facility, uncleared swaps, SD or MSP reporting

counterparties must report both required swap creation data and

required swap confirmation data. However, the reporting timeframes for

these reports have been coordinated with the dissemination delays for

real

[[Page 2184]]

time reporting, in order to permit counterparties to fulfill both real

time and regulatory reporting obligations by making a single creation

data report.\112\ Confirmation data reporting deadlines in this context

have also been extended to 24 business hours in cases where

confirmation occurs manually rather than through use of automated

systems, due to the presence of a non-SD/MSP counterparty that lacks

such systems.

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\112\ The phase-in and implementation of these requirements may

differ.

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These provisions of the final rule either eliminate or

substantially reduce the costs and burdens of swap data reporting for

all reporting counterparties, and particularly for non-SD/MSP reporting

counterparties, who are those least likely to have existing

technological and personnel infrastructure for swap data reporting.

Costs of Reporting Cleared Swaps

The Commission notes that the final rule swap data reporting

requirements could present costs to reporting counterparties and

registered entities to the extent that a SEF, DCM, or reporting

counterparty reports regulatory data to an SDR with which it does not

have a presently existing connection, rather than to a DCO registered

as an SDR, with which registered entity or reporting counterparty has a

presently existing connection for clearing purposes.\113\ However, the

Commission enumerated the costs of establishing connectivity to an SDR

for swap data reporting in its final part 43 rules governing real-time

reporting of swap transaction and pricing information. The costs of

connectivity presented by this final rule are not additional to those

costs considered in connection with part 43, and thus are not

appropriate for evaluating costs relative to benefits in this

rulemaking. Moreover, the Commission has not identified any

quantifiable costs with respect to connectivity not associated with the

part 43 information collection request, for which the Commission must

account under the PRA.

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\113\ Should a DCO register as an SDR, counterparties that

transacted through the DCO previously would have already established

connectivity for processing those transactions, and would thus not

have to incur new connectivity costs once the DCO began functioning

as an SDR.

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Two commenters addressed cost-benefit considerations in regard to

the reporting of cleared swaps to SDRs. CMC recommended that the

Commission leverage existing DCOs for reporting cleared swaps, adding

that requiring the industry to establish a redundant set of expensive

connections with non-DCO SDRs for the purpose of making regulatory

reports for cleared trades would be costly, inefficient and

unnecessary. Similarly, CME recommended that the initial regulatory

report for a cleared swap be reported to a DCO or an SDR chosen by the

DCO, adding that this approach is the lowest cost and least burdensome

method for implementing the regulatory reporting requirements.

The Commission has determined to adopt the rules as they relate to

reporting swap data for cleared trades to SDRs largely as proposed.

While the Commission is cognizant of the cost-benefit considerations,

section 2(a) of the CEA requires each ``swap (whether cleared or

uncleared) * * * be reported to a registered swap data repository''

(emphasis added). The Commission notes that section 21(a)(1)(B) allows

DCOs to register as SDRs, and that the final rules do not preclude

counterparties or registered entities from reporting swap data to

existing DCOs registered as SDRs, or to SDRs chosen by DCOs, if they so

choose for business or cost-benefit reasons.

Costs Affected by Permitted Use of Third-Party Service Providers to

Facilitate Reporting

The Commission anticipates that the final rule reporting

requirements for reporting counterparties and registered entities may

result in costs to such counterparties and entities in the form of (i)

personnel hours dedicated to the development and maintenance of

reporting systems and connectivity to data repositories; and (ii) the

development and ongoing administration of a compliance program. Such

costs could include standardizing data or hiring new personnel to

upgrade technology infrastructure. However, such costs could be

affected or reduced where the reporting counterparty or registered

entity required to report chooses to have a third-party service

provider facilitate reporting.

The Commission requested comment on the merits of allowing third-

party facilitation of swap data reporting and on how it should be

structured. Several commenters responded with comments regarding cost-

benefit considerations. Global Forex, DTCC and WGCEF supported the NOPR

provision allowing third-party facilitation of reporting because they

believe it will reduce costs, particularly for non-SD/MSPs.

As noted above, the Commission has considered these comments, and

has determined to adopt in the final rule the NOPR provision permitting

third-party facilitation of data reporting. The use of third-party

service providers in the reporting phase of the regulatory data

reporting process may also represent a likely cost reduction. Reporting

counterparties and registered entities that elect to contract with

third-party service providers can realize the cost savings associated

with the comparative advantages of third-party providers specializing

in swap data reporting services.

Costs of Creation Data Reporting

i. Costs to Counterparties and Registered Entities

As discussed in more detail above, the NOPR called for two types of

creation data reporting, namely PET data reporting and confirmation

data reporting. The Commission anticipates that creation data reporting

will represent costs to reporting counterparties and registered

entities in the form of (a) significant non-recurring investments in

technological systems and personnel; and (b) recurring expenses

associated with systems usage and maintenance and personnel hours

required for data reporting.

The Commission estimates that the initial costs for its reference

point, a non-SD/MSP reporting counterparty that is not a financial

entity as defined in the Dodd-Frank Act and does not contract with a

third party to report swap data, will likely consist of (i) Developing

an internal OMS capable of capturing all relevant swap data in real-

time; (ii) establishing connectivity with an SDR that accepts data;

(iii) developing written policies and procedures to ensure compliance

with part 43; and (iv) compliance with error correction procedures.

The Commission estimates that the recurring costs for its reference

point, a non-SD/MSP reporting counterparty that is not a financial

entity and does not contract with a third party to report swap data,

will likely consist of (i) Operational support for its OMS, including

adaptation to new products, systems upgrades and ongoing maintenance;

(ii) maintaining connectivity with an SDR that accepts data, including

the demands on technological systems and the burden associated with the

personnel hours necessary to facilitate transmission of data; and (iii)

compliance with error correction procedures, including the burden

associated with the personnel hours necessary to monitor and report

errors.

The Commission notes, however, these costs should not be added to

the costs of reporting data for real-time public reporting enumerated

in the Commission's final rules in part 43

[[Page 2185]]

concerning real time reporting, insofar as they refer to PET data for

regulatory reporting.

Pursuant to the final rule, counterparties will be required to

report allocation information when a swap is transacted by an agent on

behalf of clients. The Commission does not believe that this

requirement is likely to present a significant incremental burden to

counterparties. Based on conversations with industry participants, the

Commission believes that allocation reports are already transmitted

from one counterparty to the other following a swap; therefore,

transmitting that report to an SDR would present a negligible

additional burden.

The final rule provides that, should there be a swap asset class

for which no SDR accepts swap data, swap data for a swap in that asset

class must be reported to the Commission. This provision was set forth

in the NOPR, and is required by CEA section 4r(b) and (c). The

Commission anticipates that this requirement is unlikely to impose

additional costs on registered entities and swap counterparties

required to report swap data, since SDRs covering all existing swap

asset classes have already applied for designation by the Commission.

The Commission also notes that the requirements for such reporting

differ from those for reporting to an SDR. The final rule calls for

data for such swaps to be reported to the Commission at times announced

by the Commission and in an electronic file in a format acceptable to

the Commission, as determined by the Commission's Chief Information

Officer.

The Commission has nonetheless considered possible costs associated

with such reporting, which would apply only in the event that there is

an asset class for which no SDR accepts data. In such circumstances,

reporting counterparties and registered entities required to report

swap data would be required to incur an initial one-time cost to

establish and test connectivity to the Commission. The Commission

notes, however, that because reporting counterparties will already be

required to develop and test technological systems for establishing

connectivity to an SDR pursuant to this final rule, there will not be

an incremental non-recurring cost presented by this requirement.

Rather, because this cost will only be incurred by a reporting

counterparty in the absence of an SDR that accepts data for any asset

class, this cost should be considered to exist in the absence of,

rather than together with, the cost of establishing connectivity to an

SDR.

In the event that a new asset class comes into existence for which

no SDR immediately accepts regulatory swap data reports, the Commission

will be required to receive data reports concerning swaps in that asset

class until an SDR elects to receive swap data in that asset class. The

Commission has accounted in the PRA for the cost of maintaining

connectivity to the Commission which would be incurred by registered

entities and reporting counterparties transacting in such an asset. The

Commission does not believe it is feasible to estimate the likelihood

that such an asset class will arise or the length of time for which the

Commission will be required to receive the associated regulatory data.

The Commission believes that this recurring burden of transmitting

data to the Commission will represent a small percentage of the burden

of transmitting data to a registered SDR or third-party service

provider as required for real time reporting pursuant to part 43 and

regulatory reporting to SDRs as required by this part. The Commission

has determined that this percentage is not readily quantifiable,

because the asset classes for which reporting to the Commission would

be required, and thus the amount of data that would be required to be

reported to the Commission, are currently unknown.

The NOPR sought to mitigate the fragmentation of data for a single

swap across multiple SDRs by requiring that once an initial data report

concerning a swap is made to an SDR, all data reported for that swap

thereafter must be reported to that same SDR.\114\ Roundtable

participants agreed that the NOPR provision calling for all data for a

given swap to be reported to a single SDR was essential to preventing

fragmentation of data across multiple SDRs, something that would

seriously impair both regulators' ability to view or aggregate all of

the data concerning a swap and the ability of reporting entities and

counterparties to review data reported by them. WGCEF commented that

all swap data for a given swap should be reported to the same SDR. The

Commission received no comments opposing this requirement.

---------------------------------------------------------------------------

\114\ The NOPR also called for PET data to be reported promptly

following execution of the swap.

---------------------------------------------------------------------------

Global Forex observed that, after the initial swap data report is

made for a swap, market participants required to make further reports

concerning that swap would need to ensure that they can connect to the

chosen SDR. EEI, EPSA, and WGCEF suggested that the rules should ensure

that SDR selection by a platform, SD, or MSP is equitable and does not

result in unreasonable costs or burdens being imposed on non-SD/MSP

counterparties.

WGCEF also suggested that market participants should not be

required to report all of their swaps to the same SDR, since SDR

competition would tend to lower fees associated with reporting. DTCC,

ICE, and WGCEF recommended that the reporting counterparty should

always select the SDR. ICE argued that otherwise reporting

counterparties could incur significant expenses to build and maintain

connections to an SDR with which they are not already connected. ABC

and CIEBA suggest that for swaps involving a benefit plan as a

counterparty, the SDR selection should always be made by the plan.

The CMC and CME both recommended that the initial regulatory report

for a cleared trade be transmitted to either a DCO or an SDR that is

affiliated with a DCO. CMC suggested that this would reduce unnecessary

expenses and operational difficulties, whereas it would be costly,

inefficient and unnecessary to require industry to establish a

redundant set of expensive connections with non-DCO SDRs for the

purpose of making regulatory reports for cleared trades. CME stated

that having cleared swaps reported to a DCO also registered as an SDR

or an SDR that is affiliated with a DCO would provide the lowest cost

and least operationally burdensome path available to meet regulatory

requirements.

The Commission anticipates that, because the final rule does not

require each cleared swap to be reported to an SDR affiliated with the

DCO that clears the swap, in some circumstances DCOs may incur some

increased costs, relative to an environment in which all cleared swaps

must be reported to a DCO-SDR.

For a cleared swap executed on a SEF or DCM, and

reported to an SDR by the SEF or DCM as required by the final rule,

the DCO could incur incremental costs, if the SEF or DCM chooses to

report to an SDR other than the DCO-SDR. In this circumstance, the

DCO would be required to report confirmation data and continuation

data to the SDR receiving the initial report, and thus to assume the

costs necessary to establish connectivity to that SDR and transmit

data to it. Such connectivity and transmission costs are addressed

below. However, if the DCO chooses to register as an SDR, as

explicitly permitted by the statute and anticipated by these

commenters, the SEF or DCM would be able to reduce its costs by

selecting the DCO-SDR as the SDR receiving the initial report, and

thus avoid the need to send data separately to an SDR for regulatory

reporting purposes and to a DCO for clearing purposes. In such an

event, the DCO would not incur these incremental costs.

For an off-facility, cleared swap for which the

reporting counterparty is excused

[[Page 2186]]

by the final rule from reporting creation data, the DCO would not

incur incremental costs. In this situation, the DCO would select the

SDR to which all data is reported, by making the initial creation

data report. The DCO could report to itself in its capacity as an

SDR if it chooses to to register as an SDR, as explicitly permitted

by the statute and anticipated by these commenters.

For an off-facility, cleared swap with respect to which

the reporting counterparty makes the initial PET data report, the

DCO would incur incremental costs if the reporting counterparty

chooses to report to an SDR other than the DCO-SDR. In this

circumstance the DCO would be required to report confirmation data

and continuation data to the SDR receiving the initial report, and

thus to assume the costs necessary to establish connectivity to that

SDR and transmit data to it. These costs are addressed below.

However, if the DCO chooses to register as an SDR, as explicitly

permitted by the statute and anticipated by these commenters, the

reporting counterparty would be able to reduce its costs by

selecting the DCO-SDR as the SDR receiving the initial report, and

thus avoid the need to send data separately to an SDR for regulatory

reporting purposes and to a DCO for clearing purposes. In such an

event, the DCO would not incur these incremental costs.

The Commission also anticipates that, because the final rule does

not require each cleared swap to be reported to an SDR affiliated with

the DCO that clears the swap, in some circumstances reporting

counterparties may incur some increased costs, but also some increased

benefits, relative to an environment in which all cleared swaps must be

reported to a DCO-SDR.

For swaps executed on a SEF or DCM, an SD or MSP

reporting counterparty would incur the incremental costs if the SEF

or DCM chooses to report to an SDR other than the DCO-SDR. In this

circumstance, the SD or MSP would be required to report valuation

data to the SDR, and thus to assume the costs necessary to establish

connectivity to that SDR and transmit data to it. Such costs are

addressed below. A non-SD/MSP reporting counterparty would not incur

such incremental costs, because all continuation data would be

reported by the DCO. However, if the DCO chooses to register as an

SDR, as explicitly permitted by the statute and anticipated by these

commenters, the SEF or DCM would be able to reduce its costs by

selecting the DCO-SDR as the SDR receiving the initial report, and

thus avoid the need to send data separately to an SDR for regulatory

reporting purposes and to a DCO for clearing purposes. In such an

event, the SD or MSP reporting counterparty would not incur these

incremental costs.

For an off-facility, cleared swap with respect to which

the reporting counterparty is excused by the final rule from

reporting creation data, an SD or MSP reporting counterparty would

incur incremental costs only if the DCO chooses not to register as

an SDR.\115\ In this situation, the DCO would select the SDR to

which all data is reported, by making the initial creation data

report, and could report to itself in its capacity as an SDR if it

chooses to to register as an SDR, as explicitly permitted by the

statute and anticipated by these commenters. The incremental costs

for the SD or MSP reporting counterparty would be the costs

necessary to establish connectivity to, and transmit valuation data

to, the SDR to which the initial creation data report was made. A

non-SD/MSP reporting counterparty would not incur such incremental

costs, because all continuation data would be reported by the DCO.

---------------------------------------------------------------------------

\115\ The Commission believes that a DCO registered as an SDR

would choose to report to itself in its capacity as an SDR in this

circumstance.

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For an off-facility, cleared swap with respect to which

the reporting counterparty makes the initial PET data report, the

reporting counterparty would not incur incremental costs, but would

receive the benefit of being able to choose either the DCO-SDR or

any other SDR accepting swaps in the asset class in question.

The Commission also anticipates that, because the final rule does

not require each cleared swap to be reported to an SDR affiliated with

the DCO that clears the swap, SEFs and DCMs would receive benefits

relative to an environment in which all cleared swaps must be reported

to a DCO-SDR. Specifically, for any swap executed on a SEF or DCM, the

facility would be able to choose either the DCO-SDR or any other SDR

accepting swaps in the asset class in question.

The Commission notes that DCOs are eligible to register as SDRs and

capitalize on these existing connections, and the Commission

anticipates that the competitive market for SDR services will dictate

such an outcome if it is indeed cost-effective. The Commission believes

that a competitive marketplace for SDR services presents the

opportunity for significant reductions to the cost of swap data

reporting.

WGCEF and Dominion recommended that the Commission harmonize its

PET data requirements with the reporting required by the part 43 real-

time public reporting regulations to reduce the reporting burdens on

counterparties.

After considering these comments, the Commission has determined, as

noted above, that the final rule should require that all data for a

given swap be reported to the same SDR to which the initial report of

swap data is made as provided in the final rule. The wide variety of

suggestions by commenters concerning who should choose the SDR suggests

that no single approach produces the lowest cost for all market

participants in all circumstances, and that this decision is best left

to the market. The final rule as adopted avoids injecting the

Commission unnecessarily into a market decision, and leaves the choice

of SDR to be influenced by market forces and possible market

innovations. Requiring that all cleared swaps be reported only to DCOs

registered as SDRs would create a non-level playing field for

competition between DCO-SDRs and non-DCO-SDRs. Conversely, giving the

choice of the SDR to the reporting counterparty in all cases could in

practice give an SDR substantially owned by SDs a dominant market

position with respect to much swap data reporting. The final rule also

addresses the major substance of the concerns expressed by non-SD/MSP

counterparties, since it requires the initial data report to be made by

a non-SD/MSP counterparty only in the case of a swap executed off-

facility between two non-SD/MSP counterparties that are ECPs. Moreover,

in this situation, the non-SD/MSP reporting counterparty will, by

making the initial data report, be able to select the SDR as

recommended by comments.

ii. Costs to SDRs

The Commission anticipates that creation data reporting will

present additional costs to SDRs, both in the form of non-recurring

investments in technological systems and personnel during the

development of the formatting procedure, and in the form of recurring

expenses associated with data processing, systems maintenance, and

personnel hours. However, these costs should not be considered

independent of the costs associated with real time reporting pursuant

to part 43, which includes the burden estimate for the data formatting

processes that an SDR will need to employ. The Commission anticipates

that compliance with this requirement will primarily require SDRs to

handle additional swap data required to be reported by this part but

not required to be reported by part 43. This part will not require SDRs

to fulfill any of the rounding, counterparty masking, or disseminating

requirements of real-time public reporting. Therefore, in general, the

Commission anticipates that the recurring burden to an SDR presented by

creation data reporting will be negligibly incremental to the costs to

SDRs associated with real-time public reporting.

Pursuant to the final rule, in the context of allocations, as

discussed above, reporting of both the original swap between the

reporting counterparty and the agent and reporting of the swaps

resulting from allocation will be required. The only additional duty

for SDRs in this context

[[Page 2187]]

is the need to map together these related swaps. SDRs will already be

required to have automated systems and personnel capable of mapping

together various data reports, such as mapping together different data

reports for a single swap using the USI for the swap that is included

in each such report. As a result of the requirement for mapping in the

context of allocations, the Commission anticipates that SDRs will incur

an incremental burden consisting of (a) one-time setup costs to program

automated systems to do the required mapping in the allocation context,

and (b) low ongoing maintenance costs associated with keeping such

programming up to date. The Commission does not believe that this

burden is readily quantifiable, both because the percentage of swaps

involving allocations is currently unknown, and because the number of

client allocations could vary greatly between swaps involving

allocation. As noted above, SDRs must have the capacity to map together

all data reports associated with any USI, and compliance with this

requirement will facilitate the data mapping process in the context of

allocations, which will also involve USIs. This should reduce the

additional burden of linking allocation reports, or eliminate it in

some cases. The Commission was informed by roundtable participants that

existing trade repositories are able to accept data in multiple formats

or data standards from different counterparties, and to map the data

they receive into a common data standard within the repository, without

undue difficulty, delay, or cost. Therefore, the Commission anticipates

that SDRs will be able to perform the mapping required in the

allocation context using existing technologies and processes.

With regard to SDRs, the error reporting requirement of this final

rule would require a registered SDR to develop protocols regarding the

reporting and correction of erroneous information. This reporting

requirement is associated with an information collection for which the

Commission is obligated to account under the PRA. Accordingly, the

burden estimates have been addressed in the information collection

requests that the Commission has prepared and submitted to OMB for

approval, as required under that statute

Costs of Continuation Data Reporting

The Commission received several comments on the cost-benefit

implications of its proposed approach regarding continuation reporting.

Several comments addressed the NOPR provisions prescribed the data

reporting method--life cycle reporting or snapshot reporting--to be

used in each asset class to report changes to the primary economic

terms of the swap. TriOptima supported the NOPR's approach. ICE

commented with respect to the other commodity asset class that the

snapshot approach would be inefficient, create burdens, and prove

technologically challenging, and that therefore its drawbacks would

outweigh its benefits. Reval commented that continuation data reporting

by either method would require significant capabilities and

investments, and stated that snapshot reporting for interest rate,

currency, and other commodity swaps would not lessen the burdens of

compliance. As noted above, ISDA, SIFMA, REGIS-TR, and DTCC recommended

having the rule not make the choice between the lifecycle and the

snapshot reporting method for each asset class, but rather allowing

SDRs to decide whether to accept data by either or both methods.

Other comments addressed the impact of required frequency of

reporting. EEI, WGCEF, and CDEU contended that daily snapshot reporting

would be burdensome and excessive for non-SD/MSP counterparties, and

recommended quarterly rather than daily reports. AGA stated that daily

continuation data reporting would be unduly burdensome, and recommended

monthly reporting instead.

Additional comments addressed costs associated with valuation data

reporting. Chatham Financial recommended that the Commission align the

timing for valuation data reporting with the timing for the portfolio

reconciliation requirements in the Commission's portfolio and

reconciliation rulemaking, in order to reduce the burden on non-SD/MSP

reporting counterparties. ICE suggested that only DCOs be required to

report valuation data for cleared swaps, since requiring both DCOs and

counterparties to report this data would drastically increase the

number of messages transmitted to SDRs on a daily basis and

unnecessarily burden reporting counterparties. EEI and CDEU questioned

the Commission's regulatory authority and need for valuation data

reporting from non-registered counterparties. ISDA and SIFMA commented

that the implementation of any valuation methodology requires

significant operational and infrastructure development, and called for

further consultation before the Commission requires such a methodology.

FHLB recommended weekly valuation reporting by non-SD/MSP reporting

counterparties, arguing that this should be sufficient for regulatory

purposes and would avoid forcing such counterparties to implement the

costly infrastructure needed to generate daily valuation reports. The

Electric Coalition recommended quarterly valuation data reporting for

the same reason.

The Commission anticipates that the reporting of continuation data

will present additional costs beyond the costs of reporting required

swap creation data as discussed above, consisting of the additional

maintenance of an internal OMS and the additional personnel hours

needed to maintain a compliance program in support of the OMS.

The Commission believes that promptly submitting amended

transaction and pricing data to the appropriate registered SDR after

discovery of an error would impose a burden on reporting counterparties

and registered entities. Likewise, the Commission believes that

promptly notifying the relevant reporting counterparty or registered

entity after discovery of an error would impose a burden on non-

reporting counterparties.

The Commission believes that error reporting would impose an

initial, non-recurring burden associated with designing and building

the reporting parties' reporting system to be capable of submitting

amended swap transactions to a registered SDR. In addition, reporting

parties will be required to support and maintain the error reporting

function and registered SDRs will be required to accept the error

reporting.

The Commission believes that designing and building appropriate

reporting system functionality would be a component of, and represent

an incremental add-on to, the cost of building a reporting system and

developing a compliance function as required by Sec. 43.3(a) (real-

time reporting rule). With regard to non-reporting counterparties, the

Commission believes that the error reporting requirement of this final

rule would impose a minimal non-recurring and recurring burdens

associated with promptly notifying the relevant reporting party after

discovery of an error. The Commission believes, however, that swap

counterparties already monitor their swap transactions in the ordinary

course of business, and thus the error reporting requirement of this

final rule would not result in any significant new burdens for these

participants.

Upon consideration of the comments, the Commission is adopting the

NOPR continuation data provisions with a number of modifications that

the

[[Page 2188]]

Commission believes will further reduce costs and burdens for

registered entities and reporting counterparties, and in particular for

non-SD/MSP reporting counterparties. If a swap is cleared, the DCO will

report all continuation data with the exception of valuation reporting

by SDs and MSPs. Non-SD/MSP reporting counterparties will not be

required to report any continuation data for cleared swaps. For

uncleared swaps, the deadlines for non-SD/MSP reporting counterparties

to report changes to primary economic terms have been extended and

phased in. While the NOPR required the reporting of all of the data

elements necessary for a person to determine the current market value

of the swap, the final rule requires only the reporting of the data

elements necessary to describe the daily mark of the transaction. In

addition, non-SD/MSP reporting counterparties will only be required to

report valuation data on a quarterly basis. In part to further reduce

continuation data reporting costs as discussed in the above comments,

the final rule requires that continuation data be reported 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, but will leave to the SDR and

registered entity and reporting counterparty marketplace the choice of

the reporting method used to meet this requirement. This approach will

help to address commenters' concerns about the cost of daily reporting,

since reporting counterparties would not be required to report on a

daily basis if the SDR in question accepts life cycle reporting.\116\

Additionally in order to reduce reporting burdens to the extent this

can be done without impairing the purposes for which the Dodd-Frank Act

requires swap data reporting, the Commission has determined that the

final rule will not require reporting of contract-intrinsic events.

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\116\ The flexibility of this approach should also ensure

harmonization of the final rule with SEC rules in this respect: even

if the SEC rules specify a reporting method for reporting to

security-based swap data repositories, SDRs that accept mixed swaps

will be free to accept reporting by any reporting method mandated by

the SEC.

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The Commission believes that the swap data reporting requirements

of the final rule represent a reduced cost compared to the requirements

of the NOPR. The Commission does not mandate which particular approach

an SDR chooses, either snapshot approach or lifecycle, in the final

rule, so long as the continuation data for a given swap are accurately

reported. This approach will allow registered SDRs to select the method

of continuation data reporting that is most cost-effective and most

logical for the swap business of their reporting customers. As noted,

costs have been reduced by elimination of required reporting of

contract-intrinsic data. The Commission does not mandate the reporting

of contract-intrinsic data in the final rule, a data stream that was

required under the proposed rule. The Commission believes that this

requirement would have presented a cost burden to reporting

counterparties and registered entities and its elimination will present

a cost reduction. Furthermore, allowing the clearing of a swap on a DCO

to satisfy the continuation data reporting obligations of non-SD/MSP

reporting counterparties represents a lowered overall cost. This

approach eliminates duplication of the reporting requirement,

capitalizes on the transmission pipeline from the DCO to the SDR, and

will allow for more cost-effective reporting than a regime in which

reporting parties entering into a cleared swap would always be

responsible for reporting regulatory data, as the DCO will likely

realize economies of scale in the reporting process.

Collateral and Master Agreement Reporting

In the NOPR, the Commission requested comment as to whether

separate warehouse and library systems should be developed for

collateral and master agreements. Several commenters responded with

cost-benefit considerations regarding establishing these separate

reporting systems. ABC supported requiring master agreement reporting

but recommended that they be reported only once if required. SunGard

supported the establishment of a collateral SDR that could hold credit

support agreements and related net margin and collateral positions

between two counterparties, adding that this would eliminate

unnecessary costs. Chatham Financial and CDEU recommended that the

Commission not require master agreement or collateral reporting because

the costs of reporting would outweigh the benefits. After consideration

of these comments, the Commission has determined not to require master

agreement or collateral reporting at this time.

c. Reporting Requirements in Light of CEA Section 15(a)

The Commission has evaluated the costs and benefits of the

reporting provisions under Sec. 45.3 in light of the specific

considerations identified in Section 15(a) of the CEA as follows.

Protection of market participants and the public. As discussed

above, the Commission has endeavored to limit the costs attributable to

discretionary implementation decisions to the maximum degree consistent

with statutory requirements and their intended benefits. The Commission

has endeavored to match the costs of the post-implementation

marketplace with the sizes, levels of sophistication, and levels of

systemic importance of the affected participants, so that the

associated benefits may be realized by the public.

With respect to swap data reporting, the Commission believes the

benefits include the protection of market participants and the public.

The Commission believes that the reporting requirement of Sec. 45.3

will provide regulatory agencies with a wealth of previously

unavailable data. This comprehensive data will be available in a

unified format, greatly enhancing the ability of regulators in their

oversight and enforcement functions. Systemic risk regulators need data

that will enable them to monitor gross and net counterparty exposures

wherever possible, not just notional volumes for each contract but also

market values. Such data would make it possible to calculate the

concentration of counterparty risk on both participant and market

levels. Market regulators need data that helps them promote market

fairness and competitiveness; protect market participants against

fraud, manipulation, and abusive trading practices; enforce aggregate

speculative position limits as adopted; and ensure the financial

integrity of the clearing process.

The Commission believes that important regulatory purposes of Dodd-

Frank would be frustrated, and that regulators' ability to see

necessary information concerning swaps could be impeded, if data

concerning a given swap was spread over multiple SDRs.

Efficiency, competiveness, and financial integrity. As discussed

above, the Commission has endeavored to limit the costs attributable to

discretionary implementation decisions to the maximum degree consistent

with statutory requirements and their intended benefits. The Commission

has endeavored to match the costs of the post-implementation

marketplace with the sizes, levels of sophistication, and levels of

systemic importance of the affected participants, so that the

associated benefits may be realized by the public.

[[Page 2189]]

With respect to swap data reporting, the Commission believes the

benefits include enhancing the financial integrity of swap markets. The

Commission believes that final rule's streamlined reporting regime,

including the counterparty hierarchy used to select the reporting

counterparty, can be considered efficient in that it assigns greater

reporting responsibility to more sophisticated entities more likely to

be able to realize economies of scale and scope in reporting costs.

This reporting regime may also be an incentive for the platform

execution of swaps that might have otherwise been executed bilaterally,

since platform execution absolves the swap counterparties of the

majority of the reporting burden discussed in this Consideration of

Costs and Benefits section. The Commission anticipates that this will

increase the role of the registered entities in the market that are

able to report data to an SDR most efficiently. Similarly, a potential

increase in the number of participants using platform execution, due to

this efficiency, may aid in market competition.

The Commission believes that, by improving the integrity of the

U.S. swap markets in the manner described above, this final rule may

make participation in the U.S. swap markets more appealing to entities

that currently do not participate; therefore, this final rule presents

the potential to enhance the demand for access to the U.S. swap market

and its participants both domestically and in the global swap

marketplace. This potential increase in swap market participation may

improve the competitiveness of the swap marketplace as more parties

demand sources of risk transference.

The Commission believes that reporting parties may be able to

realize lower costs by means of transmitting reporting and regulatory

data through third-party service providers. These providers will likely

have a comparative advantage in data processing costs relative to the

capabilities of reporting parties; as in the case of the reporting

hierarchy, the final rule allows for the use of reporting methods

considered more efficient by market participants themselves.

Because the accuracy of swap data is essential for market integrity

and regulatory oversight, the final Sec. 45.14 requires the prompt

correction of errors. As seen during the most recent financial crisis,

market volatility may be such that a delay in error correction, even on

the order of a day, may be too late for effective analysis and

response. Because of this, the Commission has considered the cost of

error correction on market participants with regard to the effects of

market turmoil during critical events intensified by market opacity.

The Commission believes that the data standards provisions of the

final rule will serve to reduce costs and burdens for registered

entities and swap counterparties by (a) allowing reporting entities and

counterparties to use whatever facilities, methods, or data standards

are provided or required by the SDR to which data is reported; and (b)

allowing SDRs to use various facilities, methods, and data standards to

receive data, so long as the SDR can provide data to the Commission in

the format required by the Commission. The Commission believes this

approach is preferable to having the Commission mandate that reporting

entities or counterparties adopt a particular format or data standard

for reporting swap data, which in some cases could impose the

additional burden of acquiring new technological capability different

or more extensive that what the entity or counterparty already

possesses. The Commission believes that, in light of this provision of

the final rule, market competition is likely to lead SDRs to allow

reporting entities and counterparties to report using data formats or

standards that are easiest and least costly for them. Costs for market

participants may also be lowered by the final rule provision

authorizing the Commission's Chief Information Officer to require use

of a particular data standard in order to accommodate the needs of

different communities of users.\117\

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\117\ This authority could be used, for example, to require SDRs

to accept swap data reports using a particular computer language

already used by firms in a particular segment of the swap

marketplace, so that they are not forced to incur additional cost by

acquiring the capability needed to report using a different computer

language.

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Furthermore, the Commission does not anticipate that the

recordkeeping requirements of this final rule present any costs that

would impede the efficiency of swap markets.

Price Discovery. The Commission does not believe that the data

reporting requirements of this final rule have a material effect on the

price discovery process. The Commission does not believe that the costs

associated with its discretionary implementation decisions are of a

magnitude to impede the normal functioning of swap market participants,

and thereby disrupt the price discovery process.

Sound risk management practices. The Commission does not believe

that the data reporting requirements of this final rule have a material

effect on sound risk management practices of market participants or

that the costs associated with its discretionary implementation

decisions are of a magnitude to impede sound risk management. However,

as noted in the section on recordkeeping, data which will be reported

may be of use for internal risk management.

Other public interest considerations. The Commission believes that

the data reporting requirements of this final rule will allow

regulators to readily acquire and analyze market data, thus

streamlining the surveillance process.

5. Unique Identifiers

As discussed more fully above, pursuant to its authority in CEA

section 21(b) (added by section 728(b) of the Dodd Frank Act), the

Commission proposed requiring the use of three unique identifiers,

which would serve as critical tools for data aggregation for the

purposes of conducting market and financial risk surveillance,

enforcing position limits, analyzing market data, enforcing Commission

regulations, monitoring systemic risk, and improving market

transparency.

The NOPR required that each swap be identified in all swap

recordkeeping and data reporting by a Unique Swap Identifier (``USI'').

The NOPR took a ``first-touch'' approach to USI creation, with the USI

created by SEFs and DCMs for platform-executed swaps, by SDs and MSPs

for off-platform swaps in which they are the reporting counterparty,

and by SDRs for off-platform swaps between non-SD/MSP counterparties

(who may lack the requisite systems for USI creation). This approach

was designed to foster efficiency by taking advantage of the

technological sophistication and capabilities of SEFs, DCMs, SDs, MSPs,

and SDR, while ensuring that a swap is identified by a USI from its

inception. The provision calling for SDRs to create USIs for off-

facility swaps between non-SD/MSP counterparties was designed to reduce

costs and burdens for such counterparties. Non-SD/MSP counterparties

may lack the sophistication to assign unique identifiers, whereas SDRs

will likely be large, sophisticated entities capable of realizing

economies of scope and scale in processing varied swap data streams;

thus, SDRs are better suited to assign unique identifiers for off-

facility swaps between non-SD/MSP counterparties.

The NOPR required that each swap counterparty be identified in all

swap recordkeeping and data reporting by a legal entity identifier

(``LEI'') (referred to in the NOPR as a unique counterparty identifier

or ``UCI'') approved by the Commission. The NOPR established

[[Page 2190]]

principles that an LEI must follow to be designated by the Commission

as the LEI to be used in swap data recordkeeping and reporting pursuant

to the Commission's Regulations.

The NOPR also called for establishment of a confidential, non-

public LEI reference database, to which each swap counterparty

receiving an LEI would be required to report reference data that would

be associated with its LEI. The NOPR stated the Commission's belief

that optimum effectiveness of LEIs for achieving the systemic risk

protection and transparency goals of the Dodd-Frank Act would come from

a global LEI created on an international basis through an international

voluntary-consensus standards body such as ISO. The NOPR provided that

the Commission would determine, prior to the initial compliance date,

whether such an LEI is available. If it were, the NOPR called for the

Commission to designate that LEI as the LEI approved by the Commission

for use in complying with the final rule. During such time as such an

LEI is not available, the NOPR called swap counterparties to be

identified by a substitute identifier created and assigned by an SDR as

described in the NOPR.

The NOPR required that each swap subject to CFTC jurisdiction be

identified in all swap recordkeeping and data reporting by a unique

product identifier (``UPI'') and a product classification system, as

determined by the Commission, for the purpose of categorizing swaps

with respect to the underlying products referenced in them. The NOPR

called for the UPI and product classification system to identify both

the swap asset class and the subtype within that asset class to which

the swap belongs, with sufficient specificity and distinctiveness to

enable regulators to fulfill their regulatory responsibilities and to

facilitate real time reporting. As provided in the NOPR, UPIs would be

assigned to swaps at a particular, asset class-specific level of the

robust swap taxonomy used by the product classification system, and the

use of UPIs and the classification system would enable regulators to

aggregate and report swap activity at a variety of product type levels,

and to prepare reports required by the Dodd-Frank Act regarding swap

market activity.

a. Benefits of the Unique Identifier Requirements

The Commission anticipates that its approach regarding unique

identifiers will generate several overarching, if presently

unquantifiable, benefits to both swap market participants and the

public generally, including both improved risk management and improved

regulatory oversight. The Commission believes these benefits will

accrue to market participants in a number of ways:

Improved policy analysis by financial regulators

employing legal entity reference data as the basic infrastructure

for identifying, describing, classifying, labeling, organizing, and

using information about trades, counterparties and market

instruments.

Improved identification and quantification of existing

or altered interconnections between firms.

Improved real time analysis across multiple financial

markets to identify systemic risk, market stresses and potential

contagion effects across asset classes.

Improved financial transaction processing, internal

recordkeeping, compliance, due diligence, and risk management by

financial entities.

Unique identifiers will benefit the general public by supporting

the Commission's supervisory function over the swap market, as well as

the broader supervisory responsibilities of U.S. financial regulators

to protect against financial market systemic risk, enhancing the

Commission's ability to detect anomalies in the market.

USIs will assist fulfillment of the systemic risk mitigation,

transparency, and market monitoring purposes of the Dodd-Frank Act, by

enabling identification of the origins of each swap as well as events

that affect the swap during its existence. USIs will be essential for

collating various data reports concerning a swap into a single,

accurate data record. They will also help to avoid double-counting of a

swap reported to different SDRs or to foreign trade repositories,

something that will improve data quality and accurate data aggregation.

Substantial benefits of LEIs for the public are recognized in the CPSS-

IOSCO Report on OTC Derivatives Data Reporting and Aggregation

Requirement, which recommends expeditious development of a global LEI:

[A] standard system of LEIs is an essential tool for aggregation

of OTC derivatives data. An LEI would contribute to the ability of

authorities to fulfill the systemic risk mitigation, transparency,

and market abuse protection goals established by the G20 commitments

related to OTC derivatives, and would benefit efficiency and

transparency in many other areas. As a universally available system

for uniquely identifying legal entities in multiple financial data

applications, LEIs would constitute a global public good.\118\

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\118\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and

Aggregation Requirement, August 2011, p. 36. Publicly available at

http://www.bis.org/publ/cpss96.pdf.

LEIs also offer benefits to market participants. The Commission

notes that while requiring the use of LEIs will represent a new cost to

market participants, LEIs may also reduce the costs of entity

identification for market participants. As noted in the CPSS-IOSCO Data

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Report:

The data aggregation experience of the private sector in past

years suggests * * * that a universal LEI would have the added

benefit of improving the operational efficiency of firms that are

OTC derivatives counterparties. For financial firms, the current

absence of an industry-wide LEI standard makes tracking

counterparties and calculating exposures across multiple data

systems complicated and expensive, and can lead to costly errors.

Maintaining internal identifier databases and reconciling entity

identification with counterparties is expensive for large firms and

may be disproportionately so for small firms. In the worst case

scenario, identification problems can lead to transactions that are

broken or fail to settle. Entity identification touches so many

aspects of critical business functions that many firms have created

their own internal identifiers, sometimes doing so on a department-

by-department or function-by function basis. Such stop-gap measures

can provide a measure of local relief, but ultimately they further

aggravate and complicate the discontinuity, inconsistency, and

incompatibility of legal entity identification systems both for

identifying OTC derivatives counterparties and across the

international financial sector as a whole. This makes useful data

aggregation and analysis substantially more difficult or even

impracticable. In addition, complete automation of back-office

activities and ``straight through processing'' remain elusive, in

part, because of the lack of a universal identifier for legal

entities.\119\

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\119\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and

Aggregation Requirement, August 2011, p. 30. Publicly available at

http://www.bis.org/publ/cpss96.pdf.

UPIs may enable better assessment of systemic risk with respect to

particular products, more effective monitoring of the positions and

exposures of individual market participants, and greater transparency

provided by real time reporting as well as by the availability to

regulators of a clearer picture of the marketplace. They may also allow

aggregation of swap data across multiple SDRs, and comparison of swap

data with information concerning cash, equities, and futures markets.

As noted in the CPSS-IOSCO Data Report, UPIs may also assist the back

office and risk management processes of market participants. Much as

LEIs may reduce the costs of entity identification in the fashion

described above by the CPSS-IOSCO Data Report, the Commission believes

that while requiring the use of UPIs will represent

[[Page 2191]]

a new cost to market participants, UPIs may lower costs for market

participants associated with the need to develop and maintain

proprietary product data models and systems, which many firms are

forced to do because of the absence of a universally-accepted standard

for describing, classifying, and identifying swap products.

b. Costs of Unique Identifier Requirements

Costs of USI Requirements

As noted above, for swaps executed on a SEF or DCM, the final rule

requires SEFs and DCMs to generate a USI at the time of execution, and

transmit it to both counterparties, the DCO (if applicable), and the

SDR. For off-facility swaps with an SD or MSP reporting counterparty,

the final rule requires the SD or MSP reporting counterparty to create

the USI at the time of execution, and to transmit it to its

counterparty, the DCO (if applicable) and the SDR. For off-facility

swaps between two non-SD/MSP counterparties, the SDR will assign and

transmit the USI to both counterparties and to the DCO (if applicable).

The Commission anticipates that this requirement will impose additional

costs to SEFs, DCMs, SDs, MSPs and SDRs. The Commission has not

identified any quantifiable costs of the USI requirements that are not

associated with an information collection subject to the PRA. These

costs therefore have been accounted for in the information collection

requests filed with OMB as required by the PRA.

Thomson Reuters stated that the USI proposal could impose a

significant implementation burden on market participants because it

requires the linkage of additional information such as tracking

numbers. Thomson Reuters recommended a USI with no linked information

such as embedded asset class or geographical identifiers.

The Commission believes that, even in the absence of this

requirement, the automated systems of SEFs, DCMs, DCOs, SDs, MSPs, and

SDRs would in all cases create internal identifiers for swap

transactions. Accordingly, for these entities, the cost of creating

USIs will not constitute an incremental cost for such entities above

costs they would already incur. Additionally, to reduce costs for off-

facility bilateral swaps between two non-SD/MSP counterparties, the

final rules have maintained the NOPR approach requiring SDRs to create

and transmit USIs for such swaps.

Costs of LEI Requirements

The Commission anticipates that required use of LEIs will impose

additional costs on market participants.

The Commission received several comments regarding the cost-benefit

implications of the NOPR's LEI provisions.

Three commenters presented LEI proposals or alternatives they

believed would meet the Commission's requirements in the most cost-

effective manner. CME recommended that the Commission use its large

trader system for futures, since this would be quicker, easier, less

costly, and less risky than attempting to establish a new international

method identifying legal entities. CUSIP presented its CABRE system as

a viable and cost-effective alternative for LEIs, suggesting that it

would help market participants realize significant cost savings much

earlier than other options. GS1 presented itself as a potential LEI

provider, suggesting that it could implement a LEI system at no

additional cost to SDs and SEFs that would minimize the overall cost of

the identification system. Two members of Congress asked that the

Commission give full and fair consideration to GS1's proposal because

it could make implementation less costly and burdensome for a

significant segment of the industry.

TriOptima commented that the LEI would require significant

adaptation costs and could possibly delay the implementation of SDRs.

TriOptima suggested an interim period to allow reporting institutions

to submit their own LEI and then map this identifier to the one used by

the SDR.

With respect to the NOPR requirement for reporting of level two LEI

reference data concerning the affiliations of a counterparty, AMG

suggested that the Commission should establish a 50 percent majority

ownership threshold, because requiring corporate affiliation

information from companies that have less than majority ownership may

be burdensome, and in many cases, impracticable.

As discussed above, three commenters presented alternatives to the

Commission's proposals regarding LEIs. The Commission has evaluated

these proposals and will continue to weigh the cost and benefits of

each as it prepares to implement an international industry initiative

and designate an LEI for use in swap data reporting as provided in the

final rule.

The Commission has determined that costs for market participants

are not readily quantifiable. However, the Commission understands that

start-up costs for the LEI system may be borne at least in part by data

service providers, SDs, and other major market participants that are

involved in the international industry initiative now underway to

develop LEIs. Because this process is ongoing, the Commission has

determined that it cannot readily estimate the remaining costs to

market participants that will be imposed by its completion, or what

portion of the impetus for the LEI initiative can be attributed to this

final rule rather than to a general pre-implementation industry

initiative for a better system of legal entity identification.

The final rule calls for the Commission to determine prior to the

start of swap data reporting whether an LEI system meeting the

requirements of the final rule is available. If the Commission

determines that such a system is available, its use will be required in

all swap data recordkeeping and reporting. If the Commission determines

that such a system is not yet available, until such time as the

Commission designates such a system for use in complying with the final

rule, swap counterparties will be identified by means of a substitute

identifier created by SDRs as specified in the final rule. Although the

Commission anticipates that an LEI meeting the requirement of the final

rule will be available before the commencement of swap data reporting,

the Commission has also considered the potential costs and benefits to

SDRs for creating, assigning and transmitting such substitute

identifiers if they should be required. The Commission anticipates that

if SDRs are required to create substitute identifiers, such

requirements will impose additional costs for SDRs.

Pursuant to this final rule, the reporting of Level Two LEI

reference data will be limited to the identity of a swap counterparty's

ultimate parent. This represents a reduction to the burden presented in

the NOPR, which called for the reporting of all affiliations of each

swap counterparty identified by an LEI. The Commission believes that

this approach is practical and cost-effective, because it reduces the

burden on swap counterparties, while capturing the essential level two

LEI reference data for a given swap that will allow the Commission and

other regulators to aggregate swap data in a way that enables effective

monitoring of systemic risk.

Costs of UPI requirements

Thomson Reuters recommended that the Commission establish a pilot

program for the development of UPI codes.

[[Page 2192]]

The Commission anticipates that this requirement will ultimately

impose additional costs to market participants. The final rule provides

that when the Commission determines that a UPI and product

classification system acceptable to the Commission is available, the

Commission will designate that system for use in all swap data

recordkeeping and reporting. Until the Commission designates such a

system, the final rule calls for swaps to be identified by the internal

product identifier or product description used by the SDR to which a

swap is reported. As the Commission has not set forth requirements for

a UPI system in the final rules, and has not yet designated such a

system for use by market participants, the Commission has not

identified any quantifiable costs of the LEI requirements that are not

associated with an information collection subject to the PRA. These

costs therefore have been accounted for in the information collection

requests filed with OMB as required by the PRA.

c. Unique Identifiers in Light of CEA Section 15(a)

The Commission has evaluated the benefits of the required use of

USIs, LEIs, and UPIs in light of the specific considerations identified

in Section 15(a) of the CEA, as follows.

Protection of market participants and the public. As discussed

above, the Commission has endeavored to limit the costs attributable to

discretionary implementation decisions to the maximum degree consistent

with statutory requirements and their intended benefits. The Commission

has endeavored to match the costs of the post-implementation

marketplace with the sizes, levels of sophistication, and levels of

systemic importance of the affected participants, so that the

associated benefits may be realized by the public.

With respect to unique identifiers, the Commission believes the

benefits include the protection of market participants and the public.

USIs. The Commission believes that USIs will be a vital tool for

regulatory agencies in analyzing swap market data for the purposes of

identifying the positions of systemically important market participants

and the accumulation of systemic risk, thus protecting market

participants and the public. USIs will allow for the creation of a

clear and unified data stream by allowing for the aggregation of

transaction information without double-counting swaps reported to

different SDRs or to foreign trade repositories, or reported in VSRs.

LEIs. The Commission believes that requiring the use of LEIs will

greatly enhance the ability of the Commission and other regulatory

agencies to oversee swap markets by providing necessary clarity and

cohesion to the data used for regulatory analyses. Among the benefits

to regulators of an LEI regime, the Global Financial Markets

Association (``GFMA'') identified more efficient data aggregation; more

powerful modeling and risk analysis; facilitation of information

sharing and reconciliation between regulators; better supervision of

cross-border firms and firms whose business lines are overseen by

multiple regulators; and facilitating identification of affiliates and

parent companies. GFMA also called the LEI regime ``a powerful tool for

regulators in monitoring and managing systemic risks.'' \120\ The CPSS-

IOSCO Report on OTC Derivatives Data Reporting and Aggregation

Requirement, which recommends expeditious development of a global LEI,

states that:

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\120\ GFMA, Creating a Global Legal Entity Identifier (LEI)

Standard, September 21, 2001, p. 10. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.

[A] standard system of LEIs is an essential tool for aggregation

of OTC derivatives data. An LEI would contribute to the ability of

authorities to fulfill the systemic risk mitigation, transparency,

and market abuse protection goals established by the G20 commitments

related to OTC derivatives, and would benefit efficiency and

transparency in many other areas. As a universally available system

for uniquely identifying legal entities in multiple financial data

applications, LEIs would constitute a global public good.\121\

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\121\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and

Aggregation Requirement, August 2011, p.36. Publicly available at

http://www.bis.org/publ/cpss96.pdf.

UPIs. The Commission believes that UPIs will work in conjunction

with USIs to create an accurate, clear, and unified data record free of

double-counting. The use of UPIs will also allow regulatory agencies to

compare swap market data with data from the cash, equities, and futures

markets for a given product, thus enhancing regulators' understanding

of the roles of different financial instruments in the marketplace for

that product.

Efficiency, competitiveness, and financial integrity. As discussed

above, the Commission has endeavored to limit the costs attributable to

discretionary implementation decisions to the maximum degree consistent

with statutory requirements and their intended benefits. The Commission

has endeavored to match the costs of the post-implementation

marketplace with the sizes, levels of sophistication, and levels of

systemic importance of the affected participants, so that the

associated benefits may be realized by the public. With respect to

unique identifiers, the Commission believes the benefits include

enhancements to the financial integrity of the swap market.

The Commission believes that, by improving the integrity of the

U.S. swap markets in the manner described above, this final rule may

make participation in the U.S. swap markets more appealing to entities

that currently do not participate. Therefore, this final rule presents

the potential to enhance the demand for access to the U.S. swap market

and its participants both domestically and in the global swap

marketplace. This potential increase in swap market participation may

improve the competitiveness of the swap marketplace as more parties

demand sources of risk transference.

Furthermore, the Commission does not anticipate that the unique

identifier requirements of this final rule present any costs that would

impede the efficiency of swap markets.

USIs. The Commission believes that the benefits of USIs include

greater transparency, improved data aggregation and cross-border

supervision. This will improve regulatory oversight and responsiveness,

and promote a more thorough understanding of the exposures of swap

counterparties, which will provide more financial integrity for the

swap market.

The Commission believes that USIs, as well as LEIs and UPIs, will

enable greater automation of back-office processes for reporting

counterparties, thereby promoting efficiency and a potential source of

cost reduction for swap market participants.

LEIs. As stated above, the Commission believes that LEIs, along

with USIs and UPIs, will promote greater automation of back-office

processes for reporting counterparties, thereby improving operational

efficiency.

UPIs. The Commission believes that UPIs will serve to work in

conjunction with USIs in creating an accurate, clear, and unified data

record. UPIs will therefore promote the same benefits of greater

transparency, data aggregation, and cross-border supervision, and

therefore enhance the financial integrity of swap markets.

Price discovery. The Commission does not believe that the unique

identifier requirements will have a material impact on price discovery,

or that the costs associated with its discretionary implementation

decisions are of a magnitude to impede the normal functioning of swap

market participants

[[Page 2193]]

and thereby disrupt the price discovery process.

Sound risk management practices. The Commission believes that

requiring the use of USIs, UPIs, and LEIs will also facilitate risk

management for market participants.

USIs. The Commission believes that the use of USIs will likely

create a more clearly organized, readily accessible database of swap

information for each reporting counterparty, including accurate

information related to cross-border transactions, which may facilitate

the internal risk management operations of the counterparty.

LEIs. The Commission believes that LEIs will provide a number of

benefits in the area of risk management to reporting counterparties.

These include the benefits identified by GFMA, which are enumerated

below.

GFMA stated that the risk management benefits of LEIs included

improved response times for crisis reporting and the potential for

improved response times for sanctions monitoring; a holistic view of

counterparty and issuer risks; and the facilitation of data

aggregation, modeling, and analysis.\122\

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\122\ GFMA, Creating a Global Legal Entity Identifier (LEI)

Standard, September 21, 2001, p. 11. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.

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GFMA also listed a number of other operational benefits to market

participants of implementing LEIs. These include an integrated view of

entities across divisions and subsidiaries; support for the development

of hierarchy information; processing and settlement efficiency; an

improved vendor feed and improved corporate actions management; support

for new client on-boarding; and the facilitation of post-merger

integrations.\123\

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\123\ GFMA, Creating a Global Legal Entity Identifier (LEI)

Standard, September 21, 2001, p. 11. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.

---------------------------------------------------------------------------

The Commission believes that the benefits of LEIs also include the

facilitation of straight-through processing, which will promote risk

mitigation for counterparties. As the Counterparty Risk Management

Policy Group II (CPRMG II) noted:

CRMPG II recommends that trade associations and market

participants must pursue and develop straight through processing of

OTC transactions, a critical risk mitigant in today's high volume

markets. As a fundamental matter, disputes over the existence or the

terms of a transaction have the potential for enormously increasing

risk, since each party to the disputed transaction hedges and risk

manages the disputed trade based on certain economic assumptions.

[Straight through processing] reduces the number and frequency of

trade disputes and maximizes market efficiency, opportunity and

access. [Straight through processing] therefore fosters legal,

credit, market and operational certainty.\124\

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\124\ Counterparty Risk Management Policy Group II, Toward

Greater Financial Stability: A Private Sector Perspective, July 27,

2005, p. 84. Publicly available at http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2005-07-25%20Counterparty%20Risk%20Management%20Policy%20Group-%20Toward%20Greater%20Financial%20Stability.pdf.

UPIs. The Commission believes that UPIs will serve to work in

conjunction with USIs in creating an accurate and unified internal data

record for each reporting counterparty. The use of UPIs will allow a

reporting counterparty to monitor its swap market exposures and compare

them to its positions and to the broader market variables in analogous

cash, equities, and futures instruments. The Commission believes that

this will greatly enhance the ability of the reporting counterparty to

assess the risk associated with its swap market exposures.

Other public interest considerations. The Commission anticipates

that unique identifiers will facilitate the efforts of academics and

analysts employed by regulatory agencies in the course of their

investigations by providing a clear framework for data aggregation and

comparison across financial instruments.

IV. Compliance Dates

A. Proposed Rule

Section 754 of the Dodd-Frank Act requires Title VII to be

effective within 360 days of enactment (i.e., by July 16, 2011) or, to

the extent a provision of Title VII requires rulemaking, not less than

60 days after publication of final rules or regulations implementing

such a provision of Title VII. While the final rules become effective

sixty (60) days after Federal Register publication, the Commission has

discretion to set forth dates to begin enforcement of regulatory

provisions.\125\ In setting forth compliance dates the Commission has

taken into consideration comment received and factors such as available

resources and the Dodd-Frank Act's goals. In May 2011, the Commission

and the SEC held a joint public roundtable to elicit comment concerning

what implementation schedule should be set for the Commission's Dodd-

Frank Act rules, including comment concerning the amount of time

registered entities and counterparties will need, after issuance of the

final rule, to prepare for the commencement of swap data reporting

pursuant to this part. The NOPR requested comment regarding the nature

and length of the implementation and preparation period which the

Commission should provide prior to the start of swap data reporting,

and concerning how the beginning of such reporting should be phased in.

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\125\ See Heckler v. Chaney, 470 U.S. 821 (1985).

---------------------------------------------------------------------------

B. Comments Received

The Commission received numerous comments from comment letters and

roundtable participants concerning when swap data reporting should

begin, and how the commencement of reporting should be phased in.

1. Initial Compliance Date

A variety of comments addressed the setting of the initial

compliance date for reporting.

a. Definite compliance dates. Better Markets called on the

Commission to provide the industry with clear compliance dates for the

start of reporting.

b. Period for infrastructure development and testing. Roundtable

participants, DTCC, ISDA, SIFMA, Global Forex, MFA, WGCEF, and Dominion

Resources emphasized that reporting should not be required to begin

until the industry has time to implement or modify and to test

automated systems to be used for reporting. In order to allow for such

infrastructure development and testing, commenters urged that the

initial compliance date for reporting should be set at least six to

nine months following issuance of the final rule.

c. Conditions precedent to reporting. EEI, the Electric Coalition,

and roundtable participants commented that reporting should not be

required to begin until after issuance of all the Commission's Dodd-

Frank Act rules, or at least of certain key rules including definitions

of ``swap,'' ``swap dealer,'' and ``major swap participant.'' ISDA,

SIFMA, Global Forex, MFA, and WGCEF argued that reporting should not be

required to begin until at least one SDR accepting swaps in the asset

class in question is fully functional, and DTCC and WGCEF suggested

that reporting should begin only after both unique identifiers and data

formats for reporting are finalized. MFA noted that beginning reporting

after SDR registration and infrastructure are finalized could avoid

giving current service providers an advantage over new entrants.

d. Other initial reporting suggestions. ISDA and SIFMA suggested

that the CFTC and the SEC should harmonize

[[Page 2194]]

when reporting will commence. Global Forex, DTCC, and Thomson Reuters

suggested consideration of a partially voluntary, benchmark approach to

implementation of reporting, similar to the ODSG commitment letter

approach used to initiate existing reporting to trade repositories.

2. Phasing in the Start of Reporting

A number of commenters also advocated phasing in the start of

reporting.

a. Phasing by asset class. DTCC, Global Forex, and roundtable

participants urged phasing in the start of reporting by asset class.

They noted that that different swap asset classes are at different

levels of automation and data normalization, with the credit and

interest rate asset classes at a more advanced stage of development

than the equity, foreign exchange, and other commodity asset classes.

b. Phasing by counterparty type. The Electric Coalition and Chatham

Financial advocated phasing in the start of reporting according to the

type and sophistication of the counterparty, with end users being

phased in last as they have the least technological sophistication.

Global Forex suggested that the phase-in design should include a

gradual reduction of target reporting times to allow participants to

improve their systems over time.

c. Phasing by product type. WGCEF and Thomson Reuters suggested

that reporting for swaps executed on electronic platforms should be

phased in more quickly than reporting for off-platform, bespoke

transactions, and that the Commission should focus on the more liquid

contracts which represent the bulk of the OTC market.

d. Other phasing suggestions. DTCC, Global Forex, and roundtable

participants suggested that phasing in reporting of confirmation data

to begin several months later than the reporting of PET data would take

into account the need for additional time to prepare for reporting of

the relative larger amount of data involved in confirmation data

reporting, to develop ways to represent confirmation terms in machine-

readable form, and to normalize and create data fields for confirmation

data. Eris Exchange suggested that voluntary reporting should precede

mandatory reporting. MGEX called for a carefully thought out,

staggered, and reasonable implementation schedule.

C. Determination of Compliance Dates

The Commission has considered the above comments, and has

determined to provide an implementation schedule and compliance dates

for swap data reporting incorporating many of commenters' suggestions,

as set forth below.

1. Initial Compliance Dates

a. Clear compliance dates. The Commission agrees with comments

calling for clear compliance dates for the beginning of full compliance

with this part. The Commission has determined that each SEF, DCM, DCO,

SDR, SD, MSP, and non-SD/MSP counterparty subject to the jurisdiction

of the Commission must commence full compliance with this part on the

applicable compliance date set forth below.\126\

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\126\ The obligations of swap counterparties with respect to

historical swaps, i.e., swaps executed prior to the applicable

compliance date and in existence on or after July 15, 2010, the date

of enactment of the Dodd-Frank Act, will be as provided in part 46

of this chapter.

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b. Period for infrastructure development and testing. The

Commission agrees with commenters and roundtable participants that it

is important to provide a period of at least six months following

issuance of the final data recordkeeping and reporting rule, in order

to allow necessary infrastructure development and testing in light of

the requirements of the final rule to occur before reporting is

required to begin. The initial compliance date for swap data reporting

set by the final rule provides such an infrastructure development and

testing period. The Commission believes that a six month period should

be sufficient for this purpose, and also believes that timely

fulfillment of the important purposes of the Dodd-Frank Act would be

frustrated if the start of swap data reporting were further delayed. In

order to minimize confusion concerning the commencement of both

regulatory reporting and real time reporting, and to reduce burdens on

registered entities and swap counterparties required to report under

both part 45 and part 43, the Commission has determined to set the same

date as the initial compliance date for reporting under both part 45

and part 43.

c. Conditions precedent to reporting. The Commission recognizes

that adequate preparation by registered entities and swap

counterparties for the beginning of swap data reporting would be

difficult in the absence of final Commission rules defining ``swap,''

``swap dealer,'' and ``major swap participant.'' The definition of

``swap'' is relevant to determining what transactions must be reported,

while the definitions of SD and MSP are relevant to determining which

counterparty is the reporting counterparty pursuant to this part.

Accordingly, the Commission has determined that the initial compliance

date provided in the final rule will be the later of (1) the date

certain listed below, or (2) 60 days following issuance of the later of

the Commission's final rules defining swap and defining SD and MSP. The

Commission disagrees with comments calling for swap data reporting to

be delayed until after all Commission rules under the Dodd-Frank Act

are issued, because it believes that important purposes of the Dodd-

Frank Act would be frustrated by additional delay.

d. Other initial reporting suggestions. The Commission has

consulted extensively with the SEC concerning the Commission's swap

data reporting rule and the SEC's security-based swap data reporting

rule. Both Commissions have worked to coordinate and harmonize those

rules to the extent practicable. Since the Dodd-Frank Act provides

clear delineation of the jurisdiction of each Commission with respect

to swaps, the Commission does not believe that it is necessary to delay

the commencement of reporting pursuant to this part until issuance of

the SEC's final security-based swap data reporting rule. The Commission

disagrees with comments calling for swap data reporting pursuant to

this part to follow the voluntary, benchmark approach to implementation

of reporting followed previously under the ODSG commitment letter

approach used to initiate reporting to trade repositories, or to have

voluntary reporting precede mandatory reporting. The Commission has

consulted with ODSG and ODRF concerning experience gained from prior

voluntary reporting. The Commission believes, however, that a

``benchmark'' approach involving flexible timetables is not appropriate

for implementation of reporting under the Dodd-Frank Act. The

uncertainty in such a reporting regime could burden the industry, and

make effective oversight and enforcement more difficult.

2. Phasing in the Start of Reporting

a. Phasing by asset class. The Commission accepts the view of many

market participants that differences between asset classes with respect

to both existing automation and existing data normalization are

significant and should be taken into account in order to ensure that

data reporting required by the final rule is practicable to achieve by

the applicable compliance dates. The Commission also believes that

establishing deadlines for the commencement of reporting in all asset

classes will serve as an important

[[Page 2195]]

incentive for continued progress by the industry in these regards.

Accordingly, the Commission has determined that swap data reporting

should be phased in by asset class, with reporting for credit swaps and

interest rate swaps beginning earlier than reporting for equity swaps,

foreign exchange transactions, and other commodity swaps.

b. Phasing by counterparty type. The Commission agrees with

comments suggesting that the initial compliance date for non-SD/MSP

reporting counterparties should take into account the fact that such

counterparties are less likely than SEFs, DCMs, DCOs, SDs, and MSPs, to

have sophisticated automated systems for reporting, and the possible

need of non-SD/MSP reporting counterparties for additional time to

prepare for reporting. The Commission has determined that swap data

reporting should be phased in by counterparty type, with reporting by

non-SD/MSP reporting counterparties in each asset class commencing 180

days after the start of reporting in that asset class by SEFs, DCMs,

DCOs, SDs, and MSPs.\127\ The Commission does not believe that

reporting should be further phased in by registered entity or

counterparty type. The Commission believes that SEFs, DCMs, DCOs, SDs,

and MSPs have sufficient technological expertise to enable them to meet

a compliance date which provides an appropriate, six-month preparation

period, without further phase-in.

c. Phasing by product type. In light of the phasing by asset class

and by counterparty type to be provided in the final rule as noted

above, the Commission does not believe that additional phasing by

product type is necessary. The Commission does not believe that it is

technologically necessary to delay reporting for off-facility,

uncleared swaps. Where an SD or MSP is the reporting counterparty for a

bespoke swap, reporting systems should be available. In the relatively

few instances where a non-SD/MSP counterparty is the reporting

counterparty for a bespoke swap, the final rule already provides an

additional six-month phase-in period and extended reporting deadlines.

---------------------------------------------------------------------------

\127\ The Commission notes that one consequence of this approach

is that continuation data reporting by a non-SD/MSP reporting

counterparty for an on-facility swap in some cases may begin as much

as six months after the creation data report for that swap by the

SEF or DCM on which the swap was executed. The Commission believes

this is acceptable in light of the burden reduction provided to non-

SD/MSP reporting counterparties by phasing in their swap data

reporting.

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d. Other phasing suggestions. As discussed above, the Commission

believes that confirmation data is essential to fulfilling the purposes

of the Dodd-Frank Act, and should be reported starting with the

applicable compliance date. However, the Commission also recognizes

that for some swap counterparties, and particularly for non-SD/MSP

reporting counterparties, reporting confirmation data normalized in

data fields may not yet be technologically practicable when reporting

begins. These considerations are less applicable in the case of swaps

executed on a SEF or DCM or cleared by a DCO, since in such cases, as

discussed above, execution on the SEF or DCM or clearing on the DCO

will be required to include all terms of the confirmation of the swap.

Therefore, as discussed above in the section addressing creation data

reporting, the final rule provides as follows. For off-facility,

uncleared swaps, during the first six months following the applicable

compliance date, while PET data will have to be reported electronically

with data normalized in data fields, reporting counterparties for whom

reporting confirmation data normalized in data fields is not yet

technologically practicable may report required confirmation data by

transmitting an image of all documents recording the confirmation. This

will allow needed additional time for development of schemas for data

reporting and implementation by non-SD/MSP counterparties. Electronic

reporting of all confirmation data normalized in data fields will be

required after this six month period.

3. Compliance Dates

For the reasons set forth above, the Commission has determined that

each swap execution facility, designated contract market, derivatives

clearing organization, swap data repository, swap dealer, major swap

participant, and non-SD/MSP counterparty subject to the jurisdiction of

the Commission shall commence full compliance with all provisions of

this part on the applicable compliance dates set forth below. The

obligations of swap counterparties with respect to swaps executed prior

to the applicable compliance date as provided in this section and in

existence on or after July 21, 2010, the date of enactment of the Dodd-

Frank Act, are set forth in part 46 of this chapter.

a. Compliance Dates for Swap Execution Facilities, Designated Contract

Markets, Derivatives Clearing Organizations, Swap Data Repositories,

Swap Dealers, and Major Swap Participants.

Swap execution facilities, designated contract markets, derivatives

clearing organizations, swap data repositories, swap dealers, and major

swap participants shall commence full compliance with all provisions of

this part as follows:

Credit swaps and interest rate swaps. Compliance date 1, the

compliance date with respect to credit swaps and interest rate swaps,

shall be the later of: July 16, 2012; or 60 calendar days after the

publication in the Federal Register of the later of the Commission's

final rule defining the term ``swap'' or the Commission's final rule

defining the terms ``swap dealer'' and ``major swap participant.''

Equity swaps, foreign exchange swaps, and other commodity swaps.

Compliance date 2, the compliance date with respect to equity swaps,

foreign exchange swaps, and other commodity swaps, shall be 90 calendar

days after compliance date 1.

Compliance date for non-SD/MSP counterparties. Non-SD/MSP

counterparties shall commence full compliance with all provisions of

this part for all swaps on compliance date 3, which shall be 90

calendar days after compliance date 2.

The phasing in of swap data reporting under the final rule is shown

graphically in the following table.

BILLING CODE 6351-01-P

[[Page 2196]]

[GRAPHIC] [TIFF OMITTED] TR13JA12.002

[[Page 2197]]

BILLING CODE 6351-01-C

Final Rules

List of Subjects in 17 CFR Part 45

Swaps, Data recordkeeping requirements and data reporting

requirements.

0

In consideration of the foregoing, and pursuant to the authority of the

Commodity Exchange Act as amended, and in particular sections 8a(5) and

21 of the Act, the Commission hereby adopts an amendment to Chapter 1

of Title 17 of the Code of Federal Regulation by adding a part 45 to

read as follows:

PART 45--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS

Sec.

45.1 Definitions.

45.2 Swap recordkeeping.

45.3 Swap data reporting: Creation data.

45.4 Swap data reporting: Continuation data.

45.5 Unique swap identifiers.

45.6 Legal entity identifiers.

48.7 Unique product identifiers.

45.8 Determination of which counterparty must report.

45.9 Third-party facilitation of data reporting.

45.10 Reporting to a single swap data repository.

45.11 Data reporting for swaps in a swap asset class not accepted by

any swap data repository.

45.12 Voluntary supplemental reporting.

45.13 Required data standards.

45.14 Reporting of errors and omissions in previously reported data.

Appendix 1 to Part 45--Tables of minimum primary economic terms

data.

Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a and 24, as amended

by Title VII of the Wall Street Reform and Consumer Protection Act

of 2010, Pub. L. 111-203, 124 Stat. 1376 (2010), unless otherwise

noted.

Sec. 45.1 Definitions.

As used in this part:

Asset class means the broad category of goods, services or

commodities, including any ``excluded commodity'' as defined in CEA

section 1a(19), with common characteristics underlying a swap. The

asset classes include credit, equity, foreign exchange (excluding

cross-currency), interest rate (including cross-currency), other

commodity, and such other asset classes as may be determined by the

Commission.

Business day means the twenty-four hour day, on all days except

Saturdays, Sundays, and legal holidays, in the location of the

reporting counterparty or registered entity reporting data for the

swap.

Business hours means consecutive hours during one or more

consecutive business days.

Compliance date means the applicable date on which a registered

entity or swap counterparty subject to the jurisdiction of the

Commission is required to commence full compliance with all provisions

of this part, as set forth in the preamble to this part.

Confirmation (``confirming'') means the consummation

(electronically or otherwise) of legally binding documentation

(electronic or otherwise) that memorializes the agreement of the

parties to all terms of a swap. A confirmation must be in writing

(whether electronic or otherwise) and must legally supersede any

previous agreement (electronically or otherwise).

Confirmation data means all of the terms of a swap matched and

agreed upon by the counterparties in confirming the swap. For cleared

swaps, confirmation data also includes the internal identifiers

assigned by the automated systems of the derivatives clearing

organization to the two transactions resulting from novation to the

clearing house.

Credit swap means any swap that is primarily based on instruments

of indebtedness, including, without limitation: Any swap primarily

based on one or more broad-based indices related to instruments of

indebtedness; and any swap that is an index credit swap or total return

swap on one or more indices of debt instruments.

Derivatives clearing organization has the meaning set forth in CEA

section 1a(9), and any Commission regulation implementing that Section,

including, without limitation, Sec. 39.5 of this chapter.

Designated contract market has the meaning set forth in CEA section

5, and any Commission regulation implementing that Section.

Electronic confirmation (confirmation ``occurs electronically'')

means confirmation that is done by means of automated electronic

systems.

Electronic reporting (``report electronically'') means the

reporting of data normalized in data fields as required by the data

standard or standards used by the swap data repository to which the

data is reported. Except where specifically otherwise provided in this

chapter, electronic reporting does not include submission of an image

of a document or text file.

Electronic verification (verification ``occurs electronically'')

means verification that is done by means of automated electronic

systems.

Financial entity has the meaning set forth in CEA section

2(h)(7)(C).

Foreign exchange forward has the meaning set forth in CEA section

1a(24).

Foreign exchange instrument means an instrument that is both

defined as a swap in part 1 of this chapter and included in the foreign

exchange asset class. Instruments in the foreign exchange asset class

include: Any currency option, foreign currency option, foreign exchange

option, or foreign exchange rate option; any foreign exchange forward

as defined in CEA section 1a(24); any foreign exchange swap as defined

in CEA section 1a(25); and any non-deliverable forward involving

foreign exchange.

Foreign exchange swap has the meaning set forth in CEA section

1a(25). It does not include swaps primarily based on rates of exchange

between different currencies, changes in such rates, or other aspects

of such rates (sometimes known as ``cross-currency swaps'').

Interest rate swap means any swap which is primarily based on one

or more interest rates, such as swaps of payments determined by fixed

and floating interest rates; or any swap which is primarily based on

rates of exchange between different currencies, changes in such rates,

or other aspects of such rates (sometimes known as ``cross-currency

swaps'').

International swap means a swap required by U.S. law and the law of

another jurisdiction to be reported both to a swap data repository and

to a different trade repository registered with the other jurisdiction.

Life cycle event means any event that would result in either a

change to a primary economic term of a swap or to any primary economic

terms data previously reported to a swap data repository in connection

with a swap. Examples of such events include, without limitation, a

counterparty change resulting from an assignment or novation; a partial

or full termination of the swap; a change to the end date for the swap;

a change in the cash flows or rates originally reported; availability

of a legal entity identifier for a swap counterparty previously

identified by name or by some other identifier; or a corporate action

affecting a security or securities on which the swap is based (e.g., a

merger, dividend, stock split, or bankruptcy).

Life cycle event data means all of the data elements necessary to

fully report any life cycle event.

Major swap participant has the meaning set forth in CEA section

1a(33) and in part 1 of this chapter.

Mixed swap has the meaning set forth in CEA section 1a(47)(D), and

refers to an instrument that is in part a swap

[[Page 2198]]

subject to the jurisdiction of the Commission, and in part a security-

based swap subject to the jurisdiction of the SEC.

Multi-asset swap means a swap that does not have one easily

identifiable primary underlying notional item, but instead involves

multiple underlying notional items within the Commission's jurisdiction

that belong to different asset classes.

Non-electronic confirmation (confirmation ``does not occur

electronically'') means confirmation that is done manually rather than

by means of automated electronic systems.

Non-electronic verification (verification ``does not occur

electronically'') means verification that is done manually rather than

by means of automated electronic systems.

Non-SD/MSP counterparty means a swap counterparty that is neither a

swap dealer nor a major swap participant.

Off-facility swap means a swap not executed on or pursuant to the

rules of a swap execution facility or designated contract market.

Other commodity swap means any swap not included in the credit,

equity, foreign exchange, or interest rate asset classes, including,

without limitation, any swap for which the primary underlying item is a

physical commodity or the price or any other aspect of a physical

commodity.

Primary economic terms means all of the terms of a swap matched or

affirmed by the counterparties in verifying the swap, including at a

minimum each of the terms included in the most recent Federal Register

release by the Commission listing minimum primary economic terms for

swaps in the swap asset class in question. The Commission's current

lists of minimum primary economic terms for swaps in each swap asset

class are found in Appendix 1 to Part 45.

Primary economic terms data means 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.

Quarterly reporting (``reported quarterly'') means reporting four

times each fiscal year, following the end of each fiscal year quarter,

making each quarterly report within 30 calendar days of the end of the

fiscal year quarter.

Reporting counterparty means the counterparty required to report

swap data pursuant to this part, selected as provided in Sec. 45.8.

Required swap continuation data means 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 swap data repository remains current and

accurate, and includes all changes to the primary economic terms of the

swap occurring during the existence of the swap. For this purpose,

required swap continuation data includes:

(1) All life cycle event data for the swap if the swap is reported

using the life cycle reporting method, or all state data for the swap

if the swap is reported using the snapshot reporting method; and

(2) All valuation data for the swap.

Required swap creation data means all primary economic terms data

for a swap in the swap asset class in question, and all confirmation

data for the swap.

State data means all of the data elements necessary to provide a

snapshot view, on a daily basis, of all of the primary economic terms

of a swap in the swap asset class of the swap in question, including

any change to any primary economic term or to any previously-reported

primary economic terms data since the last snapshot. At a minimum,

state data must include each of the terms included in the most recent

Federal Register release by the Commission listing minimum primary

economic terms for swaps in the swap asset class in question. The

Commission's current lists of minimum primary economic terms for swaps

in each swap asset class are found in Appendix 1 to Part 45.

Swap data repository has the meaning set forth in CEA section

1a(48), and in part 49 of this chapter.

Swap dealer has the meaning set forth in CEA section 1a(49), and in

part 1 of this chapter.

Swap execution facility has the meaning set forth in CEA section

1a(50) and in part 37 of this chapter.

Valuation data means all of the data elements necessary to fully

describe the daily mark of the transaction, pursuant to CEA section

4s(h)(3)(B)(iii), and to Sec. 23.431 of this chapter if applicable.

Verification (``verify,'' ``verified,'' or ``verifying'') means the

matching by the counterparties to a swap of each of the primary

economic terms of a swap, at or shortly after the time the swap is

executed.

Sec. 45.2 Swap recordkeeping.

(a) Recordkeeping by swap execution facilities, designated contract

markets, derivatives clearing organizations, swap dealers, and major

swap participants. Each swap execution facility, designated contract

market, derivatives clearing organization, swap dealer, and major swap

participant subject to the jurisdiction of the Commission shall keep

full, complete, and systematic records, together with all pertinent

data and memoranda, of all activities relating to the business of such

entity or person with respect to swaps, as prescribed by the

Commission. Such records shall include, without limitation, the

following:

(1) For swap execution facilities, all records required by part 37

of this chapter.

(2) For designated contract markets, all records required by part

38 of this chapter.

(3) For derivatives clearing organizations, all records required by

part 39 of this chapter.

(4) For swap dealers and major swap participants, all records

required by part 23 of this chapter, and all records demonstrating that

they are entitled, with respect to any swap, to elect the clearing

requirement exception pursuant to CEA section 2(h)(7).

(b) Recordkeeping by non-SD/MSP counterparties. All non-SD/MSP

counterparties subject to the jurisdiction of the Commission shall keep

full, complete, and systematic records, together with all pertinent

data and memoranda, with respect to each swap in which they are a

counterparty, including, without limitation, all records demonstrating

that they are entitled, with respect to any swap, to elect the clearing

requirement exception in CEA section 2(h)(7).

(c) Record retention. All records required to be kept pursuant to

this section shall be retained with respect to each swap throughout the

life of the swap and for a period of at least five years following the

final termination of the swap.

(d) Retention form. Records required to be kept pursuant to this

section must be kept as required by paragraph (d)(1) or (2) of this

section, as applicable.

(1) Records required to be kept by swap execution facilities,

designated contract markets, derivatives clearing organizations, swap

dealers, or major swap participants may be kept in electronic form, or

kept in paper form if originally created and exclusively maintained in

paper form, so long as they are retrievable, and information in them is

reportable, as required by this section.

(2) Records required to be kept by non-SD/MSP counterparties may be

kept in either electronic or paper form, so long as they are

retrievable, and information in them is reportable, as required by this

section.

(e) Record retrievability. Records required to be kept by swap

execution facilities, designated contract markets, derivatives clearing

organizations, or swap counterparties pursuant to this

[[Page 2199]]

section shall be retrievable as provided in paragraphs (e)(1) and (2)

of this section, as applicable.

(1) Each record required by this section or any other section of

the CEA to be kept by a swap execution facility, designated contract

market, derivatives clearing organization, swap dealer, or major swap

participant shall be readily accessible via real time electronic access

by the registrant throughout the life of the swap and for two years

following the final termination of the swap, and shall be retrievable

by the registrant within three business days through the remainder of

the period following final termination of the swap during which it is

required to be kept.

(2) Each record required by this section or any other section of

the CEA to be kept by a non-SD/MSP counterparty shall be retrievable by

that counterparty within five business days throughout the period

during which it is required to be kept.

(f) Recordkeeping by swap data repositories. Each swap data

repository registered with the Commission shall keep full, complete,

and systematic records, together with all pertinent data and memoranda,

of all activities relating to the business of the swap data repository

and all swap data reported to the swap data repository, as prescribed

by the Commission. Such records shall include, without limitation, all

records required by part 49 of this chapter.

(g) Record retention and retrievability by swap data repositories.

All records required to be kept by a swap data repository pursuant to

this section must be kept by the swap data repository both:

(1) Throughout the existence of the swap and for five years

following final termination of the swap, during which time the records

must be readily accessible by the swap data repository and available to

the Commission via real time electronic access; and

(2) Thereafter, for a period of at least ten additional years in

archival storage from which they are retrievable by the swap data

repository within three business days.

(h) Record inspection. All records required to be kept pursuant to

this section by any registrant or its affiliates or by any non-SD/MSP

counterparty subject to the jurisdiction of the Commission shall be

open to inspection upon request by any representative of the

Commission, the United States Department of Justice, or the Securities

and Exchange Commission, or by any representative of a prudential

regulator as authorized by the Commission. Copies of all such records

shall be provided, at the expense of the entity or person required to

keep the record, to any representative of the Commission upon request.

Copies of records required to be kept by any registrant shall be

provided either by electronic means, in hard copy, or both, as

requested by the Commission, with the sole exception that copies of

records originally created and exclusively maintained in paper form may

be provided in hard copy only. Copies of records required to be kept by

any non-SD/MSP counterparty subject to the jurisdiction of the

Commission that is not a Commission registrant shall be provided in the

form, whether electronic or paper, in which the records are kept.

Sec. 45.3 Swap data reporting: creation data.

Registered entities and swap counterparties must report required

swap creation data electronically to a swap data repository as set

forth in this Section. This obligation commences on the applicable

compliance date set forth in the preamble to this part. The reporting

obligations of swap counterparties with respect to swaps executed prior

to the applicable compliance date and in existence on or after July 21,

2010, the date of enactment of the Dodd-Frank Act, are set forth in

part 46 of this chapter. This section and Sec. 45.4 establish the

general swap data reporting obligations of swap dealers, major swap

participants, non-SD/MSP counterparties, swap execution facilities,

designated contract markets, and derivatives clearing organizations to

report swap data to a swap data repository. In addition to the

reporting obligations set forth in this section and Sec. 45.4,

registered entities and swap counterparties are subject to other

reporting obligations set forth in this chapter, including, without

limitation, the following: Swap dealers, major swap participants, and

non-SD/MSP counterparties are also subject to the reporting obligations

with respect to corporate affiliations reporting set forth in Sec.

45.6; swap execution facilities, designated contract markets, swap

dealers, major swap participants, and non-SD/MSP counterparties are

subject to the reporting obligations with respect to real time

reporting of swap data set forth in part 43 of this chapter;

counterparties to a swap for which the clearing requirement exception

in CEA section 2(h)(7) has been elected are subject to the reporting

obligations set forth in part 39 of this chapter; and, where

applicable, swap dealers, major swap participants, and non-SD/MSP

counterparties are subject to the reporting obligations with respect to

large traders set forth in parts 17 and 18 of this chapter.

(a) Swaps executed on or pursuant to the rules of a swap execution

facility or designated contract market. (1) For each swap executed on

or pursuant to the rules of a swap execution facility or designated

contract market, the swap execution facility or designated contract

market must report all required swap creation data, as soon as

technologically practicable after execution of the swap. This report

must include all confirmation data for the swap, as defined in part 23

and in Sec. 45.1, and all primary economic terms data for the swap, as

defined in Sec. 45.1.

(2) If such a swap is accepted for clearing by a derivatives

clearing organization, the derivatives clearing organization must

report all confirmation data for the swap, as defined in part 39 and in

Sec. 45.1, as soon as technologically practicable after clearing. The

derivatives clearing organization shall fulfill this requirement by

reporting all confirmation data for the swap, as defined in part 39 and

in this Sec. 45.1, which must include all primary economic terms data

for the swap as defined in Sec. 45.1, and must include the internal

identifiers assigned by the automated systems of the derivatives

clearing organization to the two transactions resulting from novation

to the clearing house.

(b) Off-facility swaps subject to mandatory clearing. For all off-

facility swaps subject to the mandatory clearing requirement, except

for those off-facility swaps excepted from that requirement pursuant to

CEA section 2(h)(7) and those off-facility swaps covered by CEA section

2(a)(13)(C)(iv), required swap creation data must be reported as

provided in paragraph (b) of this section.

(1) The reporting counterparty, as determined pursuant to Sec.

45.8, must report all primary economic terms data for the swap, within

the applicable reporting deadline set forth in paragraph (b)(1)(i) or

(ii) of this section. However, if the swap is voluntarily submitted for

clearing and accepted for clearing by a derivatives clearing

organization before the applicable reporting deadline set forth in

paragraphs (b)(1)(i) or (ii) of this section, and if the swap is

accepted for clearing before the reporting counterparty reports any

primary economic terms data to a swap data repository, then the

reporting counterparty is excused from reporting required swap creation

data for the swap.

(i) If the reporting counterparty is a swap dealer or a major swap

participant, the reporting counterparty must report all primary

economic terms data for the

[[Page 2200]]

swap as soon as technologically practicable after execution, but no

later than: 30 minutes after execution during the first year following

the compliance date; and 15 minutes after execution thereafter.

(ii) If the reporting counterparty is a non-SD/MSP counterparty,

the reporting counterparty must report all primary economic terms data

for the swap as soon as technologically practicable after execution,

but no later than: four business hours after execution during the first

year following the compliance date; two business hours after execution

during the second year following the compliance date; and one business

hour after execution thereafter.

(2) If the swap is accepted for clearing by a derivatives clearing

organization, the derivatives clearing organization must report all

confirmation data for the swap, as defined in part 39 and in Sec.

45.1, as soon as technologically practicable after clearing. The

derivatives clearing organization shall fulfill this requirement by

reporting all confirmation data for the swap, as defined in part 39 and

in this Sec. 45.1, which must include all primary economic terms data

for the swap as defined in Sec. 45.1, and must include the internal

identifiers assigned by the automated systems of the derivatives

clearing organization to the two transactions resulting from novation

to the clearing house.

(3) If the swap is not accepted for clearing, the reporting

counterparty must report all confirmation data for the swap, as defined

in Sec. 45.1, within the applicable reporting deadline set forth in

paragraph (b)(3)(i) or (ii) of this section. During the first 180

calendar days following the compliance date, if reporting confirmation

data normalized in data fields is not yet technologically practicable

for the reporting counterparty, the reporting counterparty may report

confirmation data to the swap data repository by transmitting to the

swap data repository an image of the document or documents constituting

the confirmation, until such time as electronic reporting of

confirmation data is technologically practicable for the reporting

counterparty. Beginning 180 days after the compliance date, the

reporting counterparty must report all confirmation data to the swap

data repository electronically.

(i) If the reporting counterparty is a swap dealer or major swap

participant, the reporting counterparty must report all confirmation

data as soon as technologically practicable following confirmation, but

no later than: 30 minutes after confirmation if confirmation occurs

electronically; or 24 business hours after confirmation if confirmation

does not occur electronically.

(ii) If the reporting counterparty is a non-SD/MSP counterparty,

the reporting counterparty must report all confirmation data as soon as

technologically practicable following confirmation, but no later than:

the end of the second business day after the date of confirmation

during the first year following the compliance date; and the end of the

first business day after the date of confirmation thereafter.

(c) Off-facility swaps not subject to mandatory clearing, with a

swap dealer or major swap participant reporting counterparty. For all

off-facility swaps not subject to the mandatory clearing requirement

set forth in CEA section 2(h), all off-facility swaps for which the

clearing requirement exception in CEA section 2(h)(7) has been elected,

and all off-facility swaps covered by CEA section 2(a)(13)(C)(iv), for

which a swap dealer or major swap participant is the reporting

counterparty, required swap creation data must be reported as provided

in paragraph (c) of this section.

(1) Credit, equity, foreign exchange, and interest rate swaps. For

each such credit swap, equity swap, foreign exchange instrument, or

interest rate swap:

(i) The reporting counterparty, as determined pursuant to Sec.

45.8, must report all primary economic terms data for the swap, within

the applicable reporting deadline set forth in paragraph (c)(1)(i)(A)

or (B) of this section. However, if the swap is voluntarily submitted

for clearing and accepted for clearing by a derivatives clearing

organization before the applicable reporting deadline set forth in

paragraphs (c)(1)(i)(A) or (B) of this section, and if the swap is

accepted for clearing before the reporting counterparty reports any

primary economic terms data to a swap data repository, then the

reporting counterparty is excused from reporting required swap creation

data for the swap.

(A) If the non-reporting counterparty is a swap dealer, a major

swap participant, or a non-SD/MSP counterparty that is a financial

entity as defined in CEA section 2(h)(7)(C), or if the non-reporting

counterparty is a non-SD/MSP counterparty that is not a financial

entity as defined in CEA section 2(h)(7)(C) and verification of primary

economic terms occurs electronically, then the reporting counterparty

must report all primary economic terms data for the swap as soon as

technologically practicable after execution, but no later than: one

hour after execution during the first year following the compliance

date; and 30 minutes after execution thereafter.

(B) If the non-reporting counterparty is a non-SD/MSP counterparty

that is not a financial entity as defined in CEA section 2(h)(7)(C),

and if verification of primary economic terms does not occur

electronically, then the reporting counterparty must report all primary

economic terms data for the swap as soon as technologically practicable

after execution, but no later than: 24 business hours after execution

during the first year following the compliance date; 12 business hours

after execution during the second year following the compliance date;

and 30 minutes after execution thereafter.

(ii) If the swap is accepted for clearing by a derivatives clearing

organization, the derivatives clearing organization must report all

confirmation data for the swap, as defined in part 39 and in Sec.

45.1, as soon as technologically practicable after clearing. The

derivatives clearing organization shall fulfill this requirement by

reporting all confirmation data for the swap, as defined in part 39 and

in this Sec. 45.1, which must include all primary economic terms data

for the swap as defined in Sec. 45.1, and must include the internal

identifiers assigned by the automated systems of the derivatives

clearing organization to the two transactions resulting from novation

to the clearing house.

(iii) If the swap is not voluntarily submitted for clearing, the

reporting counterparty must report all confirmation data for the swap,

as defined in Sec. 45.1, as soon as technologically practicable after

confirmation, but no later than: 30 minutes after confirmation if

confirmation occurs electronically; or 24 business hours after

confirmation if confirmation does not occur electronically. During the

first 180 calendar days following the compliance date, if reporting

confirmation data normalized in data fields is not yet technologically

practicable for the reporting counterparty, the reporting counterparty

may report confirmation data to the swap data repository by

transmitting to the swap data repository an image of the document or

documents constituting the confirmation, until such time as electronic

reporting of confirmation data is technologically practicable for the

reporting counterparty. Beginning 180 days after the compliance date,

the reporting counterparty must report all confirmation data to the

swap data repository electronically.

[[Page 2201]]

(2) Other commodity swaps. For each such other commodity swap:

(i) The reporting counterparty, as determined pursuant to Sec.

45.8, must report all primary economic terms data for the swap, within

the applicable reporting deadline set forth in paragraph (c)(2)(i)(A)

or (B) of this section. However, if the swap is voluntarily submitted

for clearing and accepted for clearing by a derivatives clearing

organization before the applicable reporting deadline set forth in

paragraphs (c)(2)(i)(A) or (B) of this section, and if the swap is

accepted for clearing before the reporting counterparty reports any

primary economic terms data to a swap data repository, then the

reporting counterparty is excused from reporting required swap creation

data for the swap.

(A) If the non-reporting counterparty is a swap dealer, a major

swap participant, or a non-SD/MSP counterparty that is a financial

entity as defined in CEA section 2(h)(7)(C), or if the non-reporting

counterparty is a non-SD/MSP counterparty that is not a financial

entity as defined in CEA section 2(h)(7)(C) and verification of primary

economic terms occurs electronically, then the reporting counterparty

must report all primary economic terms data for the swap as soon as

technologically practicable after execution, but no later than: four

hours after execution during the first year following the compliance

date; and two hours after execution thereafter.

(B) If the non-reporting counterparty is a non-SD/MSP counterparty

that is not a financial entity as defined in CEA section 2(h)(7)(C),

and if verification of primary economic terms does not occur

electronically, then the reporting counterparty must report all primary

economic terms data for the swap as soon as technologically practicable

after execution, but no later than: 48 business hours after execution

during the first year following the compliance date; 24 business hours

after execution during the second year following the compliance date;

and two hours after execution thereafter.

(ii) If the swap is accepted for clearing by a derivatives clearing

organization, the derivatives clearing organization must report all

confirmation data for the swap, as defined in part 39 and in Sec.

45.1, as soon as technologically practicable after clearing. The

derivatives clearing organization shall fulfill this requirement by

reporting all confirmation data for the swap, as defined in part 39 and

in this Sec. 45.1, which must include all primary economic terms data

for the swap as defined in Sec. 45.1, and must include the internal

identifiers assigned by the automated systems of the derivatives

clearing organization to the two transactions resulting from novation

to the clearing house.

(iii) If the swap is not voluntarily submitted for clearing, the

reporting counterparty must report all confirmation data for the swap,

as defined in Sec. 45.1, as soon as technologically practicable after

confirmation, but no later than: 30 minutes after confirmation if

confirmation occurs electronically; or 24 business hours after

confirmation if confirmation does not occur electronically. During the

first 180 calendar days following the compliance date, if reporting

confirmation data normalized in data fields is not yet technologically

practicable for the reporting counterparty, the reporting counterparty

may report confirmation data to the swap data repository by

transmitting to the swap data repository an image of the document or

documents constituting the confirmation, until such time as electronic

reporting of confirmation data is technologically practicable for the

reporting counterparty. Beginning 180 days after the compliance date,

the reporting counterparty must report all confirmation data to the

swap data repository electronically.

(d) Off-facility swaps not subject to mandatory clearing, with a

non-SD/MSP reporting counterparty. For all off-facility swaps not

subject to the mandatory clearing requirement set forth in CEA section

2(h), all off-facility swaps for which the clearing requirement

exception in CEA section 2(h)(7) has been elected, and all off-facility

swaps covered by CEA section 2(a)(13)(C)(iv), in all asset classes, for

which a non-SD/MSP counterparty is the reporting counterparty, required

swap creation data must be reported as provided in this paragraph (d).

(1) The reporting counterparty, as determined pursuant to Sec.

45.8, must report all primary economic terms data for the swap, as soon

as technologically practicable after execution, but no later than: 48

business hours after execution during the first year following the

compliance date; 36 business hours after execution during the second

year following the compliance date; and 24 business hours after

execution thereafter. However, if the swap is voluntarily submitted for

clearing and accepted for clearing by a derivatives clearing

organization before the applicable reporting deadline set forth in this

paragraph (d)(1), and if the swap is accepted for clearing before the

reporting counterparty reports any primary economic terms data to a

swap data repository, then the reporting counterparty is excused from

reporting required swap creation data for the swap.

(2) If the swap is accepted for clearing by a derivatives clearing

organization, the derivatives clearing organization must report all

confirmation data for the swap, as defined in part 39 and in Sec.

45.1, as soon as technologically practicable after clearing. The

derivatives clearing organization shall fulfill this requirement by

reporting all confirmation data for the swap, as defined in part 39 and

in this Sec. 45.1, which must include all primary economic terms data

for the swap as defined in Sec. 45.1, and must include the internal

identifiers assigned by the automated systems of the derivatives

clearing organization to the two transactions resulting from novation

to the clearing house.

(3) If the swap is not voluntarily submitted for clearing, the

reporting counterparty must report all confirmation data for the swap,

as defined in Sec. 45.1, as soon as technologically practicable after

confirmation, but no later than: 48 business hours after confirmation

during the first year following the compliance date; 36 business hours

after confirmation during the second year following the compliance

date; and 24 business hours after confirmation thereafter. During the

first 180 calendar days following the compliance date, if reporting

confirmation data normalized in data fields is not yet technologically

practicable for the reporting counterparty, the reporting counterparty

may report confirmation data to the swap data repository by

transmitting to the swap data repository an image of the document or

documents constituting the confirmation, until such time as electronic

reporting of confirmation data is technologically practicable for the

reporting counterparty. Beginning 180 days after the compliance date,

the reporting counterparty must report all confirmation data to the

swap data repository electronically.

(e) Allocations. For swaps involving allocation, required swap

creation data shall be reported to a single swap data repository as

follows.

(i) Initial swap between reporting counterparty and agent. The

initial swap transaction between the reporting counterparty and the

agent shall be reported as required by Sec. 45.3(a) through (d) of

this part. A unique swap identifier for the initial swap transaction

must be created as provided in Sec. 45.5 of this part.

[[Page 2202]]

(ii) Post-allocation swaps. (A) Duties of the agent. In accordance

with this section, the agent shall inform the reporting counterparty of

the identities of the reporting counterparty's actual counterparties

resulting from allocation, as soon as technologically practicable after

execution, but not later than eight business hours after execution.

(B) Duties of the reporting counterparty. The reporting

counterparty must report all required swap creation data for each swap

resulting from allocation, to the same swap data repository to which

the initial swap transaction is reported, as soon as technologically

practicable after it is informed by the agent of the identities of its

actual counterparties. The reporting counterparty must create a unique

swap identifier for each such swap as required in Sec. 45.5 of this

part.

(C) Duties of the swap data repository. The swap data repository to

which the initial swap transaction and the post-allocation swaps are

reported must map together the unique swap identifiers of the original

swap transaction and of each of the post-allocation swaps.

(f) Multi-asset swaps. For each multi-asset swap, required swap

creation data and required swap continuation data shall be reported to

a single swap data repository that accepts swaps in the asset class

treated as the primary asset class involved in the swap by the swap

execution facility, designated contract market, or reporting

counterparty making the first report of required swap creation data

pursuant to this section. The registered entity or reporting

counterparty making the first report of required swap creation data

pursuant to this section shall report all primary economic terms for

each asset class involved in the swap.

(g) Mixed swaps. (1) For each mixed swap, required swap creation

data and required swap continuation data shall be reported to a swap

data repository registered with the Commission and to a security-based

swap data repository registered with the Securities and Exchange

Commission. This requirement may be satisfied by reporting the mixed

swap to a swap data repository or security-based swap data repository

registered with both Commissions.

(2) The registered entity or reporting counterparty making the

first report of required swap creation data pursuant to this section

shall ensure that the same unique swap identifier is recorded for the

swap in both the swap data repository and the security-based swap data

repository.

(h) International swaps. For each international swap, the reporting

counterparty shall report as soon as practicable to the swap data

repository the identity of the non-U.S. trade repository not registered

with the Commission to which the swap is also reported and the swap

identifier used by the non-U.S. trade repository to identify the swap.

If necessary, the reporting counterparty shall obtain this information

from the non-reporting counterparty.

Sec. 45.4 Swap data reporting: continuation data.

Registered entities and swap counterparties must report required

swap continuation data electronically to a swap data repository as set

forth in this section. This obligation commences on the applicable

compliance date set forth in the preamble to this part. The reporting

obligations of registered entities and swap counterparties with respect

to swaps executed prior to the applicable compliance date and in

existence on or after July 21, 2010, the date of enactment of the Dodd-

Frank Act, are set forth in part 46 of this chapter. This section and

Sec. 45.3 establish the general swap data reporting obligations of

swap dealers, major swap participants, non-SD/MSP counterparties, swap

execution facilities, designated contract markets, and derivatives

clearing organizations to report swap data to a swap data repository.

In addition to the reporting obligations set forth in this section and

Sec. 45.3, registered entities and swap counterparties are subject to

other reporting obligations set forth in this chapter, including,

without limitation, the following: Swap dealers, major swap

participants, and non-SD/MSP counterparties are also subject to the

reporting obligations with respect to corporate affiliations reporting

set forth in Sec. 45.6; swap execution facilities, designated contract

markets, swap dealers, major swap participants, and non-SD/MSP

counterparties are subject to the reporting obligations with respect to

real time reporting of swap data set forth in part 43 of this chapter;

and, where applicable, swap dealers, major swap participants, and non-

SD/MSP counterparties are subject to the reporting obligations with

respect to large traders set forth in parts 17 and 18 of this chapter.

(a) Continuation data reporting method. For each swap, regardless

of asset class, reporting 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. Reporting entities and counterparties fulfill

this obligation by reporting either life cycle event data or state data

for the swap within the applicable deadlines set forth in this section.

Reporting counterparties and derivatives clearing organizations

required to report swap continuation data for a swap may fulfill their

obligation to report either life cycle event data or state data by

reporting:

(1) Life cycle event data to a swap data repository that accepts

only life cycle event data reporting;

(2) State data to a swap data repository that accepts only state

data reporting; or

(3) Either life cycle event data or state data to a swap data

repository that accepts both life cycle event data and state data

reporting.

(b) Continuation data reporting for cleared swaps. For all swaps

cleared by a derivatives clearing organization, required continuation

data must be reported as provided in this section.

(1) Life cycle event data or state data reporting. The derivatives

clearing organization must report to the swap data repository either:

(i) All life cycle event data for the swap, reported on the same

day that any life cycle event occurs with respect to the swap; or

(ii) All state data for the swap, reported daily.

(2) Valuation data reporting. Valuation data for the swap must be

reported as follows:

(i) By the derivatives clearing organization, daily; and

(ii) If the reporting counterparty is a swap dealer or major swap

participant, by the reporting counterparty, daily. Non-SD/MSP reporting

counterparties are not required to report valuation data for cleared

swaps.

(c) Continuation data reporting for uncleared swaps. For all swaps

that are not cleared by a derivatives clearing organization, the

reporting counterparty must report all required swap continuation data

as provided in this section.

(1) Life cycle event data or state data reporting. The reporting

counterparty for the swap must report to the swap data repository

either all life cycle event data for the swap or all state data for the

swap, within the applicable deadline set forth in paragraphs (c)(1)(i)

or (ii) of this section.

(i) If the reporting counterparty is a swap dealer or major swap

participant:

(A) Life cycle event data must be reported on the same day that any

life cycle event occurs, with the sole

[[Page 2203]]

exception that life cycle event data relating to a corporate event of

the non-reporting counterparty must be reported no later than the

second business day after the day on which such event occurs.

(B) State data must be reported daily.

(ii) If the reporting counterparty is a non-SD/MSP counterparty:

(A) Life cycle event data must be reported no later than: the end

of the second business day following the date of any life cycle event

during the first year after the applicable compliance date; and the end

of the first business day following the date of any life cycle event

thereafter; with the sole exception that life cycle event data relating

to a corporate event of the non-reporting counterparty must be reported

no later than the end of the third business day following the date of

such event during the first year after the compliance date, and no

later than the end of the second business day following such event

thereafter.

(B) State data must be reported daily.

(2) Valuation data reporting. Valuation data for the swap must be

reported by the reporting counterparty for the swap as follows:

(i) If the reporting counterparty is a swap dealer or major swap

participant, the reporting counterparty must report all valuation data

for the swap, daily.

(ii) If the reporting counterparty is a non-SD/MSP counterparty,

the reporting counterparty must report the current daily mark of the

transaction as of the last day of each fiscal quarter. This report must

be transmitted to the swap data repository within 30 calendar days of

the end of each fiscal quarter. If a daily mark of the transaction is

not available for the swap, the reporting counterparty satisfies this

requirement by reporting the current valuation of the swap recorded on

its books in accordance with applicable accounting standards.

Sec. 45.5 Unique swap identifiers.

Each swap subject to the jurisdiction of the Commission shall be

identified in all recordkeeping and all swap data reporting pursuant to

this part by the use of a unique swap identifier, which shall be

created, transmitted, and used for each swap as provided in paragraphs

(a) through (c) of this section.

(a) Swaps executed on a swap execution facility or designated

contract market. For each swap executed on a swap execution facility or

designated contract market, the swap execution facility or designated

contract market shall create and transmit a unique swap identifier as

provided in paragraphs (a)(1) and (2) of this section.

(1) Creation. The swap execution facility or designated contract

market shall generate and assign a unique swap identifier at, or as

soon as technologically practicable following, the time of execution of

the swap, and prior to the reporting of required swap creation data.

The unique swap identifier shall consist of a single data field that

contains two components:

(i) The unique alphanumeric code assigned to the swap execution

facility or designated contract market by the Commission for the

purpose of identifying the swap execution facility or designated

contract market with respect to unique swap identifier creation; and

(ii) An alphanumeric code generated and assigned to that swap by

the automated systems of the swap execution facility or designated

contract market, which shall be unique with respect to all such codes

generated and assigned by that swap execution facility or designated

contract market.

(2) Transmission. The swap execution facility or designated

contract market shall transmit the unique swap identifier

electronically as follows:

(i) To the swap data repository to which the swap execution

facility or designated contract market reports required swap creation

data for the swap, as part of that report;

(ii) To each counterparty to the swap, as soon as technologically

practicable after execution of the swap;

(iii) To the derivatives clearing organization, if any, to which

the swap is submitted for clearing, as part of the required swap

creation data transmitted to the derivatives clearing organization for

clearing purposes.

(b) Off-facility swaps with a swap dealer or major swap participant

reporting counterparty. For each off-facility swap where the reporting

counterparty is a swap dealer or major swap participant, the reporting

counterparty shall create and transmit a unique swap identifier as

provided in paragraphs (b)(1) and (2) of this section.

(1) Creation. The reporting counterparty shall generate and assign

a unique swap identifier as soon as technologically practicable after

execution of the swap and prior to both the reporting of required swap

creation data and the transmission of data to a derivatives clearing

organization if the swap is to be cleared. The unique swap identifier

shall consist of a single data field that contains two components:

(i) The unique alphanumeric code assigned to the swap dealer or

major swap participant by the Commission at the time of its

registration as such, for the purpose of identifying the swap dealer or

major swap participant with respect to unique swap identifier creation;

and

(ii) An alphanumeric code generated and assigned to that swap by

the automated systems of the swap dealer or major swap participant,

which shall be unique with respect to all such codes generated and

assigned by that swap dealer or major swap participant.

(2) Transmission. The reporting counterparty shall transmit the

unique swap identifier electronically as follows:

(i) To the swap data repository to which the reporting counterparty

reports required swap creation data for the swap, as part of that

report;

(ii) To the non-reporting counterparty to the swap, as soon as

technologically practicable after execution of the swap; and

(iii) To the derivatives clearing organization, if any, to which

the swap is submitted for clearing, as part of the required swap

creation data transmitted to the derivatives clearing organization for

clearing purposes.

(c) Off-facility swaps with a non-SD/MSP reporting counterparty.

For each off-facility swap for which the reporting counterparty is a

non-SD/MSP counterparty, the swap data repository to which primary

economic terms data is reported shall create and transmit a unique swap

identifier as provided in paragraphs (c)(1) and (2) of this section.

(1) Creation. The swap data repository shall generate and assign a

unique swap identifier as soon as technologically practicable following

receipt of the first report of required swap creation data concerning

the swap. The unique swap identifier shall consist of a single data

field that contains two components:

(i) The unique alphanumeric code assigned to the swap data

repository by the Commission at the time of its registration as such,

for the purpose of identifying the swap data repository with respect to

unique swap identifier creation; and

(ii) An alphanumeric code generated and assigned to that swap by

the automated systems of the swap data repository, which shall be

unique with respect to all such codes generated and assigned by that

swap data repository.

(2) Transmission. The swap data repository shall transmit the

unique swap identifier electronically as follows:

(i) To the counterparties to the swap, as soon as technologically

practicable following creation of the unique swap identifier; and

(ii) To the derivatives clearing organization, if any, to which the

swap is submitted for clearing, as soon as technologically practicable

following creation of the unique swap identifier.

[[Page 2204]]

(d) Allocations. For swaps involving allocation, unique swap

identifiers shall be created and transmitted as follows.

(1) Initial swap between reporting counterparty and agent. The

unique swap identifier for the initial swap transaction between the

reporting counterparty and the agent shall be created as required by

paragraph (a) through (c) of this section, and shall be transmitted as

follows:

(i) If the unique swap identifier is created by a swap execution

facility or designated contract market, the swap execution facility or

designated contract market must include the unique swap identifier in

its swap creation data report to the swap data repository, and must

transmit the unique identifier to the reporting counterparty and to the

agent.

(ii) If the unique swap identifier is created by the reporting

counterparty, the reporting counterparty must include the unique swap

identifier in its swap creation data report to the swap data

repository, and must transmit the unique identifier to the agent.

(2) Post-allocation swaps. The reporting counterparty must create a

unique swap identifier for each of the individual swaps resulting from

allocation, as soon as technologically practicable after it is informed

by the agent of the identities of its actual counterparties, and must

transmit each such unique swap identifier to:

(i) The non-reporting counterparty for the swap in question.

(ii) The agent.

(iii) The derivatives clearing organization, if any, to which the

swap is submitted for clearing, as part of the required swap creation

data transmitted to the derivatives clearing organization for clearing

purposes.

(iv) The same swap data repository to which the initial swap

transaction is reported, as part of the report of required swap

creation data to the swap data repository.

(e) Use. Each registered entity or swap counterparty subject to the

jurisdiction of the Commission shall include the unique swap identifier

for a swap in all of its records and all of its swap data reporting

concerning that swap, from the time it creates or receives the unique

swap identifier as provided in this section, throughout the existence

of the swap and for as long as any records are required by the CEA or

Commission regulations to be kept by that registered entity or

counterparty concerning the swap, regardless of any life cycle events

or any changes to state data concerning the swap, including, without

limitation, any changes with respect to the counterparties to or the

ownership of the swap. This requirement shall not prohibit the use by a

registered entity or swap counterparty in its own records of any

additional identifier or identifiers internally generated by the

automated systems of the registered entity or swap counterparty, or the

reporting to a swap data repository, the Commission, or another

regulator of such internally generated identifiers in addition to the

reporting of the unique swap identifier.

Sec. 45.6 Legal entity identifiers

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.

(a) Definitions. As used in this section:

Control (``controlling,'' ``controlled by,'' ``under common control

with'') means, for the purposes of Sec. 45.6, the possession, direct

or indirect, of the power to direct or cause the direction of the

management and policies of a person, whether through the ownership of

voting interest, by contract, or otherwise. A person is presumed to

control another person if the person: is a director, general partner or

officer exercising executive responsibility (or having similar status

or functions); directly or indirectly has the right to vote 25 percent

or more of a class of voting interest or has the power to sell or

direct the sale of 25 percent or more of a class of voting interest;

or, in the case of a partnership, has the right to receive upon

dissolution, or has contributed, 25 percent or more of the capital.

Legal identifier system means an LEI utility conforming with the

requirements of this section that issues or is capable of issuing an

LEI conforming with the requirements of this section, and is capable of

maintaining LEI reference data as required by this section.

Level one reference data means the minimum information needed to

identify, on a verifiable basis, the legal entity to which a legal

entity identifier is assigned. Level one reference data shall include,

without limitation, all of the data elements included in ISO Standard

17442. Examples of level one reference data include, without

limitation, a legal entity's official legal name, its place of

incorporation, and the address and contact information of its corporate

headquarters.

Level two reference data means information concerning the corporate

affiliations or company hierarchy relationships of the legal entity to

which a legal entity identifier is assigned. Examples of level two

reference data include, without limitation, the identity of the legal

entity's ultimate parent.

Parent means, for the purposes of Sec. 45.6, a legal person that

controls a counterparty to a swap required to be reported pursuant to

this section, or that controls a legal entity identified or to be

identified by a legal entity identifier provided by the legal

identifier system designated by the Commission pursuant to this

section.

Self-registration means submission by a legal entity of its own

level one or level two reference data, as applicable.

Third-party registration means submission of level one or level two

reference data, as applicable, for a legal entity that is or may become

a swap counterparty, made by an entity or organization other than the

legal entity identified by the submitted reference data. Examples of

third-party registration include, without limitation, submission by a

swap dealer or major swap participant of level one or level two

reference data for its swap counterparties, and submission by a

national numbering agency, national registration agency, or data

service provider of level one or level two reference data concerning

legal entities with respect to which the agency or service provider

maintains information.

Ultimate parent means, for the purposes of Sec. 45.6, a legal

person that controls a counterparty to a swap required to be reported

pursuant to this section, or that controls a legal entity identified or

to be identified by a legal entity identifier provided by the legal

identifier system designated by the Commission pursuant to this

section, and that itself has no parent.

(b) International standard for the legal entity identifier. The

legal entity identifier used in all recordkeeping and all swap data

reporting required by this part, following designation of the legal

entity identifier system as provided in paragraph (c)(2) of this

section, shall be issued under, and shall conform to, ISO Standard

17442, Legal Entity Identifier (LEI), issued by the International

Organisation for Standardisation.

(b) Technical principles for the legal entity identifier. The legal

entity identifier used in all recordkeeping and all swap data reporting

required by this part shall conform to the technical principles set

forth in paragraphs (b)(1) through (6) of this section.

(1) Uniqueness. Only one legal entity identifier shall be assigned

to any legal entity, and no legal entity identifier shall ever be

reused. Each entity within a corporate organization or group structure

that acts as a counterparty in

[[Page 2205]]

any swap shall have its own legal entity identifier.

(2) Neutrality. To ensure the persistence of the legal entity

identifier, it shall have a format consisting of a single data field,

and shall contain either no embedded intelligence or as little embedded

intelligence as practicable. Entity characteristics of swap

counterparties identified by legal entity identifiers shall constitute

separate elements within a reference data system as set forth in

paragraphs (a), (c)(2), (d), and (e) of this section.

(3) Reliability. The legal entity identifier shall be supported by

a trusted and auditable method of verifying the identity of the legal

entity to which it is assigned, both initially and at appropriate

intervals thereafter. The issuer of legal entity identifiers shall

maintain minimum reference or identification data sufficient to verify

that a user has been correctly identified. Issuance and maintenance of

the legal entity identifier, and storage and maintenance of all

associated data, shall involve robust quality assurance practices and

system safeguards. At a minimum, such system safeguards shall include

the system safeguards applied to swap data repositories by part 49 of

this chapter.

(4) Open Source. The schema for the legal entity identifier shall

have an open standard that ensures to the greatest extent practicable

that the legal entity identifier is compatible with existing automated

systems of financial market infrastructures, market participants, and

regulators.

(5) Extensibility. The legal entity identifier shall be capable of

becoming the single international standard for unique identification of

legal entities across the financial sector on a global basis.

Therefore, it shall be sufficiently extensible to cover all existing

and potential future legal entities of all types that may be

counterparties to swap, OTC derivative, or other financial

transactions; that may be involved in any aspect of the financial

issuance and transactions process; or that may be subject to required

due diligence by financial sector entities.

(6) Persistence. The legal entity identifier assigned to an entity

shall persist despite all corporate events. When a corporate event

results in a new entity, the new entity shall receive a new legal

entity identifier, while the previous legal entity identifier or

identifiers continue to identify the predecessor entity or entities in

the record.

(c) Governance principles for the legal entity identifier. The

legal entity identifier used in all recordkeeping and all swap data

reporting required by this part shall conform to the governance

principles set forth in paragraphs (c)(1) through (4) of this section.

(1) International governance. The issuance of the legal entity

identifier used pursuant to this section, and any legal entity

identifier utility formed for the purpose of issuing legal entity

identifiers that are used pursuant to this section, shall be subject to

international supervision as follows:

(i) With respect to operations, 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. The governance structure shall have authority

sufficient to ensure, and shall ensure, that issuance and maintenance

of the legal entity identifier system adheres on an ongoing basis to

the principles set forth in this section.

(ii) With respect to adherence to ISO Standard 17442, by the

International Organisation for Standardisation.

(2) Reference data access. Access to reference data associated with

the legal entity identifier shall enable use of the legal entity

identifier as a public good, while respecting applicable law regarding

data confidentiality. Accordingly:

(i) Reference data associated with the legal entity identifier that

is public under applicable law shall be available publicly and free of

charge. Such data shall include, without limitation, level one

reference data (i.e., the minimum reference data needed to verify the

identity of the legal entity receiving each legal entity identifier),

and a current directory of all issued legal entity identifiers.

(ii) Collection and maintenance of, and access to, reference data

associated with the legal entity identifier shall comply with

applicable laws on data protection and confidentiality.

(3) Non-profit operation and funding. Funding of both start-up and

ongoing operation of the legal entity identifier system, including,

without limitation, any legal entity identifier utility formed for the

purpose of issuing legal entity identifiers that are used pursuant to

this section, shall be conducted on a non-profit, reasonable cost-

recovery basis, and shall be subject to international governance as

provided in paragraph (c)(1) of this section.

(4) Unbundling and non-restricted use. Issuance of the legal entity

identifier shall not be tied to other services, if any, offered by the

issuer, and information concerning the issuance process for new legal

entity identifiers must be available publicly and free of charge.

Restrictions shall not be imposed on use of the legal entity identifier

by any person in its own products and services, or on use of the legal

entity identifier and associated reference data by any financial

regulator. Any intellectual property created as part of the legal

entity identifier system shall be treated in a manner consistent with

open source principles.

(5) Commercial advantage prohibition. The legal entity identifier

utility providing legal entity identifiers for use in compliance with

this part shall not make any commercial or business use (other than the

operation of the utility) of any reference data associated with the

legal entity identifier that is not available to the public free of

charge. This restriction shall also apply to any entity or person that

participates in the utility, that is legally or otherwise affiliated or

associated with the utility, or that provides third-party services to

the utility or to any component, partner, affiliate, or associate

thereof.

(e) Designation of the legal entity identifier system. (1) 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 available to

provide legal entity identifiers for registered entities and swap

counterparties required to comply with this part.

(i) In making this determination, the Commission shall consider,

without limitation, the following factors:

(A) Whether the LEI provided by the LEI utility is issued under,

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

(B) Whether the LEI provided by the LEI utility complies with all

of the technical principles set forth in this rule.

(C) Whether the LEI utility complies with all of the governance

principles set forth in this rule.

(D) Whether the LEI utility has demonstrated that it in fact can

provide LEIs complying with this section for identification of swap

counterparties in swap data reporting commencing as of the compliance

dates set forth in Sec. 45.5.

(E) The acceptability of the LEI utility to industry participants

required to use the LEI in complying with this part.

(ii) 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

[[Page 2206]]

counterparties in swap data reporting commencing as of the compliance

dates set forth in this part.

(iii) The Commission shall make this determination at a time it

believes is sufficiently prior to the compliance dates set forth this

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

compliance dates to enable compliance with this part.

(2) 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.

(3) If the Commission determines pursuant to paragraph (e)(1) of

this section that such a legal entity identifier system is not yet

available, the Commission shall publish notice of the determination in

the Federal Register and on the Web site of the Commission, as soon as

practicable after the determination is made. If the Commission later

determines, pursuant to paragraphs (e)(1)(i) and (ii) of this section,

that such a legal entity identifier system has become 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.

(e) Reference data reporting. (1) Reporting of level one reference

data. Level one reference data for each counterparty to any swap

subject to the jurisdiction of the Commission shall be reported, by

means of self-registration, third-party registration, or both, into a

public level one reference database maintained by the issuer of the

legal entity identifier designated by the Commission pursuant to

paragraph (d) of this section. Such level one reference data shall be

reported at a time sufficient to ensure that the counterparty's legal

entity identifier is available for inclusion in recordkeeping and swap

data reporting as required by this section. All subsequent changes and

corrections to level one reference data previously reported shall be

reported to the issuer, by means of self-registration, third-party

registration, or both, as soon as technologically practicable following

occurrence of any such change or discovery of the need for a

correction.

(2) Reporting of level two reference data. (i) Level two reference

data for each counterparty to any swap subject to the jurisdiction of

the Commission, consisting of the identity of the counterparty's

ultimate parent, shall be reported, by means of self-registration,

third-party registration, or both, into a level two reference database.

Where applicable law forbids such reporting, that fact and the citation

of the law in question shall be reported in place of the data to which

such law applies.

(ii) All non-public level two reference data reported to the level

two reference database shall be confidential, non-public, and available

only to financial regulators in any jurisdiction requiring use of the

legal entity identifier pursuant to applicable law.

(iii) 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 Web site of the Commission, as soon as

practicable after such determination is made. 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.

(iv) 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 provided in paragraph (e)(2)(iii) of this

section.

(v) After the Commission determines the location of the level two

reference database pursuant to paragraph (e)(2)(iii) of this section,

required level two reference data shall be reported at a time

sufficient to ensure that it is included in the database when the

counterparty's legal entity identifier is included in recordkeeping and

swap data reporting as required by this section.

(vi) All subsequent changes and corrections to required level two

reference data previously reported shall be reported into the level two

reference database, by means of self-registration, third-party

registration, or both, as soon as technologically practicable following

occurrence of any such change or discovery of the need for a

correction.

(f) Use of the legal entity identifier system by registered

entities and swap counterparties. (1) 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.

(2) Before a legal entity identifier system has been designated by

the Commission, each registered entity and swap counterparty shall use

a substitute counterparty identifier created and assigned by a swap

data repository in all recordkeeping and swap data reporting pursuant

to this part, as follows:

(i) When a swap involving one or more counterparties for which no

substitute counterparty identifier has yet been created and assigned is

reported to a swap data repository, the swap data repository shall

create a substitute counterparty identifier for each such counterparty

as provided in paragraph (f)(2)(ii) of this section, and assign the

substitute counterparty identifier to that counterparty, as soon as

technologically practicable after that swap is first reported to the

swap data repository. In lieu of creating a substitute identifier as

provided in paragraph (f)(2)(ii), the swap data repository may assign a

unique substitute identifier provided by a third party service

provider, if such identifier complies with all of the principles for

LEIs set forth in this part.

(ii) Each such substitute counterparty identifier created by a swap

data repository shall consist of a single data field that contains two

components, including:

(A) The unique alphanumeric code assigned to the swap data

repository by the Commission for the purpose of identifying the swap

data repository; and

(B) An alphanumeric code generated and assigned to that

counterparty by the automated systems of the swap data repository,

which shall be unique with respect to all such substitute counterparty

identifier codes generated and assigned by that swap data repository.

(iii) The swap data repository shall transmit each substitute

counterparty identifier thus created to each counterparty to the swap,

to each other registered entity associated with the swap, to each

registered entity or swap counterparty who has made any report of any

swap data to the swap data repository, and to each swap data repository

registered with the

[[Page 2207]]

Commission, as soon as technologically practicable after creation and

assignment of the substitute counterparty identifier.

(iv) Once any swap data repository has created and assigned such a

substitute counterparty identifier to a swap counterparty and has

transmitted it as required by paragraph (f)(2)(iii) of this section,

all registered entities and swap counterparties shall use that

substitute counterparty identifier to identify that counterparty in all

swap data recordkeeping and reporting, until such time as the

Commission designates a legal entity identifier system pursuant to

paragraph (e) of this section.

(3) For swaps reported pursuant to this part prior to Commission

designation of a legal entity identifier system, after such designation

each swap data repository shall map the legal entity identifiers for

the counterparties to the substitute counterparty identifiers in the

record for each such swap.

(4) Prior to October 15, 2012, if a legal entity identifier system

has been designated by the Commission as provided in this section, but

a reporting counterparty's automated systems are not yet prepared to

include legal entity identifiers in recordkeeping and swap data

reporting pursuant to this part, the counterparty shall be excused from

complying with paragraph (f)(1) of this section, and shall instead

comply with paragraph (f)(2) of this section, until its automated

systems are prepared with respect to legal entity identifiers, at which

time it must commence compliance with paragraph (f)(1) of this section.

This paragraph shall have no effect on or after October 15, 2012.

Sec. 45.7 Unique product identifiers.

Each 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 unique product identifier and product

classification system as specified in this section. Each swap

sufficiently standardized to receive a unique product identifier shall

be identified by a unique product identifier. Each swap not

sufficiently standardized for this purpose shall be identified by its

description using the product classification system.

(a) Requirements for the unique product identifier and product

classification system. The unique product identifier and product

classification system shall identify and describe the swap asset class

and the sub-type within that asset class to which the swap belongs, and

the underlying product for the swap, with sufficient distinctiveness

and specificity to enable the Commission and other financial regulators

to fulfill their regulatory responsibilities and to assist in real time

reporting of swaps as provided in the Act and part 43 of this chapter.

The level of distinctiveness and specificity which the unique product

identifier will provide shall be determined separately for each swap

asset class.

(b) Designation of the unique product identifier and product

classification system. (1) The Commission shall determine when a unique

product identifier and product classification system that is acceptable

to the Commission and satisfies the requirements set forth in this

section is available for use in compliance with this section.

(2) When the Commission determines that such a unique product

identifier and product classification system is available, the

Commission shall designate the unique product identifier and product

classification system 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 issuer of such unique product identifiers, and

information concerning the procedure and requirements for obtaining

unique product identifiers and using the product classification system.

(c) Use of the unique product identifier and product classification

system by registered entities and swap counterparties. (1) When a

unique product identifier and product classification system has been

designated by the Commission pursuant to paragraph (b) of this section,

each registered entity and swap counterparty shall use the unique

product identifier and product classification system in all

recordkeeping and swap data reporting pursuant to this part.

(2) Before a unique product identifier and product classification

system has been designated by the Commission, each registered entity

and swap counterparty shall use the internal product identifier or

product description used by the swap data repository to which a swap is

reported in all recordkeeping and swap data reporting pursuant to this

part.

Sec. 45.8 Determination of which counterparty must report.

The determination of which counterparty is the reporting

counterparty for a swap shall be made as provided in this section.

(a) If only one counterparty is a swap dealer, the swap dealer

shall be the reporting counterparty.

(b) If neither counterparty is a swap dealer, and only one

counterparty is a major swap participant, the major swap participant

shall be the reporting counterparty.

(c) If both counterparties are non-SD/MSP counterparties, and only

one counterparty is a financial entity as defined in CEA section

2(h)(7)(C), the counterparty that is a financial entity shall be the

reporting counterparty.

(d) If both counterparties are swap dealers, or both counterparties

are major swap participants, or both counterparties are non-SD/MSP

counterparties that are financial entities as defined in CEA section

2(h)(7)(C), or both counterparties are non-SD/MSP counterparties and

neither counterparty is a financial entity as defined in CEA section

2(h)(7)(C):

(1) For a swap executed on or pursuant to the rules of a swap

execution facility or designated contract market, the counterparties

shall agree which counterparty shall be the reporting counterparty. The

counterparties shall make this agreement after the swap execution

facility or designated contract market notifies the counterparties, as

provided in paragraph (h)(2) of this section, that paragraph (d) of

this section applies to them, and not later than the end of the first

business day following the date of execution of the swap. After this

agreement is reached, the reporting counterparty shall report to the

swap data repository that it is the reporting counterparty.

(2) For an off-facility swap, the counterparties shall agree as one

term of their swap which counterparty shall be the reporting

counterparty.

(e) Notwithstanding the provisions of paragraphs (a) through (d) of

this section, if both counterparties to a swap are non-SD/MSP

counterparties and only one counterparty is a U.S. person, that

counterparty shall be the reporting counterparty.

(f) Notwithstanding the provisions of paragraphs (a) through (e) of

this section, if neither counterparty to a swap is a U.S. person, but

the swap is executed on a swap execution facility or designated

contract market or otherwise executed in the United States, or is

cleared by a derivatives clearing organization:

(1) For such a swap executed on or pursuant to the rules of a swap

execution facility or designated contract market, the counterparties

shall agree which counterparty shall be the reporting counterparty. The

[[Page 2208]]

counterparties shall make this agreement after the swap execution

facility or designated contract market notifies the counterparties, as

provided in paragraph (h)(2) of this section, that neither counterparty

is a U.S. person, and not later than the end of the first business day

following the date of execution of the swap. After this agreement is

reached, the reporting counterparty shall report to the swap data

repository that it is the reporting counterparty.

(2) For an off-facility swap, the counterparties shall agree as one

term of their swap which counterparty shall be the reporting

counterparty.

(g) If a reporting counterparty selected pursuant to paragraphs (a)

through (f) of this section ceases to be a counterparty to a swap due

to an assignment or novation, the reporting counterparty for reporting

of required swap continuation data following the assignment or novation

shall be selected from the two current counterparties as provided in

paragraphs (g)(1) through (4) of this section.

(1) If only one counterparty is a swap dealer, the swap dealer

shall be the reporting counterparty and shall fulfill all counterparty

reporting obligations.

(2) If neither counterparty is a swap dealer, and only one

counterparty is a major swap participant, the major swap participant

shall be the reporting counterparty and shall fulfill all counterparty

reporting obligations.

(3) If both counterparties are non-SD/MSP counterparties, and only

one counterparty is a U.S. person, that counterparty shall be the

reporting counterparty and shall fulfill all counterparty reporting

obligations.

(4) In all other cases, the counterparty that replaced the previous

reporting counterparty by reason of the assignment or novation shall be

the reporting counterparty, unless otherwise agreed by the

counterparties.

(h) For all swaps executed on or pursuant to the rules of a swap

execution facility or designated contract market, the rules of the swap

execution facility or designated contract market must require each swap

counterparty to provide sufficient information to the swap execution

facility or designated contract market to enable the swap execution

facility or designated contract market to report all swap creation data

as provided in this part.

(1) To achieve this, the rules of the swap execution facility or

designated contract market must require each market participant placing

an order with respect to any swap traded on the swap execution facility

or designated contract market to include in the order, without

limitation:

(i) The legal entity identifier of the market participant placing

the order, if available.

(ii) A yes/no indication of whether the market participant is a

swap dealer with respect to the product with respect to which the order

is placed.

(iii) A yes/no indication of whether the market participant is a

major swap participant with respect to the product with respect to

which the order is placed.

(iv) A yes/no indication of whether the market participant is a

financial entity as defined in CEA section (2)(h)(7)(C).

(v) A yes/no indication of whether the market participant is a U.S.

person.

(vi) If applicable, an indication that the market participant will

elect the clearing requirement exception in CEA section (2)(h)(7) for

any swap resulting from the order.

(vii) If the swap will be allocated:

(A) An indication that the swap will be allocated.

(B) The legal entity identifier of the agent.

(C) An indication of whether the swap is a post-allocation swap.

(D) If the swap is a post-allocation swap, the unique swap

identifier of the original transaction between the reporting

counterparty and the agent.

(2) To achieve this, the swap execution facility or designated

contract market must use the information obtained pursuant to paragraph

(h)(1) of this section to identify the counterparty that is the

reporting counterparty pursuant to the CEA and this section, wherever

possible. If the swap execution facility or designated contract market

cannot identify the reporting counterparty from the information

available to it as specified in paragraph (h) of this section, the swap

execution facility or designated contract market shall:

(i) Notify each counterparty, as soon as technologically

practicable after execution of the swap, that it cannot identify

whether that counterparty is the reporting counterparty, and, if

applicable, that neither counterparty is a U.S. person; and

(ii) Transmit to each counterparty the LEI (or substitute

identifier as provided in this section) of the other counterparty.

Sec. 45.9 Third-party facilitation of data reporting.

Registered entities and swap counterparties required by this part

to report required swap creation data or required swap continuation

data, while remaining fully responsible for reporting as required by

this part, may contract with third-party service providers to

facilitate reporting.

Sec. 45.10 Reporting to a single swap data repository.

All swap data for a given swap must be reported to a single swap

data repository, which shall be the swap data repository to which the

first report of required swap creation data is made pursuant to this

part.

(a) Swaps executed on a swap execution facility or designated

contract market. To ensure that all swap data for a swap executed on or

pursuant to the rules of a swap execution facility or designated

contract market is reported to a single swap data repository:

(1) The swap execution facility or designated contract market that

reports required swap creation data as required by Sec. 45.3 shall

report all such data to a single swap data repository. As soon as

technologically practicable after execution, the swap execution

facility or designated contract market shall transmit to both

counterparties to the swap, and to the derivatives clearing

organization, if any, that will clear the swap, both:

(i) The identity of the swap data repository to which required swap

creation data is reported by the swap execution facility or designated

contract market; and

(ii) The unique swap identifier for the swap, created pursuant to

Sec. 45.5.

(2) Thereafter, all required swap creation data and all required

swap continuation data reported for the swap reported by any registered

entity or counterparty shall be reported to that same swap data

repository (or to its successor in the event that it ceases to operate,

as provided in part 49 of this chapter).

(b) Off-facility swaps with a swap dealer or major swap participant

reporting counterparty. To ensure that all swap data for such swaps is

reported to a single swap data repository:

(1) If the reporting counterparty reports primary economic terms

data to a swap data repository as required by Sec. 45.3:

(i) The reporting counterparty shall report primary economic terms

data to a single swap data repository.

(ii) As soon as technologically practicable after execution, but no

later than as required pursuant to Sec. 45.3, the reporting

counterparty shall transmit to the other counterparty to the swap both

the identity of the swap data repository to which primary economic

terms data is reported by the reporting counterparty, and the unique

swap

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identifier for the swap created pursuant to Sec. 45.5.

(iii) If the swap will be cleared, the reporting counterparty shall

transmit to the derivatives clearing organization at the time the swap

is submitted for clearing both the identity of the swap data repository

to which primary economic terms data is reported by the reporting

counterparty, and the unique swap identifier for the swap created

pursuant to Sec. 45.5.

(2) If the reporting counterparty is excused from reporting primary

economic terms data as provided in Sec. 45.3(b) or (c):

(i) Paragraph (b)(1) of this section shall not apply.

(ii) At the time the swap is submitted for clearing, the reporting

counterparty shall transmit to the derivatives clearing organization

the unique swap identifier for the swap created pursuant to Sec. 45.5,

and notify the derivatives clearing organization that the reporting

counterparty has not reported any required swap creation data for the

swap to a swap data repository.

(iii) The derivatives clearing organization shall report all

required swap creation data for the swap to a single swap data

repository. As soon as technologically practicable after clearing, the

derivatives clearing organization shall transmit to both counterparties

to the swap the identity of the swap data repository to which required

swap creation data is reported by the derivatives clearing

organization, and shall transmit to the non-reporting counterparty the

unique swap identifier for the swap.

(3) Thereafter, all required swap creation data and all required

swap continuation data reported for the swap, by any registered entity

or counterparty, shall be reported to the swap data repository to which

swap data has been reported pursuant to paragraph (b)(1) or (b)(2) of

this section (or to its successor in the event that it ceases to

operate, as provided in part 49 of this chapter).

(c) Off-facility swaps with a non-SD/MSP reporting counterparty. To

ensure that all swap data for such swaps is reported to a single swap

data repository:

(1) If the reporting counterparty reports primary economic terms

data to a swap data repository as required by Sec. 45.3:

(i) The reporting counterparty shall report primary economic terms

data to a single swap data repository.

(ii) As soon as technologically practicable after execution, but no

later than as required pursuant to Sec. 45.3, the reporting

counterparty shall transmit to the other counterparty to the swap the

identity of the swap data repository to which primary economic terms

data was reported by the reporting counterparty.

(iii) If the swap will be cleared, the reporting counterparty shall

transmit to the derivatives clearing organization at the time the swap

is submitted for clearing the identity of the swap data repository to

which primary economic terms data was reported by the reporting

counterparty.

(2) If the reporting counterparty will be excused from reporting

primary economic terms data as provided in Sec. 45.3(b) or (c):

(i) Paragraph (c)(1) of this section shall not apply.

(ii) At the time the swap is submitted for clearing, the reporting

counterparty shall notify the derivatives clearing organization that

the reporting counterparty has not reported any required swap creation

data for the swap to a swap data repository.

(iii) The derivatives clearing organization shall report all

required swap creation data for the swap to a single swap data

repository. As soon as technologically practicable after clearing, the

derivatives clearing organization shall transmit to both counterparties

to the swap the identity of the swap data repository to which required

swap creation data is reported by the derivatives clearing

organization.

(3) The swap data repository to which the swap is reported as

provided in paragraph (c) of this section shall transmit the unique

swap identifier created pursuant to Sec. 45.5 to both counterparties

and to the derivatives clearing organization, if any, as soon as

technologically practicable after creation of the unique swap

identifier.

(4) Thereafter, all required swap creation data and all required

swap continuation data reported for the swap, by any registered entity

or counterparty, shall be reported to the swap data repository to which

swap data has been reported pursuant to paragraph (c)(1) or (2) of this

section (or to its successor in the event that it ceases to operate, as

provided in part 49 of this chapter).

Sec. 45.11 Data reporting for swaps in a swap asset class not

accepted by any swap data repository.

(a) Should there be a swap asset class for which no swap data

repository registered with the Commission currently accepts swap data,

each registered entity or counterparty required by this part to report

any required swap creation data or required swap continuation data with

respect to a swap in that asset class must report that same data to the

Commission.

(b) Data reported to the Commission pursuant to this section shall

be reported at times announced by the Commission and in an electronic

file in a format acceptable to the Commission.

(c) Delegation of authority to the Chief Information Officer: The

Commission hereby delegates to its Chief Information Officer, until the

Commission orders otherwise, the authority set forth in paragraph (c)

of this section, to be exercised by the Chief Information Officer or by

such other employee or employees of the Commission as may be designated

from time to time by the Chief Information Officer. The Chief

Information Officer may submit to the Commission for its consideration

any matter which has been delegated in this paragraph. Nothing in this

paragraph prohibits the Commission, at its election, from exercising

the authority delegated in this paragraph. The authority delegated to

the Chief Information Officer by paragraph (c) of this section shall

include:

(1) The authority to determine the manner, format, coding

structure, and electronic data transmission standards and procedures

acceptable to the Commission for the purposes of paragraphs (a) and (b)

of this section.

(2) The authority to determine whether the Commission may permit or

require use by reporting entities or counterparties in reporting

pursuant to this section of one or more particular data standards (such

as FIX, FpML, ISO 20022, or some other standard), in order to

accommodate the needs of different communities of users.

(3) The dates and times at which required swap creation data or

required swap continuation data shall be reported pursuant to this

section.

(d) The Chief Information Officer shall publish from time to time

in the Federal Register and on the Web site of the Commission the

format, data schema, electronic data transmission methods and

procedures, and dates and times for reporting acceptable to the

Commission with respect to swap data reporting pursuant to this

section.

Sec. 45.12 Voluntary supplemental reporting

(a) For purposes of this section, the term voluntary, supplemental

report means any report of swap data to a swap data repository that is

not required to be made pursuant to this part or any other part in this

chapter.

(b) A voluntary, supplemental report may be made only by a

counterparty to the swap in connection with which the voluntary,

supplemental report is made, or by a third-party service provider

acting on behalf of a counterparty to the swap.

[[Page 2210]]

(c) A voluntary, supplemental report may be made either to the swap

data repository to which all required swap creation data and all

required swap continuation data is reported for the swap pursuant to

Sec. Sec. 45.3 and 45.10, or to a different swap data repository.

(d) A voluntary, supplemental report must contain:

(1) An indication that the report is a voluntary, supplemental

report.

(2) The unique swap identifier created pursuant to Sec. Sec. 45.5

and 45.9. Therefore, no voluntary, supplemental report may be made

until after the unique swap identifier has been created pursuant to

Sec. Sec. 45.5 and 45.9 and has been transmitted to the counterparty

making the voluntary, supplemental report.

(3) The identity of the swap data repository to which all required

swap creation data and all required swap continuation data is reported

for the swap pursuant to Sec. Sec. 45.3 and 45.10, if the voluntary

supplemental report is made to a different swap data repository.

(4) The legal entity identifier (or substitute identifier) required

by Sec. 45.6 for the counterparty making the voluntary, supplemental

report.

(5) If applicable, an indication that the voluntary, supplemental

report is made pursuant to the laws or regulations of any jurisdiction

outside the United States.

(e) If a counterparty that has made a voluntary, supplemental

report discovers any errors in the swap data included in the voluntary,

supplemental report, the counterparty must report a correction of each

such error to the swap data repository to which the voluntary,

supplemental report was made, as soon as technologically practicable

after discovery of any such error.

Sec. 45.13 Required data standards.

(a) Data maintained and furnished to the commission by swap data

repositories. A swap data repository shall maintain all swap data

reported to it in a format acceptable to the Commission, and shall

transmit all swap data requested by the Commission to the Commission in

an electronic file in a format acceptable to the Commission.

(b) Data reported to swap data repositories. In reporting swap data

to a swap data repository as required by this part, each reporting

entity or counterparty shall use the facilities, methods, or data

standards provided or required by the swap data repository to which the

entity or counterparty reports the data. A swap data repository may

permit reporting entities and counterparties to use various facilities,

methods, or data standards, provided that its requirements in this

regard enable it to meet the requirements of paragraph (a) of this

section with respect to maintenance and transmission of swap data.

(c) Delegation of authority to the Chief Information Officer. The

Commission hereby delegates to its Chief Information Officer, until the

Commission orders otherwise, the authority set forth in this paragraph

(c), to be exercised by the Chief Information Officer or by such other

employee or employees of the Commission as may be designated from time

to time by the Chief Information Officer. The Chief Information Officer

may submit to the Commission for its consideration any matter which has

been delegated in this paragraph (c). Nothing in this paragraph

prohibits the Commission, at its election, from exercising the

authority delegated in this paragraph. The authority delegated to the

Chief Information Officer by this paragraph (c) shall include:

(1) The authority to determine the manner, format, coding

structure, and electronic data transmission standards and procedures

acceptable to the Commission for the purposes of paragraph (a) of this

section.

(2) The authority to determine whether the Commission may permit or

require use by reporting entities or counterparties, or by swap data

repositories, of one or more particular data standards (such as FIX,

FpML, ISO 20022, or some other standard), in order to accommodate the

needs of different communities of users, or to enable swap data

repositories to comply with paragraph (a) of this section.

(d) The Chief Information Officer shall publish from time to time

in the Federal Register and on the Web site of the Commission the

format, data schema, and electronic data transmission methods and

procedures acceptable to the Commission.

Sec. 45.14 Reporting of errors and omissions in previously reported

data.

(a) Each registered entity and swap counterparty required by this

part to report swap data to a swap data repository, to any other

registered entity or swap counterparty, or to the Commission shall

report any errors and omissions in the data so reported. Corrections of

errors or omissions shall be reported as soon as technologically

practicable after discovery of any such error or omission. With respect

to swaps for which required swap continuation data is reported using

the snapshot reporting method, reporting counterparties fulfill the

requirement to report errors or omissions in state data previously

reported by making appropriate corrections in their next daily report

of state data as required by this part.

(b) Each counterparty to a swap that is not the reporting

counterparty as determined pursuant to Sec. 45.8, and that discovers

any error or omission with respect to any swap data reported to a swap

data repository for that swap, shall promptly notify the reporting

counterparty of each such error or omission. Upon receiving such

notice, the reporting counterparty shall report a correction of each

such error or omission to the swap data repository as provided in

paragraph (a) of this section.

(c) Unless otherwise approved by the Commission, or by the Chief

Information Officer pursuant to Sec. 45.13, each registered entity or

swap counterparty reporting corrections to errors or omissions in data

previously reported as required by this section shall report such

corrections in the same format as it reported the erroneous or omitted

data. Unless otherwise approved by the Commission, or by the Chief

Information Officer pursuant to Sec. 45.13, a swap data repository

shall transmit corrections to errors or omission in data previously

transmitted to the Commission in the same format as it transmitted the

erroneous or omitted data.

BILLING CODE 6351-01-P

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BILLING CODE 6351-01-C

Issued in Washington, DC, on December 20, 2011, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Appendices To Swap Data Recordkeeping and Reporting Requirements--

Commission Voting Summary and Statements of Commissioners

Note: The following appendices will not appear in the Code of

Federal Regulations

Appendix 1--Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Sommers,

Chilton, O'Malia and Wetjen voted in the affirmative; no

Commissioner voted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

I support the final rule establishing swap data recordkeeping

and reporting requirements for registered entities and

counterparties involved in swaps transactions. The final rule will

ensure that complete, timely, and accurate data on all swaps is

available to the Commodity Futures Trading Commission and other

regulators.

The final rule requires that data be consistently maintained and

reported to swap data repositories (SDRs) by swap execution

facilities, designated contract markets, derivatives clearing

organizations, swap dealers, major swap participants, and other swap

counterparties. It requires reporting when the transaction is

executed and over the lifetime of the swap.

The rule has a streamlined data reporting regime--the entities

with the easiest, fastest, and cheapest access to the data will

report to SDRs. It also extends and phases in reporting deadlines,

particularly for counterparties that are not swap dealers or major

swap participants.

The rule's Legal Entity Identifier, Unique Swap Identifier and

Unique Product Identifier regimes will be crucial regulatory tools

for linking data together across counterparties, asset classes,

repositories, and transactions. They also will improve risk

management, operational efficiency, and data processing for market

participants. The rule phases in the start of compliance by both

asset class and counterparty type.

[FR Doc. 2011-33199 Filed 1-12-12; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: January 13, 2012