2020-21570
[Federal Register Volume 85, Number 228 (Wednesday, November 25, 2020)]
[Rules and Regulations]
[Pages 75601-75678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21570]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 43, 45, and 49
RIN 3038-AE32
Certain Swap Data Repository and Data Reporting Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is amending its regulations to improve the accuracy of data
reported to, and maintained by, swap data repositories (``SDRs''), and
to provide enhanced and streamlined oversight over SDRs and data
reporting generally. Among other changes, the amendments
[[Page 75602]]
modify existing requirements for SDRs to establish policies and
procedures to confirm the accuracy of swap data with both
counterparties to a swap and require reporting counterparties to verify
the accuracy of swap data pursuant to those SDR procedures. The
amendments also update existing requirements related to corrections for
data errors and certain provisions related to SDR governance.
DATES: Effective date: The effective date for this final rule is
January 25, 2021.
Compliance date: The compliance date for all amendments and
additions under this final rule is May 25, 2022.
FOR FURTHER INFORMATION CONTACT: Benjamin DeMaria, Special Counsel,
Division of Market Oversight, (202) 418-5988, [email protected];
Eliezer Mishory, Special Counsel, Division of Market Oversight, (202)
418-5609, [email protected]; Israel Goodman, Special Counsel, Division
of Market Oversight, (202) 418-6715, [email protected]; Mark Fajfar,
Assistant General Counsel, Office of the General Counsel, (202) 418-
6636, [email protected]; and Gloria Clement, Senior Special Counsel,
Office of the Chief Economist, (202) 418-5122, [email protected];
Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st
Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Amendments to Part 49
A. Sec. 49.2--Definitions
B. Sec. 49.3--Procedures for Registration
C. Sec. 49.5--Equity Interest Transfers
D. Sec. 49.6--Request for Transfer of Registration
E. Sec. 49.9--Open Swaps Reports Provided to the Commission
F. Sec. 49.10--Acceptance of Data
G. Sec. 49.11--Verification of Swap Data Accuracy
H. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
I. Sec. 49.13--Monitoring, Screening, and Analyzing Data
J. Sec. 49.15--Real-Time Public Reporting by Swap Data
Repositories
K. Sec. 49.16--Privacy and Confidentiality Requirements of Swap
Data Repositories
L. Sec. 49.17--Access to SDR Data
M. Sec. 49.18--Confidentiality Arrangement
N. Sec. 49.20--Governance Arrangements (Core Principle 2)
O. Sec. 49.22--Chief Compliance Officer
P. Sec. 49.24--System Safeguards
Q. Sec. 49.25--Financial Resources
R. Sec. 49.26--Disclosure Requirements of Swap Data
Repositories
S. Sec. 49.28--Operating Hours of Swap Data Repositories
T. Sec. 49.29--Information Relating to Swap Data Repository
Compliance
U. Sec. 49.30--Form and Manner of Reporting and Submitting
Information to the Commission
V. Sec. 49.31--Delegation of Authority to the Director of the
Division of Market Oversight Relating to Certain Part 49 Matters
III. Amendments to Part 45
A. Sec. 45.1--Definitions
B. Sec. 45.2--Swap Recordkeeping
C. Sec. 45.14--Correcting Errors in Swap Data and Verification
of Swap Data Accuracy
IV. Amendments to Part 43
Sec. 43.3--Method and Timing for Real-Time Public Reporting
A. Sec. 43.3(e)--Correction of Errors
B. Removal of Sec. 43.3(f) and (g)
V. Amendments to Part 23
Sec. 23.204--Reports to Swap Data Repositories, and Sec.
23.205--Real-Time Public Reporting
VI. Compliance Date
VII. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
I. Background
Section 727 of the Dodd-Frank Act added section 2(a)(13)(G) to the
Commodity Exchange Act (``CEA'' or ``Act''), which requires each swap--
whether cleared or uncleared--to be reported to an SDR,\1\ a type of
registered entity created by section 728 of the Dodd-Frank Act.\2\ CEA
section 21 \3\ requires each SDR to register with the Commission and
directs the Commission to adopt rules governing SDRs.
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\1\ Section 721 of the Dodd-Frank Act amended section 1a of the
CEA to add the definition of SDR. See Dodd-Frank Wall Street Reform
and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376
(2010), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf. Pursuant to CEA section 1a(48), the term
SDR means any person that collects and maintains information or
records with respect to transactions or positions in, or the terms
and conditions of, swaps entered into by third parties for the
purpose of providing a centralized recordkeeping facility for swaps.
7 U.S.C. 1a(48).
\2\ The Commission notes that there are currently three SDRs
provisionally registered with the Commission: CME Inc., DTCC Data
Repository (U.S.) LLC (``DDR''), and ICE Trade Vault, LLC (``ICE'').
\3\ 7 U.S.C. 24a.
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To register and maintain registration with the Commission, an SDR
must comply with specific duties and core principles enumerated in CEA
section 21 as well as other requirements that the Commission may
prescribe by rule. In particular, CEA section 21(c) mandates that an
SDR: (1) Accept data; (2) confirm with both counterparties the accuracy
of submitted data; (3) maintain data according to standards prescribed
by the Commission; (4) provide direct electronic access to the
Commission or any designee of the Commission (including another
registered entity); (5) provide public reporting of data in the form
and frequency required by the Commission; (6) establish automated
systems for monitoring, screening, and analyzing data (including the
use of end-user clearing exemptions) at the direction of the
Commission; (7) maintain data privacy; (8) make data available to other
specified regulators, on a confidential basis, pursuant to CEA section
8,\4\ upon request and after notifying the Commission; and (9)
establish and maintain emergency and business continuity-disaster
recovery (``BC-DR'') procedures. CEA section 21(f)(4)(C) further
requires the Commission to establish additional duties for SDRs to
minimize conflicts of interest, protect data, ensure compliance, and
guarantee the safety and security of the SDR.\5\ CEA section 21(b) also
directs the Commission to prescribe standards for data recordkeeping
and reporting that apply to both registered entities and reporting
counterparties.\6\
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\4\ 7 U.S.C. 12(e).
\5\ Pursuant to this provision, the Commission may develop one
or more additional duties applicable to SDRs. 7 U.S.C. 24a(f)(4).
\6\ See 7 U.S.C. 24a(b)(1)(B).
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Part 49 of the Commission's regulations implements the requirements
of CEA section 21.\7\ Part 49 sets forth the specific duties an SDR
must comply with to be registered and maintain registration as an SDR,
including requirements under Sec. 49.11 for an SDR to confirm the
accuracy of data reported to the SDR.
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\7\ Swap Data Repositories: Registration Standards, Duties and
Core Principles, 76 FR 54538 (Sept. 1, 2011) (``Part 49 Adopting
Release'').
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Since the Commission adopted its part 49 regulations in 2011,
Commission staff has led many efforts to evaluate and improve the
reporting of swap data and its accuracy. Commission staff leads or
participates in several international regulatory working groups
concentrating on harmonization of data reporting. Commission staff's
efforts have also included the formation of an interdivisional staff
working group to identify, and make recommendations to resolve,
reporting challenges associated with certain swap data recordkeeping
and reporting provisions.\8\ The Commission has also requested comments
from the public on reporting issues.\9\
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\8\ See Press Release, CFTC to Form an Interdivisional Working
Group to Review Regulatory Reporting (Jan. 21, 2014), available at
http://www.cftc.gov/PressRoom/PressReleases/pr6837-14.
\9\ See, e.g., Review of Swap Data Recordkeeping and Reporting
Requirements, Request for Comment, 79 FR 16689 (Mar. 26, 2014).
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[[Page 75603]]
Based on its efforts, the Commission determined that three
conditions work in concert to achieve a higher degree of data accuracy:
(i) SDR processes confirming the accuracy of data submitted; (ii) data
reconciliation exercises by entities that reported data; and (iii) the
prompt reporting of errors and omissions when discovered.\10\ With the
goal of advancing in these three areas to improve data accuracy,
Commission staff conducted a comprehensive review of swap reporting
regulations and released the Roadmap to Achieve High Quality Swap Data
(``Roadmap'').\11\ The Roadmap's overall goals were to improve the
quality, accuracy, and completeness of swap data reported to the
Commission, streamline swap data reporting, and clarify obligations for
market participants.\12\ Within these overall goals, the Roadmap's SDR
Operations Review aimed to assure a high degree of accuracy of swap
data and swap transaction and pricing data,\13\ improve the clarity and
consistency of regulations governing SDRs, and bolster the Commission's
oversight of SDRs.
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\10\ See id. at 16695.
\11\ See CFTC Letter 17-33, Division of Market Oversight
Announces Review of Swap Reporting Rules in Parts 43, 45, and 49 of
Commission Regulations (July 10, 2017), available at https://www.cftc.gov/csl/17-33/download; Roadmap to Achieve High Quality
Swap Data, available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
\12\ See id. at 3 (describing the Commission's goals for the
review of reporting regulations).
\13\ See Roadmap at 6 (stating the Commission's intent to
``Identify the most efficient and effective solution for swap
counterparty(ies) to confirm the accuracy and completeness of data
held in an SDR.'').
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The Roadmap solicited public comment on how to improve data
reporting and achieve the Commission's regulatory goals without
imposing unnecessary burdens on market participants. Commission staff
received numerous comments in response to the Roadmap that addressed
data accuracy and confirmation of data reported to SDRs, among other
subjects.\14\
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\14\ These comment letters are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.
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Based in part on these public comments and the Commission staff's
review of these issues, the Commission issued a notice of proposed
rulemaking (``Proposal'') on May 13, 2019 to address the Roadmap's SDR
Operations Review goals.\15\ The Proposal was the first of three
Roadmap rulemakings that together aim to achieve the Roadmap's overall
goals.\16\
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\15\ Certain Swap Data Repository and Data Reporting
Requirements, 84 FR 21044 (May 13, 2019).
\16\ The other two notices of proposed rulemakings are
Amendments to the Real-Time Public Reporting Requirements, 85 FR
21516 (April 17, 2020) and Swap Data Recordkeeping and Reporting
Requirements, 85 FR 21578 (April 17, 2020).
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In the Proposal, the Commission set forth a new swap data
verification regime to replace existing requirements for swap data
confirmation and proposed amendments to error correction requirements
in parts 43, 45, and 49 of the Commission's regulations. The primary
components of the proposed verification regime included: A requirement
for an SDR to regularly distribute to reporting counterparties an open
swaps report containing the data maintained by the SDR for a relevant
reporting counterparty's open swaps; a requirement that a reporting
counterparty reconcile the data in the open swaps reports with the
reporting counterparty's own data; a requirement that a reporting
counterparty provide the SDR with a verification of the data's accuracy
or a notice of discrepancy; and a requirement that, in the event of a
discrepancy, a reporting counterparty submit corrected data to the SDR
within a specified time frame or, if it is unable to do so, inform
Commission staff of the error, its scope, and the reporting
counterparty's initial remediation plan.
In this final rulemaking, the Commission has determined to adopt
the amendments as proposed, with certain exceptions. The Commission has
determined, based, in part, on public comments,\17\ not to adopt, or to
adopt with modifications, certain elements of the Proposal relating to
data verification and error correction. More specifically, the final
rule eliminates the proposed requirement for an SDR to distribute open
swaps reports to a reporting counterparty, and the requirement for a
counterparty to submit notices of verification or discrepancy in
response.
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\17\ The Commission received 25 responsive comment letters
addressing the Proposal from the following entities: American Public
Power Association/Edison Electric Institute/National Rural Electric
Cooperative Association (``Joint Associations''), Chatham Financial
(``Chatham''), Chris Barnard, CME Group Inc. (``CME''), CME Group
Inc./DTCC Data Repository (U.S.) LLC/ICE Trade Vault LLC (``Joint
SDR''), Coalition of Physical Energy Companies (``COPE''),
Commercial Energy Working Group (``CEWG''), Credit Suisse (``CS''),
Data Coalition, DTCC Data Repository (U.S.) LLC (``DDR''), Eurex
Clearing AG (``Eurex''), Federal Home Loan Mortgage Corporation
(``Freddie Mac''), Futures Industry Association August 2019 letter
(``FIA August''), Futures Industry Association May 2020 letter
(``FIA May''), Global Financial Markets Association (``GFMA''),
Global Legal Entity Identifier Foundation (``GLEIF''), ICE Clear
Credit LLC/ICE Clear Europe Limited (``ICE Clear''), ICE Trade Vault
(``ICE TV''), IHS Markit (``Markit''), Institute for Agriculture and
Trade Policy (``IATP''), International Swaps and Derivatives
Association, Inc./Securities Industry and Financial Markets
Association (``ISDA/SIFMA''), Investment Company Institute
(``ICI''), LCH Ltd/LCH SA (``LCH''), Natural Gas Supply Association
(``NGSA''), and Prudential Global Funding LLC (``Prudential'').
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Instead, under the final rules, an SDR must provide a mechanism for
a reporting counterparty to access swap data maintained by the SDR for
the reporting counterparty's open swaps. Further, the final rules
require a reporting counterparty to verify the SDR's data by using the
mechanism provided by the SDR to compare the swap data for open swaps
maintained by the SDR with the reporting counterparty's own books and
records for the swap data, and to submit corrected swap data, if
necessary, to the SDR. The reporting counterparty must perform the
verification at specified intervals and maintain a verification log
that sets forth any errors discovered and corrections made by the
reporting counterparty. The final rule also extends the time frame
within which a reporting counterparty must correct an error or notify
the Commission.
The Proposal also included various amendments and new regulations
aimed at eliminating unduly burdensome requirements, streamlining and
consolidating the provisions of part 49 and other Commission
regulations applicable to SDRs, and enhancing the Commission's ability
to fulfill its oversight obligations with respect to SDRs. The
Commission is generally adopting those rules as proposed, with limited
modifications in some cases to address public comments. Additionally,
for the reasons discussed below, the Commission has determined not to
finalize at this time its proposed amendments to Sec. 49.13 and Sec.
49.22 and its proposed additions to part 23.
Where possible, in developing the Proposal and in adopting final
rules as set forth herein, the Commission has taken into consideration
certain pertinent rules adopted by other regulators, including the
European Securities and Markets Authority and the U.S. Securities and
Exchange Commission (``SEC''). This is particularly the case for the
SEC's regulations relating to the registration requirements, duties,
and core principles applicable to security-based swap data repositories
(``SBSDRs'') \18\ and reporting requirements for security-based swaps
(``SBSs'') set forth in Regulation SBSR (``Regulation
[[Page 75604]]
SBSR'').\19\ The Commission notes that there are similarities between
the regulatory framework for SBSDRs and the SDR regulations that are
the subject of this final rulemaking. Finally, the Commission notes
that this final rulemaking incorporates lessons learned from the
undertakings described above and the best practices of the
international regulatory community.
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\18\ See generally Security-Based Swap Data Repository
Registration, Duties and Core Principles, 80 FR 11438 (Mar. 19,
2015). The SEC adopted Rules 13n-1 through 13n-12 (17 CFR 240.13n-1
through 240.13n-12) under the Securities Exchange Act of 1934
(``Exchange Act'') relating to the registration and operation of
SBSDRs.
\19\ See generally Regulation SBSR--Reporting and Dissemination
of Security-Based Swap Information, 80 FR 14740 (Mar. 19, 2015). The
SEC adopted Regulation SBSR (Rules 900 through 909, 17 CFR 242.900
through 909) to create a reporting framework for SBSs. The SEC has
also adopted additional regulations regarding the reporting and
dissemination of certain information related to SBSs. See generally
81 FR 53546 (Aug. 12, 2016).
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II. Amendments to Part 49
A. Sec. 49.2--Definitions
1. General Formatting Changes
The Commission proposed a general formatting change to the
definitions in Sec. 49.2(a). The defined terms in Sec. 49.2(a)
currently are numbered and arranged in alphabetical order. The
Commission proposed to remove the numbering while still arranging the
terms in Sec. 49.2(a) in alphabetical order. Eliminating the numbering
of defined terms in Sec. 49.2(a) will reduce the need for the
Commission to make conforming amendments to Sec. 49.2(a) and other
regulations when it amends Sec. 49.2(a) in future rulemaking by adding
or removing defined terms.\20\
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\20\ The Office of the Federal Register prefers the solely
alphabetical approach to definitions sections. See Office of the
Federal Register, Document Drafting Handbook May 2017 Update,
Revision 5, 2-31 (2017) (``Definitions. In sections or paragraphs
containing only definitions, we recommend that you do not use
paragraph designations if you list the terms in alphabetical
order.'').
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The Commission did not receive any comments on the proposed
formatting changes to Sec. 49.2(a). The Commission is adopting the
formatting amendments to Sec. 49.2(a) as proposed, with non-
substantive editorial changes to conform the format to the current
style conventions.
2. Non-Substantive Amendments to Definitions
The Commission proposed non-substantive editorial and conforming
amendments to certain definitions to provide clarity and for
consistency with other Commission regulations.\21\ The Commission
believes the proposed amendments are non-substantive and will increase
clarity and consistency across the Commission's regulations. The
comments were generally supportive of the Commission's efforts to
streamline definitions and increase consistency.\22\ The Commission did
not receive comments opposed to the proposed amendments described
above. The Commission accordingly adopts these amended definitions as
proposed.
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\21\ Other than removing subsection numbering as discussed above
in section II.A.1, the Commission did not propose any substantive
changes to the definitions of ``affiliate,'' ``control,'' ``foreign
regulator,'' ``independent perspective,'' ``position,'' or ``section
8 material,'' as those terms are defined in current Sec. 49.2(a).
\22\ See, e.g., IATP at 4-5.
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Specifically, the Commission adopts the following amendments to
definitions in Sec. 49.2(a):
Asset class: Modify the definition to conform the wording
to the definition of ``asset class'' used in part 43.\23\
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\23\ See 17 CFR 43.2. Asset class means a broad category of
commodities including, without limitation, any ``excluded
commodity'' as defined in section 1a(19) of the Act, with common
characteristics underlying a swap. The asset classes include
interest rate, foreign exchange, credit, equity, other commodity and
such other asset classes as may be determined by the Commission.
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Commercial use: Modify the definition to use active
instead of passive voice, and to change ``use of swap data for
regulatory purposes and/or responsibilities'' to ``use of SDR data for
regulatory purposes and/or to perform its regulatory
responsibilities.''
Market participant: Change the term ``swaps execution
facilities'' to ``swap execution facilities,'' to conform to CEA
section 5h and other Commission regulations, and make the word
``counterparties'' singular.
Non-affiliated third party: Clarify paragraph (3) to
identify ``a person jointly employed'' by an SDR and any affiliate.
Person associated with a swap data repository: Clarify
that paragraph (3) includes a ``jointly employed person.''
Swap data: Modify the definition to more closely match the
related definitions of ``SDR data'' and ``swap transaction and pricing
data'' that are being added to Sec. 49.2(a) and to incorporate the
requirements to provide swap data to the Commission pursuant to part
49.
The Commission also is removing the word ``capitalized'' from Sec.
49.2(b), to reflect that most defined terms used in part 49 are not
capitalized in the text of part 49.
The Commission is also removing the term ``registered swap data
repository'' from the definitions in Sec. 49.2. In the Proposal, the
Commission explained that the term ``registered swap data repository''
is not needed in part 49 because the defined term ``swap data
repository'' already exists in Sec. 1.3.\24\ The definition of ``swap
data repository'' in Sec. 1.3 is identical to the definition contained
in CEA section 1a(48).\25\ This definition of ``swap data repository''
therefore already applies, and would continue to apply, to part 49 and
all other Commission regulations and, when combined with Sec.
49.1,\26\ removes the need for a separate defined term for ``registered
swap data repository.''
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\24\ See 17 CFR 1.3. Swap data repository is defined as any
person that collects and maintains information or records with
respect to transactions or positions in, or the terms and conditions
of, swaps entered into by third parties for the purpose of providing
a centralized recordkeeping facility for swaps.
\25\ See 7 U.S.C. 1a(48). Swap data repository means any person
that collects and maintains information or records with respect to
transactions or positions in, or the terms and conditions of, swaps
entered into by third parties for the purpose of providing a
centralized recordkeeping facility for swaps.
\26\ See 17 CFR 49.1. The provisions of part 49 apply to any
swap data repository as defined under section 1a(48) of the CEA
which is registered or is required to register as such with the
Commission pursuant to Section 21(a) of the CEA.
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The Commission further explained that the inclusion of the word
``registered'' in ``registered swap data repository'' and the
definition of the term \27\ also may create doubt whether the
requirements of part 49 apply to entities that are in the process of
registering as SDRs or are provisionally registered as SDRs under the
requirements of Sec. 49.3(b).\28\ The requirements of part 49 apply to
provisionally-registered SDRs and any entity seeking to become an SDR
must comply with the same requirements in order to become a
provisionally-registered or fully-registered SDR. Finally, the removal
of the term ``registered swap data repository'' would increase
consistency in terms within part 49 and would also increase consistency
between part 49 and other Commission regulations, which overwhelmingly
use the term ``swap data repository.'' The Commission emphasized that
removing the defined term ``registered swap data repository'' is a non-
substantive amendment that would not in any way modify the requirements
applicable to current or future SDRs.
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\27\ See 17 CFR 49.2(a)(11). Registered swap data repository
means a swap data repository that is registered under section 21 of
the CEA.
\28\ See 17 CFR 49.3(b) (creating standards for granting
provisional registration to an SDR).
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3. Additions and Substantive Amendments
a. Definition of As Soon as Technologically Practicable
The Commission proposed to add the term ``as soon as
technologically practicable'' as a defined term in Sec. 49.2. The
Proposal defined the term to mean ``as soon as possible, taking into
consideration the prevalence,
[[Page 75605]]
implementation, and use of technology by comparable market
participants.'' This addition would standardize the meaning and use of
this term across the Commission's swap reporting regulations and is
intended to be identical to the term as it is used in parts 43 and 45
of the Commission's regulations.\29\
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\29\ See 17 CFR 43.2 (defining of as soon as technologically
practicable). Part 45 of the Commission's regulations also uses the
term ``as soon as technologically practicable'' in the same way as
part 43 and as defined in proposed Sec. 49.2.
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The Commission received several comments on the proposed
definition. One comment generally supported standardizing definitions
across the Commission's regulations.\30\ One comment recommended that
the definition should be expanded to clarify what are considered
comparable market participants.\31\ The Commission declines to adopt
this recommendation. The Commission proposed to add the term ``as soon
as technologically practicable'' merely to create consistency in
defined terms across the swap reporting regulations, not to modify or
interpret the term. The Commission also does not believe this final
rulemaking is the appropriate venue to provide guidance on the
parameters of comparable market participants, as any guidance would
need to evaluate and impose standards for many different market
participants and scenarios, without the opportunity for the affected
market participants to comment on the guidance. The Commission also
notes that the defined term has been in use through the application of
the Commission's swap reporting regulations since the inception of swap
reporting, without the need for additional guidance.
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\30\ ISDA/SIFMA at 38.
\31\ IATP at 4.
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The Commission is adopting the addition of ``as soon as
technologically practicable'' as a defined term as proposed. The
Commission notes that concomitant with adopting these final rules, the
Commission is adopting final rules for Sec. 43.2 and Sec. 45.1, which
both include the identical definition for this term.
b. Definition of Non-Swap Dealer/Major Swap Participant/Derivatives
Clearing Organization Reporting Counterparty
The Commission proposed to add the term ``non-swap dealer/major
swap participant/derivatives clearing organization reporting
counterparty'' as a defined term in Sec. 49.2. The Commission is not
adopting this proposed definition.\32\ This defined term was intended
to clarify the meaning of the term in part 49, specifically in proposed
Sec. 49.11(b)(3). As discussed below in section II.G, the Commission
is not finalizing proposed Sec. 49.11(b)(3) and this term does not
otherwise appear in part 49. Accordingly, the inclusion of the defined
term is not necessary and Commission is not adopting this proposed
definition.
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\32\ The Proposal defined the term to mean a reporting
counterparty that is not a swap dealer (``SD''), major swap
participant (``MSP''), derivatives clearing organization (``DCO''),
or exempt derivatives clearing organization.
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c. Definition of Open Swap
The Commission proposed to add the term ``open swap'' as a defined
term in Sec. 49.2. The Proposal defined the term to mean an executed
swap transaction that has not reached maturity or the final contractual
settlement date, and has not been exercised, closed out, or terminated.
Under this definition, the term ``open swap'' refers to swaps that are
often colloquially called ``alive.'' The Commission noted in the
Proposal that the definition is intended to have the same function as
the definitions of ``open swap'' \33\ and ``closed swap'' \34\ in part
20.
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\33\ See 17 CFR 20.1. An open swap or swaption means a swap or
swaption that has not been closed.
\34\ See 17 CFR 20.1. A closed swap or closed swaption means a
swap or swaption that has been settled, exercised, closed out, or
terminated.
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The Commission received several comments on the proposed
definition. One comment supported standardizing definitions across the
Commission's rules, and supported the proposed definition for ``open
swap.'' \35\ One comment noted that there is no market practice of
reporting a ``final contractual settlement date.'' \36\ Instead, the
comment stated, market practice is to report expiration, maturity date,
or termination date. The comment further recommended that the
definition be amended to allow for events to affect parts of a trade.
The commenter recommended that the Commission define ``open swap'' to
mean ``an executed swap transaction that has not reached maturity or
expiration date, and has not been fully exercised, closed out, or
terminated.'' \37\ The Commission agrees with this comment and is
adopting the recommended changes to the definition, with a slight
modification for grammar. Accordingly, final Sec. 49.2 includes the
term ``open swap'' as a defined term, which means an executed swap
transaction that has not reached maturity or expiration, and has not
been fully exercised, closed out, or terminated.\38\ The Commission
notes that, as with the definition in the Proposal, the final
definition of ``open swap'' is intended to mean swaps, or the remaining
portion of a swap, that would be commonly thought of as ``alive.''
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\35\ DDR at 2.
\36\ ISDA/SIFMA at 38.
\37\ Id.
\38\ As discussed below in section III.A, the Commission is also
adding an identical definition for ``open swap'' to part 45 of this
chapter, in order to create consistency between parts 45 and 49 of
the Commission's regulations and to accommodate the use of the term
``open swap'' in part 45.
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d. Definition of Reporting Counterparty and the Removal of Reporting
Entity
The Commission proposed to add the term ``reporting counterparty''
as a defined term to Sec. 49.2. This term would mean the counterparty
responsible for reporting SDR data to an SDR pursuant to part 43, 45,
or 46 of the Commission's regulations. The Proposal explained that this
would standardize its meaning and use across the Commission's swap
reporting regulations. The Commission also proposed to remove the term
``reporting entity'' from the definitions in Sec. 49.2 because it is
no longer necessary with the addition of ``reporting counterparty'' as
a defined term.\39\
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\39\ See 17 CFR 49.2(a)(12) (defining reporting entity as
entities that are required to report swap data to a registered swap
data repository, which includes derivatives clearing organizations,
swap dealers, major swap participants and certain non-swap dealer/
non-major swap participant counterparties).
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Concomitant with the adoption of these final rules, the Commission
also is adopting final rules amending Sec. 43.2 and Sec. 45.1. Those
final rules both include a definition for the term ``reporting
counterparty'' specific to part 43 and part 45, respectively. Current
Sec. 46.1 also includes a definition for the term.\40\ The definitions
of the term ``reporting counterparty'' in Sec. Sec. 43.2, 45.1, and
46.1 are more narrow than the proposed definition in Sec. 49.2. While
the definitions do not have identical wording, the defined terms have a
standardized meaning that follows a consistent format and is
appropriate for each context.
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\40\ 17 CFR 46.1.
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The Commission notes that the reporting counterparty may not always
be the entity reporting SDR data to the SDR, particularly for
transactions executed on a swap execution facility (``SEF'') or
designated contract market (``DCM''), but it is the counterparty
responsible for the initial and/or subsequent SDR data reporting,
pursuant to part 43, 45, or 46 of the Commission's regulations, as
applicable to a particular swap. SEFs and DCMs are
[[Page 75606]]
the only entities not included in the proposed definition of
``reporting counterparty'' that may have a responsibility to report
data.
The Commission did not receive any comments on the proposed
definition of the term ``reporting counterparty'' and the related
removal of the defined term ``reporting entity.'' The Commission is
adopting these amendments as proposed, with minor, non-substantive
editorial changes to conform the definition of ``reporting
counterparty'' in Sec. 49.2 to the definitions in Sec. Sec. 43.2,
45.1, and 46.1, as discussed above. Accordingly, final Sec. 49.2
includes the term ``reporting counterparty'' as a defined term, which
means the counterparty required to report SDR data pursuant to part 43,
45, or 46 of 17 CFR chapter I. Final Sec. 49.2 no longer includes the
term ``reporting entity'' as a defined term.
e. Definition of SDR Data
The Commission proposed to add the term ``SDR data'' as a defined
term in Sec. 49.2. The Proposal defined the term to mean the specific
data elements and information required to be reported to an SDR or
disseminated by an SDR, pursuant to two or more of parts 43, 45, 46,
and/or 49, as applicable in the context. The Commission noted that in
this context, ``disseminated'' would include an SDR making swap data
available to the Commission as required by part 49.
In the Proposal, the Commission noted that the proposed definition
of ``SDR data'' would include multiple sources of data reported to the
SDR or disseminated by the SDR. For example, ``SDR data'' could refer
to all data reported or disseminated pursuant to parts 43, 45, and 46.
It may also refer to data reported or disseminated pursuant to parts 45
and 46, depending on the context in which the term is used. This is in
contrast with the proposed term ``swap transaction and pricing data,''
which, as defined in the Proposal, would only refer to data reported to
an SDR or publicly disseminated by an SDR pursuant to part 43. It is
also in contrast with the term ``swap data,'' which, as defined in the
Proposal, would only refer to data reported to an SDR or made available
to the Commission pursuant to part 45. In the Proposal, the Commission
explained that consolidating references to the different types of data
that must be reported to an SDR or disseminated by an SDR to the public
or to the Commission into a single term would provide clarity
throughout part 49.
The Commission received several comments on the proposed addition
of the defined term ``SDR data'' and the proposed definition in Sec.
49.2. One comment generally supported the proposed amendment.\41\ One
comment stated that the proposed definition limited ``SDR Data'' to
information that is required to be reported or disseminated pursuant to
``two or more of parts 43, 45, 46 and/or 49,'' which would exclude
information that is required to be reported or disseminated pursuant to
one of those parts. The Commenter recommended that the Commission
define the term ``SDR Data'' to include information that is required to
be reported or disseminated by one or more of parts 43, 45, 46, and/or
49. The Commission disagrees with this comment and its interpretation
of the term ``SDR data.'' By definition, ``SDR data'' will always
include at least two sets of data or information that is required
reported to an SDR or disseminated by an SDR. The definition is
inclusive of all data being referenced, based on the context of the use
of the term. When the Commission intends to refer to data that is
reported or disseminated pursuant to only one of part 43, 45, 46, or
49, it uses the term or reference that corresponds to that specific set
of data, for example ``swap transaction and pricing data'' for part 43-
related data and ``swap data'' for part 45-related data.
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\41\ ISDA/SIFMA at 41.
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The Commission is adopting the addition of the defined term ``SDR
data'' to final Sec. 49.2, as proposed. Accordingly, final Sec. 49.2
includes the defined term ``SDR data,'' which is defined to mean the
specific data elements and information required to be reported to a
swap data repository or disseminated by a swap data repository pursuant
to two or more of parts 43, 45, 46, and/or 49 of 17 CFR chapter I, as
applicable in the context.
f. Definition of SDR Information
The Commission proposed to amend the existing definition of ``SDR
information'' in Sec. 49.2 to add the clause ``related to the business
of the swap data repository that is not SDR data'' to the end of the
definition. This change clarifies that the scope of SDR information is
limited to information that the SDR receives or maintains related to
its business that is not the SDR data reported to or disseminated by
the SDR. SDR information would include, for example, SDR policies and
procedures created pursuant to part 49.\42\ The Commission did not
receive comments on the proposed amendment and the Commission adopts
the amendment as proposed.
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\42\ This clarification is particularly relevant for the SDR
recordkeeping obligations in the proposed amendments to Sec. 49.12,
discussed below in section II.H.
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g. Definition of Swap Transaction and Pricing Data
The Commission proposed to add ``swap transaction and pricing
data'' as a defined term in Sec. 49.2 to increase consistency in
terminology used in the Commission's swap reporting regulations. The
Proposal defined the term to mean the specific data elements and
information required to be reported to a swap data repository or
publicly disseminated by a swap data repository pursuant to part 43 of
this chapter, as applicable. Concomitant with adopting these final
rules, the Commission is adopting final rules in Sec. 43.2 that add
``swap transaction and pricing data'' as a defined term. As defined in
final Sec. 43.2, the term means all data elements for a swap in
appendix A of this part that are required to be reported or publicly
disseminated pursuant to this part. In order to increase consistency
throughout its rules, the Commission adopts the addition of the defined
term ``swap transaction and pricing data'' and the definition in Sec.
49.2 as proposed.
One commenter stated that the definition of the term in Sec. 49.2
should not include the clause ``or publicly disseminated by a swap data
repository.'' \43\ The Commission does not agree with this comment
because dissemination is included in the definition of the same term in
final Sec. 43.2, and the term is being included in final Sec. 49.2 to
increase consistency between Commission regulations. Moreover, to not
include the public dissemination requirements would frustrate the
purpose of adding the defined term by not allowing the term to be used
in reference to an SDR's public dissemination responsibilities. The
Commission believes that the specific context in which the term is used
will make clear whether the Commission is referring to the requirements
to report the data to an SDR, for an SDR to disseminate the data to the
public, or both. Accordingly, final Sec. 49.2 includes ``swap
transaction and pricing data'' as a defined term that means the
specific data elements and information required to be reported to a
swap data repository or publicly disseminated by a swap data repository
pursuant to part 43 of 17 CFR chapter I, as applicable.
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\43\ DDR at 2.
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B. Sec. 49.3--Procedures for Registration
Section 49.3 sets forth the procedures and standard of approval for
registration
[[Page 75607]]
as an SDR.\44\ Current Sec. 49.3(a)(1) requires a person seeking SDR
registration to file an application on Form SDR.\45\ Form SDR consists
of instructions, general questions and a list of exhibits required by
the Commission in order to determine whether an applicant for SDR
registration is able to comply with the SDR core principles and
Commission regulations thereunder.\46\
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\44\ 17 CFR 49.3. Form SDR is set forth in Appendix A to part
49.
\45\ 17 CFR 49.3(a)(1).
\46\ 17 CFR 49.3(a)(2).
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Existing Sec. 49.3(a)(5) requires an SDR to promptly file an
amended Form SDR to update any information that becomes inaccurate
before or after the SDR's application for registration is granted. In
addition, the regulation requires an SDR to annually file an amendment
on Form SDR within 60 days after the end of its fiscal year.\47\
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\47\ 17 CFR 49.3(a)(5).
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The Commission proposed to amend Sec. 49.3(a)(5) to eliminate the
requirements for an SDR that has been granted registration under Sec.
49.3(a) to: (i) file an amended Form SDR if any of the information
therein becomes inaccurate, and (ii) annually file an amended Form
SDR.\48\ Thus, proposed Sec. 49.3(a)(5) would only require an SDR to
file an amended Form SDR to update information before the Commission
grants it registration under Sec. 49.3(a). The Commission also
proposed to make conforming amendments to the Form SDR and Sec.
49.22(f)(2) \49\ to eliminate references to the annual filing of Form
SDR.\50\
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\48\ Proposal at 84 FR 21048 (May 13, 2019).
\49\ 17 CFR 49.22(f)(2).
\50\ Proposal at 84 FR 21048 (May 13, 2019).
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The Commission is adopting the amendments to Sec. 49.3(a)(5) and
the conforming amendments to Form SDR and Sec. 49.22(f)(2) as proposed
in part and not adopting the amendments as proposed in part. The
Commission is adopting the removal of the requirement to file an annual
amendment to Form SDR because the Commission believes the annual Form
SDR filing requirement is unnecessary and is duplicative of the
requirement to file an amended Form SDR if any of the information in
the Form SDR becomes inaccurate.
The Commission has, however, reconsidered the proposed removal of
the requirement to file an amended Form SDR if any of the information
in the Form SDR (including the Form SDR exhibits) becomes inaccurate
and has determined not to finalize the proposed removal of this
requirement. SDRs will continue to be required to file amendments to
Form SDR as necessary after being granted registration under Sec.
49.3(a). While the Commission stated in the Proposal that the
Commission would have access to the information that would be updated
in an amended Form SDR because an SDR would be required to file updates
for some of the information with the Commission as a rule change under
part 40 of the Commission's regulations and that, under proposed Sec.
49.29, the Commission could require an SDR to file information
demonstrating the SDR's compliance with its obligations under the CEA
and Commission regulations,\51\ the Commission no longer believes these
methods of obtaining access to updated Form SDR information are the
most efficient or practicable methods.
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\51\ Id.
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Instead, the Commission believes that Commission staff would be
more effectively alerted to changes to the information in Form SDR for
compliance monitoring purposes by maintaining the existing requirement
for SDRs to update any Form SDR information that is or that becomes
inaccurate. The Commission also believes it would be more efficient for
SDRs to continue to send the updated Form SDR information to the
Commission as currently required, as opposed to the Commission
requesting the SDRs to demonstrate compliance whenever the Commission
needs to check whether the Form SDR information remains current. Under
the proposed approach, for example, the Commission may need to require
SDRs to provide an all-encompassing demonstration of compliance for all
of the Form SDR information under Sec. 49.29, as opposed to the SDRs
only updating Form SDR information that has changed, as the SDRs
regularly do under the existing requirement, because the Commission
will not be aware of what information may or may not have changed. The
Commission is therefore not adopting the proposed removal of the
requirement for an SDR that is registered under Sec. 49.3(a) to file
an updated Form SDR when the information in its Form SDR is inaccurate
or becomes inaccurate, and this existing requirement in Sec.
49.3(a)(5) remains in effect.
The Commission requested comment on all aspects of the proposed
changes to Sec. 49.3(a)(5). Two comments supported the proposed
amendments to Sec. 49.3(a)(5).\52\ One comment also suggested the
Commission further amend the text of proposed Sec. 49.3(a)(5) to
clarify that the requirement to file an amended Form SDR to update
inaccurate information does not apply to an SDR provisionally
registered under Sec. 49.3(b).\53\ Existing Sec. 49.3(b) \54\
provides that, upon request, the Commission may grant an applicant
provisional registration as an SDR if, among other things, the
applicant is in ``substantial compliance'' with the standard for
approval for full SDR registration set forth in Sec. 49.3(a)(4). If
granted, provisional registration expires on the earlier of: (i) The
date the Commission grants or denies full registration of the SDR; or
(ii) the date the Commission rescinds the SDR's provisional
registration.\55\
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\52\ CME at 2 (``[T]he addition of Part 49.29 is a much more
effective and efficient approach for the Commission to ensure it has
the information it needs to ensure an SDR's compliance with the
regulations''); DDR at 3.
\53\ DDR at 3.
\54\ 17 CFR 49.3(b).
\55\ Id.
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One comment suggested that the Commission add the legal entity
identifier (``LEI'') of the applicant into the Form SDR, stating that
incorporating an applicant's LEI record in the form would make various
information fields unnecessary, while making the information provided
more standardized and accurate.\56\
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\56\ GLEIF at 1.
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As explained above, the Commission agrees with the comments that
supported the removal of the annual Form SDR update requirement and the
Commission disagrees with the comments supporting the removal of the
requirement to update Form SDR when the information is inaccurate. The
Commission also disagrees with the suggestion regarding provisionally-
registered SDRs. Final Sec. 49.3(a)(5), as adopted, requires a
provisionally-registered SDR to file an amended Form SDR if information
in the form becomes inaccurate. The Commission notes that provisional
registration is an interim status for applicants for registration, and
the accuracy of information in the Form SDR of a provisionally-
registered SDR is necessary for the Commission to make a determination
regarding the SDR's application for full registration.
The Commission is also declining to adopt the suggestion to use the
LEI of the applicant instead of various data fields in the Form SDR.
While there may be benefits to doing so, the Commission believes the
current format is more useful to Commission staff in reviewing
applications for registration by providing the relevant entity names
directly, without the need to reference the information underlying an
LEI.
[[Page 75608]]
C. Sec. 49.5--Equity Interest Transfers
Section 49.5 sets forth requirements for an SDR that enters into an
agreement involving the transfer of an equity interest of ten percent
or more in the SDR.\57\ The Commission proposed various amendments to
Sec. 49.5 to simplify and streamline the requirements of the
regulation. The Commission is adopting the amendments to Sec. 49.5 as
proposed. The Commission continues to believe, as stated in the
Proposal, that the amendments to Sec. 49.5 will simplify and
streamline the requirements of the regulation, and remove unnecessary
burdens on SDRs while preserving the Commission's ability to obtain
information regarding transfers of SDR equity interests.
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\57\ 17 CFR 49.5.
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Current Sec. 49.5(a) requires an SDR to (i) notify the Commission
of the agreement no later than the business day following the date of
the agreement and; (ii) amend any information that is no longer
accurate on Form SDR.\58\ Current Sec. 49.5(b) sets forth various
agreements, associated documents and information, and representations
an SDR must provide the Commission in advance of the equity interest
transfer.\59\ Current 49.5(c) provides that within two business days
following the equity interest transfer, an SDR must file with the
Commission a certification stating that the SDR is in compliance with
CEA section 21 and Commission regulations adopted thereunder, stating
whether any changes were made to the SDR's operations as a result of
the transfer, and, if so, identifying such changes.\60\
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\58\ 17 CFR 49.5(a).
\59\ 17 CFR 49.5(b).
\60\ 17 CFR 49.5(c).
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The Commission is amending Sec. 49.5 to specify that the
regulation applies to both direct and indirect transfers of ten percent
or more of an equity interest in an SDR. As the Commission explained in
the Proposal, indirect transfers of equity ownership (e.g., the
transfer of an equity interest in a parent company of an SDR) also
require Commission oversight of the SDR to address any compliance
concerns that may arise.\61\ The Commission is also replacing the
documentation and informational requirements in current Sec. 49.5(b)
with a provision in Sec. 49.5(a) stating that the Commission may, upon
receiving an equity transfer notification, request that the SDR provide
supporting documentation for the transaction. The Commission believes
reserving the authority to request supporting documentation rather than
compelling specific production satisfies the Commission's need for
information without placing unnecessary burdens on an SDR.
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\61\ Proposal at 84 FR 21048 (May 13, 2019).
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In addition, the Commission is amending Sec. 49.5 to extend the
deadline by which an SDR must file an equity transfer notification and
to specify that the SDR shall file the notice with the Secretary of the
Commission and the Director of the Division of Market Oversight
(``DMO'') via email. The Commission believes an SDR may need additional
time to file the necessary documents, and ten business days provides
greater flexibility without sacrificing the availability of information
the Commission needs to conduct effective oversight of the SDR. The
Commission also is removing the requirement for an SDR to amend
information that is no longer accurate on Form SDR due to the equity
interest transfer because the requirement is duplicative of other
requirements.
Finally, the Commission is amending Sec. 49.5(c) to simplify the
certification and information requirements in the filing an SDR is
required to make with the Commission following an equity interest
transfer. The Commission believes these amendments provide the
Commission with the pertinent information it needs to assess the impact
of an equity interest transfer on the SDR's operations.
The Commission requested public comment on all aspects of proposed
Sec. 49.5. One comment supported the Commission's proposal to simplify
Sec. 49.5, stating that current requirements of the regulation are
overly burdensome, and reserving authority for the Commission to
request supporting documentation, rather than compelling specific
document production, would satisfy the Commission's need for
information.\62\ The Commission agrees with this comment and is
finalizing Sec. 49.5 as described.
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\62\ CME at 2-3.
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D. Sec. 49.6--Request for Transfer of Registration
The Commission proposed to amend Sec. 49.6 \63\ to clarify and
streamline the process and procedures for the transfer of an SDR
registration to a successor entity.\64\ The amendments include re-
titling the section ``Request for transfer of registration,'' to more
accurately reflect the subject of the regulation.\65\ The Commission
has determined to adopt the amendments to Sec. 49.6 as proposed. The
Commission believes the amendments to Sec. 49.6 will simplify the
process for requesting a transfer of SDR registration by providing
procedures that focus on informing the Commission of changes relevant
to the Commission's oversight responsibilities, as opposed to requiring
the successor entity to file a Form SDR, which would likely duplicate
most of the transferor's existing Form SDR. Further, the amendments to
Sec. 49.6 provide the Commission with the information it needs in
order to determine whether to approve a request for a transfer of an
SDR registration.
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\63\ 17 CFR 49.6.
\64\ Proposal at 84 FR 21049 (May 13, 2019).
\65\ Id.
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Current Sec. 49.6(a) provides that, in the event of a corporate
transaction that creates a new entity as which an SDR operates, the SDR
must request a transfer of its registration no later than 30 days after
the succession.\66\ Current Sec. 49.6(a) also specifies that the SDR
registration shall be deemed to remain effective as the registration of
the successor if the successor, within 30 days after such succession,
files a Form SDR application for registration, and the predecessor
files a request for vacation. Further, the SDR registration ceases to
be effective 90 days after the application for registration on Form SDR
is filed by the successor SDR.
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\66\ 17 CFR 49.6(a).
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Final Sec. 49.6(a) instead requires an SDR seeking to transfer its
registration to a new legal entity as a result of a corporate change to
file a request for approval of the transfer with the Secretary of the
Commission in the form and manner specified by the Commission. Examples
of such corporate changes may include, but are not limited to, re-
organizations, mergers, acquisitions, bankruptcy, or other similar
events that result in the creation of a new legal entity for the SDR.
Final Sec. 49.6(b) specifies that an SDR shall file a request for
transfer of registration as soon as practicable prior to the
anticipated corporate change.
Final Sec. 49.6(c) sets forth the information that must be
included in a request for transfer of registration, including, among
other things, the underlying documentation that governs the corporate
change, a description of the corporate change and its impact on the SDR
and on the rights and obligations of market participants, governance
documents of the transferee, and various representations by the
transferee related to its ability to operate the SDR and comply with
the Act and Commission regulations.
Final Sec. 49.6(d) specifies that upon review of a request for
transfer of registration, the Commission, as soon as practicable, shall
issue an order either
[[Page 75609]]
approving or denying the request for transfer of registration.
The Commission requested public comment on all aspects of proposed
Sec. 49.6. One comment opposed the proposed amendments to Sec. 49.6,
asserting that the amendments will add uncertainty into the transfer
process by making a transfer contingent upon obtaining prior Commission
approval without specifying a deadline by which the Commission must
approve or deny a request for transfer.\67\
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\67\ CME at 3.
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The Commission has determined to adopt the amendments to Sec. 49.6
as proposed. With respect to the comment, the Commission recognizes
that corporation transactions and reorganizations that involve the
transfer of an SDR registration may arise without significant notice,
and require certainty and prompt action by regulators. The Commission
similarly has an interest in facilitating such transfers in order to
maintain the operation of SDRs while also ensuring compliance with the
applicable statutory and regulatory requirements. To that end, the
Commission believes it is important to apply the information and
procedural requirements set forth in Sec. 49.6, as proposed and
adopted, in order to enable the Commission and its staff to promptly
address requests for transfer and to ensure that the transferee entity
is fully capable of complying with the Commission's regulations for
SDRs.
E. Sec. 49.9--Open Swaps Reports Provided to the Commission
The Commission proposed to remove the text of existing Sec. 49.9
\68\ and replace it with new requirements for SDRs to provide open
swaps reports to the Commission.\69\ Existing Sec. 49.9 lists and
briefly summarizes the duties of SDRs, with references to where those
duties are found in other sections of part 49.\70\ The Commission
believes existing Sec. 49.9 is superfluous because all of the SDR
duties listed in Sec. 49.9 are also contained, in much greater detail,
in the other sections of part 49. Removing existing Sec. 49.9 is a
non-substantive amendment that does not affect the requirements for
SDRs.
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\68\ 17 CFR 49.9.
\69\ Proposal at 84 FR 21050 (May 13, 2019).
\70\ 17 CFR 49.9. As discussed below in section II.Q, the
Commission proposed conforming amendments to Sec. 49.25 to remove
references to current Sec. 49.9.
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As part of the Commission's proposed new requirements in Sec. 49.9
for SDRs to provide open swaps reports to the Commission,\71\ the
Commission proposed renaming Sec. 49.9 ``Open swaps reports provided
to the Commission'' and, as discussed above, proposed to add a new
definition in Sec. 49.2 for the term ``open swap.'' \72\ The
Commission received several comments on the proposed new requirements
for open swaps reports under Sec. 49.9, as discussed below. The
Commission has determined to adopt the amendments to Sec. 49.9 as
proposed.
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\71\ Section 49.2, as proposed and as adopted in this final
rulemaking, defines the term ``open swap'' to mean an executed swap
transaction that has not reached maturity or expiration, and has not
been fully exercised, closed out, or terminated.
\72\ See section II.A above for a discussion of the definitions
in final Sec. 49.2.
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Final Sec. 49.9(a) requires each SDR to provide the Commission
with open swaps reports that contain an accurate reflection of the swap
data maintained by the SDR for every swap data field required to be
reported under part 45 of the Commission's regulations for every open
swap, as of the time the SDR compiles the report. Open swaps reports
must be organized by the unique identifier created pursuant to Sec.
45.5 of the Commission's regulations that is associated with each open
swap.
SDRs currently send reports that are similar to the proposed open
swaps reports to the Commission on a regular basis. The Commission
currently uses these reports to produce a weekly swaps report that is
made available to the public \73\ and for entity-netted notional
calculations.\74\ The Commission also uses these reports to perform
market risk and position calculations, and for additional market
research projects. However, in formulating these reports, SDRs employ a
variety of calculation approaches and differing formats, which reduces
the utility of the data for the Commission. The Commission therefore
proposed requiring each SDR to regularly provide the Commission with
standardized open swaps reports containing accurate and up-to-date
information. The Commission continues to believe it is necessary to
require SDRs to provide open swaps reports and to require such reports
to be standardized, in order to maximize their utility to the
Commission and enhance the Commission's ability to perform its
regulatory functions.
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\73\ The Commission's various public reports, including the
weekly swaps reports, are available at http://www.cftc.gov/MarketReports/index.htm.
\74\ See generally ``Introducing ENNs: A Measure of the Size of
Interest Rate Swaps Markets,'' Jan. 2018, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_enns0118.pdf.
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Final Sec. 49.9(b) requires an SDR to transmit all open swaps
reports to the Commission as instructed by the Commission. Such
instructions may include, but are not limited to, the method, timing,
and frequency of transmission, as well as the format of the swap data
to be transmitted.\75\ Retaining the flexibility to determine these
requirements, and the ability to modify them over time as necessary,
allows the Commission to tailor the information that is required to be
in the reports to meet the Commission's needs without imposing undue
burdens on SDRs. As stated in the Proposal, the Commission intends to
work with SDRs in formulating instructions pursuant to final Sec.
49.9(b) and expects to provide a reasonable amount of time for SDRs to
adjust their systems before any instructions regarding open swaps
reports take effect. This collaborative process will allow the
Commission's current practice of working with SDRs to implement changes
to swaps reports to continue, which provides SDRs time to update their
systems as needed.
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\75\ As discussed below in section II.V, proposed Sec. 49.31
delegates to the Director of DMO the Commission's authority in
proposed Sec. 49.9, including the authority to create instructions
for transmitting open swaps reports to the Commission.
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The Commission requested comment on all aspects of proposed Sec.
49.9. One comment generally supported standardizing the open swaps
reports.\76\ Several comments addressed the Commission's discretion
with respect to the transmission of open swaps reports under proposed
Sec. 49.9(b). One comment stated that any revisions the Commission
makes to the requirements for transmitting open swaps reports should
not require revisions to reports provided by the SDR to reporting
counterparties, which would increase costs for reporting
counterparties.\77\ Likewise, the requirements should not result in
reporting counterparties having to submit additional data, or to submit
previously reported data in a different data format.\78\ One comment
stated that the Commission should modify the proposed rule to include
``reasonable constraints'' on the instruction process by amending the
text of proposed Sec. 49.9(b) to include ``as soon as practicable,
given the nature of the instructions and the swap data repository's
circumstances'' at the end of the first sentence.\79\
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\76\ DDR at 3.
\77\ ISDA/SIFMA at 39.
\78\ Id.
\79\ DDR at 3.
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The Commission is adopting Sec. 49.9 as proposed, with non-
substantive editorial changes for clarity. With regard to the comments
on open swaps reports provided by SDRs to reporting counterparties, the
Commission notes that, as described in section II.G below, final Sec.
49.11 will not require SDRs to
[[Page 75610]]
provide open swaps reports to reporting counterparties as part of the
swap data verification process, and therefore the comments are moot.
The Commission declines to adopt the suggested revisions related to
constraints, which would unnecessarily restrict the Commission's
discretion to issue transmission instructions. The Commission
reiterates its intent to work with the SDRs before creating or
modifying any instructions pursuant to Sec. 49.9 and to provide a
reasonable amount of time for SDRs to adjust their systems before any
instructions take effect. The Commission's existing practice of
collaborating with SDRs stems from the recognition that such
collaboration will ultimately improve SDRs' ability to comply with
their regulatory obligations and further the Commission's regulatory
objectives.
F. Sec. 49.10--Acceptance of Data
The Commission is adopting new Sec. 49.10(e) generally as
proposed, with modifications and textual clarifications in response to
the comments received. Final Sec. 49.10(e) complements the error
correction requirements in other Commission regulations, including
final Sec. Sec. 43.3(e) and 45.14(b), that apply to the entities that
report SDR data to the SDRs. Each SEF, DCM, and reporting counterparty
must correct errors in their SDR data by submitting complete and
accurate SDR data to the relevant SDR.\80\ Final Sec. 49.10(e) is
intended to ensure that SDRs correct errors in SDR data and disseminate
corrected data as soon as possible.
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\80\ See section IV below for a discussion of final Sec.
43.3(e) (regarding swap transaction and pricing data) and section
III.C below for a discussion of final Sec. 45.14 (regarding swap
data).
---------------------------------------------------------------------------
As it stated in the Proposal, the Commission believes that clearly
delineating an SDR's obligations to receive and make corrections to SDR
data, and to disseminate the corrected SDR data to the public and the
Commission, as applicable, will further the Commission's goal of more
accurate and complete SDR data being made available to the public and
the Commission. The Commission believes that the steps required by
Sec. 49.10(e) will also facilitate, and therefore encourage,
compliance by SEFs, DCMs, and reporting counterparties with their
regulatory obligation to correct SDR data. The Commission further
believes proposed Sec. 49.10(e) is consistent with the current
statutory and regulatory requirements for SDRs to correct errors and
omissions.
Final Sec. 49.10(e)(1) requires an SDR to accept corrections of
errors and omissions \81\ reported to the SDR pursuant to part 43, 45,
or 46 of the Commission's regulations. Final Sec. 49.10(e) specifies
that the requirements of Sec. 49.10(e) apply to SDR data regardless of
the state of the swap that is the subject such data, unless the record
retention period for the SDR data under final Sec. 49.12(b)(2) has
expired. Thus, final Sec. 49.10(e) requires an SDR to correct and
disseminate SDR data for swaps that have matured or were otherwise
terminated and are no longer open swaps, if such swaps are still within
the required SDR data retention period. Final Sec. 49.10(e)(2)
requires an SDR to record corrections as soon as technologically
practicable after the SDR accepts the corrections. Final Sec.
49.10(e)(3) requires an SDR to disseminate the corrected SDR data to
the public and the Commission, as applicable, as soon as
technologically practicable after the SDR records the correction to the
SDR data. Lastly, final Sec. 49.10(e)(4) requires each SDR to
establish, maintain, and enforce policies and procedures designed for
the SDR to fulfill its responsibilities under Sec. 49.10(e).
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\81\ The Commission notes that, as described below, final Sec.
45.14 and final Sec. 43.3(e) do not use the word ``omission'' in
the error correction requirements. The word ``omission'' is not
included in those sections because the term ``error'' is defined to
include all omissions in final Sec. 45.14(c) and final Sec.
43.3(e)(4). The Commission is, however, using the word ``omission''
in final Sec. 49.10(e), because ``error'' is not defined in final
part 49. The Commission emphasizes that this difference between the
three sections is merely semantic and does not in any way change the
SDRs' data correction requirements. All omissions of required SDR
data are errors, and an SDR is required to correct, in accordance
with final Sec. 49.10(e), all errors reported to the SDR, including
errors that arise from omissions in SDR data reported to an SDR or
the omission of all SDR data for a swap.
---------------------------------------------------------------------------
One comment suggested that the final rule should clarify that the
only obligation on SDRs under Sec. 49.10(e) is to accept, record, and
disseminate corrections to SDR data.\82\ The Commission notes that this
is the scope of proposed Sec. 49.10(e), and is the scope of final
Sec. 49.10(e).
---------------------------------------------------------------------------
\82\ Joint SDR at 9.
---------------------------------------------------------------------------
The comment also stated that applying the requirements of proposed
Sec. 49.10(e)(2) to SDR data ``regardless of the state of the swap''
will require SDRs to make SDR data available for corrections for an
unlimited amount of time.\83\ The comment suggested that the Commission
should instead limit the requirements in the regulation with respect to
``dead swaps'' to the required SDR data recordkeeping retention
period.\84\ The Commission agrees with this comment and final Sec.
49.10(e)(1) provides that the rules in Sec. 49.10(e) apply only if
``the record retention period under Sec. 49.12(b)(2) of this part has
not expired as of the time the error correction is reported.''
---------------------------------------------------------------------------
\83\ Id.
\84\ Id.
---------------------------------------------------------------------------
Finally, the comment stated that the Commission should make clear
that an entity submitting SDR data corrections or previously omitted
SDR data must comply with the then current technical specifications of
the SDR and that an SDR is not required to make accommodations for data
that is unable to comport with the then current technical
specifications.\85\ The Commission does not agree with the
recommendation that the regulation be revised to require error
corrections to be made using the prevailing validations and technical
specifications of the SDR. The Commission notes that final Sec.
49.10(e) provides discretion to SDRs to establish, maintain, and
enforce policies and procedures designed for the SDRs to fulfill their
responsibilities under final Sec. 49.10(e), which includes the
discretion to require error corrections to use prevailing validations
and the SDR's technical specifications. Final Sec. Sec. 43.3(e) and
45.14(a) contain companion requirements for market participants to
conform to these SDR policies and procedures when correcting SDR data.
The Commission believes that this discretion provides necessary
flexibility to SDRs and market participants.
---------------------------------------------------------------------------
\85\ Id. at 9-10.
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G. Sec. 49.11--Verification of Swap Data Accuracy
1. Background
Section 21(c)(2) of the CEA requires SDRs to confirm submitted swap
data.\86\ The Commission implemented this statutory requirement by
promulgating current Sec. 49.11.\87\ Current Sec. 49.11(a) requires
an SDR to establish policies and procedures to ensure the accuracy of
swap data and other regulatory information reported to the SDR. Current
Sec. 49.11(b) sets forth the general requirement that an SDR confirm
the accuracy and completeness of all swap data submitted pursuant to
part 45. The regulation then sets forth specific confirmation
requirements for creation data in Sec. 49.11(b)(1) and for
continuation data in Sec. 49.11(b)(2).\88\
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\86\ See 7 U.S.C. 24a(c)(2) (providing that, among other duties,
a swap data repository shall confirm with both counterparties to the
swap the accuracy of the data that was submitted).
\87\ See Part 49 Adopting Release at 54547.
\88\ In both cases, the requirements vary depending on whether
the SDR received the data directly from a counterparty or from a
SEF, DCM, derivatives clearing organization (``DCO''), or third-
party service provider acting on behalf of the swap counterparty.
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[[Page 75611]]
For swap creation data, if the swap data was submitted directly by
a swap counterparty, such as an SD, MSP, or non-SD/MSP counterparty, an
SDR is required to notify both counterparties to the swap and to
receive from both counterparties acknowledgement of the accuracy of the
swap data and corrections for any errors.\89\ However, because
counterparties do not currently have a corollary obligation to respond
to an SDR's notifications, SDRs have adopted rules based on the concept
of negative affirmation: Reported swap data is presumed accurate and
confirmed if a counterparty does not inform the SDR of errors or
omissions or otherwise make modifications to a trade record for a
certain period of time.\90\
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\89\ See Sec. 49.11(b)(1)(i) (providing that an SDR has
confirmed the accuracy of swap creation data that was submitted
directly by a counterparty if the swap data repository has notified
both counterparties of the data that was submitted and received from
both counterparties acknowledgement of the accuracy of the swap data
and corrections for any errors) and Sec. 49.11(b)(2)(i).
\90\ See DTCC Data Repository (U.S.) LLC Rule 3.3.3.3 and ICE
Trade Vault Rules 4.6 and 4.7.
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If the swap data was instead submitted by a SEF, DCM, DCO, or
third-party service provider acting on behalf of a swap counterparty,
the SDR must, among other things, provide both counterparties with a
48-hour correction period after which a counterparty is assumed to have
acknowledged the accuracy of the swap data.\91\ For swap continuation
data, an SDR may rely on a 48-hour correction period regardless of the
type of entity that submitted the swap data.\92\
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\91\ Additional requirements include the following: (i) The SDR
must have formed a reasonable belief that the swap data is accurate;
and the swap data that was submitted, or any accompanying
information, evidences that both counterparties agreed to the data.
See 17 CFR 49.11(b)(1)(ii).
\92\ See 17 CFR 49.11(b)(2)(ii).
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These provisions in existing Sec. 49.11 reflect the Commission's
view in adopting the regulation that an SDR need not always
affirmatively communicate with both counterparties to in order to
confirm the accuracy of swap data.\93\ In the Proposal, the Commission
stated that, based on the its experience with swap data submitted by
SEFs, DCMs, DCOs, and third-party service providers, the current
requirements of Sec. 49.11 have failed to ensure swap data accuracy
and consistency, which has hampered the Commission's ability to carry
out its regulatory responsibilities.\94\
---------------------------------------------------------------------------
\93\ See Part 49 Adopting Release at 54547 (describing the
requirements of Sec. 49.11).
\94\ See Proposal at 84 FR 21052 (May 13, 2019).
---------------------------------------------------------------------------
As noted in the Proposal, the Commission previously raised these
issues in the Roadmap and received many comments in response.\95\ As
discussed in the Proposal, commenters generally held the view that SDRs
are not able to confirm swap data with non-reporting counterparties;
\96\ the obligation to confirm data accuracy should generally reside
with the parties to the swap, not SDRs; \97\ and confirmation
requirements for non-reporting counterparties are generally unnecessary
and will not improve data accuracy.\98\
---------------------------------------------------------------------------
\95\ See id.
\96\ Id.
\97\ Id.
\98\ Id.
---------------------------------------------------------------------------
Based on its experience with swap data reporting and the comments
it received in response to the Roadmap, the Proposal set forth a new
swap verification scheme for swap data.
2. Summary of the Final Rule
The Commission is modifying its approach to verification in final
Sec. 49.11, based on comments received on proposed Sec. 49.11. The
Commission believes the verification process required by final Sec.
49.11 is less burdensome and more flexible than the verification
process set forth in the proposed regulation. As described in detail
below, in order for SDRs to verify the accuracy and completeness of
swap data, final Sec. 49.11 requires each SDR to provide reporting
counterparties that are users of the SDR with a mechanism that allows a
reporting counterparty to access the current swap data for all open
swaps for which the reporting counterparty is serving as the reporting
counterparty, in such a manner that allows the reporting counterparty
to fulfill its own verification obligations under final Sec.
45.14.\99\
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\99\ See section III.C below for a discussion of final Sec.
45.14.
---------------------------------------------------------------------------
This approach is similar to the requirements in proposed Sec.
49.11 in many respects, particularly in that under final Sec. 49.11,
SDRs are required to facilitate verification by reporting
counterparties of all swap data for all open swaps on a regular basis.
However, the Commission believes final Sec. 49.11 provides a less
prescriptive and less burdensome method to achieve the Commission's
goals related to swap data verification. In particular, final Sec.
49.11 will not require the SDRs to create and send open swaps reports
to reporting counterparties as proposed.\100\ Also, in place of the
requirement that SDRs establish, maintain, and enforce policies and
procedures reasonably designed for the SDR to successfully receive
replies to open swaps reports from reporting counterparties in the form
of a verification of data accuracy or notice of discrepancy, the SDR's
policies and procedures will be required to address how the SDR will
fulfill all of the requirements of Sec. 49.11, including how reporting
counterparties and third-party service providers may successfully use
the verification mechanism to fulfill the reporting counterparties'
responsibilities under Sec. 45.14. Final Sec. 49.11 will also require
reporting counterparties to perform verification on a less frequent
basis than proposed, meaning that SDRs will likewise not be required to
facilitate verification on as frequent a basis as proposed.
---------------------------------------------------------------------------
\100\ The Commission is requiring SDRs to create and send open
swaps reports to the Commission under final Sec. 49.9. See section
II.E above for a discussion of final Sec. 49.9.
---------------------------------------------------------------------------
a. Sec. 49.11(a)
The Commission adopts final Sec. 49.11(a) largely as proposed,
with some non-substantive rearrangement of proposed Sec. 49.11(a) into
final paragraphs Sec. 49.11(a) and (c). The first sentence of proposed
Sec. 49.11(a) is being finalized as final Sec. 49.11(a). Final Sec.
49.11(a) reiterates each SDR's statutory duty to verify the accuracy of
swap data pursuant to CEA section 21(c)(2). The second sentence of
proposed Sec. 49.11(a) is now included in final Sec. 49.11(c)(1),
with non-substantive rewording to more clearly articulate the
requirement for SDRs to establish, maintain, and enforce policies and
procedures related to verification and the content requirements for the
policies and procedures.
b. Sec. 49.11(b)(1)
Final Sec. 49.11(b)(1) requires each SDR to provide a mechanism
through which each reporting counterparty that is a user of the SDR can
access all swap data the SDR maintains for each open swap for which the
reporting counterparty serves as the reporting counterparty. The
mechanism must allow sufficient access, provide sufficient information,
and be in a form and manner to enable each reporting counterparty to
perform swap data verification as required under Sec. 45.14 of this
chapter. The Commission believes that, together with final Sec.
45.14(b), final Sec. 49.11(b)(1) will create an effective verification
process to help ensure that swap data maintained by SDRs is complete
and accurate.
The Commission notes that, similar to the communication
requirements in proposed Sec. 49.11, it is not prescribing the form of
mechanism that SDRs must provide in final Sec. 49.11(b)(1), beyond the
data access, data scope, frequency, and confidentiality requirements
contained in final Sec. 49.11(b). The Commission expects that SDRs and
[[Page 75612]]
reporting counterparties will be able to work together to devise the
most effective and efficient verification mechanism, with particular
attention to accommodating non-SD/MSP/DCO reporting counterparties that
may have fewer resources to perform verification than their SD/MSP/DCO
counterparts. The Commission is also aware that at least one SDR
already offers a mechanism that allows counterparties to access their
own swap data, which may be readily modified to meet the requirements
of final Sec. 49.11(b).
c. Sec. 49.11(b)(2)
The Commission adopts the substance of the Proposal in final Sec.
49.11(b)(2) in regards to the scope of data that the SDRs must make
available to reporting counterparties for verification. Final Sec.
49.11(b)(2) provides that the swap data accessible through the
mechanism must accurately reflect the most current swap data maintained
by the SDR, as of the time the reporting counterparty accesses the swap
data using the mechanism, for each data field that the reporting
counterparty was required to report under part 45 for each of the
reporting counterparty's open swaps for which it is serving as the
reporting counterparty. Final Sec. 49.11(b)(2) only requires the
mechanism to make available the then-current swap data for each of the
data fields that the SDR maintains for the relevant open swaps. There
is no requirement to include swap data contained in any particular
messages from the reporting counterparty or any outdated swap data.
The Commission notes again that it is not prescribing the
particular method by which the mechanism grants access to all of the
swap data as required, as long as the mechanism satisfies the
requirements in final Sec. 49.11(b)(2), including the general
requirement that the swap data accessible through the mechanism
provides sufficient information to allow the reporting counterparties
utilizing the mechanism to successfully perform their swap data
verification responsibilities as required under final Sec. 45.14. The
Commission expects that SDRs will work with reporting counterparties to
devise the most efficient and effective method by which the mechanism
will provide access to all of the required swap data, with particular
attention to accommodating non-SD/MSP/DCO reporting counterparties.
The Commission also notes that final Sec. 49.11(b)(2) references
the limits on providing access to swap data that must be kept
confidential under final Sec. 49.11(b)(3). The swap data access
provided under final Sec. 49.11(b)(2) must not allow access to data
that is required to be kept confidential, as described further below in
the discussion of Sec. 49.11(b)(3).
d. 49.11(b)(3)
Final Sec. 49.11(b)(3) adopts the proposed limits on access to
swap data as part of verification for swap data that is required to be
kept confidential from reporting counterparties under the Act or other
Commission regulations. Notwithstanding the other requirements of final
Sec. 49.11(b), final Sec. 49.11(b)(3) explicitly prohibits SDRs from
allowing access to swap data that a reporting counterparty is otherwise
prohibited to access. The Commission notes that the same confidential
swap data is also excluded from the reporting counterparties'
corresponding verification requirements in final Sec. 45.14(b).
This confidentiality requirement is particularly relevant for
counterparty identity information that is required to be kept
confidential under final Sec. 49.17.\101\ Existing and final Sec.
49.17(f) prohibit SDRs from allowing access to counterparty identifying
information for certain anonymously-executed cleared swaps. Under the
provisions of final Sec. 49.11(b)(3), nothing in final Sec. 49.11
overrides the confidentiality requirements of Sec. 49.17, or any other
confidentiality requirements of the Act or other Commission
regulations. This information is also excluded from the verification
requirements in the corresponding verification obligation rules in
final Sec. 45.14(b).
---------------------------------------------------------------------------
\101\ The Commission is finalizing a technical correction to
Sec. 49.17(f) in this rulemaking, as described below in section
II.L.
---------------------------------------------------------------------------
e. Sec. 49.11(b)(4)
Final Sec. 49.11(b)(4) provides that the mechanism each SDR adopts
under final Sec. 49.11(b) must allow sufficiently frequent access for
reporting counterparties to perform the required swap data verification
under Sec. 45.14(b). This minimum frequency is necessary so that
reporting counterparties are able to access all of their relevant swap
data every time they are required to perform verification under Sec.
45.14(b), in order to help ensure that reporting counterparties perform
a robust verification of all swap data for their relevant open swaps.
Final Sec. 45.14(b) requires SD/MSP/DCO reporting counterparties to
verify every 30 calendar days and requires non-SD/MSP/DCO reporting
counterparties to verify once every calendar quarter, with at least two
months between verifications.\102\
---------------------------------------------------------------------------
\102\ See section III.C below for a discussion of the
verification requirements for reporting counterparties under final
Sec. 45.14(b).
---------------------------------------------------------------------------
The Commission notes that the frequency requirement in final Sec.
49.11(b)(4) is a minimum frequency standard. Nothing prohibits SDRs
from allowing reporting counterparties to access swap data through the
mechanism more frequently than required and nothing prohibits reporting
counterparties from utilizing the mechanism to access their own swap
data more frequently than is required.
f. Sec. 49.11(b)(5)
Final Sec. 49.11(b)(5) provides requirements related to SDRs
making swap data available to third-party service providers for
verification purposes. As with other Commission regulations, reporting
counterparties are permitted to utilize third-party service providers
to perform verification, and the Commission believes that accommodating
the use of diligent third-party services providers may increase the
efficiency and effectiveness of the verification process.
Accordingly, in order to accommodate the reporting counterparties'
use of third-party service providers, final Sec. 49.11(b)(5) provides
that an SDR will satisfy its verification requirements under final
Sec. 49.11 by, after a reporting counterparty informs the SDR that the
reporting counterparty will utilize a particular third-party service
provider for verification purposes, providing the third-party service
provider with the same access to the mechanism and the relevant swap
data as the SDR is required to provide to the reporting counterparty.
As part of this third-party service provider access, final Sec.
49.11(b)(5) also provides that the third-party service provider access
is in addition to (i.e., not instead of) the access for the relevant
reporting counterparty. Each SDR must still grant the same required
level of access to the mechanism and the relevant swap data to the
reporting counterparty, regardless of whether a reporting counterparty
utilizes a third-party service provider. The third-party service
provider's access under final Sec. 49.11(b)(5) must also continue
until the reporting counterparty informs the SDR that the third-party
service provider should no longer have access to the mechanism and
relevant swap data on the reporting counterparty's behalf. This
requirement is necessary to ensure that the third-party service
provider can provide services to the
[[Page 75613]]
reporting counterparty without interruption.
Finally, Sec. 49.11(b)(5) requires the verification policies and
procedures an SDR must create pursuant to final Sec. 49.11(c) to
include instructions detailing how each reporting counterparty can
successfully inform the SDR so that the SDR will grant or discontinue
access for a third-party service provider at the reporting
counterparty's instruction. This requirement is necessary to ensure
that third-party service provider access for verification purposes is
as efficient and seamless as possible. The Commission notes that these
SDR policies and procedures are required to be publicly disclosed under
final Sec. 49.26(j).\103\
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\103\ See section II.R below for a discussion of final Sec.
49.26(j).
---------------------------------------------------------------------------
g. Sec. 49.11(c)
The Commission made several non-substantive organizational and
editorial modifications in final Sec. 49.11(c), as compared to the
Proposal. For example, as described above, the SDR verification
policies and procedures requirement from proposed Sec. 49.11(a) is
included in final Sec. 49.11(c). The wording in final Sec.
49.11(c)(1) is changed slightly from proposed Sec. 49.11(a) for
clarity purposes, but similarly requires SDRs to establish, maintain,
and enforce policies and procedures that address how the swap data
repository will fulfill all of the applicable requirements of final
Sec. 49.11. The policies and procedures must also include instructions
on how each reporting counterparty, or third-party service provider
acting on behalf of a reporting counterparty, can successfully utilize
the mechanism to access swap data in order to perform the reporting
counterparty's verification responsibilities under final Sec.
45.14(b). This requirement is necessary to ensure that reporting
counterparties are clearly instructed on how to access the verification
mechanism and their relevant swap data, in order to ensure that
verification is as efficient and seamless as possible. The Commission
notes that the companion verification requirements for reporting
counterparties in final Sec. 45.14(b) require reporting counterparties
to follow the relevant SDR policies and procedures when performing
verification.\104\
---------------------------------------------------------------------------
\104\ See section III.C for a discussion of the verification
requirements for reporting counterparties under final Sec.
45.14(b).
---------------------------------------------------------------------------
Final Sec. 49.11(c)(2) sets forth the requirements for an SDR that
amends its verification policies and procedures, which were previously
set forth in proposed Sec. 49.11(d). Final Sec. 49.11(c)(2), like
proposed Sec. 49.11(d), requires each SDR to comply with the
requirements of part 40 of the Commission's regulations in adopting or
amending the verification policies and procedures required under final
Sec. 49.11(c)(1). The Commission notes that SDRs would be required to
comply with part 40 when adopting or amending the verification policies
and procedures regardless of whether this requirement is included in
Sec. 49.11(c)(2).
3. Comments on the Proposed Rule
The Commission received many comments on the verification approach
in proposed Sec. 49.11. Many commenters did not distinguish their
comments between the verification requirements proposed for SDRs under
proposed Sec. 49.11 and the verification requirements proposed for
reporting counterparties under proposed Sec. 45.14, but the Commission
has organized the discussion between the two different final rules
based on its best estimation of whether particular comments applied to
one or both of the proposed sections. The discussion of comments
relevant to final Sec. 49.11 is contained in this section, while the
discussion of comments that pertain to the verification requirements
for reporting counterparties is contained in the discussion of final
Sec. 45.14(b), unless otherwise noted below.\105\
---------------------------------------------------------------------------
\105\ Id.
---------------------------------------------------------------------------
Many comments on specific requirements of proposed Sec. 49.11 are
now moot, because the Commission is not adopting the proposed
requirements. For example, some commenters addressed particular aspects
and mechanics of the proposed verification of open swaps reports and
the messages the Proposal would require reporting counterparties to
send to SDRs related to verification results.\106\ These comments are
no longer applicable, because the Commission is not adopting the
proposed requirement that SDRs provide open swaps reports to reporting
counterparties or the companion requirement that reporting
counterparties verify the data in such reports and send messages to
SDRs related to verification results. The Commission acknowledges these
comments on specific proposed requirements and thanks the commenters
for submitting these comments, but these requirements are not included
in the final rule.
---------------------------------------------------------------------------
\106\ See, e.g., GFMA at 4; IATP at 5; ICE TV at 3-4; ISDA/SIFMA
at 40, 43-44; Joint SDR at 2-7.
---------------------------------------------------------------------------
Many comments were generally supportive of the Commission's efforts
to improve the accuracy of data reported to and maintained by
SDRs.\107\ The Commission agrees with the many commenters and market
participants who support the Roadmap rulemakings to improve the quality
of swap data, and reiterates the importance of improved data accuracy
and completeness.
---------------------------------------------------------------------------
\107\ See Freddie Mac at 1, 2; IATP at 1-5; Joint SDR at 1;
Markit at 2.
---------------------------------------------------------------------------
Along with the comments of general support, the Commission received
many comments supporting specific requirements in proposed Sec. 49.11.
Comments in particular supported limiting data verification to swap
data,\108\ and excluding non-reporting counterparties from data
verification requirements.\109\ The Commission agrees with these
comments and is finalizing Sec. 49.11 with requirements that only
apply verification to swap data and only require verification for
reporting counterparties.
---------------------------------------------------------------------------
\108\ ISDA/SIFMA at 39-41, 44.
\109\ GFMA at 4, ISDA/SIFMA at 39, Joint SDR at 2.
---------------------------------------------------------------------------
Commenters also suggested alternatives for the proposed approach to
verification, including alternatives that helped form the basis of the
revised verification requirements in final Sec. 49.11. Multiple
comments suggested that the Commission adopt a more ``principles
based'' approach to verification.\110\ As part of a more principles-
based approach, one comment suggested monthly verification for SDs and
quarterly for non-SDs, while also recommending that SDRs or the
Commission should be able to request evidence that verification was
conducted as required.\111\ Another comment advocated for requiring
reporting counterparties to implement procedures to periodically
reconcile swaps data reported to SDRs.\112\ The Commission also
received one comment related to alternatives to verification of
accuracy and notice of discrepancy messaging, which recommended an
obligation on reporting counterparties to maintain, and make available
to the Commission upon request, evidence that verification was
conducted and any necessary corrections were submitted to the SDR.\113\
---------------------------------------------------------------------------
\110\ CS at 3, FIA at 7-8, ISDA/SIFMA at 45.
\111\ ISDA/SIFMA at 45.
\112\ CS at 3.
\113\ Joint SDR at 6-8.
---------------------------------------------------------------------------
The Commission recognizes the comments that provided robust
alternatives to the proposed verification requirements that also met
the Commission need for swap data to be verified in a thorough and
timely manner. The Commission is finalizing Sec. 49.11 with more
principles-based requirements that incorporate each of these
suggestions, including that reporting counterparties periodically
[[Page 75614]]
reconcile the open swap data maintained by SDRs with the open swap data
in their own books and records; that verification occur on a monthly
basis for SD reporting counterparties (though the Commission will also
require monthly verification for MSPs and DCOs) and quarterly for other
reporting counterparties; and that reporting counterparties maintain
and make available to the Commission evidence that verification was
conducted properly and any discovered corrections submitted to the
relevant SDR(s).\114\
---------------------------------------------------------------------------
\114\ See section III.C for a more thorough discussion of the
verification requirements for reporting counterparties under final
Sec. 45.14(b).
---------------------------------------------------------------------------
The Commission also received other comments addressing issues that
have been incorporated into the final verification requirements. Though
largely included with comments related to the proposed open swaps
reports, multiple comments advocated for flexibility in the form and
manner that SDRs and reporting counterparties perform verification, as
these entities already have established methods for communicating swap
data and other information.\115\ These comments on the proposed open
swaps reports also recommended that verification only be required for
swap data as current at the time of verification, as opposed to
verification on every data message.\116\ Another comment also requested
clarification that the required distribution of open swaps reports is a
minimum, not a maximum, and that SDRs are able to provide open swaps
reports more frequently than the minimum.\117\
---------------------------------------------------------------------------
\115\ GFMA at 5, ISDA/SIFMA at 40, Joint SDR at 6.
\116\ ISDA/SIFMA at 40, Joint SDR at 6.
\117\ Joint SDR at 6-7.
---------------------------------------------------------------------------
The Commission recognizes the suggestions included with these
comments and agrees with the comments. The Commission originally
proposed, and is also now adopting, verification requirements that
provide SDRs with flexibility in implementing the verification
requirements. Thus, final Sec. 49.11(b) intentionally does not
prescribe the form and manner of the verification mechanism and allows
SDRs to determine the means for reporting counterparties access to
their relevant swap data. The Commission expects that SDRs and
reporting counterparties will work together to devise the most
efficient and effective mechanism that meets the specific verification
requirements in final Sec. Sec. 49.11 and 45.14. The Commission also
proposed, and is now adopting, requirements that only require the
verification of up-to-date swap data, as opposed to verification of all
messages. Final Sec. 49.11(b)(2) only requires SDRs to make the
relevant ``most current'' swap data available to reporting
counterparties, as opposed to every message regarding swap data. Though
no longer related to open swaps reports, the Commission is also
adopting verification timing requirements in Sec. 45.14(b) that serve
as a minimum frequency requirement, not a maximum. As the Commission
detailed above in the discussion of final Sec. 49.11(b)(4), the SDRs
must make the verification mechanism available to the reporting
counterparties at least as often as needed for the reporting
counterparties to perform their verification responsibilities under
final Sec. 45.14(b), but that nothing prevents the SDRs from providing
proper access more frequently. The Commission anticipates that some
SDRs may choose to provide access to the mechanism on a more-frequent,
even potentially continuous, basis.
The Commission also received a comment related to open swaps
reports that observed that SDRs would not be able perform verification
with reporting counterparties or third-party service providers that are
not members of the SDR. The comment suggested that the Commission
modify the verification requirement to limit an SDR's verification
responsibilities to reporting counterparties and third-party service
providers that are members of the SDR.\118\ The Commission agrees with
this comment and notes that it would not be practical for an SDR to
perform verification with reporting counterparties or third-party
service providers that are not connected to the SDR. To address this,
the Commission is adopting final Sec. 49.11(b)(1), which specifically
requires an SDR to provide a verification mechanism that grants swap
data access to each ``reporting counterparty that is a user of the swap
data repository,'' as required under final Sec. 49.11(b). The
Commission notes that final Sec. 49.11(b)(5) contains provisions
related to access for a third-party service provider working on behalf
of a reporting counterparty and that final Sec. 49.11(c) requires SDR
verification policies and procedures to address how a third-party
service provider can successfully utilize the SDR verification
mechanism on behalf of a reporting counterparty.
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\118\ Joint SDR at 4-5.
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The Commission also received a number of comments that made
suggestions that are not being accepted. In the context of open swaps
reports, one comment suggested that the Commission should specify that
verification timing requirements be clarified as ``business days'' and
``business hours,'' as this would facilitate the SDRs including the
date and time that an open swap report was sent.\119\ The Commission is
including verification timing requirements for reporting counterparties
in final Sec. 45.14(b), but these timing requirements are stated in
terms of calendar days, calendar months, and calendar quarters. The
Commission notes that the comment is now moot, as there will be no open
swaps reports from SDRs to the reporting counterparties that would
necessitate a timestamp, but the Commission also believes that the
final use of calendar timing instead of business timing will not cause
any issues in regards to reporting counterparties and SDRs performing
verification and will provide consistent parameters for when
verification must be performed. The use of calendar time allows the
reporting counterparties to choose the date most convenient for them to
accomplish regular verification without the potential confusion arising
from business days shifting based on weekends and holidays.
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\119\ ISDA/SIFMA at 40.
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One comment suggested that the Commission should remove the
requirement in proposed Sec. 49.11(d) that SDRs make a filing under
part 40 of the Commission's regulations when changing their
verification policies and procedures, asserting that such a requirement
is unnecessary because reporting counterparties will be required to
follow SDR verification procedures.\120\ The Commission disagrees and
is adopting the requirement in final Sec. 49.11(c)(2). The Commission
notes that the requirements of part 40 of the Commission's regulations
would apply to the SDR verification policies and procedures regardless
of whether this provision is included in final Sec. 49.11(c)(2),
because the verification policies and procedures are ``rules'' for the
purposes of part 40 of the Commission's regulations.\121\ The
Commission also believes that requiring SDRs to comply with part 40 to
update verification policies and procedures will help alert reporting
counterparties and other market participants to when an SDR seeks to
change its policies and procedures, which will help ensure compliance
with the verification
[[Page 75615]]
policies and procedures and help prevent errors in the verification
process.
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\120\ Joint SDR at 7.
\121\ See 17 CFR 40.1(i) (defining ``rule'' for the purposes of
part 40 of the Commission's regulations).
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The Commission also received multiple comments suggesting changes
that would narrow the data fields subject to verification. One comment
recommended that verification be limited to data fields related to the
``economic terms'' of the trade only, with the Commission identifying
which fields are included in the economic terms.\122\ Comments also
recommended limiting the reported information to information that would
improve the Commission's market surveillance capabilities and promote
price transparency, while also limiting optional fields and fields that
do not apply to the relevant swaps.\123\ One comment suggested the
Commission clarify the duties relating to static data elements.\124\
Other comments also suggested streamlining data fields to only those
necessary for the Commission's work and to harmonize data fields with
foreign regulators, if possible,\125\ and clarifying the data
fields.\126\
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\122\ GFMA at 10-11, 13-14.
\123\ Joint Associations at 4-10, NGSA at 4.
\124\ Markit at 2-3.
\125\ Eurex at 1-2, GFMA at 14, Joint Associations at 4-10.
\126\ CEWG at 2-3.
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As described in more detail in the discussion of verification
requirements under final Sec. 45.14(b),\127\ the Commission disagrees
with comments suggesting that the Commission adopt any verification
requirement that would allow reporting counterparties to verify
anything less than all swap data fields for all of the reporting
counterparty's relevant open swaps. All swap data fields are important
and are necessary for the Commission to successfully fulfill its
regulatory responsibilities, which extend beyond performing robust
market surveillance and promoting price transparency. The Commission is
adopting verification requirements that require the reporting
counterparties to verify every swap data field for all swap data for
every one of a reporting counterparty's relevant open swaps, and is
adopting the requirements in final Sec. 49.11(b) that will facilitate
this by requiring SDRs to provide a mechanism that allows the reporting
counterparties to verify every data field for all relevant swap data.
This requirement includes all static data elements, as errors are still
possible in swap data maintained by SDRs, even if it is intended to be
static. The Commission also notes that streamlining, clarifying, and
harmonizing data fields is one of the express purposes of the Roadmap
rulemakings, and that this work on data fields is accomplished in a
separate Roadmap rulemaking.\128\
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\127\ See section III.C for a more thorough discussion of the
verification requirements for reporting counterparties under final
Sec. 45.14(b).
\128\ See generally 85 FR 21578, et seq. (Apr. 17, 2020).
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The Commission received several comments suggesting that
verification is unnecessary and that the Commission can instead rely on
SDR swap data validation, standardized and harmonized swap data fields,
and/or the swap data error corrections requirements to improve data
quality.\129\
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\129\ CEWG at 2-3, Chatham at 3, Eurex at 2, NGSA at 4, Joint
Associations at 6-10, Joint SDR at 7-8.
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As described in more detail in the discussion of verification
requirements under final Sec. 45.14(b), the Commission disagrees with
the suggestions that verification is unnecessary and that swap data
validation, standardized swap data fields, and error correction would
be sufficient to meet the Commission's data quality goals. While swap
data validation and standardized data fields are valuable tools to
prevent certain types of swap data errors, such as swap data being
reported without required data, they do not address the same errors
that swap data verification is intended to address. Swap data
verification, which is designed to inform and trigger the swap data
error correction process, is intended to address plausible but
incorrect swap data that would not be identified by validation because
the incorrect data meets the technical standards for the standardized
fields, such as a swap being reported with a notional value of
$1,000,000 instead of the correct $10,000,000. These errors would only
be found, and the error correction requirement triggered, by a party to
the swap reviewing the data after it has been reported and discovering
the error(s), such as through the verification process. The Commission
also notes that swap data validation and standardized data fields can
only prevent errors in swap data that have not yet been reported, as
opposed to swap data verification, which will be useful for finding
undiscovered errors in swap data for open swaps that have already been
reported.
Through its experience administering the data reporting
regulations, the Commission is also aware of many examples of
significant swap data errors that would not have been prevented by swap
data validations, and that, in the absence of an adequate verification
requirement, persisted for long periods of time before being discovered
and corrected. Based on this experience, the Commission determined that
swap data validation, standardized data fields, and the error
correction requirements are not sufficient to meet the Commission's
data quality goals without the addition of swap data verification. As a
result, the Commission is adopting final Sec. 49.11, and the companion
requirements in final Sec. 45.14(b), in order to require a robust and
effective verification process for SDRs and reporting counterparties
that the Commission expects will help ensure significant improvements
in swap data quality.
H. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
Section 49.12 sets forth recordkeeping requirements for SDRs.\130\
The Commission proposed to amend Sec. 49.12 to incorporate the
recordkeeping requirements for SDRs in current Sec. 45.2(f) and (g)
\131\ into final Sec. 49.12, and to resolve ambiguities and potential
inconsistencies between the regulations.\132\ The Commission has
determined to adopt the amendments to Sec. Sec. 49.12 and 45.2 as
proposed, except for a technical change discussed below.
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\130\ 17 CFR 49.12. Current Sec. 49.12 sets forth specific
recordkeeping requirements and references the public reporting
requirements and recordkeeping requirements for SDRs included in
parts 43 and 45.
\131\ 17 CFR 45.2(f) and (g).
\132\ Proposal at 84 FR 21055 (May, 13, 2019). Consolidating
these regulations in part 49 will reduce confusion that may arise
from having separate SDR recordkeeping requirements in two different
rules.
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Current Sec. 49.12(a) requires an SDR to maintain its books and
records in accordance with the recordkeeping requirements of part 45.
The Commission proposed to amend Sec. 49.12(a) to incorporate the
provisions of current Sec. 45.2(f) and to clarify that the requirement
in final Sec. 49.12(a) that an SDR keep records applies to records of
all activities relating to the business of the SDR, not just records of
swap data reported to the SDR.\133\ Accordingly, as amended, final
Sec. 49.12(a) requires an SDR to keep full, complete, and systematic
records, together with all pertinent data and memoranda, of all
activities relating to the business of the SDR, including, but not
limited to, all SDR information and all SDR data that is reported to
the SDR. The amendments to Sec. 49.12(a) do not impose new
requirements on an SDR; rather, the amendments incorporate the
currently-applicable requirements of Sec. 45.2(f).
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\133\ Id. Current Sec. 49.12(a) applies to swap data required
to be reported to the SDR, whereas Sec. 45.2(g) applies to records
of all activities relating to the business of the SDR and all swap
data reported to the SDR.
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[[Page 75616]]
Current Sec. 49.12(b) requires an SDR to maintain swap data
(including all historical positions) throughout the existence of the
swap and for five years following the final termination 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 in
archival storage from which the data is retrievable by the SDR within
three business days.\134\
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\134\ 17 CFR 49.12(b).
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The Commission is amending Sec. 49.12(b) by incorporating the
requirements of Sec. 45.2(g) into final Sec. 49.12(b). Thus, as
amended, final Sec. 49.12(b) will: (i) Clarify that the requirements
of the regulation apply to all records required to be kept by an SDR,
not just swap data reported to an SDR,\135\ and (ii) incorporate the
additional ten-year retention period set forth in current Sec.
45.2(g)(2).\136\
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\135\ Proposal at 84 FR 21055 (May 13, 2019). Current Sec.
49.12(b) applies to swap data, whereas Sec. 45.2(g) applies to all
records required to be kept by an SDR.
\136\ Section 45.2(g)(2) provides that all records required to
be kept by an SDR must be kept in archival storage for ten years
after the initial 5-year retention period under Sec. 45.2(g)(1).
Current Sec. 49.12(b) only sets forth the initial 5-year retention
period.
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Final Sec. 49.12(b) sets forth separate recordkeeping requirements
for SDR information in final Sec. 49.12(b)(1) and SDR data reported to
the SDR in final Sec. 49.12(b)(2). Section 49.12(b)(1) requires an SDR
to maintain all SDR information, including, but not limited to, all
documents, policies, and procedures required to be kept by the Act and
the Commission's regulations, correspondence, memoranda, papers, books,
notices, accounts, and other such records made or received by the SDR
in the course of its business. An SDR must maintain such information in
accordance with Sec. 1.31 of the Commission's regulations.\137\
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\137\ Section 1.31 of the Commission's regulations is the
Commission's general recordkeeping provision, which requires, among
other things, that any regulatory records that do not pertain to
specific transactions and are not retained oral communications be
kept for no less than five years from their creation date. See 17
CFR 1.31(b)(3). As noted in the Proposal, current Sec. 49.12(b) and
Sec. 45.2 use the existence of the swap as the basis for the record
retention timeframes specified therein, but this offers no guidance
on how long to keep a record of SDR information, such as SDR
policies and procedures. See Proposal at 21056. Therefore, the
Commission is clarify in Sec. 49.12(b)(1) that the record retention
period for such records is the generally applicable retention period
under Sec. 1.31 of the Commission's regulations.
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As amended, final Sec. 49.12(b)(2) requires an SDR to maintain all
SDR data and timestamps reported to or created by the SDR, and all
messages related to such reporting, throughout the existence of the
swap that is the subject of the SDR data and for five years following
final termination 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 for a period of at least ten additional
years in archival storage from which such records are retrievable by
the SDR within three business days.\138\
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\138\ The retention period under Sec. 49.12(b)(2) is the
current requirement for SDR records retention under Sec. 45.2(g).
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The amendments to Sec. 49.12(b) are also intended to help
harmonize the Commission's regulations with the SEC's regulations.\139\
The SDR information listed in final Sec. 49.12(b)(1) largely matches
the SEC's requirement for SBSDR recordkeeping \140\ and the retention
provisions of Sec. 1.31 largely match the requirement for SBSDRs.\141\
Any SDR that also registers with the SEC as an SBSDR will have to
comply with both final Sec. 49.12 and Sec. 240.13n-7, and therefore
consistency between the recordkeeping provisions is particularly
beneficial to such SDRs.
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\139\ The concept of separate recordkeeping requirements for
information similar to SDR information and for SDR data reported to
an SDR has already been adopted by the SEC in its regulations
governing SBSDRs. See 17 CFR 240.13n-7(b) (listing recordkeeping
requirements for SBSDRs); 17 CFR 240.13n-7(d) (excluding
``transaction data and positions'' from the recordkeeping
requirements and instead referring to 17 CFR 240.13n-5 for such
recordkeeping).
\140\ See 17 CFR 240.13n-7(b)(1). This rule provides that every
security-based swap data repository shall keep and preserve at least
one copy of all documents, including all documents and policies and
procedures required by the Securities Exchange Act and the rules and
regulations thereunder, correspondence, memoranda, papers, books,
notices, accounts, and other such records as shall be made or
received by it in the course of its business as such.
\141\ Compare 17 CFR 1.31(b)(3) (providing that a records entity
shall keep each regulatory record for a period of not less than five
years from the date on which the record was created) and 17 CFR
1.31(b)(4) (providing that a records entity shall keep regulatory
records exclusively created and maintained on paper readily
accessible for no less than two years, and shall keep electronic
regulatory records readily accessible for the duration of the
required record keeping period) with 17 CFR 240.13n-7(b)(2)
(providing that every SBSDR shall keep all such documents for a
period of not less than five years, the first two years in a place
that is immediately available to representative of the Securities
and Exchange Commission for inspection and examination).
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The Commission again notes that the amendments to Sec. 49.12(b) do
not change the requirements for SDRs; they merely consolidate existing
requirements set forth in current Sec. 45.2(f) and (g) into final
Sec. 49.12.\142\
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\142\ See 17 CFR 45.2(f) and (g). Though the term ``swap data''
is defined in Sec. 49.2(a) to mean the specific data elements and
information set forth in 17 CFR part 45, the Commission notes that
the term ``swap data'' is not currently defined in part 45. Current
Sec. 45.2(f) requires the SDR to keep full, complete, and
systematic records, together with all pertinent data and memoranda,
of all activities related to the business of the swap data
repository and all swap data reported to the swap data repository,
as prescribed by the Commission. This expansive requirement for all
pertinent data and memoranda for all activities related to the
business of the swap data repository and all swap data reported to
the swap data repository reflects that Sec. 45.2(f) requires an SDR
to keep records of data from activities beyond reporting pursuant to
part 45, including, for example, all of the required swap
transaction and pricing data reporting pursuant to part 43. The
``full, complete, and systematic records'' that must be kept for
``all activities related to the business'' of the SDR also include
all messages related to the reported data, including all messages
sent from the SDR and to the SDR. This recordkeeping obligation on
SDRs is analogous to recordkeeping obligations on DCMs, SEFs, and
DCOs. See 17 CFR 38.950, 37.1001, and 39.20(a).
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The Commission is amending existing Sec. 49.12(c) and renumbering
it as Sec. 49.12(d).\143\ In place of existing Sec. 49.12(c), final
Sec. 49.12(c) requires an SDR to create and maintain records of SDR
validation errors and SDR data reporting errors and omissions. Final
Sec. 49.12(c)(1) requires an SDR to create and maintain an accurate
record of all reported SDR data that fails to satisfy the SDR's data
validation procedures. The records must include, but are not be limited
to, records of all of the SDR data reported to the SDR that failed to
satisfy the SDR data validation procedures, all SDR validation errors,
and all related messages and timestamps.
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\143\ As discussed below, as part of the amendments to Sec.
49.12, the Commission is removing current Sec. 49.12(d).
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Final Sec. 49.12(c)(2) requires an SDR to create and maintain an
accurate record of all SDR data errors and omissions reported to the
SDR and all corrections disseminated by the SDR pursuant to parts 43,
45, 46, and 49 of the Commission's regulations. Section 49.12(c)(2)
also requires SDRs to make the records available to the Commission on
request.
The Commission believes SDRs already receive the data validation
information specified in final Sec. 49.12(c) via regular interaction
with SEFs, DCMs, and reporting counterparties. The Commission
emphasizes that such data must be maintained in order to allow for
assessments of reporting compliance, including the initial reporting
and the correction of the SDR data.
The Commission notes that while final Sec. 49.12(c) specifies
recordkeeping requirements for SDR data validation errors and SDR data
reporting errors, these requirements do not in any way limit the
applicability of the recordkeeping requirements in final Sec. 49.12 to
these records. Thus, since the records specified in final Sec.
49.12(c) are
[[Page 75617]]
comprised of, or relate to, SDR data reported to an SDR, all records
created and maintained by an SDR pursuant to final Sec. 49.12(c) are
subject to the requirements of final Sec. 49.12(b)(2).
Existing Sec. 49.12(d) requires an SDR to comply with the real
time public reporting and recordkeeping requirements of existing Sec.
49.15 and part 43. The Commission believes that existing Sec. 49.12(d)
\144\ is redundant because its requirements that an SDR comply with the
real time public reporting and recordkeeping requirements set forth in
Sec. 49.15 and part 43 are also required by final Sec. 49.12(b)(2)
and Sec. 49.15, as well as part 43.
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\144\ See 17 CFR 49.12(d) (providing that a registered swap data
repository shall comply with the real time public reporting and
recordkeeping requirements prescribed in Sec. 49.15 and in 17 CFR
part 43).
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Accordingly, the Commission is moving the text of existing Sec.
49.12(c) to final Sec. 49.12(d) and amending the regulation to provide
that (i) all records required to be kept pursuant to part 49 must be
open to inspection upon request by any representative of the Commission
or any representative of the U.S. Department of Justice; and (ii) an
SDR must produce any record required to be kept, created, or maintained
by the SDR in accordance with Sec. 1.31 of the Commission's
regulations.
Finally, the Commission proposed a technical change to move the
existing requirements of Sec. 49.12(e) to proposed Sec. 49.13.\145\
However, as discussed below, the Commission is not adopting the
proposed amendments to Sec. 49.13 at this time. Therefore, the
Commission is not moving existing Sec. 49.12(e) to Sec. 49.13.
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\145\ Current Sec. 49.12(e) requires an SDR to establish
policies and procedures to calculate positions for position limits
and for any other purpose as required by the Commission.
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The Commission requested comment on all aspects of proposed Sec.
49.12.\146\
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\146\ The Commission also invited specific comment on the
archival storage requirements of current Sec. 45.2(g)(2) and
proposed Sec. 49.12(b)(2). See Proposal at 21057.
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One comment supported consolidating the SDR recordkeeping
requirements in part 45 into part 49.\147\ Another comment stated that
the requirement in proposed Sec. 49.12(b)(2) for an additional ten-
year retention period following a five-year period after termination of
a swap is excessive.\148\ This comment recommended that the Commission
replace the proposed requirements for record retention in proposed
Sec. 49.12 with a seven-year retention period following final
termination of the swap, during which time the records would be readily
accessible by the SDR and available to the Commission.\149\
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\147\ ISDA/SIFMA at 43.
\148\ Joint SDR at 11.
\149\ Id. Joint SDR also stated the Commission ``should
harmonize the SDR retention periods with that of Europe and other
Commission regulated entities such as [DCMs, DCOs and SEFs],'' and
that a 7-year retention period ``gets closer to a harmonized global
standard.'' Id.
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The Commission has determined to adopt the amendments to Sec. Sec.
49.12 and 45.2 as proposed, except the Commission is not adopting the
technical change of moving Sec. 49.12(e) to Sec. 49.13, as discussed
below in Section II.I.
With regard to record retention period comments, the Commission
notes that retention period in final Sec. 49.12(b)(2) is the current
retention period applicable to SDRs, not a new requirement, and that
SDRs currently have this unique ten-year retention period because they
are the source of all SDR data for the public and the CFTC. Further,
the Commission believes the existing 10-year retention period has
functioned well and did not propose to amend the retention period.
Accordingly, the Commission declines to shorten the retention period.
I. Sec. 49.13--Monitoring, Screening, and Analyzing Data
Existing Sec. 49.13 implements CEA section 21(c)(5), which
requires SDRs to, at the direction of the Commission, establish
automated systems for monitoring, screening, and analyzing swap data,
including compliance and frequency of end-user clearing exemption
claims by individuals and affiliated entities.\150\ Existing Sec.
49.13 requires SDRs to: (i) Monitor, screen, and analyze all swap data
in their possession as the Commission may require, including for the
purpose of any standing swap surveillance objectives that the
Commission may establish as well as ad hoc requests; and (ii) develop
systems and maintain sufficient resources as necessary to execute any
monitoring, screening, or analyzing functions assigned by the
Commission.\151\
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\150\ 7 U.S.C. 24a(c)(5).
\151\ See generally 17 CFR 49.13.
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The Commission proposed to amend Sec. 49.13 to provide more detail
on the monitoring, screening, and analyzing tasks that an SDR may be
required to perform as directed by the Commission. The Commission also
proposed to amend Sec. 49.13 to make clear that the requirements of
proposed Sec. 49.13 apply to SDR data reported to the SDR pursuant to
parts 43, 45, and 46. The Commission received a number of comments on
the proposed rule, both supporting and recommending against its
adoption.\152\
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\152\ IATP generally supported the proposed rule. IATP at 7.
IATP further provided recommendations and support for adopting
specific requirements for SDRs, such as a requirement to produce a
report regarding ``mortgage swaps risks of reporting
counterparties'' that would be relevant to assessing climate-related
financial risks, and to calculate positions for market participants.
Id. at 8-9. ISDA/SIFMA recommended adopting a requirement that SDRs
produce rejection statistics reports. ISDA/SIFMA at 45. Joint SDR
generally supported adopting rules that provide more detail about
the tasks that the Commission may require an SDR to perform. Joint
SDR at 12. However, Joint SDR recommended against adopting the
proposed rule, stating that the requirements in the proposed rule
exceed those authorized by the Act, would impermissibly require the
SDRs to perform regulatory functions, and that it would be
impracticable for the SDRs to fulfill the proposed requirements for
lack of sufficient data. Joint SDR at 12-15.
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The Commission has determined not to make any amendments to Sec.
49.13 at this time. The Commission believes it may benefit from further
consideration and experience with swap data following the
implementation of the requirements of part 49, as amended in this final
rule, as well as the implementation of the significantly amended rules
in part 45 that the Commission is adopting as final along with this
final rule. The Commission may consider the proposed amendments to
Sec. 49.13 in a future rulemaking.
As part of the Proposal, the Commission also proposed a technical
change that would move existing Sec. 49.15(c) to Sec. 49.13.\153\ The
Commission also proposed to move the requirements of existing Sec.
49.12(e) to Sec. 49.13. While moving existing Sec. Sec. 49.15(c) and
49.12(e) to Sec. 49.13 is not a substantive amendment, the Commission
has determined that it would be more efficient to defer these proposed
amendments along with the other proposed changes to existing Sec.
49.13, and is therefore not adopting these amendments as part of this
final rulemaking. Thus, the current text of Sec. 49.13 will remain in
effect after this rulemaking.
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\153\ Existing Sec. 49.15(c) provides that an SDR must notify
the Commission of any swap transaction for which the real-time swap
data was not received by the SDR in accordance with 17 CFR part 43.
In addition to moving existing Sec. 49.15(c) to Sec. 49.13, the
Commission proposed to amend the regulation to similarly require an
SDR to notify the Commission with regard to data not received by the
SDR pursuant to parts 45 and 46.
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J. Sec. 49.15--Real-Time Public Reporting by Swap Data Repositories
The Commission proposed to amend existing Sec. 49.15 to conform
the regulation to the proposed amended definitions in Sec. 49.2. As
discussed above, the Commission also proposed to
[[Page 75618]]
move existing Sec. 49.15(c) to proposed Sec. 49.13(c). Additionally,
the Commission proposed to amend existing Sec. 49.15(a) and Sec.
49.15(b) to remove the term ``swap data,'' which is defined in Sec.
49.2 as part 45 data, and replace it with text clarifying that Sec.
49.15 pertains to swap transaction and pricing data submitted to an SDR
pursuant to part 43. These non-substantive amendments do not affect the
existing requirements of Sec. 49.15.
The Commission did not receive any comments on the proposed
amendments to Sec. 49.15(b) and is adopting the amendments as
proposed, with the exception of the proposed movement of existing Sec.
49.15(c) to proposed Sec. 49.13(c).
K. Sec. 49.16--Privacy and Confidentiality Requirements of Swap Data
Repositories
The Commission proposed to amend existing Sec. 49.16 to conform
the regulation to the proposed amendments to the definitions in Sec.
49.2.\154\ Specifically, the Commission proposed to amend Sec.
49.16(a)(1) to clarify that the policy and procedure requirements of
Sec. 49.16 apply to SDR information and to any SDR data that is not
swap transaction and pricing data disseminated under part 43.\155\ The
requirements include that an SDR have policies and procedures to
protect the privacy and confidentiality of any and all SDR information
and all SDR data (except for swap transaction and pricing data
disseminated under part 43) that the SDR shares with affiliates and
non-affiliated third parties. The proposed amendments also conform the
text of Sec. 49.16 with the removal of the term ``reporting entity''
and the amended definitions of ``SDR data'' and ``swap data'' in final
Sec. 49.2. The amendments are non-substantive and do not affect the
existing requirements or applicability of Sec. 49.16.
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\154\ See section II.A above.
\155\ Proposal at 21059.
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The Commission did not receive any comments on the proposed
conforming amendments to Sec. 49.16 and is adopting the amendments as
proposed.
L. Sec. 49.17--Access to SDR Data
Section 49.17 sets forth the requirements and conditions for an SDR
to provide access to SDR data to the Commission, foreign and domestic
regulators, and swap counterparties, among others.\156\ The Commission
proposed to amend Sec. 49.17 to clarify some of the requirements in
the regulation with respect to the Commission's access to SDR data. One
commenter recommended revisions to the proposed amendments to Sec.
49.17, as discussed below. The Commission has determined to adopt the
amendments to Sec. 49.17 as proposed.
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\156\ See generally 17 CFR 49.17.
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As discussed in the Proposal, the Commission believes the
amendments to the definition of ``direct electronic access'' in final
Sec. 49.17(b)(3) will provide additional flexibility to implement
methods for data transfers from SDRs to the Commission, and may
facilitate the use of advancing technology and more efficient means of
direct electronic access for the Commission. The amendments also make
clear that the Commission may decide to accept other methods of access,
as long as the method is able to efficiently provide the Commission
with real-time access to SDR data and scheduled SDR data transfers to
the Commission.
1. Amendments to Sec. 49.17(b)--Definition of Direct Electronic Access
Existing Sec. 49.17(c)(1) requires an SDR to provide ``direct
electronic access,'' a term defined in existing Sec. 49.17(b)(3),\157\
to the Commission or the Commission's designee, including another
registered entity, in order for the Commission to carry out its legal
and statutory responsibilities under the Act.\158\ The Commission is
amending the definition of ``direct electronic access'' in final Sec.
49.17(b)(3) to mean an electronic system, platform, framework, or other
technology that provides internet-based or other form of access to
real-time SDR data that is acceptable to the Commission and also
provides scheduled data transfers to Commission electronic systems. The
amended definition expands the potential means by which an SDR may
provide direct electronic access to include ``other technology'' and
``other forms of access.'' \159\ The amendments are intended to provide
greater flexibility to SDRs and the Commission by making clear that the
Commission may accept other technology or other forms of access that
are not internet-based, as long as the access to SDR data is real-time
and provides for scheduled SDR data transfers to the Commission. The
Commission believes innovation and advances in technology may provide
alternative, more-efficient means for data transfer, and the amended
regulation is intended to facilitate the use of such technology by SDRs
and the Commission.
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\157\ 17 CFR 49.17(b)(3).
\158\ 17 CFR 49.17(c)(1).
\159\ Current Sec. 49.17(b)(3) defines direct electronic access
as an electronic system, platform or framework that provides
internet or Web-based access to real-time swap transaction data and
also provides scheduled data transfers to Commission electronic
systems.
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The revised definition of direct electronic access also adds a
condition that the technology or form of access be ``acceptable to the
Commission'' in order to clarify that any form of direct electronic
access, including any new technology, must be approved by the
Commission. As discussed below, the Commission anticipates working with
SDRs to determine acceptable forms of direct electronic access,
consistent with the Commission's current practice of coordinating and
collaborating with SDRs to facilitate transfers of, and real-time
access to, SDR data.
Finally, the amended definition of ``direct electronic access''
replaces the phrase ``real-time swap transaction data'' \160\ with
``real-time SDR data,'' to eliminate confusion and maintain consistency
with the use of the term ``SDR data'' in other amended provisions in
part 49.\161\ This non-substantive amendment is not intended to change
the existing requirements or current SDR practice for providing the
Commission with direct electronic access to SDR data.
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\160\ 17 CFR 49.17(b)(3).
\161\ The Commission notes that the phrase ``real-time'' is
often used to reference swap transaction and pricing data that is
publicly reported pursuant to part 43. In this instance, the term
refers to direct electronic access requiring that SDR data be
available in real time to the entity granted direct electronic
access (i.e., the Commission or its designee).
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2. Amendments to Sec. 49.17(c)--Commission Access
The Commission is amending Sec. 49.17(c) to incorporate the
requirements of current Sec. 45.13(a),\162\ which relates to the
requirements for an SDR to maintain and transmit data to the
Commission, and to make additional clarifications in the regulation.
The Commission is also making non-substantive edits to final Sec.
49.17 to conform terms used in the section with the rest of the
Commission's regulations (e.g., replacing ``swap data and SDR
Information'' with ``SDR data and SDR Information''). The amendments
are intended to consolidate other related requirements into final Sec.
49.17(c) and to improve the regulation's clarity and
[[Page 75619]]
consistency with other Commission regulations.
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\162\ While the amendments consolidate the requirements for
Commission access to SDR data, the Commission did not propose to
modify current Sec. 45.13(a) in the Proposal. See Proposal at
21060, n. 132. The Commission subsequently proposed amendments to
current Sec. 45.13(a) that are consistent with final Sec. 49.17(c)
in a separate notice of proposed rulemaking related to the Roadmap.
See 85 FR at 21633.
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Final Sec. 49.17(c) adds introductory text that requires an SDR to
provide the Commission with access to all SDR data maintained by the
SDR.\163\ Final Sec. 49.17(c)(1) retains the requirements of current
Sec. 49.17(c)(1) and adds a provision to incorporate the requirements
of current Sec. 45.13(a), with modifications.\164\ Specifically, final
Sec. 49.17(c)(1) requires an SDR to maintain all SDR data reported to
the SDR in a format acceptable to the Commission, and to transmit all
SDR data requested by the Commission to the Commission as instructed by
the Commission. Section 49.17(c)(1) also includes a new provision not
found in current Sec. 45.13(a), stating that the Commission's
instructions may include, but are not limited to, the method, timing,
and frequency of transmission, as well as the format and scope of the
SDR data to be transmitted. Final Sec. 49.17(c)(1) also revises the
requirement in existing Sec. 45.13(a) that an SDR maintain and
transmit ``swap data'' to ``SDR data,'' to make clear that an SDR must
maintain all SDR data reported to the SDR in a format acceptable to the
Commission and transmit all SDR data requested by the Commission.\165\
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\163\ See 17 CFR 49.17(c)(1) (providing that a registered swap
data repository shall provide direct electronic access to the
Commission or the Commission's designee, including another
registered entity, in order for the Commission to carry out its
legal and statutory responsibilities under the Act and related
regulations).
\164\ Section 45.13(a) provides that an SDR 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.
\165\ The Commission believes this revision is consistent with
current SDR practice.
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3. Sec. 49.17(f)(2)--Technical Correction
The Commission is amending existing Sec. 49.17 to replace an
incorrect reference to ``Sec. 37.12(b)(7)'' at the end of paragraph
(f)(2) with the correct reference to ``Sec. 39.12(b)(7).'' \166\ The
Commission is also making non-substantive amendments to conform the
terminology in final Sec. 49.17(f)(2) with the terms listed in final
Sec. 49.2.
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\166\ There is no Sec. 37.12(b)(7) in the Commission's
regulations. See 17 CFR 37.12(b).
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4. Delegation of Authority--Sec. 49.17(i)
The Commission is moving the delegation of authority provision in
existing Sec. 49.17(i) \167\ to final Sec. 49.31(a)(7). Existing
Sec. 49.17(i) delegates to the Director of DMO the authority reserved
to the Commission in existing Sec. 49.17. This includes the authority
to instruct an SDR on how to transmit SDR data to the Commission. As
discussed below, the Commission proposed to consolidate the delegation
of authority provisions in part 49 in final new Sec. 49.31. This
amendment is not a substantive change, as all functions delegated to
the Director of DMO under existing Sec. 49.17(i) will continue to be
delegated under final Sec. 49.31.
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\167\ 17 CFR 49.17(i).
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5. Comments
The Commission requested comment on all aspects of proposed Sec.
49.17. The Commission also requested specific comment on a whether
there is a need to further clarify any of the requirements of proposed
Sec. 49.17 and whether there are any aspects of existing or proposed
Sec. 49.17 that would inhibit or prevent the development of new
technological approaches to SDR operations or the provision of SDR data
to the Commission.\168\
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\168\ Proposal at 21061.
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The Commission received one comment on the proposed rule. The
comment agreed with the Commission that flexibility as to future
technological advancements and innovations is an important
consideration in an SDR's provision of direct electronic access to the
Commission.\169\ This comment also, however, recommended a number of
textual revisions to proposed Sec. 49.17 that would condition or limit
the Commission's authority and discretion in making determinations
regarding an SDR's maintenance and transfer of data pursuant to the
regulation.\170\
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\169\ DDR at 4.
\170\ Id.
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Specifically, the comment asserted that the amended definition of
direct electronic access in proposed Sec. 49.17(b)(3) is too broad
because the term ``SDR data'' includes data reported pursuant to part
46 of this chapter, and the Commission should not have a time-sensitive
need for such data.\171\ The comment also recommended revising the text
of the proposed definition to subject the Commission's determinations
regarding methods of transmission to a reasonableness standard and
require the Commission to work with SDRs in making such
determinations.\172\
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\171\ Id. (stating the Commission should replace the term ``SDR
data'' which ``swap data and swap transaction and pricing
information'').
\172\ Id. (recommending the Commission replace the phrase ``that
is acceptable to the Commission'' with ``that has been agreed to by
the Commission, in its reasonable discretion, following consultation
with the SDR'').
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In addition, the comment recommended the Commission remove the
phrase ``in a format acceptable to the Commission'' from the second
sentence of proposed Sec. 49.17(c)(1), asserting that the phrase
deprives the SDRs of the flexibility and discretion needed with respect
to the storage and maintenance of data without a clear regulatory
purpose.\173\ Similarly, the comment recommended amending the text of
the second sentence of proposed Sec. 49.17(c)(1) to provide
``reasonable limitations'' on the Commission's discretion to instruct
an SDR on the transmission of SDR data to the Commission.'' \174\
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\173\ Id.
\174\ DDR at 4 (stating that the Commission should add the
phrase ``as soon as practicable, given the nature of the
instructions and the SDR's circumstances'' at the end of the second
sentence of proposed Sec. 49.17(c)(1)).
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6. Final Rule
The Commission has determined to adopt the amendments to 49.17 as
proposed.
With regard to the comment that the definition of direct electronic
access is too broad and provides the Commission with too much
discretion, the Commission believes the amendments to the definition
are appropriately tailored to help ensure that the Commission's direct
electronic access, and the data provided through this access, serves
the Commission needs to meet its regulatory obligations, and ensures
that an SDR does not change the means of direct electronic access in a
manner that impairs the Commission's regulatory functions. The
Commission intends to be flexible, when possible, in regards to the
methods and forms of direct electronic access an SDR may utilize,
especially in the context of technological advancement, and believes
that the definition ensures an appropriate level of discretion as to
whether a method of direct electronic access is acceptable.
The Commission believes final Sec. 49.17(b)(3) will not hinder or
prevent an SDR from incorporating new technology for collecting or
maintaining SDR data, as long as the SDR data is collected by the SDR
and provided to the Commission as required. The Commission does,
however, expect an SDR to provide SEFs, DCMs, and reporting
counterparties with commonly-used methods for reporting SDR data and to
not force SEFs, DCMs, and reporting counterparties to unnecessarily
expend resources on technology upgrades by unreasonably limiting
available reporting methods. The Commission also expects SDRs to be
particularly accommodating of non-SD/MSP/DCO reporting counterparties
[[Page 75620]]
that may have limited resources to devote to technology changes.
Similarly, final Sec. 49.17(c)(1) is intended to provide clarity
and certainty to SDRs regarding their responsibilities and the
Commission's authority with respect to how an SDR maintains and
transmits data to the Commission.\175\ The Commission believes it is
critical that it has the ability to instruct SDRs regarding all aspects
of SDR data transfers to the Commission, including, but not necessarily
limited to, method of transmission (e.g., electronic or non-electronic
transmission and file types used for transmission), the timing of data
transmission, the frequency of data transmission, the formatting of the
data to be transmitted (e.g., data feeds or batch transmission), and
the actual SDR data to be transmitted. As noted above, innovation and
advances in technology may provide alternative and more efficient means
for data transfer, so this flexibility may facilitate the use of such
technology by SDRs and the Commission. Also, the format, frequency, and
related matters may well depend on the circumstances of a particular
context, so an inflexible rule would not be appropriate.
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\175\ While these revisions may appear to broaden the scope of
the Commission's ability to define the terms of data transfer to the
Commission, existing Sec. 45.13 provides the Commission broad
discretion in instructing SDRs on how to send data to the Commission
to enable the Commission to perform its regulatory functions,
increase market transparency, and mitigate systemic risk. See Swap
Data Recordkeeping and Reporting Requirements 77 FR 2136, 2169 (Jan.
13, 2012) (requiring 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); see also Part 49
Adopting Release at 54552 (stating that the Commission does not
believe that SDRs should have the discretion or ability to determine
the appropriate data sets that should be provided to the
Commission).
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With regard to the comments' suggested revisions, the Commission
believes the revisions would unduly constrain the Commission's
authority. The Commission notes that it currently works with SDRs to
facilitate data transfers and implement technology changes.\176\ The
Commission fully expects to continue to collaborate with SDRs to ensure
any Commission instructions or changes requested pursuant its authority
in Sec. 49.17(c)(1) are practical and reasonable, and provide SDRs
with the requisite time for implementation. To do otherwise would be
counterproductive and harmful to the Commission's ability to fulfill
its regulatory functions. The Commission believes the coordination and
collaboration between the Commission and SDRs is, and will be,
supported and enhanced by clarity regarding the Commission's authority
in this area. This, in turn, will encourage SDRs and the Commission to
work together to devise the most efficient and effective ways for data
transfer to the Commission, while ensuring that the Commission has the
data it needs to perform its regulatory functions.
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\176\ Current SDR practice also reflects the Commission's wide
discretion in instructing SDRs in how to send data to the
Commission, as the SDRs currently send large amounts of data to the
Commission on a regular basis in various formats, based on
instructions provided by the Commission.
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M. Sec. 49.18--Confidentiality Arrangement
The Commission proposed to amend existing Sec. 49.18 \177\ to move
the delegation of authority provision in Sec. 49.18(e) to proposed
Sec. 49.31(a)(8).\178\ Existing Sec. 49.18(e) delegates to the
Director of DMO all functions reserved to the Commission in Sec.
49.18, including the authority to specify the form of confidentiality
arrangements required prior to disclosure of swap data by an SDR to an
appropriate domestic or foreign regulator, and the authority to limit,
suspend, or revoke such appropriate domestic or foreign regulator's
access to swap data held by an SDR.
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\177\ 17 CFR 49.18.
\178\ Proposal at 84 FR 21061 (May 13, 2019).
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This non-substantive amendment does not change the functions
delegated by the Commission and, as discussed further below, is
intended to enable the Commission to locate most delegations of
authority in proposed Sec. 49.31. The Commission did not receive any
comments on the proposed amendments to Sec. 49.18 and is adopting
amendments as proposed.
N. Sec. 49.20--Governance Arrangements (Core Principle 2)
The Commission proposed to amend Sec. 49.20 \179\ to conform the
regulation to the amended definitions and related numbering changes in
final Sec. 49.2. Specifically, final Sec. 49.20 amends the citations
to Sec. 49.2(a)(14) in Sec. 49.20(b)(2)(v) and to Sec. 49.2(a)(1) in
Sec. 49.20(c)(1)(ii)(B) to citations to Sec. 49.2(a). The proposed
amendments also conform the provisions of Sec. 49.20(b)(2)(vii) to
reflect the amendments in final Sec. 49.2 to the definitions of ``SDR
data,'' ``SDR information,'' ``registered swap data repository,'' and
``reporting entity.'' \180\ These non-substantive amendments to final
Sec. 49.20 do not affect the existing requirements of the regulation.
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\179\ 17 CFR 49.20.
\180\ Id.
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The Commission did not receive any comments on the proposed
amendments to Sec. 49.20 and is adopting the amendments as proposed.
O. Sec. 49.22--Chief Compliance Officer
Existing Sec. 49.22 sets forth an SDR's requirements with respect
to its chief compliance officer (``CCO'').\181\ The Commission proposed
to amend Sec. 49.22 to clarify an SDR's obligations, remove
unnecessary requirements, and make technical corrections and non-
substantive changes. The Commission received a number of comments on
the proposed amendments to Sec. 49.22, including on the proposed
amendments to existing Sec. 49.22(d)(2) with respect to a CCO's
obligation to resolve conflicts of interest.\182\
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\181\ 17 CFR 49.22.
\182\ See, e.g., IATP at 9-10 (asserting that the proposed
amendments that limit a CCO's obligation to resolve conflicts are
not consistent with statutory requirements).
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The Commission has determined not to address the proposed
amendments in this final rulemaking, with the exception of a number of
technical changes to conform Sec. 49.22 to other regulations amended
in this final rulemaking.\183\ The Commission notes that a number of
the proposed amendments to Sec. 49.22, including provisions that were
the subject of public comment, mirror the Commission's proposed
amendments to the CCO requirements for SEFs under Sec. 37.1501,\184\
which have not been adopted to date. The Commission believes it may be
appropriate to address the proposed amendments to the CCO requirements
for SDRs and for SEFs concurrently, in order to maintain consistency in
the CCO requirements for different registered entities, to the extent
appropriate. The Commission may do so in a future rulemaking.
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\183\ As discussed above, the conforming changes include the
removal of the reference in Sec. 49.22(f)(2) to the annual filing
of a Form SDR, which is not required under final Sec. 49.3(a)(5).
The Commission is also making a technical correction to final Sec.
49.22(f)(3) to correct a reference to nonexistent Sec.
49.22(e)(67). The correct reference is to existing Sec.
49.22(e)(6).
\184\ 17 CFR 37.1501. See Swap Execution Facilities and Trade
Execution Requirement, 83 FR 61946, 62032 (Nov. 30, 2018).
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P. Sec. 49.24--System Safeguards
The Commission proposed to make non-substantive amendments Sec.
49.24 \185\ to provide additional detail as to the duties and
obligations of an SDR under the regulation and to make other conforming
technical changes.\186\
[[Page 75621]]
Existing Sec. 49.24(d) requires an SDR's BC-DR plans, resources, and
procedures to enable an SDR to resume operations and meet its
regulatory duties and obligations, and sets forth a non-exhaustive list
of those duties and obligations.\187\ The amendments to existing Sec.
49.24 expand the non-exhaustive list of duties and obligations of an
SDR under part 49 that are enumerated in final Sec. 49.24(d) to
include specific reference to Sec. Sec. 49.10 to 49.21, Sec. 49.23,
and Sec. Sec. 49.25 to 49.27. The Commission emphasizes that the part
49 provisions listed in the amended regulation are only references
intended for clarification, and the amendments to existing Sec.
49.24(d) do not change any requirements applicable to an SDR.
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\185\ 17 CFR 49.24.
\186\ Proposal at 21063.
\187\ 17 CFR 49.24(d).
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The Commission also proposed to make technical amendments to Sec.
49.24(i), to remove a reference to Sec. 45.2. As described above, the
Commission is moving the SDR recordkeeping requirements contained in
current Sec. 45.2(f) and (g) to Sec. 49.12 for consistency and
clarity purposes. This proposed technical change would conform Sec.
49.24(i) to final Sec. Sec. 45.2 and 49.12, but would not change any
of the requirements applicable to SDRs.
The Commission did not receive any comments on the proposed
amendments to Sec. 49.24 and is adopting the amendments as proposed.
Q. Sec. 49.25--Financial Resources
As discussed above, the Commission proposed conforming changes to
existing Sec. 49.25 \188\ to remove the reference to existing Sec.
49.9 and to core principle obligations identified in existing Sec.
49.19.\189\ Proposed Sec. 49.25(a) would instead refer to SDR
obligations under ``this chapter,'' to be broadly interpreted as any
regulatory or statutory obligation specified in part 49 of the
Commission's regulations. These technical amendments do not impact any
existing obligations of SDRs.
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\188\ 17 CFR 49.25.
\189\ Proposal at 21063.
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The Commission also proposed to amend existing Sec. 49.25(f)(3) to
change the deadlines for an SDR to submit the financial resources
report under Sec. 49.25.\190\ Existing Sec. 49.25(f)(3) requires an
SDR to submit the report no later than 17 business days after the end
of the SDR's fiscal quarter, or a later time that the Commission
permits upon request. The proposed amendment to existing Sec.
49.25(f)(3) provides that an SDR must submit its quarterly financial
resources report to the Commission not later than 40 calendar days
after the end of the SDR's first three fiscal quarters, and not later
than 90 calendar days after the end of the SDR's fourth fiscal quarter,
or such later time as the Commission may permit in its discretion. The
Commission requested comment on all aspects of proposed Sec. 49.25.
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\190\ Id.
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One comment supported the extension of the deadline for filings
financial reports under Sec. 49.25, stating that the amendment reduces
burdens on SDRs without material detriment to the CFTC's
oversight.\191\
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\191\ DDR at 5.
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The Commission has determined to adopt the proposed amendments to
Sec. 49.25, except for the proposed amendments to 49.25(f)(3),which
would align the deadline for an SDR's fourth quarter financial
resources report with the deadline for an SDR to submit its annual CCO
report under proposed Sec. 49.22(f)(2). As discussed above, the
Commission has determined not to address the proposed changes to the
filing deadline for the annual compliance report under Sec.
49.22(f)(2) in this final rulemaking, and accordingly, the Commission
is not adopting the related proposed amendment to Sec. 49.25(f)(3).
R. Sec. 49.26--Disclosure Requirements of Swap Data Repositories
Section 49.26 requires an SDR to furnish SEFs, DCMs, and reporting
counterparties with an SDR disclosure document that sets forth the
risks and costs associated with using the services of the SDR, and
contains the information specified in Sec. 49.26(a) through (i).\192\
The Commission proposed to add a new Sec. 49.26(j) providing that an
SDR disclosure document must set forth the SDR's policies and
procedures regarding the reporting of SDR data to the SDR, including
the SDR's data validation procedures, swap data verification
procedures, and procedures for correcting SDR data errors.\193\ The
Commission also proposed to amend existing Sec. 49.26 to conform terms
in the regulation to proposed Sec. 49.2.\194\ The Commission has
determined to adopt the amendments to Sec. 49.26 as proposed.
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\192\ 17 CFR 49.26.
\193\ Proposal at 21063-64.
\194\ Id. at 21063. Specifically, the proposed amendments to the
introductory paragraph of Sec. 49.26 reflect updates to the terms
``SDR data,'' ``registered swap data repository,'' and ``reporting
entity.'' These non-substantive amendments do not change the current
requirements of Sec. 49.26.
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The addition of final Sec. 49.26(j) is intended to provide
information about an SDR's operations to market participants in order
to assist them in making decisions regarding which SDR to use for swaps
reporting.\195\ Moreover, requiring an SDR to disclose its data
reporting policies and procedures, data validation procedures, swap
data verification procedures, and SDR data correction procedures should
reduce the number of data errors and improve data quality by providing
SEFs, DCMs, and reporting counterparties with the information needed to
properly design their reporting systems before any reporting
occurs.\196\ The Commission notes that the disclosure requirements in
Sec. 49.26(j) apply for all SDR data required to be reported, as
applicable.
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\195\ See id.
\196\ See id.
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The Commission requested comment on all aspects of proposed Sec.
49.26. The Commission also invited specific comment on whether the
Commission should require an SDR to disclose any other information
under Sec. 49.26.\197\
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\197\ Id. at 21064.
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Two comments supported the proposed disclosure requirements under
Sec. 49.26(j).\198\ One of these comments also suggested requiring an
SDR to disclose any revisions to the policies specified in proposed
49.26(j) at a reasonable time before implementation.\199\ Similarly,
the other comment suggested that an SDR should be required to provide
any revisions to such policies and procedures promptly to a reporting
counterparty.\200\
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\198\ ISDA/SIFMA at 43; CS at 3.
\199\ ISDA/SIFMA at 43.
\200\ CS at 3.
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The Commission has determined to adopt the amendments to Sec.
49.26(j) as proposed. With regard to the suggestions in the comments,
the Commission notes that the requirement to make the specified
disclosures in Sec. 49.26 is an ongoing requirement that applies to an
SDR ``[b]efore accepting any swap data from [the relevant party] . . .
'' Accordingly, the Commission believes Sec. 49.26(j), as proposed and
adopted, requires an SDR to update the required disclosures if the SDR
revises the policies or procedures specified in Sec. 49.26(j).
Moreover, under part 40, an SDR would be required to file with the
Commission revisions to the policies and procedures required to be
disclosed Sec. 49.26(j).\201\ Under part 40, such filings are
generally required to be made publicly available.\202\
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\201\ See 17 CFR 40.6(a).
\202\ See, e.g., 17 CFR 40.6(a)(2) (requiring a registered
entity that self-certifies a rule or rule amendment under Sec. 40.6
to post a notice of pending certification with the Commission and a
copy of the submission, concurrent with the filing of a submission
with the Commission, on the registered entity's website); See also
17 CFR 40.8(c) (providing that a registered entity's filing of new
rules and rule amendments for Commission review and approval or
pursuant to the self-certification procedures in part 40 shall be
treated as public information unless accompanied by a request for
confidential treatment).
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[[Page 75622]]
S. Sec. 49.28--Operating Hours of Swap Data Repositories
The Commission proposed to add a new Sec. 49.28 to address an
SDR's obligations with respect to its hours of operation, which are
currently set forth in existing Sec. 43.3(f) and (g).\203\ The
Commission proposed to (i) move the provisions in existing Sec.
43.3(f) and (g) to proposed Sec. 49.28 and (ii) amend the provisions
so that the operating hours requirements also apply with respect to an
SDR's responsibilities under parts 45, 46, and 49.\204\ The amendments
to these requirements reflect the Commission's belief that SDRs should
operate as continuously as possible while still being afforded the
opportunity to perform necessary testing, maintenance, and upgrades of
their systems.
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\203\ Proposal at 21064. The Commission believes that is
beneficial to SDRs and market participants to move all SDR operating
hours requirements to part 49 from part 43.
\204\ Id.
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The Commission has determined to adopt Sec. 49.28 as proposed. The
Commission continues to believe that the continuous operation of SDRs
is critical to the proper functioning of the swaps market and the SDR
data reporting process. Moreover, the need for continuous operation of
SDRs is not limited to the receipt and dissemination of swap
transaction and pricing data pursuant to part 43. Rather, an SDR must
be able to continuously perform all of its responsibilities under the
Commission's regulations. To this end, proposed and final Sec. 49.28
expands the obligations of an SDR to continuously accept, promptly
record, and publicly disseminate all SDR data reported to the SDR.
While the Commission strongly encourages SDRs to adopt redundant
systems to allow public reporting during closing hours, final Sec.
49.28 continues to allow SDRs to schedule downtime to perform system
maintenance. However, the Commission continues to believe that
disruptions to the data reporting process due to closing hours should
be as limited as possible, with advance notice of, or, if not possible,
notice promptly after, closing.
The need for continuous operations of SDRs also mandates that SDRs
minimize and mitigate disruptions caused by necessary downtime or
unexpected disruptions, to the extent reasonably possible. Therefore,
final Sec. 49.28 requires an SDR to have the capacity to receive and
hold in queue data reported to it, and to process and disseminate that
data following a resumption in its operations. The Commission
emphasizes that it expects SDRs to be able to accept and hold in queue
SDR data that is reported during closing hours. The inability to accept
and hold in queue SDR data should be a rare occurrence that results
from unanticipated emergency situations, and the provisions in final
Sec. 49.28(c)(2) are intended as a last resort to prevent data loss.
As discussed below, the requirements of final Sec. 49.28 also
include many of the requirements of the SEC's operating hours
regulations governing SBSDRs in order to increase consistency between
the regulations for SDRs and SBSDRs.\205\
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\205\ The SEC's operating hours regulations are contained in 17
CFR 242.904. While current Sec. 43.3(f) allows SDRs to schedule
closing hours while avoiding the times that, in an SDR's estimation,
U.S. markets and major foreign markets are most active, and requires
the SDRs to provide advance notice of closing hours to market
participants and the public, current Sec. 43.3(f) does not make a
distinction between regular closing hours and special closing hours.
The distinction is present, however, in operating hours requirements
for SBSDRs, and final Sec. 49.28(a)(1) and (2) largely adopts the
SBSDR requirements. These requirements make clear that an SDR may
establish both normal and special closing hours and allow an SDR
that also registers with the SEC as an SBSDR to effectively follow
the same operating hours requirements for both requirements.
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1. General Requirements--Sec. 49.28(a)
Existing Sec. 43.3(f) requires an SDR to have systems in place to
continuously receive and publicly disseminate swap transaction and
pricing data in real-time. Existing Sec. 43.3(f) allows an SDR to
declare closing hours to perform system maintenance, while requiring
that the SDR must, to the extent reasonably possible, avoid scheduling
closing hours when, in its estimation, the U.S. market and major
foreign markets are most active.\206\
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\206\ 17 CFR 43.3(f).
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These provisions were adopted based on the Commission's belief that
the global nature of the swaps market necessitates that SDRs be able to
publicly disseminate swap transaction and pricing data at all times and
that SDRs should generally be fully operational 24 hours a day, seven
days a week.\207\
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\207\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1204 (Jan. 9, 2012).
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Proposed and final Sec. 49.28(a) require an SDR to have systems in
place to continuously accept and promptly record all SDR data reported
to the SDR, and publicly disseminate swap transaction and pricing data
reported to the SDR as required under part 43.
Final Sec. 49.28(a)(1) allows an SDR to establish normal closing
hours to perform system maintenance during periods when, in the SDR's
reasonable estimation, the SDR typically receives the least amount of
SDR data.\208\ Under final Sec. 49.28(a)(1), an SDR must provide
reasonable advance notice of its normal closing hours to market
participants and to the public.
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\208\ This reflects a minor change from the existing
requirements of Sec. 43.3(f)(2), which provides that an SDR shall,
to the extent reasonably possible, avoid scheduling closing hours
when, in its estimation, the U.S. market and major foreign markets
are most active. The Commission believes that final Sec.
49.28(a)(1) provides a better measure of when an SDR should schedule
closing hours.
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Final Sec. 49.28(a)(2) allows an SDR to declare, on an ad hoc
basis, special closing hours to perform system maintenance that cannot
wait until normal closing hours. Similar to final Sec. 49.28(a)(1),
final Sec. 49.28(a)(2) requires an SDR to schedule special closing
hours during periods when, in the SDR's reasonable estimation, the
special closing hours would, to the extent possible given the
circumstances prompting the special closing hours, be least disruptive
to the SDR satisfying its SDR data-related responsibilities. Final
Sec. 49.28(a)(2) also requires an SDR to provide reasonable advance
notice of the special closing hours to market participants and the
public whenever possible, and, if advance notice is not reasonably
possible, to notify market participants and the public as soon as is
reasonably possible after declaring special closing hours.
2. Part 40 Requirement for Closing Hours--Sec. 49.28(b)
Proposed and final Sec. 49.28(b) require an SDR to comply with the
requirements under part 40 of the Commission's regulations when
adopting or amending normal closing hours and special closing
hours.\209\ This requirement is already applicable to SDRs pursuant to
current Sec. 43.3(f)(3).\210\ The Commission anticipates that, due to
the unexpected and emergency nature of special closing hours, rule
filings related to special closing hours will likely qualify for the
emergency rule certification provisions of Sec. 40.6(a)(6).\211\
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\209\ The establishment or change to closing hours constitutes a
``rule'' for the purposes of part 40 requirements. See 17 CFR 40.1,
et seq.
\210\ See 17 CFR 43.3(f)(3) (providing that a registered swap
data repository must comply with the requirements under 17 CFR part
40 in setting closing hours and must provide advance notice of its
closing hours to market participants and the public).
\211\ See 17 CFR 40.6(a)(6) (setting forth the requirements for
implementing rules or rule amendments in response to an emergency,
as defined under 17 CFR 40.1(h)).
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[[Page 75623]]
3. Acceptance of SDR Data During Closing Hours--Sec. 49.28(c)
Existing Sec. 43.3(g) addresses an SDR's obligations regarding
swap transaction and pricing data sent to the SDR for publicly
reportable swap transactions during closing hours. The Commission is
moving existing Sec. 43.3(g) to final Sec. 49.28(c), and expanding
the existing requirements for swap transaction and pricing data in
current Sec. 43.3(g) \212\ to all SDR data. Proposed and final Sec.
49.28(c) require an SDR to have the capability to accept and hold in
queue any and all SDR data reported to the SDR during normal closing
hours and special closing hours. Final Sec. 49.28(c) is intended to
prevent the loss of any SDR data that is reported to an SDR during
closing hours and to facilitate the SDR's prompt fulfillment of its
data reporting responsibilities, including public dissemination of swap
transaction and pricing data, as applicable, once the SDR reopens from
closing hours. The requirements in Sec. 49.28(c) mirror the
requirements for an SBSDR to receive and hold in queue information
regarding security-based swaps.\213\
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\212\ See 17 CFR 43.3(g) (providing that during closing hours, a
registered swap data repository must have the capability to receive
and hold in queue any data regarding publicly reportable swap
transactions pursuant to part 43).
\213\ See 17 CFR 242.904(c) (providing that during normal
closing hours, and to the extent reasonably practicable during
special closing hours, a registered security-based swap data
repository must have the capability to receive and hold in queue
information regarding security-based swaps that has been reported
pursuant to Sec. Sec. 242.900 through 242.909).
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Final Sec. 49.28(c)(1) requires an SDR, on reopening from normal
or special closing hours, to promptly process all SDR data received
during the closing hours and, pursuant to part 43, publicly disseminate
swap transaction and pricing data reported to the SDR that was held in
queue during the closing hours. Final Sec. 49.28(c)(1) expands the
existing requirements for an SDR to disseminate swap transaction and
pricing data pursuant to Sec. 43.3(g)(1) \214\ to also include the
prompt processing of all other SDR data received and held in queue
during closing hours.\215\
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\214\ See 17 CFR 43.3(g)(1) (providing that upon reopening after
closing hours, a registered swap data repository must promptly and
publicly disseminate the swap transaction and pricing data of swaps
held in queue, in accordance with the requirements of part 43).
\215\ These requirements mirror the SBSDR requirements for
disseminating transaction reports after reopening following closing
hours. See 17 CFR 242.904(d) (providing that when a registered
security-based swap data repository re-opens following normal
closing hours or special closing hours, it must disseminate
transaction reports of security-based swaps held in queue, in
accordance with the requirements of Sec. 242.902).
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Final Sec. 49.28(c)(2) expands existing requirements for swap
transaction and pricing data that an SDR cannot receive and hold in
queue during closing hours in existing Sec. 43.3(g)(2) to all SDR data
and also mirrors the requirements for an SBSDR that cannot receive and
hold in queue information regarding security-based swaps during closing
hours.\216\ Final Sec. 49.28(c)(2) requires an SDR to immediately
issue a notice to all SEFs, DCMs, reporting counterparties, and the
public in the event that an SDR is unable to receive or hold in queue
any SDR data reported during normal closing hours or special closing
hours. Final Sec. 49.28(c)(2) also requires an SDR to issue a notice
to all SEFs, DCMs, reporting counterparties, and the public that the
SDR has resumed normal operations immediately on reopening.\217\
Lastly, final Sec. 49.28(c)(2) requires a SEF, DCM, or reporting
counterparty that was not able to report SDR data to an SDR because of
the SDR's inability to receive and hold in queue any SDR data to
immediately report the SDR data to the SDR after the SDR provides
notice that it has resumed normal operations.
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\216\ See 17 CFR 242.904(e) (providing that if a registered
security-based swap data repository could not receive and hold in
queue transaction information that was required to be reported
pursuant to Sec. Sec. 242.900 through 242.909, it must immediately
upon re-opening send a message to all participants that it has
resumed normal operations. Thereafter, any participant that had an
obligation to report information to the registered security-based
swap data repository pursuant to Sec. Sec. 242.900 through 242.909,
but could not do so because of the registered security-based swap
data repository's inability to receive and hold in queue data, must
promptly report the information to the registered security-based
swap data repository.).
\217\ Consistent with the current requirements under part 43, an
SDR may issue such notices to its participants and the public by
publicizing the notices that the SDR is unable to receive and hold
in queue any SDR data and that the SDR has resumed normal operations
in a conspicuous place on the SDR's website. See 77 FR at 1205, n.
208 (Jan. 9, 2012) (allowing SDRs to provide reasonable advance
notice of its closing hours to participants and the public by
providing notices directly to its participants or publicizing its
closing hours in a conspicuous place on its website).
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Though final Sec. 49.28 expands the existing requirements of Sec.
43.3(f) and (g) to apply to all SDR data, the Commission believes the
regulation will not lead to significant changes in the operations of an
SDR. The Commission understands that, under current practice, SDRs
routinely receive and hold in queue all SDR data submitted during
declared SDR closing hours, regardless of whether that data is being
submitted pursuant to part 43. Additionally, because the requirements
of final Sec. 49.28 largely mirror the requirements for an SBSDR to
receive and hold in queue information regarding security-based swaps,
final Sec. 49.28 will not impose additional requirements on an SDR
that is also registered as an SBSDR. Therefore, the Commission believes
that expanding the operating hours requirements to all SDR data would
have little practical impact on current SDR operations.
The Commission requested comment on all aspects of proposed Sec.
49.28. The Commission also invited specific comment on whether proposed
Sec. 49.28 provides SDRs sufficient flexibility to conduct necessary
maintenance on their systems while facilitating the availability of SDR
data for the Commission and the public.\218\
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\218\ Proposal at 21065.
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One comment stated that business flow considerations should be
taken into account in addition to sufficient flexibility for SDRs when
considering operating hours. The comment suggested that proposed Sec.
49.28(a)(1) be revised to employ the phrase ``based on historical
volume'' in place of ``in the reasonable estimation of the [SDR]'' to
describe the basis on which an SDR may determine when it typically
receives the least amount of SDR data.\219\
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\219\ ISDA/SIFMA at 42.
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Another comment supported the proposed requirements in Sec.
49.28(a)(2) for normal closing hours and special closing hours.\220\
This comment, however, also opposed the requirement in proposed Sec.
49.28(b) that the adoption or amendment of special closing hours be
subject to part 40 filing requirements. The comment asserted that ``for
the foreseeable future SDRs may need to frequently make use of special
closing hours to accommodate changes to their systems'' and that
requiring an SDR to comply with part 40 in each such instance would
``impose an administrative burden that does not provide a corresponding
benefit to impacted parties.'' \221\
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\220\ DDR at 6 (stating that these requirements ``recognize the
importance of system maintenance to the safe operation of an SDR's
systems'').
\221\ Id. (recommending that, instead of a making a submission
under part 40, an SDR should be required to notify the Commission
along with market participants when declaring special closing
hours).
---------------------------------------------------------------------------
This comment also opposed the requirement in proposed Sec.
49.28(c)(2) that an SDR provide notice of its resumption of normal
activities following a period of time during which it was unable to
receive and hold in queue any SDR data. The comment asserted such
notice is unnecessary when the downtime was planned and
[[Page 75624]]
previously communicated to the SDR's members and the public.\222\
---------------------------------------------------------------------------
\222\ Id. (stating that in these situations, the impacted
parties would be prepared for the resumption of normal operations
and, therefore, a notification to that effect is unnecessary).
---------------------------------------------------------------------------
In response to the business flow considerations comment, the
Commission believes an SDR is best situated to make a judgement
regarding when it receives the least amount of SDR data. The Commission
agrees that historical volume is one factor SDRs may consider, but
other considerations may factor into an SDR's determination, so long as
the estimation is reasonable.
With regard to the comment on proposed Sec. 49.28(b), the
Commission notes that the regulation, as adopted, does not impose
requirements beyond what is already required under part 40. The
Commission also notes that special closing hours are intended for
unforeseeable, emergency situations, not planned system updates and
maintenance, as described in the comment. For planned system updates or
maintenance, under the normal closing hours provisions, an SDR could
use a single part 40 filing for all planned updates or maintenance, to
the extent that the SDR knows the schedule for such activities. The
Commission would expect SDRs to plan anticipated system updates or
maintenance, and the related closing hours determinations, well ahead
of time and for SDRs to follow the normal closing hours requirements,
and their reasonable discretion on timing of such closing hours, when
performing the system updates or maintenance.
With regard to the comment on proposed Sec. 49.28(c)(2), the
Commission believes that in circumstances where an SDR is unable to
receive and hold in queue SDR data, keeping impacted parties informed
and updated as to changes to the SDR's operations is critical to
limiting potential negative impacts caused by the disruption. The
Commission expects that instances where an SDR is unable to receive and
hold in queue SDR will be the result of emergency situations that
prompt special closing hours, as opposed to planned and scheduled SDR
system outages. Such situations do not easily allow for accurate
planning or estimation of when the SDR will resume normal operations.
Further, even for planned outages, the scheduled outage may not finish
on schedule, for myriad reasons, and it would be extremely disruptive
for market participants to begin reporting SDR data to an SDR based on
an outdated estimate of when the SDR would resume normal operations.
Accordingly, the Commission believes an SDR should be required to
inform market participants and the public that it has resumed
operations following a period during which it was unable to receive and
hold SDR data, regardless of whether the inability to receive and hold
SDR was planned and announced ahead of time.
T. Sec. 49.29--Information Relating to Swap Data Repository Compliance
The Commission proposed to add a new Sec. 49.29 to require an SDR
to provide, upon the Commission's request, information necessary for
the Commission to perform its duties or to demonstrate the SDR's
compliance with its obligations under the Act and Commission
regulations.\223\
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\223\ Proposal at 21065-66.
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Proposed Sec. 49.29(a) would require an SDR, upon request by the
Commission, to file with the Commission information related to its
business as an SDR and information the Commission determines to be
necessary or appropriate for the Commission to perform its duties under
the Act and Commission regulations thereunder. The SDR must provide the
requested information in the form and manner and within the time
specified by the Commission in its request.
Proposed Sec. 49.29(b) would require an SDR, upon request by the
Commission, to file with the Commission a written demonstration,
containing supporting data, information, and documents, that it is in
compliance with its obligations under the Act and the Commission's
regulations. SDRs must provide the written demonstration in the form
and manner and within the time specified by the Commission in its
request. The Commission notes that the requests may include, but are
not limited to, demonstrating compliance with the core principles
applicable to SDRs under CEA section 21(f) and with any or all
requirements in part 49 of the Commission's regulations.
The Commission requested comment on all aspects of proposed Sec.
49.29 and received one comment in response. The comment generally
supported proposed Sec. 49.29,\224\ but also recommended that the
Commission revise Sec. 49.29(a) and 49.29(b) to include the phrase
``as soon as practicable, given the nature of the request and the SDR's
circumstances'' in order to recognize that SDRs will need a reasonable
amount of time to comply with a request, and to encourage collaboration
with the SDR in determining the appropriate form, manner and timing
associated with the request.\225\ The comment also asserted that the
proposed language of Sec. 49.29 is vague and lacking detail, which
would hinder an SDR in determining what is required to comply with the
proposed regulation.\226\
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\224\ DDR at 6 (``DDR supports the Commission's inclusion of a
requirement to provide information on an as needed basis in place of
a requirement for SDRs to file an annual Form SDR update in proposed
section 49.29.).''
\225\ DDR at 6-7.
\226\ DDR at 7.
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The Commission has determined to adopt final Sec. 49.29 as
proposed. The Commission believes that Sec. 49.29, as proposed and
adopted, provides the Commission with the necessary flexibility to
obtain information and documentation to determine whether an SDR is
complying with applicable statutory and regulatory requirements, and to
ensure that the Commission is able to fulfill its responsibilities in
the oversight of SDRs. The Commission notes that requests under Sec.
49.29 may be made for any Commission oversight purpose. For example,
the Commission may request that an SDR provide information relating to
its operations or its practices in connection with its compliance with
particular regulatory duties and core principles, other conditions of
its registration, or in connection with the Commission's general
oversight responsibilities under the Act. Final Sec. 49.29 is also
based on similar existing Commission requirements applicable to SEFs
and DCMs, which have successfully assisted the Commission in obtaining
needed information from these registered entities for many years
without difficulty.\227\
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\227\ See 17 CFR 37.5 and 38.5.
---------------------------------------------------------------------------
The Commission also notes that, as discussed above, final Sec.
49.29 facilitates the removal of the requirement in Sec. 49.3(a)(5)
that an SDR file an annual amendment to Form SDR, by allowing the
Commission to request the relevant information as needed without
requiring an SDR to file a full Form SDR update.
The Commission believes the comment's proposed revisions would
unduly constrain the Commission's ability to obtain needed information
in a timely manner and inappropriately restrict the Commission in
fulfilling its oversight responsibilities. However, the Commission
emphasizes that it intends to coordinate and collaborate with SDRs in
formulating information requests pursuant to Sec. 49.29 in order to
ensure that such requests are reasonable, based on the facts and
circumstances, as is the current practice between the Commission and
the SDRs.
[[Page 75625]]
U. Sec. 49.30--Form and Manner of Reporting and Submitting Information
to the Commission
The Commission proposed to add a new Sec. 49.30 to place in one
location the requirements governing the form and manner in which an SDR
must provide information to the Commission.\228\ Final Sec. 49.30, as
adopted in this final rulemaking, requires SDRs to provide reports and
other information to the Commission in ``the form and manner''
requested or directed by the Commission. Other regulations within part
49, such as final Sec. 49.29, require an SDR to provide reports and
certain other information to the Commission in the ``form and manner''
requested or directed by the Commission. The Commission has determined
to adopt Sec. 49.30 as proposed.
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\228\ Proposal at 21066.
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Final Sec. 49.30 sets forth the broad parameters of the ``form and
manner'' requirement. Under final Sec. 49.30, unless otherwise
instructed by the Commission, an SDR must submit SDR data reports and
any other information required to be provided to the Commission under
part 49 within the time specified, using the format, coding structure,
and electronic data transmission procedures approved in writing by the
Commission.
The Commission requested comment on all aspects of proposed Sec.
49.30. The Commission also invited specific comment on (i) whether the
Commission should provide a single format or coding structure for each
SDR to deliver reports and other information in a consistent manner;
(ii) whether existing standards and formats are sufficient for
providing the Commission with requested information; and (iii) whether
the Commission should require specific electronic data transmission
methods and/or protocols for SDRs to disseminate reports and other
information to the Commission.\229\
---------------------------------------------------------------------------
\229\ Id.
---------------------------------------------------------------------------
One comment supported mandating messaging formats for transmission
from an SDR to the Commission, but emphasized the Commission should not
mandate the format for reporting from a reporting counterparty to an
SDR.\230\
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\230\ ISDA/SIFMA at 42.
---------------------------------------------------------------------------
Another comment recommended that the Commission revise the text of
proposed Sec. 49.30 to include the phrase ``as soon as practicable,
given the nature of the request and the SDR's circumstances'' after
``[u]nless otherwise instructed by the Commission.'' \231\ The comment
asserted that the suggested revision recognizes an SDR will need a
reasonable amount of time to implement technical changes necessary to
comply with the request and will encourage collaboration between an SDR
and Commission in determining the appropriate form, manner and timing
associated with the request.\232\ Similar to the comment on Sec.
49.29, noted above, the comment also asserted that the proposed
language of Sec. 49.30 is vague and lacking detail as to data
transmission requirements, which may be determined by the Commission at
a later time.\233\
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\231\ DDR at 7.
\232\ Id.
\233\ Id.
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The Commission has determined to adopt Sec. 49.30 as proposed. The
Commission notes that final Sec. 49.30 does not expand the existing
substantive SDR informational requirements of part 49. Rather, the
regulation authorizes the Commission to specify how information
reported to an SDR under other requirements of part 49 should be
formatted and delivered to the Commission.
Under final Sec. 49.30, the format, coding structure, and
electronic data transmission procedures an SDR uses for reports and
submissions to the Commission pursuant to part 49 must be approved in
writing by the Commission. These written specifications could include
specifications similar to the ``guidebooks'' and other technical
specifications currently published on the Commission's website.\234\
Specifications may also be more limited in their application,
potentially involving more specific or tailored requirements applicable
to a report or information required by the Commission from a particular
SDR.
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\234\ The Commission's current published ``guidebooks'' include
those published for reporting required by parts 15, 16, 17, 18, and
20 of the Commission's regulations relating to ownership and control
reports, large trader reports, and data reporting. These guidebooks
are available on the Commission's website at http://www.cftc.gov/Forms/index.htm.
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The Commission believes the comment's proposed revision may unduly
constrain the Commission's ability to adjust the process by which it
obtains information. However, the Commission emphasizes that it intends
to continue to coordinate and collaborate with SDRs in formulating
information requests and specifications pursuant to Sec. 49.30 in
order to ensure that such requests are reasonable, based on the facts
and circumstances, as is the current practice for the Commission and
the SDRs.
V. Sec. 49.31--Delegation of Authority to the Director of the Division
of Market Oversight Relating to Certain Part 49 Matters
The Commission proposed to add new Sec. 49.31 to set forth and
consolidate delegations of authority for part 49 of the Commission's
regulations.\235\ A number of current and proposed provisions in part
49 require an SDR to perform various functions at the Commission's
request or to provide information as prescribed or instructed by the
Commission. The Commission proposed to adopt new Sec. 49.31 by which
the Commission would delegate its authority under most these of the
part 49 provisions to the Director of DMO. The new delegations are
intended to enhance the Commission's ability to respond to changes in
the swaps market and technological developments, to quickly and
efficiently access information and data from SDRs to meet the
Commission's oversight obligations, and to more efficiently perform the
Commission's regulatory functions.
---------------------------------------------------------------------------
\235\ Proposal at 21066-67.
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More specifically, the Commission proposed to delegate its
authority under the current and proposed part 49 regulations, as set
forth below, to the Director of DMO, and to such members of the
Commission's staff acting under his or her direction as he or she may
see fit from time to time.
The Commission did not receive any comments on proposed Sec.
49.31. The Commission continues to believe the proposed addition of
Sec. 49.31 and the proposed new delegations thereunder will improve
the Commission's ability to respond to developments in the swaps
market, to access information and data from SDRs, and to fulfill the
Commission's oversight obligations. Accordingly, the Commission is
adopting Sec. 49.31 as proposed.
Final Sec. 49.31(a)(1) delegates to the Director of DMO the
Commission's authority to request documentation related to an SDR
equity interest transfer pursuant to Sec. 49.5.\236\
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\236\ See section II.C above.
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Final Sec. 49.31(a)(2) delegates to the Director of DMO the
Commission's authority to instruct an SDR on transmitting open swaps
reports to the Commission pursuant to Sec. 49.9.\237\
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\237\ See section II.E above.
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Final Sec. 49.31(a)(3) delegates to the Director of DMO the
Commission's authority under Sec. 49.10 to modify an SDR's required
acceptance of all SDR data in a particular asset class for which the
SDR accepts data.
Final Sec. 49.31(a)(4) delegates to the Director of DMO the
Commission's
[[Page 75626]]
authority under Sec. 49.12 to request records from an SDR.\238\
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\238\ See section II.H above.
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Final Sec. 49.31(a)(5) delegates to the Director of DMO the
Commission's authority under Sec. 49.13 to require an SDR to monitor,
screen, and analyze SDR data.\239\
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\239\ See section II.I above.
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Final Sec. 49.31(a)(6) delegates to the Director of DMO the
Commission's authority under Sec. 49.16 to request that an SDR
disclose aggregated SDR data in the form and manner prescribed by the
Commission.
Final Sec. 49.31(a)(7) delegates to the Director of DMO the
Commission's authority with respect to all functions reserved to the
Commission under Sec. 49.17.\240\
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\240\ This includes the authority to: prescribe the form of
direct electronic access that an SDR must make available to the
Commission; prescribe the format by which an SDR must maintain SDR
data; request an SDR transmit SDR data to the Commission; and
instruct an SDR on the transmission of SDR data to the Commission.
See section II.L above.
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Final Sec. 49.31(a)(8) delegates to the Director of DMO the
Commission's authority under Sec. 49.18 to permit an SDR to accept
alternative forms of confidentiality arrangements and the ability to
direct an SDR to limit, suspend, or revoke access to swap data.\241\
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\241\ See section II.M above.
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Final Sec. 49.31(a)(9) delegates to the Director of DMO the
authority under Sec. 49.22 to grant an SDR an extension to the annual
compliance report filing deadline.
Final Sec. 49.31(a)(10) delegates to the Director of DMO the
Commission's authority under Sec. 49.23 to require an SDR to exercise
emergency authority and to request the documentation underlying an
SDR's decision to exercise its emergency authority.
Final Sec. 49.31(a)(11) delegates to the Director of DMO the
Commission's authority under Sec. 49.24 to determine an SDR to be a
``critical SDR'' and to request copies of BC-DR books and records,
assessments, test results, plans, and reports.
Final Sec. 49.31(a)(12) delegates to the Director of DMO the
Commission's authority under Sec. 49.25, including the authority under
Sec. 49.25(b)(2) to deem other financial resources as acceptable; the
authority under Sec. 49.25(c) to review and require changes to an
SDR's computations of projected operating costs; the authority under
Sec. 49.25(f)(1) to request reports of financial resources; and the
authority under Sec. 49.25(f)(3) to extend the deadline by which an
SDR must file a quarterly financial report.
Final Sec. 49.31(a)(13) delegates to the Director of DMO the
Commission's authority under Sec. 49.29 to request information from an
SDR, and to require an SDR to provide a written demonstration of its
compliance with the Act and Commission regulations, including the
authority to specify the form, manner and time for the an SDR's
provision of such information or written demonstration.\242\
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\242\ See section II.T above.
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Final Sec. 49.31(a)(14) delegates to the Director of DMO the
Commission's authority under Sec. 49.30 to establish the format,
coding structure, and electronic data transmission procedures for the
submission of SDR data reports and any other information required by
the Commission under part 49.\243\
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\243\ See section II.U above.
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III. Amendments to Part 45
A. Sec. 45.1--Definitions
The Commission is adding a definition for the term ``open swap'' to
final Sec. 45.1 that will define the term as an executed swap
transaction that has not reached maturity or expiration, and has not
been fully exercised, closed out, or terminated. The definition is
identical to the definition for ``open swap'' added to final Sec. 49.2
and is intended to create consistency between defined terms in parts 45
and 49 of the Commission's regulations. The term ``open swap'' is used
is both final part 45 and part 49, particularly in regards to the
requirements related to swap data verification, and consistency in the
use of the term across both parts is crucial to ensure swap data
verification functions properly. See section II.A.3 above for a more
robust discussion of the definition of ``open swap.''
B. Sec. 45.2--Swap Recordkeeping
As discussed above in Section II.H, as part of the amendments to
Sec. 49.12, the Commission proposed to consolidate the SDR
recordkeeping requirements set forth in current Sec. 45.2(f) and (g)
into Sec. 49.12. As discussed above, the Commission has determined to
adopt the consolidation of Sec. 45.2(f) and (g) into Sec. 49.12, as
proposed.
C. Sec. 45.14--Correcting Errors in Swap Data and Verification of Swap
Data Accuracy
1. Background and Summary of the Final Rule
Pursuant to CEA section 2(a)(13)(G), all swaps must be reported to
an SDR.\244\ The requirements for reporting swaps to an SDR, including
requirements regarding swap data, are set forth in part 45 of the
Commission's regulations.\245\ If the information for a specific data
element that is required to be reported is incorrect, or swap data was
not reported as required, the SEF, DCM, DCO, or reporting counterparty
that was required to report has not satisfied its obligations under the
Act and the Commission's regulations. There is no expiration for the
requirement in the CEA and the Commission's regulations to report
swaps, and therefore, the requirement to report swap data remains in
effect until satisfied. Accordingly, if swap data is not completely and
accurately reported, the obligation to report the swap data remains in
effect. The Commission also interprets the statutory requirement to
report swaps to include a requirement to ensure that the reporting was
performed completely and accurately. Further, as discussed in section
II.G above, CEA section 21(c)(2) requires SDRs to confirm the accuracy
of swap data with both counterparties. The Commission interprets this
provision to require each counterparty to participate in ensuring the
completeness and accuracy of swap data.
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\244\ 7 U.S.C. 2(a)(13)(g).
\245\ See generally 17 CFR part 45.
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Accordingly, in order to ensure the high quality of swap data, the
Commission is adopting the proposed rules, with modifications, to
require counterparties to take steps to ensure the accuracy and
completeness of swap data reported to SDRs. In response to comments,
the Commission is modifying final Sec. 45.14 to make the error-
correction and verification processes less burdensome and more flexible
than the processes set forth in proposed Sec. 45.14. To this end,
final Sec. 45.14(a)(1), as does current Sec. 45.14, requires each
SEF, DCM, and reporting counterparty to correct errors \246\ relating
to swap data that it was required to report under part 45. Further,
final Sec. 45.14(b) requires reporting counterparties to verify the
accuracy and completeness of the swap data for their open swaps. Final
Sec. 45.14(a)(2) requires each non-reporting
[[Page 75627]]
counterparty to notify the reporting counterparty if it discovers an
error.
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\246\ The Commission notes that current Sec. 45.14 and proposed
Sec. 45.14 both use the phrases ``errors and omissions'' and
``errors or omissions'' in the correction requirements. See
generally 17 CFR 45.14 and Proposal at 21098-99. The Commission is
not including the word ``omission'' in final Sec. 45.14 for
simplicity purposes, but the Commission emphasizes that all
omissions of required swap data, whether the omissions are the
failure to report individual data elements for a swap or the failure
to report all swap data for a swap, are errors that must be
corrected under final Sec. 45.14, just as the omissions must be
corrected under current Sec. 45.14. The Commission makes clear in
final Sec. 45.14(c), discussed below, that all omissions of
required swap data are errors under final Sec. 45.14.
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Final Sec. 45.14(a)(1) provides that any SEF, DCM, or reporting
counterparty that by any means \247\ becomes aware of any error
relating to swap data that it was required to report under part 45 must
correct the error. This correction requirement includes swap data for a
swap that has terminated, matured, or otherwise is no longer considered
to be an open swap. As noted, there is no expiration on the requirement
to report swaps, and the requirement includes all swaps regardless of
the state of the swap.
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\247\ The Commission notes that, as explained in the Proposal,
``by any means'' includes absolutely any means that alerts a SEF,
DCM, or reporting counterparty to an error in the relevant swap
data. Awareness or discovery of errors to be corrected would
include, but would not be limited to, errors present in the swap
data during the verification process specified in final Sec.
45.14(b). This would include swap data for any open swaps that
should be present in the swap data accessible through the applicable
SDR verification mechanism that are omitted, or swap data for swaps
that are no longer open that is still accessible through the
verification mechanism, in addition to any other errors in the swap
data accessible through the verification mechanism. The requirement
would also include, but is not limited to, a SEF, DCM, or reporting
counterparty being informed of errors by an outside source, such as
a non-reporting counterparty under final Sec. 45.14(a)(2), a SEF or
DCM, or the Commission; errors discovered by a SEF, DCM, or
reporting counterparty during a review of its own records or a
voluntary review of swap data maintained by the SDR, including the
discovery of any over-reporting or under-reporting of swap data; and
the discovery of errors during the investigation of a separate
issue. The Commission also expects that a SEF, DCM, or reporting
counterparty that repeatedly discovers errors, especially repeated
errors that follow a pattern, such as the reporting for a certain
type of swap regularly resulting in errors, would evaluate its
reporting systems to discover and correct any issues. See Proposal
at 21069-70.
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However, final Sec. 45.14(a)(3) provides that the error correction
requirement in final Sec. 45.14(a)(1) does not apply to swaps for
which the record retention periods under Sec. 45.2 of this part have
expired as of the time that the errors are discovered. The Commission
determined that this exclusion is appropriate, as SEFs, DCMs, and
reporting counterparties are not required to maintain records related
to their swaps beyond the applicable retention periods in Sec. 45.2.
The exclusion therefore removes any potential confusion as to the
correction of swaps beyond the retention period for these swaps. The
Commission further notes that, with the adoption of the verification
requirement, the Commission expects that errors will generally be
discovered during the record retention period and the exclusion will
not have a significant impact on the accuracy of swap data for future
swaps. The Commission emphasizes that a SEF, DCM, or reporting
counterparty may not in any way attempt to avoid ``discovering''
errors, including, but not limited to, by not performing thorough
verification as required under final Sec. 45.14(b).
Final Sec. 45.14(a)(1)(i) provides that corrections must be made
as soon as technologically practicable after discovery of an error. In
all cases, errors must be corrected within seven business days after
discovery. This deadline is necessary to ensure that errors are
corrected in a timely manner. Final Sec. 45.14(a)(1)(ii) provides that
if an error will not be corrected in a timely fashion, the entity
required to correct must notify the Director of DMO, or such other
employee or employees of the Commission as the Director may designate
from time to time, of the error. The notification must be made within
twelve hours of when the determination is made that the error will not
be corrected in time. This notification requirement is necessary to
alert the Commission to problems with the quality of swap data. The
notification must be made according to the instructions that will be
specified by the Director of DMO, or such other employee or employees
of the Commission as the Director may designate from time to time. The
notification must generally include an initial assessment of the scope
of the error or errors. If an initial remediation plan exists, the
notification must include the initial remediation plan as well.\248\
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\248\ The Commission notes that, while final Sec.
45.14(a)(1)(ii) only requires the entity to provide an initial
remediation plan with the notice if such a plan exists, the
Commission may also request additional information regarding any
error(s) and the correction process at any time, including
requesting an updated or fully-developed remediation plan.
---------------------------------------------------------------------------
Final Sec. 45.14(b) requires each reporting counterparty to verify
the accuracy and completeness of swap data for all of its open swaps.
To perform verification, each reporting counterparty must utilize the
mechanism adopted for verification under Sec. 49.11 by each SDR the
reporting counterparty uses for swap data reporting. Each reporting
counterparty must use the relevant SDR mechanism to compare all swap
data for each open swap that is maintained by the SDR for which it is
the reporting counterparty with all swap data contained in the
reporting counterparty's internal books and records to verify that
there are no errors.
Final Sec. 45.14(a)(1)(i) provides that any error that is
discovered or could have been discovered during the performance of the
verification process is considered discovered as of the moment the
verification process began, and the error must be corrected
accordingly. The Commission determined that this rule is necessary in
order to ensure that reporting counterparties diligently perform
verification.
Under final Sec. 45.14(b)(1) and final Sec. 49.11(b)(2), the
verification requirement entails verifying that there are no errors for
each data field for each open swap that the reporting counterparty was
required to report under this part. The Commission determined that all
swap data is relevant, and that none of the data that the Commission
requires to be reported is unnecessary. All swap data fields are
necessary to ensure the quality of all swap data available to the
Commission, which the Commission uses to fully perform its regulatory
mission. Accordingly, the verification requirement applies to all
reporting counterparties, for all open swaps, and for each required
data element. However, the Commission determined that it is only
necessary for reporting counterparties to verify that there are no
errors in the up-to-date swap data for each data field that is required
to be reported under part 45 of this chapter, and it is unnecessary to
require verification of data reporting messages. Accordingly, SDRs are
only required to make available to reporting counterparties the most
current swap data the SDR maintains using the verification mechanism,
as discussed above in II.G, and reporting counterparties are only
required to verify using the swap data available through this mechanism
under final Sec. 45.14(b).
Final Sec. 45.14(b)(4) provides the minimum frequency at which a
reporting counterparty must perform verification. A reporting
counterparty that is an SD, MSP, or DCO, must perform verification once
every thirty calendar days. All other reporting counterparties must
perform verification once every calendar quarter, provided that there
are at least two calendar months between verifications.
The Commission determined that these time frames are sufficient to
ensure the quality of swap data because SDs, MSPs, and DCOs serve as
reporting counterparties for the overwhelming majority of swap
data,\249\ meaning the overwhelming majority of open swaps would be
verified on a monthly basis.
[[Page 75628]]
The Commission also believes that non-SD/MSP/DCO reporting
counterparties may include various entities that would bear a
significant burden to verify swap data more often than quarterly,
without a corresponding increase in data quality, because these
entities are more likely to not have the same resources and experience
to devote to verification as SD/MSP/DCO reporting counterparties and
are only responsible for verifying a small proportion of swaps. The
Commission further determined that final Sec. 45.14(b)(4)(ii)
requiring a duration of at least two calendar months between quarterly
verifications for non-SD/MSP/DCO reporting counterparties is necessary
to ensure that there is sufficient time between verifications to
adequately ensure data quality.
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\249\ See De Minimis Exception to the Swap Dealer Definition, 83
FR 56666, 56674 (Nov. 13, 2018) (stating that, in 2017,
approximately 98 percent of swap transactions involved at least one
registered SD).
---------------------------------------------------------------------------
Under final Sec. 45.14(b), a reporting counterparty is not
required to notify the relevant SDR regarding the result of a
verification,\250\ as was required under proposed Sec. 45.14(a).\251\
The Commission determined that in order to ensure the quality of swap
data, it is sufficient for the Commission to have the ability to
confirm that verification was performed timely and properly, and to
enforce the verification and error correction requirements. Therefore,
the notification of the result of a verification is not necessary to
ensure data quality or to fulfill the SDR's obligation to confirm the
accuracy of data under CEA section 21. Accordingly, final Sec.
45.14(b)(5) requires each reporting counterparty to keep a log of each
verification that it performs. The log must include all errors
discovered during the verification, as well as the corrections made
under final Sec. 45.14(a). Final Sec. 45.14(b)(5) further clarifies
that the requirement to keep a verification log is in addition to all
other applicable recordkeeping requirements.
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\250\ However, as noted, under final Sec. 45.14(a)(1)(i) and
final Sec. 45.14(b)(3), if the reporting counterparty discovered,
or could have discovered, an error, the reporting counterparty is
required to correct the error under final Sec. 45.14(a)(1).
\251\ See Proposal at 21099.
---------------------------------------------------------------------------
Non-reporting counterparties must also participate in ensuring that
errors in swap data are corrected, although to a much smaller degree
than reporting counterparties. Final Sec. 45.14(a)(2) provides that a
non-reporting counterparty that by any means discovers an error must
notify the reporting counterparty of the error. The notification must
be made as soon as technologically practicable after discovery, but not
later than three business days following discovery of the error. The
Commission notes that non-reporting counterparties are not required to
verify swap data, and that the notification only needs to include the
errors that the non-reporting counterparty discovers. To the extent
that an error exists, the reporting counterparty will be required to
correct the error under the requirements of final Sec. 45.14(a)(1).
The Commission determined that this notification requirement is
necessary to ensure the quality of swap data. The Commission further
determined that the three-business-day notification deadline is
necessary to ensure that the non-reporting counterparty will notify the
reporting counterparty of errors in a timely manner.
The Commission recognizes that a non-reporting counterparty may not
know the identity of the reporting counterparty. Accordingly, Sec.
45.14(a)(2) provides that when the non-reporting counterparty does not
know the identity of the reporting counterparty, the non-reporting
counterparty must notify the SEF or DCM where the swap was executed of
the error in the same time frame for notifying the reporting
counterparty. Such notification constitutes discovery of the error for
the SEF or DCM for purpose of the SEF's or DCM's error correction
requirement under final Sec. 45.14(a).
Errors are described in final Sec. 45.14(c), which provides that
for the purposes of Sec. 45.14, there is an error when swap data is
not completely and accurately reported. Under final Sec. 45.14(c)(1),
errors include, but are not limited to, where swap data is reported to
an SDR, or is maintained by an SDR, containing incorrect information
(i.e. the swap data is present, but is incorrect); where some required
swap data for a swap is reported to an SDR, or is maintained by an SDR,
and other required swap data is omitted (i.e. some required swap data
elements are blank); where no required swap data for a swap is reported
to an SDR, or maintained by an SDR, at all (i.e. none of the swap data
was reported as required and/or is missing from the SDR); and where
swap data for swaps that are no longer open is maintained by an SDR as
if the swaps are still open (i.e., swap data for swaps that are no
longer open swaps is still available during the verification
process).\252\ In each of these circumstances, among others, swap data
is not complete and accurate.
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\252\ The Commission notes that for each of these examples the
entity responsible for the error may or may not be the entity that
is required to correct the error. For example, if an SDR fails to
record swap data that a reporting counterparty properly reported, it
will still be the reporting counterparty that reports the error. The
Commission emphasizes that the error correction process is one
overarching requirement intended to result in accurate and complete
swap data, regardless of the entities involved and their respective
roles in any particular error correction. The SEFs, DCMs, and
reporting counterparties have the responsibility to correct errors
to the SDR once they are discovered, even if the SEF, DCM, or
reporting counterparty is not at fault for the error, which is an
independent responsibility from the responsibility to successfully
report or maintain swap data. The Commission would endeavor to hold
the entity responsible for the reporting error accountable for the
failure to correctly report or maintain the erroneous swap data, as
applicable, regardless of which entity corrects the error under
final Sec. 45.14.
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Under Sec. 45.14(c)(2), there is a presumption that, for the
purposes of Sec. 45.14, an error exists if the swap data that is
maintained and disseminated by an SDR for a swap is not complete and
accurate. The Commission determined that this presumption is necessary
because the swap data maintained and disseminated by the SDRs is the
same as the swap data available to the Commission and it is necessary
to ensure the accuracy of that swap data for the Commission's
regulatory purposes. Further, the presumption that the swap data
maintained and disseminated by SDRs is the same as the swap data that
was reported is implicit in the structure of swap data reporting under
CEA section 21. Under CEA section 21(c)(4) and (7), an SDR is required
to make the swap data it maintains available to the Commission and to
certain other regulators. This requirement only serves its purpose if
there is a presumption that the swap data maintained by the SDR is the
same as the swap data that was reported to the SDR.
2. Comments on the Proposal
The Commission received a number of comments on the Proposal
recommending limitations on the scope of the error correction rules.
Comments recommended that the error correction rules should only apply
to open swaps \253\ or that error correction rules should only apply in
a limited fashion to swaps that are not open.\254\ These comments
included recommendations to add a materiality threshold to the
requirement to correct errors for swaps that are not open; \255\ to
limit the requirement to correct errors to specific data elements, such
as counterparty, price, and product; \256\ to limit the requirement to
correct errors to errors that are discovered within the relevant record
retention period for the swap; \257\ and to limit the requirement to
correct errors to certain reporting counterparties.\258\
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\253\ FIA at 9; Chatham at 4-5.
\254\ ISDA/SIFMA at 46; FIA at 9.
\255\ CS at 3.
\256\ ISDA/SIFMA at 47; FIA at 9.
\257\ Id.
\258\ Joint Associations at 10-12.
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[[Page 75629]]
The Commission generally does not agree with the recommendations to
exclude swaps that are no longer open from the full requirement to
correct errors. There is no expiration in the CEA and the Commission's
regulations on the requirement to report swap data. If there is an
error in the reporting of swap data, the reporting counterparty has not
fulfilled its requirement to report swap data. Further, the Commission
utilizes data regarding swaps that are no longer open in a variety of
ways, including in its market and economic analyses and in its
enforcement and administration of the provisions of the CEA. It is
therefore necessary to ensure that swap data for these swaps does not
contain errors. Although the Commission is limiting the verification
requirements to open swaps, the Commission is doing so because the
verification of swaps that are no longer open is not as practicable as
with open swaps, not because it is unnecessary to ensure that swap data
from these swaps is free from error.
The Commission similarly declines to accept recommendations to
limit the scope of the error correction rules by adopting a materiality
requirement, or by limiting the application of the rules to only
certain data elements. A reporting counterparty does not satisfy the
requirement to report swap data until all required elements are
accurately reported. Further, all the required swap data elements are
significant and required in order for the Commission to perform its
regulatory functions. As a result, it is necessary for the Commission
to ensure that the swap data for every data element is accurate.
However, the Commission agrees with the recommendation to exclude
errors that are discovered after the expiration of the relevant
recordkeeping requirement. The Commission recognizes that it would be
impracticable for SEFs, DCMs, and reporting counterparties to be
required to correct such errors, as these entities are not required to
keep records of swap data beyond the applicable retention periods, and
these records would be necessary to discover and correct errors.
Accordingly, final Sec. 45.14(a)(3) excludes such errors from the
error correction requirement.
The Proposal provided that errors must be corrected as soon as
technologically practicable after discovery, but no later than three
business days after discovery.\259\ The Proposal, like final Sec.
45.14(a)(1)(ii), also included a requirement to notify the Director of
DMO if an error will not be timely corrected.\260\ The Commission
received a number of comments on these rules. Comments generally
recommended limiting the notification requirement by expanding the time
frame to correct errors.\261\ Comments also stated that three business
days may not be sufficient time to identify the scope of the errors and
develop a remediation plan.\262\ Other comments recommended including a
materiality threshold to the notification requirement,\263\ and
adopting a principles-based rule that would provide greater flexibility
regarding the deadline for correcting errors.\264\ Other comments
recommended not adopting the three-day deadline and the notification
requirement,\265\ and instead replacing the notification requirement
with a requirement to maintain a log of errors and remediation and only
require notification for material errors and only after ``due review of
the facts and circumstances.'' \266\
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\259\ See Proposal at 21099 (proposed Sec. 45.14(b)(1)(i)).
\260\ See id. (proposed Sec. 45.14(b)(1)(ii)).
\261\ See, e.g., CEWG at 5.
\262\ Id.; ISDA/SIFMA at 46.
\263\ Id. at 5-6.
\264\ ICE Clear at 3-4.
\265\ FIA at 8; Joint Associations at 13.
\266\ ISDA/SIFMA at 46.
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The Commission does not agree with the recommendations to replace
or not adopt the notification requirement. The purpose of the
notification requirement is to provide the Commission with the
information that it needs to assess the accuracy of swap data. The
notification requirement is not punitive. However, to make the
notification more useful to the Commission, the Commission accepts the
recommendation for a longer notification time frame and final Sec.
45.14(a)(1)(ii) extends the notification deadline for correcting errors
to seven business days. This longer time frame will provide the entity
making the correction time to develop a more accurate understanding of
the scope of the error. The Commission also agrees with the
recommendations that it may not be feasible in every case to develop an
initial remediation plan. Accordingly, final Sec. 45.14(a)(1)(ii)
provides that the notification needs to include the initial remediation
plan, but only if one exists.\267\
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\267\ The current common practice for market participants is to
notify DMO after discovering reporting errors and to develop a
remediation plan once a solution for the errors is formulated. The
Commission expects that this practice will continue, but notes that
final Sec. 45.14(a)(1)(ii) does not require the notification of the
failure to timely correct an error to include an initial remediation
plan if one does not yet exist.
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The Commission received several comments recommending against
requiring reporting counterparties to verify their swap data. Several
commenters stated that improving SDR validations and the required data
elements is a more efficient way to increase data accuracy than the
proposed verification rules.\268\ Other commenters stated that
verification is unnecessary because it would only marginally improve
the data accuracy, and the burden on reporting counterparties outweighs
that marginal gain.\269\ Other commenters stated that verification is
unnecessary because the extent of errors in swap data is unknown.\270\
The Commission also received several comments generally supporting the
proposed verification rule, asserting that it will help to ensure the
high quality of swap data.\271\
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\268\ Chatham at 6; FIA at 7-8; ICE TV at 2-4; NGSA at 4; Joint
Associations at 6-10; Eurex at 2; CEWG at 2-3.
\269\ FIA at 2-3.
\270\ Chatham at 5; GIFMA at 14.
\271\ Joint SDR at 1; IATP at 1-7; LCH at 4; Markit at 2.
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The Commission does not agree with the recommendations against
requiring verification. As noted above, the Commission interprets the
requirement to report data to an SDR in section 2(a)(13)(G) of the CEA
to include a requirement that the reporting counterparty verifies that
it accurately complied with the requirement. The Commission also
interprets the requirement in section 21(c)(2) of the CEA for SDRs to
confirm the accuracy of reported data with the counterparties to also
include a requirement for counterparties to participate in ensuring the
swap data accuracy, as not including counterparties in the confirmation
process would render the statutory requirement useless. The purpose of
the verification requirement is to ensure the quality of swap data, as
required by the Act. Improving SDR validations and standardizing the
data elements alone will not accomplish this, because a swap data error
that is still a plausible value, such as reporting a notional value of
$1,000,000 instead of the correct notional value of $10,000,000, would
not be caught by validations. Only a review of the swap data by the
counterparty that is responsible for reporting the swap data would
catch this error.
Additionally, the Commission has ample experience with the
existence of swap data errors that would pass validations that, in the
absence of an adequate verification requirement, persisted for long
periods of time before being discovered and corrected. The Commission
cannot know the precise nature and scope of existing errors that have
not been corrected, which the
[[Page 75630]]
verification requirement is designed to address, because the errors are
not obvious from the swap data and will not be knowable to the
Commission unless and until they are discovered and corrected. However,
based on its experience, the Commission has determined that data
quality can be further improved by requiring verification, and doing so
is consistent with the requirements in the Act to report swap data and
to verify the accuracy of the reported swap data.
The Commission also received comments regarding which
counterparties should be required to perform verifications. Comments
recommended excluding specific reporting counterparties, including end
users with centralized trading structures,\272\ non-bank SDs and
reporting counterparties that are not SDs or MSPs,\273\ ``unregistered
end users,'' \274\ reporting counterparties that report less than
fifty-one swaps per month,\275\ and DCOs.\276\ The Commission rejects
these recommendations to exempt any classes of reporting counterparties
from verification. As noted, the requirement under section 2(a)(13)(G)
of the CEA to verify that swap data was reported correctly and the
requirement under section 21(c)(2) to confirm the accuracy of swap data
applies to all reporting counterparties, regardless of size,
registration status, type, or how frequently the reporting counterparty
report swaps. All reporting counterparties are, by definition, also
users of at least one SDR and are fully capable of communicating with
an SDR to report swap data and correct swap data as required, whether
directly or through the use of a third-party service provider, and are
also therefore fully capable of verifying swap data through an SDR-
provided mechanism, as required by final Sec. 45.14(b). Further, all
swap data for all swaps is significant, material, and important for the
Commission's performance of its regulatory responsibilities.
Verification is necessary to ensure that the swap data is free from
errors, and every reporting counterparty performing verification as
required is essential to rooting out swap data errors.
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\272\ Prudential at 1-2.
\273\ NGSA at 1-4.
\274\ Freddie Mac at 2.
\275\ COPE at 3.
\276\ lCH at 3-4; ICE Clear at 2.
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The Commission notes that although CEA section 21(c)(2) also
includes non-reporting counterparties in the obligation to confirm the
accuracy of reported swap data, the Commission determined that it is
unnecessary to require non-reporting counterparties to perform
verification. The Act places the burden of reporting on the reporting
counterparty, and, as the only counterparty with swap data reporting
responsibilities, the reporting counterparty is best positioned to
perform verification. Commenters generally supported this
determination.\277\ Comments stated that non-reporting counterparties
will generally not be able to communicate with the relevant SDR(s), and
that it will be very uncommon for there to be discrepancies between the
data maintained by the reporting counterparty and the non-reporting
counterparty, such that the reporting counterparty's verification is
sufficient to ensure the quality of swap data.\278\
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\277\ Joint Associations at 13; ISDA/SIFMA at 39; Chatham at 1-
2; COPE at 2; Joint SDR at 2; ICI at 10-11.
\278\ GIFMA at 4; Chatham at 1-2.
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The Commission also received comments recommending changes to the
proposed verification rule. The proposed rule required reporting
counterparties that are SDs, MSPs, or DCOs to perform verification
weekly and all other reporting counterparties to perform verification
monthly.\279\ Instead, commenters recommended adopting a rule that
would require verification to be performed less frequently. One
suggested alternative was to adopt a more ``principles based''
approach, under which reporting counterparties would periodically
perform verification less frequently than the proposed rule
required.\280\ One comment recommended that verification should only be
required to be performed monthly by all reporting counterparties.\281\
Another comment recommended that verification should only be required
to be performed monthly by reporting counterparties that are SDs, and
quarterly by all other reporting counterparties.\282\ The Commission
accepts the recommendation that it is not necessary for verification to
be performed with the frequency of the Proposal in order to meet the
Commission's swap data quality needs. Accordingly, final Sec.
45.14(b)(4) provides that a reporting counterparty that is an SD, MSP
or DCO must perform verification once every thirty calendar days, and
all other reporting counterparties must perform verification once every
calendar quarter, provided that there are at least two calendar months
between the quarterly verifications.
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\279\ Proposal at 84 FR 21103 (May 13, 2019).
\280\ CS at 3; FIA at 7-8; ISDA/SIFMA at 45.
\281\ GIFMA at 5.
\282\ ISDA/SIFMA at 45.
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The Commission also received comments on the scope of the data that
must be verified. The verification rule in the Proposal would apply to
all required swap data fields for all open swaps.\283\ The Commission
received comments in support of limiting the verification requirement
to only the required swap data elements and not to all swap data
messages.\284\ The Commission also received a comment recommending that
the verification rule should be limited to specific data elements, such
as economic terms.\285\
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\283\ Proposal at 21098, 21103.
\284\ GIFMA at 4-6; ISDA/SIFMA at 40-41; IATP at 5.
\285\ GIFMA at 10.
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The Commission declines to accept the recommendation to limit the
scope of the verification requirement. Every data field that is
required to be reported to the Commission is significant and necessary
for the Commission's performance of its regulatory responsibilities,
and to ensure the quality of all swap data.
One comment recommended limiting the verification requirement to
once per swap, meaning that once swap data for a particular swap has
been verified, the reporting counterparty no longer is required to
verify the data for that swap.\286\ The Commission does not agree with
this recommendation. Swap data is often updated frequently through
continuation data reporting, including lifecycle event reporting and
valuation reporting, and errors can occur throughout the life of the
swap. Regular verification of open swaps is necessary to ensure that
the swap data for each open swap remains free from errors throughout
the life of the swap.
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\286\ ISDA/SIFMA at 45.
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The Commission also received comments regarding the requirements on
non-reporting counterparties to ensure that swap data is free from
errors. Comments supported excluding non-reporting counterparties from
the verification requirements.\287\ Comments also supported not
requiring non-reporting counterparties to submit error corrections to
SDRs.\288\ The Commission received one comment recommending against
requiring a non-reporting counterparty to notify the reporting
counterparty when it discovers an error.\289\ The Commission does not
agree with this recommendation. The confirmation requirement in CEA
[[Page 75631]]
section 21(c)(2) requires both counterparties to confirm the accuracy
of swap data. The Commission has excluded non-reporting counterparties
from the requirement to verify swap data, but if a non-reporting
counterparty discovers an error, it must take steps to correct the
error by notify the reporting counterparty.
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\287\ Joint Associations at 13; ISDA/SIFMA at 39; Chatham at 1-
2; COPE at 2; Joint SDR at 2; ICI at 10-11.
\288\ COPE at 2.
\289\ Joint Associations at 13.
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The Commission also received comments on the proposed Sec.
45.14(b)(2),which provided, in part, that a reporting counterparty,
SEF, or DCM that is notified of an error by a non-reporting
counterparty is only required to correct the error if it agrees with
the non-reporting counterparty that an error exists.\290\ Comments
recommended against adopting the requirement that the non-reporting
counterparty and the reporting counterparty, SEF, or DCM must agree to
the error,\291\ and comments requested that the requirement be
clarified.\292\
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\290\ CEWG at 5, Joint Associations at 13.
\291\ Joint Associations at 13.
\292\ CEWG at 5.
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The Commission is not adopting the requirement. Final Sec.
45.14(a) explicitly applies to errors regardless of the how the SEF,
DCM, or reporting counterparty becomes aware of the error. If the non-
reporting counterparty notifies the reporting counterparty of the
error, and the SEF, DCM, or reporting counterparty disagrees that there
is an error, then the SEF, DCM, or reporting counterparty has not
discovered an error and there is nothing to correct. The Commission
does however note that a SEF, DCM, or reporting counterparty refusing
to acknowledge an error that does exist, and therefore not correcting
the error, would violate the Commission's regulations.
IV. Amendments to Part 43
A. Sec. 43.3(e)--Correction of Errors
The Commission is adopting proposed Sec. 43.3(e), with
modifications. Final Sec. 43.3(e) is identical in substance to Sec.
45.14(a), described in III.B, above, except that Sec. 45.14(a)
provides the rules for correcting errors \293\ in swap data, while
Sec. 43.3(e) provides the rules for correcting errors in swap
transaction and pricing data. As in Sec. 45.14(a), Sec. 43.3(e)
generally requires each SEF, DCM, and reporting counterparty to correct
any error it discovers, including for swaps that are no longer open.
The Commission notes that, although market participants generally treat
the current error correction requirements in Sec. 43.3(e) and Sec.
45.14 as if they are consistent, existing Sec. Sec. 43.3(e) and 45.14
do not share consistent terminology and style. In addition to the
substantive amendments and rules that are described above in section
III.C, the Commission determined that the terminology and style of the
error correction rules final Sec. Sec. 45.14(a) and 43.3(e) should be
consistent. This will add clarity to the error correction requirements,
which may result in increased compliance. The Commission received
numerous comments on the proposed amendments to the error correction
rules The Commission did not receive any comments that apply only to
Sec. 43.3(e), and is assessing all comments on error correction as if
they apply equally to both Sec. Sec. 43.3(e) and 45.14(a).\294\ The
comments are described above in section III.C.
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\293\ The Commission notes that, as with final Sec. 45.14,
current Sec. 43.3(e) and proposed Sec. 43.3(e) both use the
phrases ``errors and omissions'' and ``errors or omissions'' in the
correction requirements. See generally 17 CFR 43.3(e) and Proposal
at 84 FR 21097-98 (May 13, 2019). The Commission is not including
the word ``omission'' in final Sec. 43.3(e) for simplicity
purposes, but the Commission emphasizes that all omissions of
required swap transaction and pricing data, whether the omissions
are the failure to report individual data elements for a swap or the
failure to report all swap transaction and pricing data for a swap,
are errors that must be corrected under final Sec. 43.3(e), just as
the omissions must be corrected under current Sec. 43.3(e). The
Commission makes clear in final Sec. 43.3(e)(4) that all omissions
of required swap data are errors under final Sec. 43.3(e).
\294\ See e.g., ISDA/SIFMA at 47 (``Refer to responses above for
proposed Sec. 45.14 which also apply similarly to Sec. 43.3.'').
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B. Removal of Sec. 43.3(f) and (g)
Current Sec. 43.3(f) and (g) set forth the operating hours
requirements for SDRs.\295\ As discussed above, the Commission proposed
to remove Sec. 43.3(f) and (g) and to incorporate the provisions in
new Sec. 49.28.\296\ The Commission believes these provisions are
better placed in part 49 of this chapter because they address SDR
operations and, as amended, final Sec. 49.28 applies to all SDR data
and also incorporates provisions from SBSDR operating hours
requirements. Accordingly, the Commission is adopting the proposed
removal of Sec. 43.3(f) and (g).
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\295\ 17 CFR 43.3(f) and (g).
\296\ See section II.S above. Current Sec. 43.3(f) contains the
hours of operations requirements and current Sec. 43.3(g) contains
the requirements for SDRs to accept swap transaction and pricing
data during closing hours.
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V. Amendments to Part 23
Sec. 23.204--Reports to Swap Data Repositories, and Sec. 23.205--
Real-Time Public Reporting
The Commission proposed additions to Sec. Sec. 23.204 and 23.205
of the Commission's regulations. The proposed additions would require
each SD and MSP to establish, maintain, enforce, review, and update as
needed written policies and procedures that are reasonably designed to
ensure that the SD or MSP complies with all obligations to report swap
data to an SDR, consistent with parts 43 and 45. The Proposal noted
that pursuant to other Commission regulations, SDs and MSPs are already
expected to establish policies and procedures related to their swap
market activities, including but not limited to, swaps reporting
obligations.\297\ The Commission proposed to make this expectation
explicit with respect to swaps reporting obligations. Commenters
recommended that the Commission take a less prescriptive approach than
the Proposal, and noted that it is unnecessary to add specificity for
swaps reporting obligations for data reporting policies and
procedures.\298\ The Commission notes that existing Sec. Sec. 23.204
and 23.205 require SDs and MSPs to report all swap data and swap
transaction and pricing data they are required to report under parts 43
and 45, and to have in place the electronic systems and procedures
necessary to transmit electronically all such information and
data.\299\ As noted above, these requirements are encompassed by the
existing requirement that SDs and MSPs establish policies and
procedures. Therefore, the Commission agrees with the comments and
determines that it is unnecessary to make the proposed additions.
Accordingly, the Commission does not adopt any amendments to Sec.
23.204 or 23.205.
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\297\ See, e.g., 17 CFR 3.3(d)(1) (requiring a chief compliance
officer to administer each of the registrant's policies and
procedures relating to its business as an SD/MSP that are required
to be establish pursuant to the Act and the Commission's
regulations); 17 CFR 3.2(c)(3)(ii) (requiring the National Futures
Association to assess whether an entity's SD/MSP documentation
demonstrates compliance with the Section 4s Implementing Regulation
to which it pertains, which includes Sec. 23.204 and Sec. 23.205).
\298\ ISDA/SIFMA at 48; GFMA at 12.
\299\ 17 CFR 23.204, 23.205.
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VI. Compliance Date
In the Proposal, the Commission stated that it intended to provide
a unified compliance date for all three of the Roadmap rulemakings
because all three must work in tandem to achieve the Commission's
goals.\300\ The Commission also stated its intention to provide
sufficient time for market participants to implement the changes in the
rulemakings prior to the
[[Page 75632]]
compliance date.\301\ The Commission is adopting a unified compliance
date for all three Roadmap rulemakings, May 25, 2022, unless otherwise
noted.
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\300\ Proposal at 84 FR 21046 (May 13, 2019).
\301\ Id.
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The Commission received comments recommending a staggered
implementation period instead of a unified one,\302\ comments
supporting an implementation period of one year,\303\ and a comment
stating that one year is insufficient and recommending a compliance
date that allows for a two-year implementation period.\304\ The
Commission disagrees with comments recommending a staggered
implementation period. The various rules in the Roadmap rulemakings,
including verification and error correction, address different
compliance areas and will achieve the overall goal of improved data
quality only by working in tandem. The Commission agrees with the
comment recommending an implementation period longer than a year, but
the Commission disagrees that the implementation period should extend
for two years. The amendments and additions in these final rules, as
well as the related Roadmap rulemakings, are critical steps in
implementing the requirements of the Act and ensuring high quality swap
data. Accordingly, the Commission believes that an implementation
period longer than eighteen months is unwarranted and to ensure that
all market participants have sufficient time to implement the changes
required in these rulemakings, the Commission has determined to provide
an eighteen month implementation period.
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\302\ GFMA at 13; GFXD at 35.
\303\ ISDSA/SIFMA at 36; LCH at 2 and 4; ICE SDR at 2 and 5.
\304\ FIA at 10-11.
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VII. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires federal agencies,
in promulgating rules, to consider the impact of those rules on small
entities.\305\ The Commission has previously established certain
definitions of ``small entities'' to be used by the Commission in
evaluating the impact of its rules on small entities in accordance with
the RFA.\306\ The changes to parts 43, 45, and 49 adopted herein would
have a direct effect on the operations of DCMs, DCOs, MSPs, reporting
counterparties, SDs, SDRs, and SEFs. The Commission has previously
certified that DCMs,\307\ DCOs,\308\ MSPs,\309\ SDs,\310\ SDRs \311\,
and SEFs \312\ are not small entities for purpose of the RFA.
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\305\ See 5 U.S.C. 601 et seq.
\306\ See Policy Statement and Establishment of ``Small
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR
18618 (Apr. 30, 1982).
\307\ See id.
\308\ See Derivatives Clearing Organization General Provisions
and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011).
\309\ See Swap Dealer and Major Swap Participant Recordkeeping,
Reporting, and Duties Rules, 77 FR 20128, 20194 (Apr. 3, 2012)
(basing determination in part on minimum capital requirements).
\310\ See Swap Trading Relationship Documentation Requirements
for Swap Dealers and Major Swap Participants, 76 FR 6715 (Feb. 8,
2011).
\311\ See Swap Data Repositories; Proposed Rule, 75 FR 80898,
80926 (Dec. 23, 2010) (basing determination in part on the central
role of SDRs in swaps reporting regime, and on the financial
resource obligations imposed on SDRs).
\312\ Core Principles and Other Requirements for Swap Execution
Facilities, 78 FR 33476, 33548 (June 4, 2013).
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Various changes to parts 43, 45, and 49 would have a direct impact
on all reporting counterparties. These reporting counterparties may
include SDs, MSPs, DCOs, and non-SD/MSP/DCO counterparties. Regarding
whether non-SD/MSP/DCO reporting counterparties are small entities for
RFA purposes, the Commission notes that CEA section 2(e) prohibits a
person from entering into a swap unless the person is an eligible
contract participant (``ECP''), except for swaps executed on or
pursuant to the rules of a DCM.\313\ The Commission has previously
certified that ECPs are not small entities for purposes of the
RFA.\314\
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\313\ See 7 U.S.C. 2(e).
\314\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr.
25, 2001). The Commission also notes that this determination was
based on the definition of ECP as provided in the Commodity Futures
Modernization Act of 2000. The Dodd-Frank Act amended the definition
of ECP as to the threshold for individuals to qualify as ECPs,
changing ``an individual who has total assets in an amount in excess
of'' to ``an individual who has amounts invested on a discretionary
basis, the aggregate of which is in excess of . . . .'' Therefore,
the threshold for ECP status is currently higher than was in place
when the Commission certified that ECPs are not small entities for
RFA purposes, meaning that there are likely fewer entities that
could qualify as ECPs than when the Commission first made the
determination.
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The Commission has analyzed swap data reported to each SDR \315\
across all five asset classes to determine the number and identities of
non-SD/MSP/DCOs that are reporting counterparties to swaps under the
Commission's jurisdiction. A recent Commission staff review of swap
data, including swaps executed on or pursuant to the rules of a DCM,
identified nearly 1,600 non-SD/MSP/DCO reporting counterparties. Based
on its review of publicly available data, the Commission believes that
the overwhelming majority of these non-SD/MSP/DCO reporting
counterparties are either ECPs or do not meet the definition of ``small
entity'' established in the RFA. Accordingly, the Commission does not
believe the rules would affect a substantial number of small entities.
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\315\ The sample data sets varied across SDRs and asset classes
based on relative trade volumes. The sample represents data
available to the Commission for swaps executed over a period of one
month. These sample data sets captured 2,551,907 FX swaps, 98,145
credit default swaps, 357,851 commodities swaps, 603,864 equities
swaps, and 276,052 interest rate swaps.
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Based on the above analysis, the Commission does not believe that
this Final Rule will have a significant economic impact on a
substantial number of small entities. Therefore, the Chairman, on
behalf of the Commission, pursuant to 5 U.S.C. 605(b), hereby certifies
that the Final Rule will not have a significant economic impact on a
substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \316\ imposes certain
requirements on federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. The rule amendments adopted herein
will result in the revision of three information collections, as
discussed below. The Commission has previously received three control
numbers from the Office of Management and Budget (``OMB''), one for
each of the information collections impacted by this rulemaking: (1)
OMB Control Number 3038-0096 (Swap Data Reporting and Recordkeeping
Requirements), relating to part 45 swap data recordkeeping and
reporting; (2) OMB Control Number 3038-0070 (Real-Time Public Reporting
and Block Trades), relating to part 43 real-time swap transaction and
pricing data; and (3) OMB Control Number 3038-0086 (Swap Data
Repositories; Registration and Regulatory Requirements), relating to
part 49 SDR regulations. Persons otherwise required to respond to an
information collection are not required to respond to the collection of
information unless a currently valid OMB control number is displayed.
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\316\ See 44 U.S.C. 3501.
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The Commission did not receive any comments regarding its PRA
burden analysis in the preamble to the Proposal. The Commission is
revising the three information collections to reflect the adoption of
amendments to parts 43, 44, and 49, including changes to reflect
adjustments that were made to the final rules in response to comments
on the Proposal (not relating to the PRA).
[[Page 75633]]
1. Revisions to Collection 3038-0096 (Relating to Part 45 Swap Data
Recordkeeping and Reporting)
i. Sec. 45.2--Swap Recordkeeping
The Commission is adopting changes that remove paragraphs (f) and
(g) from Sec. 45.2 and move the requirements of these paragraphs to
amended Sec. 49.12. Paragraphs (f) and (g) contain recordkeeping
requirements specific to SDRs. Existing Sec. 49.12 already
incorporates the requirements of current Sec. 45.2(f) and (g), and
amended Sec. 49.12 includes the same requirements, but deleting this
requirement from Sec. 45.2 and amending Sec. 49.12 to clarify the
requirements better organizes the regulations for SDRs by locating
these SDR requirements in part 49 of the Commission's regulations.
These amendments modify collection 3038-0096 because it removes these
recordkeeping requirements from part 45 of the Commission's
regulations. The Commission estimates that moving these requirements
results in a reduction of 50 annual burden hours for each SDR in
collection 3038-0096, for a total reduction of 150 annual burden hours
across all three SDRs.
ii. Sec. 45.14--Verification of Swap Data Accuracy and Correcting
Errors and Omissions in Swap Data
Final Sec. 45.14(a) requires SEFs, DCMs, and reporting
counterparties to correct errors and omissions in swap data previously
reported to an SDR, or erroneously not reported to an SDR as required,
as soon as technologically practicable after discovery of the errors or
omissions, similar to existing Sec. 45.14. Also, similar to existing
Sec. 45.14, final Sec. 45.14(a) requires a non-reporting counterparty
to report a discovered error or omission to the relevant SEF, DCM, or
reporting counterparty as soon as technologically practicable after
discovery of the error or omission.\317\ These requirements, being
effectively the same as the requirements in existing Sec. 45.14, do
not require amendments to the collection.
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\317\ The Commission notes that final Sec. 45.14(a)(2) does add
provisions that are not present in current Sec. 45.14(a) to address
the situation where a non-reporting counterparty does not know the
identity of the reporting counterparty. The Commission does not
believe that these additions have PRA implications, as the amount of
information the non-reporting counterparty must provide and the
frequency with which it must be provided remain the same and are de
minimis. The only change is the requirement that non-reporting
counterparties inform the SEF or DCM of errors, instead of the
reporting counterparty. SEFs and DCMs have correction
responsibilities under current Sec. 45.14(b) and final Sec.
45.14(a)(2) does not change these responsibilities.
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Final Sec. 45.14(a)(1)(ii) includes the new requirement for SEFs,
DCMs, and reporting counterparties to notify the Director of DMO when
errors or omissions cannot be timely corrected and, in such case, to
provide the Director of DMO with an initial assessment of the errors
and omissions and an initial remediation plan if one exists. The
notification shall be made in the form and manner, and according to the
instructions, specified by the Director of DMO. This requirement
constitutes a new collection of information. The Commission estimates
that each SEF, DCM, and reporting counterparty will, on average need to
provide notice to the Commission under final Sec. 45.14(a)(1)(ii) once
per year and that each instance will require 6 burden hours.\318\ As
there are approximately 1,729 SEFs, DCMs, and reporting counterparties
that handle swaps, the Commission estimates an overall additional
annual hours burden of 10,374, hours related to this requirement. This
estimate is based on the Commission's experience with the current
practices of SEFs, DCMs, and reporting counterparties regarding the
reporting of errors and omissions, including the initial assessments
and remediation plans that SEFs, DCMs, and reporting counterparties
provide to the Commission under current practice. The Commission does
not anticipate any one-time, initial burdens related to final Sec.
45.14(b)(1)(ii).
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\318\ The Commission notes that, currently, it receives
significantly less than one notice and initial assessment of
reporting errors and omissions per SEF, DCM, or reporting
counterparty per year, but estimates one notice annually, as the
final requirements of Sec. 45.14(a) may reveal more reporting
errors to reporting counterparties that would then require
corrections pursuant to final Sec. 45.14(b).
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Final Sec. 45.14(b) requires all reporting counterparties to
verify the accuracy and completeness of all swap data for all open
swaps to which they are the reporting counterparty. Reporting
counterparties comply with this provision by utilizing the relevant
mechanism(s) to compare all swap data for each open swap for which it
serves as the reporting counterparty maintained by the relevant swap
data repository or repositories with all swap data contained in the
reporting counterparty's internal books and records for each swap, to
verify that there are no errors in the relevant swap data maintained by
the swap data repository. Additionally, reporting counterparties must
conform to each relevant swap data repository's verification policies
and procedures created pursuant to final Sec. 49.11. Final Sec.
45.14(b)(5) requires each reporting counterparty to keep a log of each
verification that it performs. The log must include all errors
discovered during the verification and the corrections performed under
Sec. 45.14(a). Compliance with Sec. 45.14(b) constitutes a collection
of information not currently included in collection 3038-0096, and
therefore requires a revision of that collection.
The Commission expects that compliance with Sec. 45.14(b) will
include: (1) A one-time hours burden to establish internal systems
needed to perform their verification responsibilities, and (2) an
ongoing hours burden to complete the verification process for each
report provided by an SDR.
In order to comply with the relevant SDR verification policies and
procedures as required to complete the verification process, the
Commission believes that reporting counterparties will create their own
verification systems or modify their existing connections to the SDRs.
The Commission estimates that each reporting counterparty will incur an
initial, one-time burden of 100 hours to build, test, and implement
their verification systems based on SDR instructions. This burden may
be reduced, if complying with SDR verification requirements only
requires reporting counterparties to make small modifications to their
existing SDR reporting systems, but the Commission is estimating the
burden based on the creation of a new system. The Commission also
estimates an ongoing annual burden of 10 hours per reporting
counterparty to maintain their verification systems and to make any
needed updates to verification systems to conform to any changes to SDR
verification policies and procedures. As there are approximately 1,702
reporting counterparties based on data available to the Commission, the
Commission estimates a one-time overall hours burden of 170,200 hours
to build reporting counterparty verification systems and an ongoing
annual overall hours burden of 17,020 hours to maintain the reporting
counterparty verification systems.
Under final Sec. 45.14(b)(4), SD, MSP, or DCO reporting
counterparties must perform verification once every thirty days for
each SDR where the reporting counterparty maintains any open swaps.
Non-SD/MSP/DCO reporting counterparties must perform verification once
every calendar quarter for each SDR where the reporting counterparty
maintains any opens swaps. The Commission also expects, based on
discussions with SDRs and reporting
[[Page 75634]]
counterparties, that the verification process will be largely automated
for all parties involved. The Commission estimates an average burden of
two hours per verification performed at each SDR per reporting
counterparty.
As there are 117 SDs, MSPs, or DCOs that clear swaps registered
with the Commission, the Commission estimates \319\ that these 117
reporting counterparties will, at maximum, be required to verify data
13 times per year at a maximum of 3 SDRs, for an overall additional
annual hours burden of 9,126 ongoing burden hours related to the
verification process for these reporting counterparties. The Commission
also estimates, based on data available to the Commission, that there
are 1,585 non-SD/MSP/DCO reporting counterparties.\320\ The Commission
estimates that these 1,585 reporting counterparties will be required
to, at maximum, verify data 4 times per year at a maximum of 3 SDRs,
for an overall additional annual hours burden of 38,040 burden hours
related to verification process for these reporting counterparties.
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\319\ Though there are 117 SDs, MSPs, or DCOs that clear swaps
registered with the Commission that could be a reporting
counterparty, not all potential reporting counterparties will
perform data verification for any given verification cycle. Only
those reporting counterparties with open swaps are required to
perform data verification for that verification cycle.
\320\ Though there are 1,585 non-SD/MSP/DCOs that could be a
reporting counterparty, not all potential reporting counterparties
will perform data verification for any given verification cycle.
Only those reporting counterparties with open swaps are required to
perform data verification for that verification cycle.
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The Commission therefore estimates that the overall burden for
updated Information Collection 3038-0096 will be as follows:
Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs,
SDRs, and reporting counterparties.
Estimated annual number of responses per respondent: 257,595.
Estimated total annual responses: 446,154,540.
Estimated burden hours per response: 0.005.
Estimated total annual burden hours per respondent: 1,316.
Estimated aggregate total burden hours for all respondents:
2,279,312.
2. Revisions to Collection 3038-0070 (Real-Time Transaction Reporting)
Sec. 43.3--Method and Timing for Real-Time Public Reporting
Final Sec. 43.3(e) requires SEFs, DCMs, and reporting
counterparties to correct errors and omissions in swap transaction and
pricing data as soon as technologically practicable after discovery.
Final Sec. 43.3(e) also requires a non-reporting counterparty to
report a discovered error or omission to the relevant SEF, DCM, or
reporting counterparty as soon as technologically practicable after
discovery of the error or omission. These final rules clarify the
requirements to be consistent with the requirements in final Sec.
45.14(b), but are also effectively the same as the requirements of
exiting Sec. 43.3(e).\321\ These requirements therefore do not require
amendments to the collection.
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\321\ The Commission notes that final Sec. 43.3(e)(2) does add
provisions that are not present in current Sec. 43.3(e)(1) to
address the situation where a non-reporting counterparty does not
know the identity of the reporting counterparty. The Commission does
not believe that these additions have PRA implications, as the
amount of information the non-reporting counterparty must provide
and the frequency with which it must be provided remain the same as
the current requirement and are de minimis. The only change is the
requirement that non-reporting counterparties inform the SEF or DCM
of errors, instead of the reporting counterparty. SEFs and DCMs have
correction responsibilities under current Sec. 43.3(e)(1) and final
Sec. 43.3(e)(2) does not change these responsibilities.
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Final Sec. 43.3(e)(1)(ii) includes the new requirement for SEFs,
DCMs, and reporting counterparties to notify the Director of DMO when
errors or omissions cannot be timely corrected and, in such case, to
provide the Director of DMO with an initial assessment of the errors
and omissions and an initial remediation plan if one exists. This
requirement constitutes a new collection of information. The Commission
estimates that each SEF, DCM, and reporting counterparty will, on
average need to provide notice to the Commission under final Sec.
43.3(e)(1)(ii) once per year and that each instance will require 6
burden hours.\322\ As there are approximately 1,729 SEFs, DCMs, and
reporting counterparties that handle swaps, the Commission estimates an
overall additional annual hours burden of 10,374 hours related to this
requirement. This estimate is based on the Commission's experience with
SEFs, DCMs, and reporting counterparties current practices regarding
the reporting of errors and omissions, including the initial
assessments that SEFs, DCMs, and reporting counterparties provide to
the Commission under current practice. The Commission does not
anticipate any one-time, initial burdens related to final Sec.
43.3(e)(1)(ii).
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\322\ The Commission notes that, currently, it receives
significantly less than one notice and initial assessment of
reporting errors and omissions per SEF, DCM, or reporting
counterparty per year, but estimates one notice annually, as the
final requirements of Sec. 45.14(a) may reveal more reporting
errors to reporting counterparties that would then require
corrections pursuant to final Sec. 43.3(e).
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The Commission is also removing paragraphs (f) and (g) from Sec.
43.3 in order to move the requirements of these paragraphs to final
Sec. 49.28. Paragraphs (f) and (g) contain requirements for SDRs
related to their operating hours. Final Sec. 49.28 includes all of the
current Sec. 43.3(f) and (g) requirements, and this deletion and move
is intended to better organize regulations for SDRs by locating as many
SDR requirements as possible in part 49 of the Commission's
regulations. Moving the requirements modifies collections 3038-0070 and
3038-0086 because it removes these recordkeeping requirements from part
43 of the Commission's regulations and adds them to part 49 of the
Commission's regulations. The Commission estimates that the public
notice requirements of existing Sec. 43.3(f) and (g) require SDRs to
issue three notices per year and spend five hours creating and
disseminating each notice, for a total of 15 hours annually for each
SDR, for a total of 45 annual burden hours being moved across all three
SDRs. As a result, the Commission estimates that moving these
requirements will result in a total reduction of 45 annual burden hours
for SDRs in collection 3038-0070.
The Commission therefore estimates that the total overall burdens
for updated Information Collection 3038-0070 will be as follows:
Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs,
SDRs, and reporting counterparties.
Estimated annual number of responses per respondent: 21,247.
Estimated total annual responses: 36,799,804.
Estimated burden hours per response: 0.033.
Estimated total annual burden hours per respondent: 701.
Estimated aggregate total burden hours for all respondents:
1,214,392.
3. Revisions to Collection 3038-0086 (Relating to Part 49 SDR
Regulations) 323
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\323\ The Commission is also proposing to reduce the number of
SDRs used in collection 3038-0086 to calculate burdens and costs
from 4 to 3. There are currently three SDRs provisionally registered
with the Commission. The Commission has not received any
applications for SDR registration since 2012.
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The Commission is revising collection 3038-0086 to account for
changes in certain SDR responsibilities under the final amendments to
Sec. Sec. 49.3, 49.5, 49.6, 49.9, 49.10, 49.11, and 49.26, and to the
addition of Sec. Sec. 49.28, 49.29, and 49.30. The estimated hours
burdens and costs provided below are in addition to or subtracted from
the existing hours burdens and costs in collection 3038-
[[Page 75635]]
0086. The Commission also describes a number of changes to sections
that do not have PRA implications below, for clarity.
i. Sec. 49.3--Procedures for Registration
The final amendments to Sec. 49.3(a)(5) remove the requirement for
each SDR to file an annual amendment to its Form SDR. This reduces the
PRA burden for SDRs by lowering the number of filings required for each
SDR. The Commission estimates that the PRA burden for each SDR will
remain at 15 hours per filing, but that the number of filings per year
will be reduced from three to two, meaning that the final amendments to
Sec. 49.3(a)(5) reduces the burden on SDRs by 15 hours per year, for a
total reduction of 45 annual burden hours across all three SDRs. This
estimate is based on the Commission's experience with current SDR
practices and the original supporting statement for collection 3038-
0086.\324\ The Commission does not anticipate any one-time, initial
burden changes related to final Sec. 49.3(a)(5).
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\324\ The original supporting statement for collection 3038-0086
estimated that the requirements of current Sec. 49.3(a)(5) will
necessitate three filings per year and 15 hours per filing.
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ii. Sec. 49.5--Equity Interest Transfers
The final amendments to Sec. 49.5 require SDRs to file a
notification with the Commission for each transaction involving the
direct or indirect transfer of ten percent or more of the equity
interest in the SDR within ten business days of the firm obligation to
transfer the equity interest, to provide the Commission with supporting
documentation for the transaction upon the Commission's request, and,
within two business days of the completion of the equity interest
transfer, to file a certification with the Commission that the SDR will
meet all of its obligations under the Act and the Commission's
regulations. The Commission estimates that the requirements of final
Sec. 49.5 create a burden of 15 hours per SDR for each qualifying
equity interest transfer. Equity interest transfers for SDR are rare,
so the Commission estimates that each SDR will provide information
pursuant to final Sec. 49.5 no more often than once every three years.
As a result, the estimated average annual PRA burden related to final
Sec. 49.5 is 5 hours per SDR, for a total estimated ongoing annual
burden of 15 hours total for all three SDRs. The Commission does not
anticipate any one-time, initial burdens related to final Sec. 49.5.
iii. Sec. 49.6--Request for Transfer of Registration
The final amendments to Sec. 49.6 require an SDR seeking to
transfer its registration to another legal entity due to a corporate
change to file a request for approval with the Commission before the
anticipated corporate change, including the specific documents and
information listed in final Sec. 49.6(c). The Commission estimates
that the requirements of final Sec. 49.6 create a burden of 15 hours
per SDR for each transfer of registration. Transfers of registration
for SDR are rare, so the Commission estimates that each SDR will
provide information pursuant to final Sec. 49.6 no more often than
once every three years. As a result, the estimated average annual PRA
burden related to final Sec. 49.6 is 5 hours per SDR, for a total
estimated ongoing annual burden of 15 hours total for all three SDRs.
The Commission does not anticipate any one-time, initial burdens
related to final Sec. 49.6.
iv. Sec. 49.9--Open Swaps Reports Provided to the Commission
The final amendments to Sec. 49.9 remove the current text of the
section and replace it with requirements related to SDRs providing open
swaps reports to the Commission, as instructed by the Commission. The
instructions may include the method, timing, frequency, and format of
the open swaps reports.
The Commission estimates that SDRs will incur a one-time initial
burden of 250 hours per SDR to create or modify their systems to
provide the open swaps reports to the Commission as instructed, for a
total estimated hours burden of 750 hours. This burden may be mitigated
by the fact that SDRs currently have systems in place to provide
similar information to the Commission, which may reduce the effort
needed to create or modify SDRs' systems. The Commission additionally
estimates 30 hours per SDR annually to perform any needed maintenance
or adjustments to SDR systems.
The Commission expects that the process for providing the open
swaps reports to the Commission will be largely automated and therefore
estimates a burden on the SDRs of 2 hours per report. Though the
Commission is not prescribing the frequency of the open swaps reports
at this time, the Commission estimates, only for the purposes of this
burden calculation, that the SDRs will provide the Commission with 365
open swaps reports per year, meaning that the estimated ongoing annual
additional hours burden for generating the open swaps reports and
providing the reports to the Commission is 730 hours per SDR.
The Commission therefore estimates a total ongoing additional
annual hours burden related to final Sec. 49.9 of 760 hours per SDR,
\325\ for a total estimated ongoing annual burden of 2,280 hours.
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\325\ 730 hours for the open swaps reports, and 30 hours to
perform system maintenance.
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v. Sec. 49.10--Acceptance of Data
Final Sec. 49.10(e) requires SDRs to accept, process, and
disseminate corrections to SDR data errors and omissions. Final Sec.
49.10(e) also requires SDRs to have policies and procedures in place to
fulfill these requirements.
The Commission estimates that SDRs will incur a one-time initial
burden of 100 hours per SDR to update and implement the systems,
policies, and procedures necessary to fulfill their obligations under
final Sec. 49.10(e), for a total increased initial hours burden of 300
hours across all three SDRs. This burden may be mitigated by the fact
that SDRs already have systems, policies, and procedures in place to
accomplish corrections to SDR data and that the SDRs currently make
such corrections on a regular basis. The Commission additionally
estimates 30 hours per SDR annually to perform any needed maintenance
on correction systems and to update corrections policies and procedures
as needed.
The Commission anticipates that the process for SDRs to perform
corrections will be largely automated, as this is the case with current
SDR corrections. Based on swap data available to the Commission and
discussions with the SDRs, the Commission estimates that an SDR will
perform an average of approximately 2,652,000 data corrections per
year. Based on the same information, the Commission estimates that
performing each correction will require 2 seconds from an SDR. As a
result, the Commission estimates that the ongoing burden of performing
the actual corrections to SDR data will be approximately 1,473 hours
per SDR annually, on average. The Commission anticipates that once
applicable, the verification rules may have the short term effect of
increasing the number of corrections per year, as reporting
counterparties discover errors in open swaps. The Commission further
anticipates that the number of corrections will then decrease as the
new validation rules and revised technical specifications improve the
quality and accuracy of initial reporting, reducing the number of
corrections.
[[Page 75636]]
The Commission therefore estimates a total additional annual hours
burden related to final Sec. 49.10(e) of 1,503 hours per SDR annually,
for a total estimated ongoing burden of 4,509 hours.
vi. Sec. 49.11--Verification of Swap Data Accuracy
The final amendments to Sec. 49.11 modify the existing obligations
on SDRs to confirm the accuracy and completeness of swap data. Final
Sec. 49.11(b) requires SDRs to provide a mechanism that allows each
reporting counterparty that is a user of the swap data repository to
access all swap data maintained by the swap data repository for each
open swap for which the reporting counterparty is serving as the
reporting counterparty. Final Sec. Sec. 49.11(a) and 49.11(c) \326\ do
not have PRA implications beyond the burdens discussed for paragraph
(b) below.
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\326\ The Commission notes that requirements of part 40 of the
Commission's regulations apply to SDRs amending their verification
policies and procedures regardless of final Sec. 49.11(c), because
verification policies and procedures fall under the part 40
definition of a ``rule.'' See 17 CFR 40.1(i) (definition of rule for
the purposes of part 40). PRA implications for final Sec. 49.11(c)
are included under the existing approved PRA collection for part 40
of the Commission's regulations.
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While SDRs are already required to confirm the accuracy and
completeness of swap data under current Sec. 49.11, the requirements
in final Sec. 49.11 impose different burdens on the SDRs than the
current regulation. The Commission estimates that each SDR will incur
an initial, one-time burden of 300 hours to build, test, and implement
updated verification systems, for a total of 900 initial burden hours
across all SDRs. The Commission also estimates 30 hours per SDR
annually for SDRs to maintain their verification systems and make any
needed updates to verification policies and procedures required under
final Sec. 49.11(a) and (c).
Currently, SDRs are required to confirm swap data by contacting
both counterparties for swaps that are not submitted by a SEF, DCM,
DCO, or third-party service provider every time the SDR receives swap
data related to the swap. For swaps reported by a SEF, DCM, DCO, or
third-party service provider, the SDRs must currently assess the swap
data to form a reasonable belief that the swap data is accurate every
time swap data is submitted for a swap. Under final Sec. 49.11(b) and
(c), SDRs are only required to provide the mechanism that will allow
reporting counterparties to perform verification, as described above.
The Commission also anticipates, based on discussions with SDRs and
other market participants, that the verification process will be
largely automated once the processes are in place, and will consist of
an annual burden of 30 hours per SDR.
The Commission therefore estimates a total additional ongoing hours
burden related to final Sec. 49.11 of 60 hours per SDR annually,\327\
for a total estimated ongoing burden of 180 hours.
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\327\ 30 hours for system maintenance and 30 hours for the
verification process.
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vii. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
The final amendments to Sec. 49.12(a) and (b) incorporate existing
SDR recordkeeping obligations from Sec. 45.2(f) and (g) respectively,
which are already applicable to SDRs under current Sec. 49.12(a). As
the recordkeeping requirements being moved from Sec. 45.2 already
apply to SDRs under current Sec. 49.12, the Commission does not
believe that amended Sec. 49.12(a) or (b) requires any revision to
hours burden related to Sec. 49.12 already included in collection
3038-0086. Final amendments to Sec. 49.12(c) require SDRs to maintain
records of data validation errors and of data reporting errors, which
include records of data subsequently corrected by a SEF, DCM, or
reporting counterparty pursuant to parts 43, 45, and 46. Final Sec.
49.12(c) does not, however, add any new requirement to part 49, as all
of the records to be kept are already required to be kept by existing
recordkeeping obligations as data submitted under part 43, 45, or 46.
As a result, the Commission does not believe that final Sec. 49.12(c)
requires an additional PRA burden beyond that already included in
collection 3038-0086.
viii. Sec. 49.26--Disclosure Requirements of Swap Data Repositories
Final new Sec. 49.26(j) requires SDRs to provide their users and
potential users with the SDR's policies and procedures on reporting SDR
data, including SDR data validation procedures, swap data verification
procedures, and SDR data correction procedures. The Commission
anticipates that SDRs will incur a one-time burden of 20 burden hours
to draft written documents to provide to their users and potential
users, for a total increase of 60 one-time burden hours across SDRs.
The Commission also anticipates that SDRs will update their policies
once per year and incur a recurring burden of 10 hours annually from
providing any updated reporting policies and procedures to their users
and potential users, as needed, for a for a total estimated ongoing
annual burden of 30 hours across the three SDRs.
ix. Sec. 49.28--Operating Hours of Swap Data Repositories
Final new Sec. 49.28 incorporates existing provisions of Sec.
43.3(f) and (g) with respect to hours of operation with minor changes
and clarifications. Final Sec. 49.28 extends the provisions of current
Sec. 43.3(f) and (g) to include all SDR data and clarifies the
different treatment of regular closing hours and special closing hours.
SDRs currently have closing hours systems, policies, and procedures
that apply to all SDR functions and all SDR data under the current
requirements. The final requirements related to declaring regular
closing hours and special closing hours also effectively follow current
requirements, without necessitating changes to current SDR systems or
practices. The Commission does, however, anticipate that the SDRs will
need to issue notices to the public related to closing hours under
final Sec. 49.28(a) and (c). The Commission estimates that each SDR
will issue three notices per year and spend five hours creating and
disseminating each notice, for a total of 15 hours per year preparing
and providing public notices per SDR, for a for a total estimated
ongoing annual burden of 45 hours per year across all SDRs.
x. Sec. 49.29--Information Relating to Swap Data Repository Compliance
Final new Sec. 49.29 requires each SDR to provide, upon request by
the Commission, information relating to its business as an SDR, and
such other information that the Commission needs to perform its
regulatory duties. This provision also requires each SDR, upon request
by the Commission, to provide a written demonstration of compliance
with the SDR core principles and other regulatory obligations. The PRA
burden associated with such responses is dependent on the number of
requests made and the complexity of such requests. Based on its
experience with requests to DCMs, the Commission estimates that each
SDR will likely receive on average between three and five requests per
year, considering that an SDR is a newer type of registered entity than
a DCM. The Commission anticipates that the number of requests will
decrease over time. The Commission also anticipates that each such
request will require the SDR to spend 20 hours to gather information
and formulate a response, and bases its estimate of burden hours
assuming five such requests per year, for a total additional hours
burden of 100 hours per SDR per year, for a total estimated ongoing
annual burden of 300 hours per
[[Page 75637]]
year across all SDRs. The Commission does not anticipate that SDRs will
incur any one-time hours burden or costs in complying with this
regulation.
The Commission therefore estimates that the total overall burdens
for updated Information Collection 3038-0086 will be as follows:
Estimated number of respondents affected: 3 SDRs.
Estimated annual number of responses per respondent: 154,327,169.
Estimated total annual responses: 462,981,508.
Estimated burden hours per response: 0.0006.
Estimated total annual burden hours per respondent: 99,197.
Estimated aggregate total burden hours for all respondents:
297,591.
C. Cost-Benefit Considerations
1. Introduction
Section 15(a) \328\ of the CEA requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. Section 15(a) further
specifies that the costs and benefits shall be evaluated in light 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 considers the costs and benefits resulting from its
discretionary determinations with respect to the section 15(a) factors.
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\328\ 7 U.S.C. 19(a).
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In this release, the Commission is revising existing regulations in
parts 43, 45, and 49. The Commission is also issuing new regulations in
part 49. Together, these revisions and additions are intended to
address swap data verification and to improve the quality of data
reporting generally. Some of the amendments are substantive. A number
of amendments, however, are non-substantive or technical, and therefore
will not have associated cost-benefits implications.\329\
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\329\ The Commission believes there are no cost-benefit
implications for Final Sec. Sec. 49.2, 49.15, 49.16, 49.18, 49.20,
49.24, and 49.31.
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In the sections that follow, the Commission discusses the costs and
benefits associated with the final rule and reasonable alternatives are
considered. Comments addressing the associated costs and benefits of
the rule are addressed in the appropriate sections. Wherever possible,
the Commission has considered the costs and benefits of the final rule
in quantitative terms.
Given that many aspects of the Proposal did not dictate the means
by which SDRs or reporting counterparties must comply, the Commission
recognized that the quantitative impact of the proposed rule would vary
by each entity because the affected market participants vary in
technological and staffing structure and resources. The Commission also
noted in the Proposal that because of differences in the sizes of SDR
operations, many of the costs associated with the proposed rulemaking
were not readily quantifiable without relying on and potentially
divulging confidential information. The Commission believed that many
of the proposed rules would have affected a wide variety of proprietary
reporting systems developed by SDRs and reporting counterparties.
With these understandings, the Commission asked the public to
provide information regarding quantitative costs and benefits related
to complying with the Commission's proposed rules. The Commission
received comments from market participants, such as SDRs and reporting
counterparties, and other interested public commenters. Some of the
commenters asserted that some of the proposed rules would generate
significant or burdensome costs, but no commenters quantified such
costs. Nor did commenters, in particular the limited universe of market
participants required to report and collect data, quantify costs they
currently expend to comply with current swap data reporting
requirements.\330\ If the Commission possessed information regarding
current and actual costs, the Commission could consider current
monetary outlays against the anticipated quantitative costs and
benefits needed to comply with the rules in this final rulemaking.
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\330\ See section I above for discussion of the history behind
swaps data reporting required by CEA section 21.
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As a result, the Commission has considered the costs and benefits
of the rules in this final rulemaking and has provided broad ranges of
estimates of the costs associated with implementing some of the rule
changes. It is reasonable to use ranges because the final rules are
flexible, which means SDRs and reporting counterparties will take
different approaches to comply with the final rules. In addition,
ranges account for variation in technological and staffing structure,
resources, and operational sophistication of affected market
participants.
In several of the sections below, the Commission has estimated the
number of hours it believes market participants will likely expend to
comply with the final rules. These cost estimates focus on the
technical aspects of the final rules and are separate from those listed
in the Paperwork Reduction Act discussion above in section VII.B. The
Commission has made reasonable estimations based, in part, on its
familiarity with the work of SDRs and reporting counterparties, and its
own experience in building systems to collect swap data. To monetize
the hours, the Commission multiplies the number of hours and an hourly
wage estimate. As most of the final rules may require technological
changes, the Commission uses hourly wages for developers. The
Commission estimated the hourly wages market participants will likely
pay software developers to implement changes to be between $48 and $101
per hour.\331\ The Commission recognizes that for some services--like
compliance review, and legal drafting and review--the wage rates may be
more or less than the $48 to $101 range for developers. The Commission
believes, however, that the estimated cost ranges, discussed below,
will cover most budgets for tasks, regardless of the exact nature of
the tasks needed to comply with the final rules.
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\331\ Hourly wage rates were based on the Software Developers
and Programmers category of the May 2019 National Occupational
Employment and Wage Estimates Report produced by the U.S. Bureau of
Labor Statistics, available at https://www.bls.gov/oes/current/oes_nat.htm. The 25th percentile was used for the low range and the
90th percentile was used for the upper range ($36.89 and $78.06,
respectively). Each number was multiplied by an adjustment factor of
1.3 for overhead and benefits (rounded to the nearest whole dollar)
which is in line with adjustment factors the Commission has used for
similar purposes in other final rules adopted under the Dodd-Frank
Act. See, e.g., 77 FR at 2173 (Jan. 13, 2012) (using an adjustment
factor of 1.3 for overhead and other benefits). These estimates are
intended to capture and reflect U.S. developer hourly rates market
participants are likely to pay when complying with the proposed
changes. The Commission recognizes that individual entities may,
based on their circumstances, incur costs substantially above or
below the estimated averages.
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2. Background
Since their promulgation in 2011, the provisions in part 49 have
required SDRs to, among other things, accept and confirm data reported
to SDRs. The Commission believes SDRs' collection and maintenance of
swap data as required in parts 45 and 49 has allowed the Commission to
better monitor the overall swaps market and individual market
participants. In contrast, before the adoption of the Dodd-Frank Act
and its implementing regulations, the swaps
[[Page 75638]]
market generally, and transactions and positions of individual market
participants in particular, were not transparent to regulators or the
public.
Under the current data reporting requirements, the Commission has
had the opportunity to work directly with SDR data reported to, and
held by, SDRs. Based on its experience working with SDR data, along
with extensive feedback and comments received from market participants,
the Commission believes that improving SDR data quality will help
enhance the data's usefulness. In this final rulemaking, the Commission
has focused on the operation and implementation of CEA section 21,\332\
which contains requirements related to SDRs, including the requirement
to confirm data.\333\ The Commission also is modifying a number of
other regulations for clarity and consistency and to enhance the
Commission's ability to monitor and supervise the swaps market.
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\332\ See 7 U.S.C. 24a.
\333\ See 7 U.S.C. 24a(c)(2).
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Prior to discussing the rule changes, the Commission describes
below the current environment that will be impacted by these changes.
Three SDRs are currently provisionally registered with the Commission:
CME, DDR, and ICE. Each SDR has unique characteristics and structures
that determine how the rule changes will impact its operations. For
example, SDRs affiliated with DCOs tend to receive a large proportion
of their SDR data from swaps cleared through those affiliated DCOs,
while independent SDRs tend to receive SDR data from a wider range of
market participants.
The current reporting environment also involves third-party service
providers. These entities assist market participants with fulfilling
the applicable data reporting requirements, though the reporting
requirements do not apply to third-party service providers directly.
Current regulations have not resulted in data quality that meets
the Commission's expectations. For example, current regulations do not
include a specific affirmative obligation for swap counterparties to
review reported swap data for errors.\334\ Swap counterparties are
required to correct data errors only if inaccurate data is discovered,
and therefore data quality is partially dependent on processes that are
not mandated by the Commission. The result has been that market
participants too often have not reviewed data and corrected any errors.
It is not uncommon for Commission staff to find discrepancies between
open swaps information available to the Commission and reported data
for the same swaps. For example, in processing open swaps reports to
generate the CFTC's Weekly Swaps Report,\335\ Commission staff has
observed instances where the notional amount of a swap differs from the
swap data reported to an SDR for the same swap. Other common examples
of discrepancies include incorrect references to an underlying
currency, such as a notional value incorrectly linked to U.S. dollars
instead of Japanese Yen. These examples, among others, strongly suggest
a need for better verification of reported swap data.
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\334\ See 17 CFR 43.3(e); 17 CFR 45.14.
\335\ See CFTC's Weekly Swaps Report, available at https://www.cftc.gov/MarketReports/SwapsReports/index.htm.
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Weaknesses in SDR policies and procedures also have created
additional challenges for swap data accuracy. As discussed above,
certain SDR policies and procedures for swap data have been based on
negative affirmation, i.e., predicated on the assumption that reported
swap data is accurate and confirmed if a reporting counterparty does
not inform the SDR of errors, or otherwise make subsequent
modifications to the swap data, within a certain period of time.\336\
As reporting counterparties are typically not reviewing their reported
swap data maintained by SDRs, the data is effectively assumed to be
accurate, and errors are not sufficiently discovered and corrected. The
volume of inaccurate swap data that is discovered by market
participants or the Commission shows that current regulations are
ineffective in producing the quality of swap data the Commission
expects and needs to fulfill its regulatory responsibilities.
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\336\ See 17 CFR 49.11(b)(1)(ii) and (b)(2)(ii).
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The Commission believes that amendments and additions to certain
regulations, particularly in parts 43, 45, and 49, will improve data
accuracy and completeness. The regulatory changes in this final
rulemaking aim to meet this objective.
This final rulemaking also includes amendments to part 49 to
improve and streamline the Commission's oversight of SDRs. These
amendments include new provisions allowing the Commission to request
demonstrations of compliance and other information from SDRs.
For each amendment discussed below, the Commission summarizes the
changes,\337\ and identifies and discusses the costs and benefits
attributable to the changes. The Commission then considers reasonable
alternatives to the rules. Finally, the Commission considers the costs
and benefits of all of the rules jointly in light of the five public
interest considerations in CEA section 15(a).
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\337\ As described throughout this release, the Commission is
also proposing a number of non-substantive, conforming rule
amendments in this release, such as renumbering certain provisions
and modifying the wording of existing provisions. Non-substantive
amendments of this nature may be described in the cost-benefit
portion of this release, but the Commission will note that there are
no costs or benefits to consider.
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The Commission notes that this consideration of costs and benefits
is based on the understanding that the swaps market functions
internationally. Many swaps transactions involving U.S. firms occur
across international borders and some Commission registrants are
organized outside of the United States, with leading industry members
often conducting operations both within and outside the United States,
and with market participants commonly following substantially similar
business practices wherever located. Where the Commission does not
specifically refer to matters of location, the discussion of costs and
benefits refers to the rules' effects on all swaps activity, whether by
virtue of the activity's physical location in the United States or by
virtue of the activity's connection with, or effect on, U.S. commerce
under CEA section 2(i).\338\ The Commission contemplated this cross-
border perspective in 2011 when it adopted Sec. 49.7, which applies to
trade repositories located in foreign jurisdictions.\339\
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\338\ See 7 U.S.C. 2(i). CEA section 2(i) limits the
applicability of the CEA provisions enacted by the Dodd-Frank Act,
and Commission regulations promulgated under those provisions, to
activities within the U.S., unless the activities have a direct and
significant connection with activities in, or effect on, commerce of
the U.S.; or contravene such rules or regulations as the Commission
may prescribe or promulgate as are necessary or appropriate to
prevent the evasion of any provision of the CEA enacted by the Dodd-
Frank Act. The application of section 2(i)(1) to Sec. 45.2(a), to
the extent it duplicates Sec. 23.201, with respect to SDs/MSPs and
non-SD/MSP counterparties is discussed in the Commission's final
rule, ``Cross-Border Application of the Registration Thresholds and
Certain Requirements Applicable to Swap Dealers and Major Swap
Participants,'' 85 FR 56924, 56965-66 (Sept. 14, 2020).
\339\ See 17 CFR 49.7.
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3. Baseline
There are separate baselines for the costs and benefits that arise
from the finalized regulations in this release. The baseline for final
Sec. 43.3(e) is existing Sec. 43.3(e). The baseline for final Sec.
45.14 is existing Sec. 45.14. The baseline for amendments to current
part 49 regulations is the existing part 49 and current practices. For
final Sec. 49.12, the baseline is existing Sec. 49.12, as well as
[[Page 75639]]
Sec. 45.2(f) and (g), which will be replaced by final Sec. 49.12. For
final Sec. 49.17, the baseline is current Sec. Sec. 49.17 and 45.13.
The Commission is also finalizing four new regulations: Sec. Sec.
49.28, 49.29, 49.30, and 49.31. For final Sec. 49.28 the baseline is
existing Sec. 43.3(f) and (g), because the requirements in Sec.
43.3(f) and (g) are being moved to final Sec. 49.28. For final
Sec. Sec. 49.29 and 49.30, the baselines are current practices. Final
Sec. 49.31 concerns internal Commission practices and is not subject
to consideration of costs and benefits.
4. Costs and Benefits of Amendments to Part 49
i. Sec. 49.2--Definitions
The Commission is adopting editorial and conforming amendments to
certain definitions in final Sec. 49.2. The Commission considers the
definitions to have no cost-benefit implications on their own. In
addition, the Commission believes the amendments to Sec. 49.2 are non-
substantive changes that will not impact existing obligations on SDRs
or reporting counterparties, and, therefore, the amended definitions
have no cost-benefit implications.
ii. Sec. 49.3--Procedures for Registration
The Commission is adopting the amendments to Sec. 49.3(a)(5) and
the conforming amendments to Form SDR and Sec. 49.22(f)(2) as proposed
in part and is not adopting the proposed amendments in part. The
Commission is removing the current requirements for SDRs to file an
annual amendment to Form SDR but declines to amend the requirement to
update the Form SDR after the Commission grants an SDR registration
under Sec. 49.3(a).\340\ The annual Form SDR filing requirement is
unnecessary for the Commission to successfully perform its regulatory
functions.
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\340\ See 17 CFR 49.3(a)(5).
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The amendments to Sec. 49.3(a)(5) benefit SDRs by reducing the
amount of information that SDRs must provide to the Commission on an
annual basis and the frequency with which SDRs must deliver information
updating Form SDR.
By removing the requirement to file an annual update to Form SDR in
current Sec. 49.3(a)(5), SDRs will benefit from expending fewer
resources to provide information to the Commission. The Commission
believes that the eliminated requirement is burdensome and unnecessary,
as the SDRs already submit, and will continue to submit, the same
updated information in the required periodic Form SDR amendments. The
Commission believes that costs of eliminating the annual Form SDR
update requirement, in terms of impairing the Commission's access to
information, will be minimal. The costs related to the changes to Sec.
49.3(a)(5) will largely be associated with any needed adjustments to
SDR policies and procedures related to reducing the number of updates
to Form SDR.
Notwithstanding the anticipated incremental costs, the Commission
believes this change to Sec. 49.3(a)(5) is warranted in light of the
anticipated benefits.
iii. Sec. 49.5--Equity Interest Transfers
The Commission is finalizing various amendments to Sec. 49.5 to
simplify and streamline the requirements for when an SDR enters into an
agreement involving the transfer of an equity interest of ten percent
or more in the SDR. The Commission also is extending the notice filing
deadline.
Current Sec. 49.5 requires three actions by an SDR as part of an
equity interest transfer: (1) Issue a notice to the Commission within
one business day of committing to the transfer; (2) submit specific
documents to the Commission, as well as update its Form SDR; and (3)
certify compliance with CEA section 21 and Commission regulations
adopted thereunder within two business days of the transfer of equity.
Final Sec. 49.5 is less demanding than current Sec. 49.5. Final
Sec. 49.5 ensures that the Commission is apprised of a change that
might impact SDR operations and provided with information to aid any
evaluation processes the Commission undertakes. Yet, final Sec. 49.5
gives an SDR more time in which to notify the Commission of an equity
interest transfer and eliminates unnecessary filings. Final Sec.
49.5(a) requires an SDR: (i) To notify the Commission of each
transaction involving the direct or indirect transfer of ten percent or
more of the equity interest in the SDR within ten business days of ``a
firm obligation to transfer''; and (ii) to provide the Commission with
supporting documentation upon request. Final Sec. 49.5(b) requires
that the notice in Sec. 49.5(a) be filed electronically with the
Secretary of the Commission and DMO at the earliest possible time, but
in no event later than ten business days following the date upon which
a firm obligation is made for the equity interest transfer. Final Sec.
49.5(c) requires that upon the transfer, whether directly or
indirectly, the SDR shall file electronically with the Secretary of the
Commission and DMO a certification that the SDR meets all of the
requirements of CEA section 21 and the Commission regulations
thereunder, no later than two business days following the date on which
the equity interest was acquired.
The Commission requested the public to comment on the cost-benefit
considerations related to proposed Sec. 49.5, but the Commission did
not receive any comments. Consequently, the Commission continues to
believe that the amendments will benefit SDRs by lowering the burdens
related to notifying the Commission of equity interest transfers and by
extending the time SDRs have to file the notice with the Commission.
The amendments benefit SDRs by reducing the burden to notify the
Secretary of the Commission and DMO of transfers by extending the
available time from one business day to ten business days. More time
will give SDRs greater latitude in managing how they use their time and
allocate resources to file the required notices and certification.
In addition, SDRs will no longer have the obligations in current
Sec. 49.5(a) to update Form SDR and in current Sec. 49.5(b) to
provide specifically-identified documents to the Commission with the
equity interest transfer notification. Final Sec. 49.5 instead states
that the Commission may request supporting documentation for the
transaction. Even if the request causes the SDR to submit more
documents than the ones listed in the current regulation or Form SDR,
the requested documents will be tailored to the Commission's evaluation
of the equity transfer. SDRs will benefit from not expending resources
and time to collect, file, record, and track documents listed in
current Sec. 49.5 that may have no value to the Commission's review.
The Commission's ability to request supporting documentation mitigates
costs in terms of detrimental effects that could arise from less
information about the transfer being available to the Commission.
Additional costs to SDRs, if any, will stem from the inclusion of
``indirect transfers'' of equity interest in Sec. 49.5. This could
increase the costs to SDRs, if the inclusion of indirect transfers
results in more equity interest transfers being subject to the
regulation and the associated need to provide information to the
Commission. The inclusion of indirect transfers benefits the Commission
by providing greater insight into equity interest transfers that could
affect the business of an SDR, even though the equity interest transfer
does not involve the SDR directly. As equity interest transfers are
rare occurrences and the Commission does not anticipate that including
indirect transfers will result in substantially more equity interest
transfers, the
[[Page 75640]]
Commission expects the potential additional costs connected to final
Sec. 49.5 to be small.
Notwithstanding the anticipated incremental costs, the Commission
believes the changes to Sec. 49.5 are warranted in light of the
anticipated benefits.
iv. Sec. 49.6--Request for Transfer of Registration
The Commission is finalizing Sec. 49.6 as proposed. Final Sec.
49.6(a) requires an SDR seeking to transfer its SDR registration
following a corporate change to file a request for approval to transfer
the registration with the Secretary of the Commission in the form and
manner specified by the Commission. Final Sec. 49.6(b) specifies that
an SDR file a request for transfer of registration as soon as
practicable before the anticipated corporate change. Final Sec.
49.6(c) sets forth the information that must be included in the request
for transfer of registration, including the documentation underlying
the corporate change, the impact of the change on the SDR, governance
documents, updated rulebooks, and representations by the transferee
entity, among other things. Final Sec. 49.6(d) specifies that upon
review of a request for transfer of registration, the Commission, as
soon as practicable, shall issue an order either approving or denying
the request for transfer of registration.
The Commission sought public comment on its cost-benefit
considerations related to Sec. 49.6. The Commission did not receive
any comments.
The Commission continues to believe that Sec. 49.6 will not impose
any additional costs on SDRs compared to the current requirements that
include meeting filing deadlines for submitting a Form SDR. The
amendments to Sec. 49.6 create several benefits that include
simplifying the process for requesting a transfer of SDR registration
and reducing the burdens on SDRs for successfully transferring an SDR
registration to a successor entity. Final Sec. 49.6 eliminates
duplicative filings by requiring a more limited scope of information
and representations from the transferor and transferee entities than
existing Sec. 49.6, which requires a full application for registration
on Form SDR, including all Form SDR exhibits. Final Sec. 49.6 focuses
on ensuring the Commission receives relevant information needed to
approve a request for a transfer of an SDR registration promptly.
v. Sec. 49.9--Open Swaps Reports Provided to the Commission
The Commission is finalizing Sec. 49.9 as proposed. Final Sec.
49.9 creates a new regulatory obligation by requiring an SDR to provide
the Commission with an open swaps report that contains an accurate
reflection of data for every swap data field required to be reported
under part 45 for every open swap maintained by the SDR.
Final Sec. 49.9 alters current Sec. 49.9 substantially. Current
Sec. 49.9 does not specifically discuss open swaps reports; rather, it
outlines twelve SDR duties through cross-references to other part 49
regulations. For example, current Sec. 49.9 states that SDRs must
``accept swap data as prescribed in Sec. 49.10;'' provide direct
electronic access to the Commission ``as prescribed in Sec. 49.17;''
and adopt disaster recovery plans ``as prescribed in Sec. 49.23 and
Sec. 49.13.'' \341\ The Commission is removing the list of duties in
Sec. 49.9 and replacing it with a regulation that assigns SDRs the
obligation to issue open swaps reports to the Commission.\342\
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\341\ 17 CFR 49.9(a).
\342\ The Commission believes that removing the list of duties
in Sec. 49.9 is a non-substantive change that does not implicate
cost or benefit considerations, because the list consists of cross-
references to other regulations. The costs and benefits of the
addition of new requirements in final Sec. 49.9 are considered
below.
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The Commission requested public comment on its consideration of the
costs and benefits related to proposed Sec. 49.9. The Commission did
not receive any comments.
The Commission believes that while there may be costs imposed by
final Sec. 49.9, costs will be mitigated by the fact that SDRs already
send the Commission reports that are similar to the open swaps reports
required by final Sec. 49.9. Given that SDRs already have systems to
issue reports, the adjustments SDRs must undertake to comply with final
Sec. 49.9 should be incremental in terms of financial and
administrative outlays to modify technological infrastructures to meet
the Commission's requirements. The Commission believes the costs may
include expenditures to modify current reporting systems to meet the
requirements for the open swaps reporting systems and costs to maintain
SDR systems.
Currently, SDRs produce reports using differing approaches to
calculations and formats. There may be costs to change systems to meet
the Commission's required standardized format for open swaps reports.
The Commission, however, does not expect the format of these reports to
change frequently. The Commission believes a standardized report will
ensure the report is in a more usable format that assists and improves
the Commission's regulatory efforts. The Commission uses current SDR
reports to perform market risk and position calculations. The
Commission also uses SDR reports to create and publish the Commission's
weekly swaps report and quarterly entity-netted notional reports. The
Commission-issued reports benefit market participants and the public by
providing and analyzing data sourced directly from the SDRs. This
information on open swaps is unique and is not available to the public
until the Commission publishes its reports.
The Commission recognizes that the three existing SDRs vary in size
of operations. They also service and process different volumes of data
for various asset classes. As a result, the qualitative and
quantitative costs to comply with Sec. 49.9 will differ between SDRs.
Notably, however, no commenters submitted estimates of time or
monetized costs for proposed Sec. 49.9 or the amount of current costs
to produce reports. Based on the Commission's knowledge of SDRs and its
own technological experience, the Commission estimates that each SDR
will expend 250 hours to establish an open swaps report system that
complies with Sec. 49.9. Thereafter, the Commission estimates that
each SDR will spend 30 hours on maintenance and 730 hours dedicated to
issuing open swaps reports annually. The Commission monetizes the
initial set-up and annual hours by multiplying by the wage-rate range
of $48 to $101 to estimate that each SDR will expend $12,000 to $25,250
to establish an open swaps report system and then expend $36,480 to
$76,760 for annual maintenance and reporting.\343\
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\343\ See supra note 344 (discussion of BLS wage estimates).
These estimates, discussed here and below, focus on the costs and
benefits of the amended rules market participants are likely to
encounter with an emphasis on technical details, implementation, and
market-level impacts. Where software changes are expected, these
costs reflect software developer labor costs only, not a blend of
different occupations. Costs and benefits quantified at the market
participant or reporting entity level are listed in the Paperwork
Reduction Act discussion above in section VII.B and reflect blended
burden costs as defined in the supporting statement for Part 49.
Those costs are not repeated in this section. Wherever appropriate,
quantified costs reflected in the Paperwork Reduction Act discussion
are noted below.
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The Commission considered and rejected the alternative of not
adopting Sec. 49.9. The Commission believes that the absence of a
requirement for open swaps reports creates regulatory ambiguity and the
possibility that SDRs might stop voluntarily producing open swaps
reports. If the latter were to
[[Page 75641]]
occur, the weekly swaps report would be adversely impacted, possibly
temporarily eliminated, and efforts to inform the public of
developments in swaps markets would be hindered. This cost is
significant because SDR reports and Commission-issued reports have
become invaluable to the public's and the Commission's understanding of
derivatives markets.
Notwithstanding the costs and in light of the drawbacks of possible
alternatives, the Commission believes Sec. 49.9 is warranted in light
of the anticipated benefits.
vi. Sec. 49.10--Acceptance of Data
Final Sec. 49.10(e) requires an SDR to accept corrections for
errors in SDR data that was previously reported, or erroneously not
reported, to SDRs. The Commission is finalizing Sec. 49.10(e)(1)
through (4) generally as proposed, with modifications and textual
clarifications in response to public comments. The final rule sets
forth the specific requirements SDRs will need to satisfy under Sec.
49.10(e): (i) Accept corrections for errors reported to, or erroneously
not reported to, the SDR until the end of the record-keeping retention
period under Sec. 49.12(b)(2); (ii) record corrections as soon as
technologically practicable after accepting the corrections; (iii)
disseminate corrected SDR data to the public and the Commission, as
applicable; and (iv) establish, maintain, and enforce policies and
procedures designed to fulfill these responsibilities under Sec.
49.10(e)(1) through (3).
In the Proposal, the Commission explained that Sec. 49.10(e) could
impose some costs on SDRs, but that the costs would not be significant
and are largely related to any needed updates to SDR error correction
systems. The Commission based its belief, in part, on the fact that
SDRs are currently required to identify cancellations, corrections, and
errors under parts 43 and 45.\344\ Joint SDR commented that this is an
incorrect understanding because SDRs ``make available facilities to
reporting entities to meet their obligations to make such
corrections.'' \345\ Joint SDR added: ``In order for an SDR to take on
the new obligation of making corrections, rather than allowing a
reporting entity to submit corrections themselves, would necessitate
significant changes to the SDR's systems.'' \346\ Joint SDR also stated
that it would be costly to make corrections to data for dead swaps.
They specifically explained: ``This requirement would be costly for the
SDRs as data will need to be maintained in a readily accessible format
for an unlimited amount of time and the SDR will be unable to archive
the data in accordance with its internal policies and procedures.''
\347\
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\344\ See 17 CFR 43.3(e)(1), (3), and (4); 17 CFR 45.14(c).
\345\ Joint SDR at 8 n. 28.
\346\ Joint SDR at 8 n. 28.
\347\ Joint SDR at 9.
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The Commission is persuaded by commenters' statements that proposed
Sec. 49.10(e) would be costly and burdensome without changes. Given
that final Sec. 49.10(e) must be read with final Sec. Sec. 43.3(e),
45.14, and 49.11, SDRs' costs related to Sec. 49.10(e) should be far
less than anticipated.
The Commission believes that there will be costs connected with
implementing final Sec. 49.10(e). Currently, SDRs must accept and
record data, as well as disseminate calculations and corrections to SDR
data.\348\ Final Sec. 49.10(e) might require SDRs to expend
incremental costs in terms of financial and staff outlays to adjust
systems to ``accept'' and ``record'' corrections. These incremental
costs should be limited because, as mentioned earlier, SDRs already
make facilities available to reporting counterparties to make
corrections. The Commission believes that the commenter misunderstands
the requirements of proposed and final Sec. 49.10(e) and the
associated costs as requiring more direct participation in the
correction process than is currently required. Nothing in proposed or
final Sec. 49.10(e) would require the SDRs to change a current
approach based on making facilities available that allow market
participants to submit corrections or obligate an SDR to do anything
more to accept, record, and disseminate corrections than is currently
required.
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\348\ 17 CFR 49.10 (SDR ``shall accept and promptly record all
swap data. . . .''). See also Sec. 43.3(e)(1), (3), and (4); 17 CFR
45.14(c).
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The Commission also believes that the inclusion of the technical
specification and validation requirements for SDR data in parallel
Commission rulemaking \349\ will help prevent certain types of SDR data
reporting errors before they occur, and, therefore, reduce the need for
market participants and the SDRs to correct those types of errors and,
as a result, the corresponding costs incurred by SDRs to correct errors
will likely decrease over time.
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\349\ See generally 85 FR 21516, et seq. (Apr. 17, 2020); 85 FR
21578, et seq. (Apr. 17, 2020).
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Final Sec. 49.10(e) will also limit SDR error correction
requirements to the applicable recordkeeping obligation in final Sec.
49.12. SDRs will not be obligated to indefinitely maintain storage and
legacy systems for dead swaps or to correct dead swaps for which the
records retention period has expired.
SDRs also might incur incremental costs related to establishing,
maintaining, and enforcing the policies and procedures required by
final Sec. 49.10(e). The Commission, however, believes that costs will
be limited to initial creation costs and update costs for the policies
and procedures as needed, as mitigated by any existing SDR error
correction policies and procedures.
The Commission continues to believe that one of the main benefits
of Sec. 49.10(e) is improved data quality resulting from SDRs
collecting and disseminating accurate swaps data. Accurate and complete
datasets will enable the Commission to better understand markets and
trading behavior, and guard against abusive practices. In addition, the
Commission uses swap SDR data to produce public information on the
swaps markets, such as the weekly swaps reports. The Commission
believes that accurate data reflected in the weekly swaps report will
improve the quality and reliability of the reports. All market
participants and the public benefit from complete and accurate SDR
data.
Final Sec. 49.10(e) is linked closely to final Sec. Sec. 43.3(e),
45.14, and 49.11. Because of the changes to current Sec. Sec. 43.3(e),
45.14, and 49.11, there will be costs associated with Sec. 49.10(e).
The Commission, however, believes that the benefits related to using
accurate data sets warrant the costs of changes to Sec. 49.10(e).
vii. Sec. 49.11--Verification of Swap Data Accuracy
In response to comments, the Commission is modifying final Sec.
49.11 so that the verification process is less burdensome and more
flexible than the process set forth in proposed Sec. 49.11. Final
Sec. 49.11 requires an SDR to: (i) Verify the accuracy and
completeness of swap data that the SDR receives from a SEF, DCM, or
reporting counterparty, or third-party service providers acting on
their behalf; and (ii) establish, maintain, and enforce policies and
procedures reasonably designed to verify the accuracy and completeness
of that swap data. In terms of implementation, Sec. 49.11 requires an
SDR to provide a mechanism that allows each reporting counterparty that
is a user of the SDR to access all swap data maintained by the SDR for
each open swap for which the reporting counterparty is serving as the
reporting counterparty. Under companion provisions in Sec. 45.14, a
reporting counterparty is required to perform verifications of the
relevant
[[Page 75642]]
swap data at specified intervals, using the mechanism provided by an
SDR under Sec. 49.11, and to correct any errors discovered.
The Commission anticipates that the final rule will provide
benefits, as compared to the current regulation, by improving the
quality of data received and maintained by SDRs. The final rule is
expected to lead to swap data errors being discovered and corrected
more frequently and earlier than is often the case under the current
regulations. Existing Commission regulations and SDRs rules and
policies allow counterparties to presume data is accurate when it may
not be. The absence of an affirmative verification requirement has also
resulted in counterparties not discovering errors, including many
obvious errors, and therefore not correcting the errors, for extended
periods.
The new requirements in final Sec. 49.11 will also impose costs.
As discussed in more detail below, commenters provided qualitative
comments on the Commission's consideration of the costs and benefits of
proposed Sec. 49.11, but did not provide quantitative information. As
final Sec. 49.11 grants SDRs the flexibility to devise their own
processes to allow reporting counterparties to access swap data for
verification, it is difficult to determine the amount of hours and
effort SDRs will need to comply with Sec. 49.11. Based on comments,
the Commission believes that SDRs will be able to leverage current
technological systems to provide access to reporting counterparties to
verify data under Sec. 49.11.\350\ In the absence of information from
commenters, the Commission estimates that it will take each SDR up to
500 hours to build, test, and implement verification systems that are
of their own design.\351\ The Commission estimates that SDRs will
expend 50 hours or fewer annually to maintain systems and revise
policies and procedures. The Commission monetizes the hours by
multiplying by a wage rate of $48 to $101.\352\ The Commission
estimates that the initial costs to an SDR of implementing Sec. 49.11
will range between $24,000 and $50,500. The annual costs will range
between $2,400 and $5,050.
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\350\ Joint SDR at 6 n. 28.
\351\ In the Proposal, the Commission estimated burden hours
based on proposed Sec. 49.11. Because final Sec. 49.11 is more
flexible and does not require the creation of open swaps reports or
the building of systems to send and receive messages with reporting
counterparties, the Commission believes that SDRs and reporting
counterparties will employ less onerous and more economical
approaches to meeting their Sec. 49.11 and Sec. 45.14 obligations.
Therefore, the Commission is using the estimated burden hours in the
Proposal as upper limits on the number of hours entities will use to
develop and maintain data verification systems.
\352\ See supra note 344 (discussion of BLS wage estimates).
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Before adopting the verification requirements in final Sec. 49.11,
the Commission considered the two following requirements that were in
the Proposal: (1) Requiring an SDR to establish, maintain, and enforce
policies and procedures reasonably designed for the SDR to successfully
receive verifications of data accuracy and notices of discrepancy from
reporting counterparties \353\ and (2) requiring SDRs to issue open
swaps reports to reporting counterparties on a weekly or monthly basis,
depending on the type of reporting counterparty involved.\354\
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\353\ Proposal at 84 FR 21051-55 (May 13, 2019).
\354\ Id.
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The Commission received numerous comments on these two requirements
in response to the Commission's request for comment. ISDA/SIFMA
suggested that the Commission issue a more principles-based
verification process than the one described in proposed Sec. Sec.
45.14(a) and 49.11(b).\355\ ISDA/SIFMA recommended eliminating the
requirement that reporting counterparties reconcile swaps data with
SDR-issued open swaps reports as well as obligations that SDRs manage
or monitor such reconciliations.\356\ ISDA/SIFMA proposed a
verification process that would require reporting counterparties, via
required policies and procedures, ``to periodically reconcile the
relevant SDR data with the data from their internal books and records
for accuracy.'' \357\ Reporting counterparties that are SDs, MSPs, or
DCOs would be required to perform verifications monthly and all other
reporting counterparties would be required to verify data
quarterly.\358\ The reporting counterparties would need to keep a
record of verifications and make that information available to SDRs or
the Commission upon request.\359\ This approach would enable reporting
counterparties to leverage their own data validation efforts and
eliminate the burden of sending multiple notifications.\360\
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\355\ ISDA/SIFMA at 45.
\356\ Id.
\357\ Id.
\358\ Id.
\359\ Id.
\360\ Id.
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As explained in section II.G above, the Commission is persuaded by
comments that a more flexible verification process will have the same,
if not better, effect on data quality as the proposed verification
process. As final Sec. 49.11 does not include the requirement for SDRs
to distribute open swaps reports to reporting counterparties or to have
policies and procedures to receive verifications of accuracy and
notices of discrepancy from reporting counterparties, SDRs will have
greater flexibility in managing their relationships with reporting
counterparties than they were expected to have under the Proposal.
The differences between final Sec. 49.11 and the Proposal also
affect the Commission's cost considerations. In the Proposal, the
Commission recognized that the SDRs would bear most of the costs
associated with the proposed amendments to Sec. 49.11.\361\ The
Commission stated that there would be initial costs from establishing
systems to generate open swaps reports and to successfully distribute
these reports to all reporting counterparties. There also would be
recurring costs related to any needed adjustments to SDR systems over
time and to accommodate the arrival or departure of reporting
counterparties. The Commission also stated that an SDR's costs would be
insignificant because an SDR would automate the verification
process.\362\
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\361\ Proposal at 84 FR 21084 (May 13, 2019).
\362\ Proposal at 84 FR 21084 (May 13, 2019) (``these changes
would [not] be significant because, based on discussion with the
SDRs and other market participants, the Commission believes SDRs
would largely automate the verification process.'')
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Joint SDR disagreed with the Commission's cost assessments for
proposed Sec. 49.11.\363\ Joint SDR commented that ``chasing reporting
counterparties who have not provided verification of data accuracy or a
notice of discrepancy in order to establish the SDR made a `full, good-
faith effort to comply' '' would require an expenditure of significant
resources.\364\ Joint SDR also highlighted that the ``cost of creating
and maintaining a system to verify each message would be significant.''
\365\ Joint SDR encouraged the Commission to recognize that any new
message types impose development costs on SDRs, reporting
counterparties, and all third-parties or vendors who build and maintain
reporting systems.\366\
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\363\ Joint SDR at 2-3.
\364\ Joint SDR at 3.
\365\ Joint SDR at 6. See also ICE Clear at 3 (referencing Joint
SDR).
\366\ Joint SDR at 6 and n. 22.
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Other commenters characterized their objections to the proposed
message-based verification process as a costly endeavor. FIA requested
a more principles-based approach to verifying swaps under Sec. 49.11,
because they
[[Page 75643]]
believed the approach in proposed Sec. 49.11 would create more burdens
than benefits.\367\ FIA added that ``verification requirements will
have little marginal benefit relative to the increased costs on
reporting counterparties, in particular those that are not registered
[SDs].'' \368\ ISDA/SIFMA stated that they believe the ``proposed
prescriptive approach to verification would result in considerable
costs for reporting parties to implement.'' \369\ ICE Clear commented
that the Commission failed to discuss how the additional verification
and messaging costs ``would result in increased levels of data accuracy
sufficient to warrant imposing the obligations.'' \370\
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\367\ See FIA May at 7-8; ISDA/SIFMA at 44-45.
\368\ FIA May at 7.
\369\ ISDA/SIFMA at 44.
\370\ ICE Clear at 3.
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The Commission believes that the costs resulting from the
verification process under Sec. 49.11 as finalized will be less
burdensome than the costs the Commission estimated in the Proposal. For
instance, SDRs would have incurred costs to create and distribute
weekly and monthly open swaps reports as the Commission initially
proposed, but will not incur these costs under final Sec. 49.11.\371\
Under final Sec. 49.11, SDRs and other entities will incur fewer costs
because they will be able to employ different data-accuracy approaches
that will not include the costs of building-out and maintaining
message-based verification systems that rely on open swaps reports.
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\371\ Proposal at 84 FR 21084 (May 13, 2019) (discussion of
costs related to generating and distributing open swaps reports).
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The Commission is not eliminating the overall verification
requirement because it believes verifying data is crucial to ensure
data quality. Data review and verification improves the reliability and
usability of swap data, and more accurate swap data helps the
Commission in monitoring risk; analyzing metrics for such indicators as
volume, price, and liquidity; and developing policy. Thus, final Sec.
49.11 will benefit the Commission and the public by improving the
accuracy of data they will receive.
Besides considering proposed Sec. 49.11, the Commission also
considered and rejected the idea of maintaining current Sec. 49.11.
The Commission rejected this approach because of concerns about the
quality of data received under current regulations, as swap data
quality has not sufficiently improved under current regulations. As
explained above, the presumption that reported swap data is accurate
along with the absence of an affirmative verification requirement, have
resulted in many instances of inaccurate or unusable swap data being
provided to the Commission under current regulations and procedures. In
the nine years since the Commission issued the data reporting
regulations, it has become apparent that the current requirements are
inadequate to ensure swap data accuracy and that processes like
verification can improve the accuracy and completeness of data sets.
Accurate data sets are crucial for overseeing modern markets and for
understanding the structure and operations of the markets.
Notwithstanding the anticipated incremental costs of final Sec.
49.11 and after considering alternatives, the Commission believes the
amendments to Sec. 49.11 are warranted in light of the anticipated
benefits.
viii. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
The Commission is finalizing Sec. 49.12 as proposed. Final Sec.
49.12(a) requires an SDR to keep full, complete, and systematic
records, together with all pertinent data and memoranda, of all
activities relating to the business of the SDR, including, but not
limited to, all SDR information and all SDR data reported to the SDR.
Final Sec. 49.12(b)(1) requires an SDR to maintain all SDR
information received by the SDR in the course of its business. Final
Sec. 49.12(b)(2) requires an SDR to maintain all SDR data and
timestamps, and all messages to and from an SDR, related to SDR data
reported to the SDR throughout the existence of the swap to which the
SDR data relates and for five years following final termination 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 then for an additional period of at least ten years in archival
storage from which such records are retrievable by the SDR within three
business days.
Final Sec. 49.12(c) requires an SDR to create and maintain records
of errors related to SDR data validations and errors related to SDR
data reporting. Final Sec. 49.12(c)(1) requires an SDR to create and
maintain an accurate record of all SDR data that fails to satisfy the
SDR's data validation procedures. Final Sec. 49.12(c)(2) requires an
SDR to create and maintain an accurate record of all SDR data errors
reported to the SDR and all corrections disseminated by the SDR
pursuant to parts 43, 45, 46, and 49. SDRs must make the records
available to the Commission on request.
Final Sec. 49.12(d) contains the requirements of existing Sec.
49.12(c) and provides that: (i) All records required to be kept
pursuant to part 49 must be open to inspection upon request by any
representative of the Commission or any representative of the U.S.
Department of Justice; and (ii) an SDR must produce any record required
to be kept, created, or maintained by the SDR in accordance with Sec.
1.31.
The Commission did not receive any comments concerning its
consideration of costs and benefits related to the recordkeeping
requirements in proposed Sec. 49.12.
The Commission continues to believe that the costs of amendments to
Sec. 49.12 will primarily be incurred by the SDRs as they make any
needed adjustments to create and maintain all required records. The
Commission believes these incremental costs will be limited, as the
recordkeeping requirements in Sec. 49.12 are largely the same as the
requirements in existing Sec. 49.12 and existing Sec. 45.2(f) and
(g).
The amendments to Sec. 49.12 related to SDR information will also
be substantially similar to the SEC's requirements for its SBSDRs.\372\
The Commission expects that there will be substantial overlap in these
requirements for SDRs that are also SBSDRs and these entities will be
able to leverage resources to reduce any duplicative costs.
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\372\ See 17 CFR 240.13n-7 (detailing the SBSDR recordkeeping
requirements).
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Joint SDR objected to the requirements moved to final Sec.
49.12(b) that requires SDRs to retain data ``for a period of at least
ten additional years in archival storage from which such records are
retrievable by the swap data repository within three business days.''
\373\ Joint SDR suggested that the Commission harmonize retention
periods with that of Europe and other Commission-regulated
entities.\374\ Joint SDR pointed-out that the Commission collects its
own data from SDRs so the Commission ``can itself retain relevant data
in accordance with its own recordkeeping policies.'' \375\
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\373\ Final Sec. 49.12(b); See Joint SDR at 11.
\374\ Joint SDR at 11.
\375\ Id.
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The Commission recognizes that the ten-year archival storage is
lengthy, but the Commission notes that this period is the current SDR
retention periods for the same data under existing Sec. 45.2(f) and
(g) \376\ and that the Commission has not proposed to modify this
current requirement. The amendments to Sec. 49.12(b) are part of the
Commission's effort to better organize its own rules, not the result of
the Commission changing a current requirement. As a
[[Page 75644]]
result, there are no new costs to SDRs associated with the retention
period in final Sec. 49.12(b). The Commission also continues to
believe the ten-year period is reasonable. Archived data is important
to regulatory oversight and the SDRs serve as the source of SDR data
for the Commission. The Commission benefits from access to archived
swap data, for the purpose of understanding trends in swaps markets,
such as exposures, trades, and positions, and guarding against abusive
practices.
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\376\ 17 CFR 45.2(f) and (g).
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The Commission believes that the amendments to Sec. 49.12 will
provide greater clarity to SDRs in regards to their recordkeeping
responsibilities. The amendments also will help improve efforts to
track data reporting errors, because the requirements for SDRs to
maintain records of reporting errors will be clearer. Data
recordkeeping should lead to better quality data by allowing an SDR and
the Commission to look for patterns in records that may lead to
adjustments to SDR systems or future adjustments to reporting policies.
The availability of quality records is also crucial for the Commission
to effectively perform its market surveillance and enforcement
functions, which benefit the public by protecting market integrity and
identifying risks within the swaps markets.
Notwithstanding the anticipated incremental costs of Sec. 49.12,
the Commission believes this change is warranted in light of the
anticipated benefits.
ix. Sec. 49.17--Access to SDR Data
The Commission is finalizing Sec. 49.17 as proposed. Final Sec.
49.17(b)(3) amends the definition of ``direct electronic access'' to
mean an electronic system, platform, framework, or other technology
that provides internet-based or other form of access to real-time SDR
data that is acceptable to the Commission and also provides scheduled
data transfers to Commission electronic systems.
Final Sec. 49.17(c) requires an SDR to provide access to the
Commission for all SDR data maintained by the SDR pursuant to the
Commission's regulations. Final Sec. 49.17(c)(1) requires an SDR to
provide direct electronic access to the Commission or its designee in
order for the Commission to carry out its legal and statutory
responsibilities under the CEA and Commission regulations. Final Sec.
49.17(c)(1) also requires an SDR to maintain all SDR data reported to
the SDR in a format acceptable to the Commission, and transmit all SDR
data requested by the Commission to the Commission as instructed by the
Commission.
Final Sec. 49.17(c)(1) amends the requirements of existing Sec.
45.13(a) from maintaining and transmitting ``swap data'' to maintaining
and transmitting ``SDR data,'' to make clear that an SDR must maintain
all SDR data reported to the SDR in a format acceptable to the
Commission and transmit all SDR data requested by the Commission, not
just swap data.
Final Sec. 49.17(c)(1) also modifies the requirements of existing
Sec. 45.13(a) from ``transmit all swap data requested by the
Commission to the Commission in an electronic file in a format
acceptable to the Commission'' to ``transmit all SDR data requested by
the Commission to the Commission as instructed by the Commission,'' and
explains what these instructions may include.
The Commission also is finalizing amendments to Sec. 49.17(f) to
replace the incorrect reference to Sec. ``37.12(b)(7)'' at the end of
paragraph (f)(2) with a correct reference to Sec. ``39.12(b)(7)'' of
the Commission's regulations, as there is no Sec. 37.12(b)(7) in the
Commission's regulations.
The Commission's amendments also include the movement of the
delegation of authority in existing Sec. 49.17(i) to final Sec.
49.31(a)(7).
The Commission believes that Sec. 49.17 will generate costs and
benefits. In the Proposal, the Commission asked for public comment on
its consideration of costs and benefits. DDR commented that an SDR
cannot estimate costs of proposed Sec. 49.17(c)(1) because the
proposed rule provided ``no specificity as to the method, timing,
format or transmission frequency for required transmission of SDR data
requested by the Commission'' and left ``the requirements associated
with both the provision of direct electronic access and the maintenance
of SDR data to be determined by the Commission at a later date.'' \377\
While the Commission agrees that costs may be difficult to determine,
the Commission notes that no commenters provided information related to
current costs associated with responding to the similar current
requirements for scheduled data transfers. If the Commission possessed
current financial and staffing outlays, the Commission could consider
incremental increases or decreases that might result from finalizing
Sec. 49.17.
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\377\ DDR at 5.
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The Commission continues to believe that the costs imposed by the
changes to Sec. 49.17(c) will fall mainly on SDRs, because SDRs will
incur costs to provide the Commission with direct electronic access to
all SDR data and to provide access to SDR data as instructed. The costs
associated with the use of the term ``direct electronic access'' in
Sec. 49.17(c) are negligible, as SDRs are currently required to
provide the Commission with direct electronic access and the definition
is being modified to allow SDRs more flexibility in providing the
Commission with direct electronic access to SDR data, subject to the
Commission's approval. The other amendments to Sec. 49.17(c) grant the
Commission greater flexibility to instruct SDRs on how to transfer SDR
data to the Commission at the Commission's request. As mentioned above,
the Commission currently works closely with SDRs to facilitate data
transfers and implement technology changes. The Commission anticipates
that because the rule changes reinforce the existing working
relationships, there will be better communications between the
Commission and SDRs that will help both parties devise efficient and
cost-effective ways to facilitate the transfer of SDR data to the
Commission. As explained in the Proposal, SDRs are already required to
transmit data under existing Sec. 49.17(b)(3) and (c)(1), and are
required to transmit all swap data requested by the Commission to the
Commission in an electronic file in a format acceptable to the
Commission under existing Sec. 45.13(a). It is also current market
practice for SDRs to regularly provide SDR data to the Commission as
instructed by Commission staff. The changes in final Sec. 49.17 do not
substantially change the current requirements or market practices.
The final changes to Sec. 49.17(b)(3) that modify the definition
of ``direct electronic access'' to allow for more technological
flexibility will likely reduce future costs for SDRs because the
amendment allows the Commission to consider any technology that may
provide direct electronic access. This will allow the Commission to
adapt to changing technology more quickly and may allow SDRs to save
costs by having more efficient technology and processes approved in the
future.
The Commission continues to believe that the amendments to Sec.
49.17 will be beneficial to SDRs by including the data access
requirements applicable to SDRs in one section and by more clearly
stating the Commission's ability to instruct SDRs on all aspects of
providing SDR data to the Commission.
Notwithstanding the anticipated incremental costs of Sec. 49.12,
the Commission believes the changes are warranted in light of the
anticipated benefits.
[[Page 75645]]
x. Sec. 49.25--Financial Resources
The Commission is finalizing changes to Sec. 49.25 as proposed,
except for the proposed amendments to Sec. 49.25(f)(3). The conforming
changes to Sec. 49.25 eliminate the reference to Sec. 49.9 and to
core principle obligations identified in Sec. 49.19. Final Sec.
49.25(a) refers to SDR obligations under ``this chapter,'' to be
broadly interpreted as any regulatory or statutory obligation specified
in part 49. The Commission considered these to be non-substantive
changes that will not impact existing obligations on SDRs, and
therefore have no cost-benefit implications. The Commission did not
receive any comments on this point.
The Commission is not finalizing proposed amendments to Sec.
49.25(f)(3) to extend the time SDRs have to submit their quarterly
financial resources reports to 40 calendar days after the end of the
SDR's first three fiscal quarters, and 90 days after the end of the
SDR's fourth fiscal quarter, or a later time that the Commission
permits upon request. As discussed above, the Commission has determined
not to address the proposed changes to the filing deadline for the
annual compliance report under Sec. 49.22(f)(2) in this final
rulemaking. Accordingly, the Commission is not adopting the related
proposed amendment to Sec. 49.25(f)(3).
xi. Sec. 49.26--Disclosure Requirements of Swap Data Repositories
The Commission is finalizing Sec. 49.26 as proposed. Final Sec.
49.26 includes updates to the introductory paragraph of Sec. 49.26 to
reflect updates to the terms ``SDR data,'' ``registered swap data
repository,'' and ``reporting entity'' in final Sec. 49.2. The
Commission is also finalizing updates to other defined terms used in
the section to conform to the amendments to Sec. 49.2. These non-
substantive amendments do not change the requirements of Sec. 49.26
and do not have cost-benefit implications.
The Commission also is finalizing Sec. 49.26(j) as proposed. Final
Sec. 49.26(j) requires that the SDR disclosure document set forth the
SDR's policies and procedures regarding the reporting of SDR data to
the SDR, including the SDR data validation and swap data verification
procedures implemented by the SDR, and the SDR's procedures for
correcting SDR data errors and omissions (including the failure to
report SDR data as required pursuant to the Commission's regulations).
The Commission requested public comments on its cost-benefit
considerations related to Sec. 49.26, but the Commission did not
receive any comments.
The Commission believes that costs related to final Sec. 49.26
will be limited and incremental given that current Sec. 49.26 requires
every SDR to issue disclosure documents.\378\ Costs will likely entail
the costs related to adding information required under final Sec.
49.26(j) to the required SDR disclosure document and updating the
document as needed. For example, there may be administrative and staff
costs to revise current SDR disclosure documents to include the
required information.
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\378\ See 17 CFR 49.26(a) through (i).
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The Commission expects that the addition of final Sec. 49.26(j)
will benefit market participants by providing more instructive
information regarding data reporting to SDR users. The availability of
this information should improve data reporting, because SDR users will
be able to align their data reporting systems with SDRs' data reporting
systems before using the SDRs' services. SDR users will be able to
prepare operations and train staff before reporting SDR data and,
thereby, able reduce reporting errors and potential confusion.
Notwithstanding the anticipated incremental costs associated with
Sec. 49.26, the Commission believes this change is warranted in light
of the anticipated benefits.
xii. Sec. 49.28--Operating Hours of Swap Data Repositories
The Commission is finalizing Sec. 49.28 as proposed. Final Sec.
49.28 provides more detail on an SDR's responsibilities with respect to
hours of operation. Final Sec. 49.28(a) requires an SDR to have
systems in place to continuously accept and promptly record all SDR
data reported to the SDR, and, as applicable, publicly disseminate all
swap transaction and pricing data reported to the SDR pursuant to part
43. Final Sec. 49.28(a)(1) allows an SDR to establish normal closing
hours to perform system maintenance when, in the SDR's reasonable
estimation, the SDR typically receives the least amount of SDR data,
and requires the SDR to provide reasonable advance notice of its normal
closing hours to market participants and the public.
Final Sec. 49.28(a)(2) allows an SDR to declare, on an ad hoc
basis, special closing hours to perform system maintenance that cannot
wait until normal closing hours. Final Sec. 49.28(a)(2) requires an
SDR to schedule special closing hours during periods when, in the SDR's
reasonable estimation while considering the circumstances that prompt
the need for the special closing hours, the special closing hours will
be least disruptive to the SDR's data reporting responsibilities. Final
Sec. 49.28(a)(2) also requires the SDR to provide reasonable advance
notice of the special closing hours to market participants and the
public whenever possible, and, if advance notice is not reasonably
possible, to give notice to the public as soon as is reasonably
possible after declaring special closing hours.
Final Sec. 49.28(b) requires an SDR to comply with the
requirements under part 40 of the Commission's regulations when
adopting or amending normal closing hours or special closing
hours.\379\
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\379\ This requirement already applies to SDRs pursuant to
current Sec. 43.3(f)(3). See 17 CFR 43.3(f)(3).
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Final Sec. 49.28(c) requires an SDR to have the capability to
accept and hold in queue any and all SDR data reported to the SDR
during normal closing hours and special closing hours \380\ Final Sec.
49.28(c)(1) requires an SDR, on reopening from normal or special
closing hours, to promptly process all SDR data received during the
closing hours and, pursuant to part 43, publicly disseminate swap
transaction and pricing data reported to the SDR that was held in queue
during the closing hours.\381\ Final Sec. 49.28(c)(2) requires an SDR
to immediately issue notice to all SEFs, DCMs, reporting
counterparties, and the public in the event that the SDR is unable to
receive and hold in queue any SDR data reported during normal closing
hours or special closing hours. Final Sec. 49.28(c)(2) also requires
an SDR to issue notice to all SEFs, DCMs, reporting counterparties, and
the public that the SDR has resumed normal operations immediately on
reopening. Final Sec. 49.28(c)(2) requires a SEF, DCM, or reporting
counterparty that was not able to report SDR data to an SDR because of
the SDR's inability to receive and hold in queue SDR data to report the
SDR data to the SDR immediately after receiving such notice that the
SDR has resumed normal operations.\382\
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\380\ Final Sec. 49.28(c) expands the similar existing
requirements for swap transaction and pricing data in current Sec.
43.3(g) to all SDR data and largely follows the SBSDR requirements
to receive and hold in queue information regarding security-based
swaps.
\381\ Final Sec. 49.28(c)(1) expands the similar existing
requirements for the SDRs to disseminate swap transaction and
pricing data pursuant to current Sec. 43.3(g)(1) to also include
the prompt processing of all other SDR data received and held in
queue during closing hours. The requirements also largely follow the
SBSDR requirements for disseminating transaction reports after
reopening following closing hours.
\382\ Final Sec. 49.28(c)(2) expands the similar existing
requirements for swap transaction and pricing data in current Sec.
43.3(g)(2) to all SDR data and is largely consistent with the SBSDR
requirements to receive and hold in queue information regarding
security-based swaps.
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[[Page 75646]]
The Commission requested public comment on its consideration of
costs and benefit related to Sec. 49.28 but did not receive any.
The Commission continues to believe that the final requirements,
which are largely based on existing rule text found in current Sec.
43.3(f) and (g), will have limited cost implications for SDRs. There
may be costs associated with any needed modification to SDR systems to
accommodate all SDR data during closing hours, as opposed to only swap
transaction and pricing data. These costs will be incremental because
all SDRs currently have policies, procedures, and systems in place to
accommodate all SDR data during closing hours under the current
requirements.
The Commission also still believes that SDRs, market participants,
and the public will benefit from final Sec. 49.28 because the
requirements for setting closing hours and handling SDR data during
closing hours will be clearer. Final Sec. 49.28 removes discrepancies
between current requirements for SDRs and SBSDRs related to closing
hours, which will allow SDRs that are also registered as SBSDRs to
comply with one consistent requirement.
Notwithstanding the anticipated incremental costs related to Sec.
49.28, the Commission believes the addition of Sec. 49.28 is warranted
in light of the anticipated benefits.
xiii. Sec. 49.29--Information Relating to Swap Data Repository
Compliance
The Commission is finalizing new Sec. 49.29 as proposed, which
requires an SDR to respond to Commission information requests
regarding, among other things, its business as an SDR and its
compliance with SDR regulatory duties and core principles.
Final Sec. 49.29(a) requires an SDR, upon request of the
Commission, to file certain information related to its business as an
SDR or other such information as the Commission determines to be
necessary or appropriate for the Commission to perform its regulatory
duties. An SDR must provide the requested information in the form and
manner and within the time specified by the Commission in its request.
Final Sec. 49.29(b) requires an SDR, upon the request of the
Commission, to demonstrate compliance with its obligations under the
CEA and Commission regulations, as specified in the request. An SDR
must provide the requested information in the form and manner and
within the time specified by the Commission in its request. Final Sec.
49.29 is based on similar existing Commission requirements applicable
to SEFs and DCMs.\383\
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\383\ See, e.g., 17 CFR 37.5 and 38.5.
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The costs associated with responding to requests for information
include the staff hours required to prepare and submit materials
related to the Commission's requests. These costs will vary among SDRs
depending upon the nature and frequency of Commission inquiries. The
Commission expects these requests to be limited in both size and scope,
which will likely mitigate the associated costs for SDRs. While final
Sec. 49.29 allows the Commission to make requests on an ad hoc basis,
the Commission expects that the need for these requests will decrease
over time as SDR data quality and SDR compliance with Commission
regulations improve.\384\
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\384\ The Commission currently exercises similar authority fewer
than ten times per year in total with other registered entities,
such as SEFs, DCMs, and DCOs.
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DDR commented that because proposed Sec. 49.29 provided ``no
detail as to the potential scope of a request or to the form, manner
and timing associated with satisfying the request'' an SDR could not
assess accurately costs associated with the rule.\385\ While the
Commission agrees that costs are difficult to accurately determine, the
Commission notes that no commenters provided current costs associated
with responding to requests for information, as currently SDRs
routinely provide the same information to the Commission on request. If
the Commission possessed current cost information related to responding
to requests, the Commission could consider incremental increases or
decreases that might result from finalizing Sec. 49.29 as proposed.
Without that information as a reference, the Commission continues to
believe that there will be an incremental cost for each response. Yet,
the Commission also believes that that costs will be mitigated by the
fact that current practice is for SDRs to provide similar information
to the Commission on request and that the SDRs do so regularly. In
addition, SDRs will be required to adhere to form and manner
specifications established pursuant to final Sec. 49.30. The
Commission expects that clearly defining the form and manner for each
response will further mitigate the cost burden to SDRs that may arise
from any uncertainty as to the information to be provided.
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\385\ DDR at 7.
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Benefits attributed to final Sec. 49.29 include improving the
Commission's oversight of SDRs due to Commission inquiries. The
Commission expects that this oversight will lead to improved data
quality and SDR compliance with Commission regulations. Better data
quality will help improve the Commission's ability to fulfill its
regulatory responsibilities and help to increase the Commission's
understanding of the swaps market. These improvements are expected to
benefit the public because accurate and complete SDR data reporting
improves the Commission's analyses and oversight of the swaps markets,
and increases market integrity due to the Commission's improved ability
to detect and investigate noncompliance issues and oversee their
correction.
The Commission also continues to believe that final Sec. 49.29
will help the Commission to obtain the information it needs to perform
its regulatory functions more effectively, as opposed to requiring SDRs
to supply information on a set schedule, such as under the current
requirement for annual Form SDR updates in Sec. 49.3(a)(5). This will
reduce the burden on SDRs, as the SDRs will no longer need to expend
resources to prepare annual filings.
Notwithstanding the anticipated incremental costs related to Sec.
49.29, the Commission believes the addition of Sec. 49.29 is warranted
in light of the anticipated benefits.
xiii. Sec. 49.30--Form and Manner of Reporting and Submitting
Information to the Commission
The Commission is finalizing new Sec. 49.30 as proposed to address
the form and manner of information the Commission requests from SDRs.
Final Sec. 49.30 establishes the broad parameters of the ``form
and manner'' requirements found in part 49. The form and manner
requirement in Sec. 49.30 will not supplement or expand upon existing
substantive provisions of part 49, but instead, will allow the
Commission to specify how information reported by SDRs should be
formatted and delivered to the Commission. Final Sec. 49.30 provides
that an SDR must submit any information required under part 49, within
the time specified, using the format, coding structure, and electronic
data transmission procedures approved in writing by the Commission.
The Commission continues to believe that the form and manner
requirements will have costs associated with conforming reports and
information to Commission specifications. For instance, there may be
costs associated with staff hours and technology used to format
reports. DDR commented that because proposed Sec. 49.30 was vague, an
[[Page 75647]]
SDR could not assess accurately costs associated with the rule.\386\
While the Commission agrees that costs are difficult to determine, the
Commission notes that no commenters provided current reporting costs or
projections for staffing and systems costs, which the Commission could
use to consider incremental increases or decreases that might result
from finalizing Sec. 49.30 as proposed.
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\386\ DDR at 7.
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The Commission continues to believe that, in practice, the
incremental costs of Sec. 49.30 will be limited, because SDRs have
ample experience working with Commission staff to deliver data,
reports, and other information in the form and manner requested by
Commission staff. The Commission believes that this experience will
significantly mitigate the costs of similar activities under this
requirement. The Commission also still believes that the Commission
will benefit through increased standardization of information provided
by SDRs, thereby aiding the Commission in the performance of its
regulatory obligations by ensuring the provided information is in
useable formats and delivered by usable methods. The ability to
standardize the form and manner of information provided to the
Commission will also help SDRs to efficiently fulfill their obligations
to provide information to the Commission.
Notwithstanding the anticipated incremental costs related to Sec.
49.30, the Commission believes the addition of Sec. 49.30 is warranted
in light of the anticipated benefits.
5. Costs and Benefits of Amendments to Part 45
i. Sec. 45.2--Swap Recordkeeping
The Commission is moving existing Sec. 45.2(f) and (g) (SDR
recordkeeping and SDR records retention, respectively) to final Sec.
49.12. As such, all costs and benefits associated with this change are
discussed in the section, above, that discusses the amendments to Sec.
49.12.
ii. Sec. 45.14--Correcting Errors and Omissions in Swap Data and
Verification of Swap Data Accuracy
The Commission is adopting proposed Sec. 45.14, with
modifications, to improve the requirements to correct data errors and
to verify data. Currently, the Commission requires error corrections
but it does not directly require reporting counterparties to verify
data. In the Proposal, the Commission outlined error correction and
verification processes that included specific actions and timelines for
those actions. In response to comments on the Proposal, the Commission
is modifying final Sec. 45.14 so that the error-correction and
verification processes for reporting counterparties are less burdensome
and more flexible than the processes set forth in the Proposal. The
Commission will discuss the final error-correction process first, and
then the final verification process.
Final Sec. 45.14(a) sets forth requirements for correcting swap
data errors. Final Sec. 45.14(a) requires a SEF, DCM, or reporting
counterparty to correct swap data errors as soon as technologically
practicable, but no later than seven business days, after discovery.
Final Sec. 45.14(a) requires a SEF, DCM, or reporting counterparty to
correct errors and omissions for open swaps and dead swaps, but Sec.
45.14(a)(3) provides that the error correction requirement does not
apply to swaps for which the applicable record retention period under
Sec. 45.2 has expired. Final Sec. 45.14(a)(2) requires a non-
reporting counterparty that becomes aware of an error to notify the
reporting counterparty of the error as soon as technologically
practicable, but no later than three business days, after discovery. If
a non-reporting counterparty does not know the identity of the
reporting counterparty, the non-reporting counterparty must notify the
SEF or DCM where the swap was executed of the error as soon as
technologically practicable, but no later than three business days,
following the discovery.
Final Sec. 45.14(a) differs from current Sec. 45.14, because it
provides more parameters for SEFs, DCMs, and reporting counterparties
correcting errors and sets timelines for correcting errors or issuing
error notices to the Commission. Current Sec. 45.14(a) requires each
registered entity or swap counterparty to report discovered data errors
and omissions as soon as technologically practicable, but there is no
deadline for making a correction.\387\ Current Sec. 45.14(b) requires
a non-reporting counterparty to promptly notify the reporting
counterparty of any errors or omissions, but the rule does not define
promptly.\388\ Proposed Sec. 45.14(b) would have required a SEF, DCM,
or reporting counterparty to correct errors or notify the Director of
DMO within three business days of discovery of errors, regardless of
the state of the swap.
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\387\ 17 CFR 45.14(a).
\388\ 17 CFR 45.14(b).
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In final Sec. 45.14(a), the Commission establishes a seven-day
correction period in response to comments that the proposed three-day
period to correct or notify would not be practicable.\389\ One
commenter asserted that the Commission's proposed rule was a ``one size
fits all'' approach that failed to account for ``different errors and
omission scenarios and levels of materiality'' with an impractical
error remediation period that would result in an excessive volume of
notifications being sent to the director of DMO \390\ The proposed
three-day period was based on the Commission's preliminary belief that
the costs related to correcting errors and omissions or drafting
remediation plans and sending notices would not impose an undue burden
on reporting counterparties. Commenters stated that the requirements of
proposed Sec. 45.14(b), such as the notification requirement, would
consume significant resources, even for immaterial errors, that would
take away resources needed to actually correct errors.\391\ Commenters
also explained that the proposed three-day deadline would be burdensome
because the process for identifying errors and then resolving such
issues often takes more than three business days.\392\ The Commission
is persuaded by comments that the three-day period, as proposed, would
hamper the correction of errors.
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\389\ ISDA/SIFMA at 46. FIA May at 8-9; ICE Clear at 3.
\390\ ISDA/SIFMA at 45-46. See also FIA May at 8 (``Verification
of swap data and/or remediation of known errors or omission is not a
``one-size-fits-all' task'').
\391\ ISDA/SIFMA at 46. See also GFMA at 6, 12 (timeframe should
be in business days); CEWG at 5-6 (For a non-registrant reporting
counterparty, it would be difficult to address a reporting error
while simultaneously commit resources to file a report with the
Commission).
\392\ FIA May at 8 (``Members report that these reviews
routinely take significantly more than three business days to
determine scope, let alone to outline a remediation plan to a
regulator.''); ISDA/SIFMA at 45-46 (three days would often not be
enough time to fine the causes and scope of errors and omissions and
submit a report); GFMA at 13 (proposed verification process would
impose significant headcount costs).
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The Commission believes there will be costs associated with
correcting errors under the revised seven-business day correction
period. Market participants correcting errors will need to expend
technological and staff resources to identify the causes of data errors
and resources to correct errors. The amount of resources used will
likely be dictated by the complexity of the error. The Commission notes
that these costs will be minimal, compared to current requirements,
because the current requirements would necessitate the same cause
identification and error correction. The seven-day deadline in final
Sec. 45.14, however, will require
[[Page 75648]]
some reporting counterparties to allocate resources differently to meet
the deadline, because the current error-correction rule has no time
deadline.\393\
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\393\ See generally 17 CFR 45.14.
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The Commission believes that market participants will benefit from
the seven-day correction period because it eliminates any uncertainty
about the time period in which market participants must correct errors
before notifying the Commission of an issue. A time period also helps
market participants manage time in terms of scheduling and assigning
resources to correct errors. The Commission believes seven business
days is sufficient time to complete the steps needed to identify,
investigate, and rectify most errors or omissions. The Commission also
believes that the seven-day period, as compared to the absence of a
deadline in current Sec. 45.14, will not negatively affect the
Commission's regulatory duties, including its ability to monitor swaps
markets. Under the current error correction requirements,
counterparties have neglected to inform SDRs of errors or omissions for
extended periods, which has meant that SDRs have transmitted inaccurate
data to the Commission and the Commission may have relied on inaccurate
data while performing its regulatory responsibilities.
The Commission is also modifying, in final Sec. 45.14, the
proposed requirement for a reporting counterparty to produce
remediation plans and issue notices to the Commission, and for a non-
reporting counterparty to notify a reporting counterparty, SEF, or DCM
of errors, as applicable.\394\ Current Sec. 45.14 does not require
market participants to issue any error notices or submit a remediation
plan, if one exists, to the Commission. Final Sec. 45.14 requires SEF,
DCM, or reporting counterparties to notify the Commission of any error
that cannot be corrected within seven business days of discovery. The
notice must include an initial assessment of the scope of the error and
an initial remediation plan, if one exists. This notification must be
made within twelve hours of the SEF's, DCM's, or reporting
counterparty's determination that it will fail to timely correct the
error.
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\394\ Proposal at 84 FR 21069-70 (May 13, 2019) (discussion of
proposed Sec. 45.14(b)(1)(ii) and the current practices for
remediation plans).
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The Commission believes that the final Sec. 45.14 requirement to
issue error notices will generate costs. Market participants will need
to expend technological and staff resources to develop and maintain
notification systems. SEF's, DCM's, and reporting counterparties will
incur additional costs to develop systems to assess the scope of an
error and to submit initial remediation plans, if they decide to use
such plans. For SEFs, DCMs, and reporting counterparties that already
send the Commission error-correction notices and remediation plans, the
costs will be incremental.\395\
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\395\ Proposal at 84 FR 20170 (May 13, 2019).
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The Commission believes that error correction notices are
beneficial because they will help alert the Commission to data that is
unreliable and to reporting issues. Notices also will help the
Commission monitor whether market participants are complying with
Commission regulations. If a market participant creates an initial
remediation plan, it will be useful to the market participants and the
Commission because such plans help with tracking errors, identifying
data issues, discovering recurring errors, and preventing errors from
reoccurring. The Commission also believes that the inclusion of the
technical specification and validation requirements for swap data in
parallel Commission rulemaking \396\ will help reduce certain types of
swap data reporting errors, and reduce the need for market participants
to correct those types of errors and, as a result, the corresponding
costs incurred by market participants to correct swap data errors will
likely decrease over time. Finally, the Commission believes that the
error correction process becomes less burdensome and less disruptive
when market participants remedy data errors as soon as possible and in
an organized manner.
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\396\ See generally 85 FR 21578, et seq. (Apr. 17, 2020).
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The Commission also believes that the final Sec. 45.14 error
correction process will improve data accuracy and will enable the
Commission to better monitor risk and identify issues in the swaps
markets. As discussed above, the Commission currently issues a weekly
swaps report and quarterly entity-netted notional reports using swaps
data.\397\ Using swap data, the weekly swaps report has the capacity to
illustrate trends in exposures, trades, and positions, and the entity-
netted notional reports measure the transfer of risk in swaps markets.
Both reports give the Commission and the public greater insight into
trading behavior, liquidity, pricing, various types of risk, and how
swaps markets work in general--all factors important in developing
policy and allocating oversight resources. More accurate swap data will
increase the usefulness of these reports.
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\397\ The weekly swaps report is available at: https://www.cftc.gov/MarketReports/SwapsReports/index.htm. ENNs reports for
different asset classes are available at: https://www.cftc.gov/About/EconomicAnalysis/ReportsOCE/index.htm.
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The Commission is requiring error corrections for all swaps that
are within their respective records retention periods. In a change from
the Proposal, and is response to comments received, the Commission is
finalizing a limit on the SEFs', DCMs', and reporting counterparties'
obligations to correct errors in swap data that confines the error
correction requirements to errors discovered during the relevant
recordkeeping periods for the relevant swaps under Sec. 45.2. The
Commission recognizes the comments that argued that correcting swaps
that are outside of their record retention periods is burdensome and
impractical. ISDA/SIFMA explained that as dead swaps ``no longer pose
risks to U.S. markets, it is unclear how correcting any errors would
enhance the Commission's ability to monitor risk.'' \398\ ISDA/SIFMA
also remarked that there would be costs incurred by SDRs and reporting
counterparties that are associated with correcting dead swaps, such as
maintaining and storing data and building validations that can
accommodate the reporting of dead swaps.\399\
---------------------------------------------------------------------------
\398\ ISDA/SIFMA at 47.
\399\ Id.
---------------------------------------------------------------------------
The Commission acknowledges that the burden shouldered by market
participants to expend resources to correct older data and to maintain
legacy formats will affect costs and complexity of compliance.\400\
However, there is value in correcting dead swaps, as the Commission is
charged with ensuring market integrity and guarding against fraud and
manipulation, among its other regulatory responsibilities, which
includes the use of data for dead swaps. With accurate data, including
for dead swaps, the Commission will be able to better analyze years of
market activity, study market events, perform back-testing, and,
ultimately, use the swap data to inform policy.\401\ The
[[Page 75649]]
correction of dead swaps also provides a strong incentive for market
participants to properly design their reporting systems, to perform
thorough verification, and to promptly correct errors, to avoid or
mitigate the cost of correcting data errors, which will improve data
quality.
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\400\ Id. at 46-47. See also FIA May at 9.
\401\ For example, since January 2013, the Commission has
produced weekly swaps data, and since early 2018, the Commission has
issued quarterly, ENNs reports. Over time, Commission staff will be
able to produce studies using historical swaps data, similar to the
papers about futures trading. See, e.g., ``Commodity Index Trading
and Hedging Costs,'' Celso Brunetti and David Reiffen, August 2014,
Journal of Financial Markets, vol. 21, pp. 153-180, available at:
https://doi.org/10.1016/j.finmar.2014.08.001 (authors used 10 years
of futures data, 2003-2012; ``The Lifecycle of Exchange-traded
Derivatives,'' Grant Cavanaugh and Michael Penick, July 2014,
Journal of Commodity Markets, vol. 10, pp. 47-68, available at
https://doi.org/10.1016/j.jcomm.2018.05.007 (authors studied over 50
years of futures data from 1954 to the 2000s).
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In final Sec. 45.14(b), the Commission is requiring reporting
counterparties to verify data. Currently, there are no specific
verification requirements for reporting counterparties. The Commission
is adopting verification requirements in final Sec. 45.14(b) that
differ from the process described in the Proposal.
Proposed Sec. 45.14(a) outlined a verification process that
involved an exchange of open swaps reports and messaging between SDRs
and reporting counterparties. Proposed Sec. 45.14(a) would have
required reporting counterparties to reconcile open swaps reports with
their internal records for the swap data and to submit to an SDR a
verification of the accuracy or notice of discrepancy for the relevant
swap data within a 48- or 96-hour period, as applicable,\402\ after
receipt of open swaps reports from the SDR. Proposed 49.11 would have
required an SDR to distribute open swaps reports for verification by
reporting counterparties who are SDs, MSPs or DCOs on a weekly basis
and to other reporting counterparties on a monthly basis. By not
adopting certain elements in proposed Sec. 49.11--that is, the
messaging process based on open swaps reports issued by SDRs--SDRs and
reporting counterparties will have more flexibility (as compared to the
Proposal) in determining how reporting counterparties verify data and
correct errors pursuant to Sec. 45.14.
---------------------------------------------------------------------------
\402\ Under the Proposal, SDs, MSPs and DCOs are subject to a
shorter 48-hour time frame for verification.
---------------------------------------------------------------------------
Final Sec. 45.14(b) modifies the proposed verification process.
Final Sec. 45.14(b)(1) requires a reporting counterparty to utilize
the mechanism provided by an SDR pursuant to final Sec. 49.11 to
access and verify swap data by comparing its internal records for swap
data with the relevant swap data maintained by the SDR. Under final
Sec. 45.14(b)(2), a reporting counterparty must conform to the
relevant SDR's policies and procedures for verification. In final Sec.
45.14(b)(4), the Commission is setting the verification frequency at
every thirty calendar days for reporting counterparties that are SDs,
MSPs, or DCOs, and at every quarter for other reporting counterparties.
Final Sec. 45.14(b)(5) requires a reporting counterparty to maintain a
verification log, wherein the reporting counterparty records the
verifications it performed, errors discovered during the verification
processes, and corrections made. The reporting counterparty must
provide the verification log to the Commission on request.
The Commission understands that the costs of verification processes
under final Sec. 45.14 will involve time and personnel resources for
reporting counterparties. A reporting counterparty may be required to
expend resources to develop processes to access swap data through one
or more SDR mechanisms and to compare swap data maintained by SDRs with
its internal data and records for open swaps. The absence of a
verification process under the Commission's current rules has been
costly in terms of the harmful effect erroneous and incomplete swaps
data submissions have had on the Commission's regulatory efforts,
especially when data errors that could have been discovered through
verification are not discovered and not corrected.
The Commission believes there may be recurring costs associated
with performing monthly and quarterly verifications and with preparing
verification logs. The Commission proposed more frequent verifications
than are included in the final requirement, and some commenters
suggested that the Commission reduce the frequency of the verification
process and focus on key economic fields for trades to alleviate the
costs and the challenges of verification.\403\ A number of commenters
believed that the Commission's technical specifications and validation
requirements proposed from other Roadmap rules would mean that data is
reliable enough for verification to be performed less frequently than
proposed.\404\ The Commission agrees with these comments, and has
reduced the frequency of verifications from the proposed weekly/monthly
to monthly/quarterly, as recommended by commenters.
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\403\ See, e.g., GFMA at 13.
\404\ See ICE Clear at 3 (``By focusing on obtaining a critical
set of data elements, utilizing existing and future upfront data
validations, and leveraging existing requirements to correct errors
and omissions, the Commission has crafted a reporting framework that
should substantially enhance the accuracy, reliability and utility
of swap data.'')
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The Commission believes that the final frequency of verifications
will still support the Commission's objectives for high-quality data
without overburdening reporting counterparties and SDRs.\405\ Monthly
and quarterly verifications, depending on the type of reporting
counterparty, will also require the use of resources, such as personnel
and time, but the Commission believes that reporting counterparties'
verification processes will become more efficient and, in some cases,
automated as experience and technology develops. Also, as commenters
suggested, it is likely that the Commission's enhanced validation and
technical specifications will produce more accurate and reliable data,
in certain respects, which, in turn, will reduce the reduce the amount
of time needed to verify data. Validations and standardized data fields
would help eliminate inappropriately blank data fields, though they
would not eliminate the reporting of incorrect but plausible swap data,
meaning that verification is still a necessity. Reducing or eliminating
the number of inappropriately blank data fields will, however reduce
the number of errors to be discovered in verification and the number of
errors to be corrected.
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\405\ ISDA/SIFMA at 45 (ISDA/SIFMA suggested monthly
verifications for reporting counterparties that are SDs, MSPs, or
DCOs, and quarterly verifications for all other reporting
counterparties).
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The Commission also believes that Sec. 45.14 encourages
accountability, because reporting counterparties must record their data
verification efforts. Under the current regulations, there is little
accountability for counterparties that do not participate in the
confirmation process.
The Commission believes that verification processes that lead to
accurate data are vital to meaningful regulation and essential to
fulfilling the purposes of CEA section 21. With more accurate data, the
Commission can better identify discrepancies in swaps markets,
determine whether market participants are complying with Commission
regulations, and guard against abusive practices. Accurate data also
benefits the public, because it is used to inform the Commission's
policy decisions that help support well-functioning markets.
For proposed Sec. 45.14, like proposed Sec. 49.11, commenters
provided qualitative comments in response to the Commission's
consideration of costs and benefits. Commenters did not provide
quantitative information.
Based on the Commission's familiarity with reporting counterparty
operations and the currently collected data, the Commission recognizes
there will be monetary costs for reporting counterparties to comply
with the error-correction and verification requirements
[[Page 75650]]
in Sec. 45.14. For the error-correction process, the Commission
estimates that SEFs, DCMs, and reporting counterparties will each spend
about 30 hours per year correcting data previously submitted to SDRs,
providing notices to the Commission, and submitting remediation plans,
if such plans exist.\406\ Those hours will not be new time commitments
because reporting counterparties are currently required to correct
errors. The Commission monetizes the hours by multiplying by a wage
rate of $48 to $101.\407\ Accordingly, the Commission estimates that
each reporting counterparty will expend between $1,440 and $3,030
annually to implement Sec. 45.14(a), and each non-reporting
counterparty will expend between $48 and $101.
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\406\ Proposal at 84 FR 21076 (May 13, 2019).
\407\ See supra note 344 (discussion of BLS wage estimates).
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The Commission estimates that the hours needed for reporting
counterparties to meet their verification obligations under the final
rules will be less than the hours estimated to be required under the
Proposal, as a result of the technical specifications and validation
requirements from other Roadmap rulemakings, which the Commission
expects will reduce errors in the first instance, and because the
verification process under final Sec. 45.14(b) will be less time-
consuming than the requirements under proposed Sec. Sec. 45.14(a) and
49.11. The Commission understands that the hours and rates will vary
based on many factors, including each reporting counterparty's
expertise in data reporting and operational size. The Commission
estimates that the initial efforts to implement Sec. 45.14(b) will
require 100 hours on average, meaning each reporting counterparty will
expend up to 100 hours a year to establish systems to verify data and
prepare verification logs. The Commission estimates these efforts to
cost between $4,800 to $10,100, which are the sums of the hours
multiplied by a wage rate of $48 to $101.\408\ The Commission estimates
that reporting counterparties will expend up to two hours every 30 days
to verify data, or 24 hours annually. The annual costs to verify data
every 30 days for some reporting counterparties will range between
$1,152 and $2,424. The annual costs to expend up to two hours every
quarter to verify data for other reporting counterparties will range
between $384 and $808.
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\408\ See supra note 344 (discussion of BLS wage estimates).
---------------------------------------------------------------------------
Besides considering proposed Sec. 45.14, the Commission considered
and rejected the idea of maintaining current Sec. 45.14. The
Commission rejected this approach because it has become evident that
mandates to correct errors and verification processes improve data
quality, and that current requirements have proven inadequate for
providing the Commission with the level of data quality that it
requires to perform its regulatory functions. As explained above, the
current regulations for confirmation and error correction have resulted
in the Commission receiving data that is presumed accurate, when this
is often not the case. The Commission also has observed that the
absence of a verification requirement has resulted in counterparties
neglecting to inform SDRs of errors, or otherwise not discovering even
glaring errors in swap data, often for long periods of time. This
leaves the Commission with flawed data, which hinders the Commission's
ability to understand the nature of swaps, price fluctuations, and
markets generally, and hampers the Commission's ability to perform its
regulatory functions. Thus, the Commission believes the alternative of
retaining current Sec. 45.14 would undermine the Commission's
regulatory efforts and hinder the Commission's ability to make informed
decisions using accurate data.
Notwithstanding the anticipated incremental costs related to final
Sec. 45.14 and after considering alternative approaches, the
Commission believes the amendments to Sec. 45.14 are warranted in
light of the anticipated benefits.
6. Costs and Benefits of Amendments to Part 43
Sec. 43.3(e)--Error Correction
The Commission is amending the error correction requirements of
existing Sec. 43.3(e) to conform to the error correction requirements
in Sec. 45.14. The amendments to Sec. 43.3(e) create regulatory
consistency and reduce any confusion around error-correction
requirements for data under Part 43 and swap data required under Part
45.
Final Sec. 43.3(e)(1) requires any SEF, DCM, or reporting
counterparty that by any means becomes aware of any errors in swap
transaction and pricing data previously-reported, or not properly
reported, to an SDR by the SEF, DCM, or reporting counterparty to
submit corrected swap transaction and pricing data to the SDR
regardless of the state of the swap, including swaps that have
terminated, matured, or are otherwise no longer open. Final Sec.
43.3(e)(1)(i) requires a SEF, DCM, or reporting counterparty to correct
swap transaction and pricing data as soon as technologically
practicable following discovery of the errors, but no later than seven
business days following the discovery of the error. Under final Sec.
43.3(e)(1)(ii), if a SEF, DCM, or reporting counterparty is unable to
correct the errors within seven business days following discovery of
the errors, the SEF, DCM, or reporting counterparty must inform the
Director of DMO, or his or her designee, of such errors or omissions
and provide an initial assessment of the scope of the errors or
omissions and an initial remediation plan for correcting the errors, if
one exists, within 12 hours of determining that the correction cannot
be made within the required time frame. Final Sec. 43.3(e)(1)(iii)
requires that a SEF, DCM, or reporting counterparty conform to an SDR's
policies and procedures for corrections of errors in previously-
reported swap transaction and pricing data and reporting of omitted
swap transaction and pricing data.
Final Sec. 43.3(e)(2) applies to a non-reporting counterparty that
becomes aware of any errors in swap transaction and pricing data. Final
Sec. 43.3(e)(2) requires a non-reporting counterparty to inform the
reporting counterparty for the swap of the error, but does not require
the non-reporting counterparty to correct the error. A non-reporting
counterparty has three business days following the discovery of the
errors or omissions to notify the reporting counterparty of the error,
instead of the seven business days provided for corrections under final
Sec. 43.3(e)(1). If a non-reporting counterparty does not know the
identity of the reporting counterparty, the non-reporting counterparty
must notify the SEF or DCM where the swap was executed of the errors
and omissions no later than three business days after the discovery.
The Commission is moving all of the requirements of existing Sec.
43.3(f) and (g) to new Sec. 49.28. As such, all costs and benefits
associated with this change are discussed above in section discussing
Sec. 49.28.
The costs related to final Sec. 43.3(e)(1) are similar to the
costs to correct errors under final Sec. 45.14(a)(1), as the final
rules to each section are intended to be consistent. Final Sec.
43.3(e) will impose costs on SEFs, DCMs, and reporting counterparties
for correcting errors and submitting remediation plans, if they exist,
to the Director of DMO within a seven-day period. Market participants
are also currently required to correct errors under existing Sec.
43.3(e), so costs associated with Sec. 43.3(e) are only those
[[Page 75651]]
that result from the modified requirements as compared to the existing
requirements, such as the requirement for notices. Costs to correct
errors and issue error notices with initial remediation plans, if they
exist, will be mitigated by the fact that the duties under Sec.
43.3(e) are similar to duties in final Sec. 45.14. The Commission also
believes that the costs related to remediation plans will be
incremental because reporting counterparties typically provide a
remediation plan to the Commission as part of current practice. The
seven-day deadline will require some reporting counterparties to
allocate resources differently to meet the deadline because the current
rule does not have a specific time deadline.\409\ The Commission also
believes that the inclusion of the technical specification and
validation requirements for swap transaction and pricing data in
parallel Commission rulemaking \410\ will help reduce certain types of
swap transaction and pricing data reporting errors, and, therefore,
reduce the need for market participants to correct those types of
errors and, as a result, the corresponding costs incurred by market
participants to correct swap transaction and pricing data errors will
likely decrease over time.
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\409\ See generally 17 CFR 43.3(e).
\410\ See generally 85 FR 21516, et seq. (Apr. 17, 2020).
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Non-reporting counterparties also may incur additional costs
related to the requirements in Sec. 43.3(e)(2). Non-reporting
counterparties may expend resources to make the required notification
within the three-day period under final Sec. 43.3(e)(2). Under current
Sec. 43.3(e)(1)(i), non-reporting counterparties must act ``promptly''
so the three-day deadline under the final rule may require non-
reporting counterparties to allocate resources differently to meet the
deadline. The additional requirement in final Sec. 43.3(e)(2) for a
non-reporting counterparty to inform a SEF or DCM of an error if the
identity of the reporting counterparty is not known is intended to
accommodate non-reporting counterparties in fulfilling their role in
the data correction process for swaps executed anonymously. The
Commission expects that non-reporting counterparties will not incur
many costs to notify a SEF or DCM of errors and omissions beyond the
cost currently incurred when notifying reporting counterparties.
As discussed in the section regarding the benefits of final Sec.
45.14, the Commission believes consistent error correction requirements
for swap data and swap transaction and pricing data will help ensure
that the Commission has access to accurate and complete swap
transaction and pricing data in order to fulfill its various regulatory
responsibilities. Accurate swap transaction and pricing data helps the
Commission to monitor and surveil market activity and risks within the
swaps markets. Accurate and complete swap transaction and pricing data
is also beneficial to market participants and the public, who rely on
the data in their swaps-related decision-making. Inaccurate or
incomplete swap transaction and pricing data can create market
volatility. Additionally, the Commission believes that accurate swap
transaction and pricing data is necessary for effective risk management
for swap counterparties, and the correction requirements under the
final rule will help ensure that swap counterparties have access to
accurate and complete swap transaction and pricing data.
SDRs and counterparties also benefit from consistent regulations.
The final rule establishes a swap data error-correction framework for
reporting counterparties in Sec. 45.14. The requirements in final
Sec. 43.3(e) are consistent with the requirements in final Sec.
45.14(a). Both of these rules complement amendments to Part 49 that
require SDRs to provide reporting counterparties with access to swaps
data reporting systems to identify errors and make corrections. The
Commission believes that inconsistent requirements may lead to
confusion and unnecessary efforts by covered entities. By ensuring that
obligations in final Sec. 43.3(e) are consistent with the obligations
to Sec. 45.14, these issues should be avoided. Finally, the Commission
believes its ability to monitor swaps markets is not compromised by the
three-day or seven-day correction and notification periods in final
Sec. 43.3(e). While incorrect data might affect market analysis in the
short-term, there is greater value in possessing accurate data for the
life of a swap that can provide insight into market activity for months
and years; support a point-in-time examination of the data, and enable
back-testing.
The Commission recognizes there will be monetary costs for
reporting counterparties and non-reporting counterparties to comply
with the error-correction and notification requirements in Sec.
43.3(e). For the error-correction and remediation process, the
Commission estimates that 1,729 SEFs, DCMs, and reporting
counterparties will each spend about 30 hours a year correcting swap
transaction and pricing data, providing notices to the Commission and
submitting remediation plans, if such plans exist.\411\ Those hours
will not be new time commitments because reporting counterparties are
currently required to correct errors. Because the Commission believes
that error notifications by non-reporting counterparties will be
infrequent, it estimates that non-reporting counterparties will expend
no more than one hour issuing error notices. The Commission monetizes
the hours by multiplying by a wage rate of $48 to $101.\412\
Accordingly, the Commission estimates that each reporting counterparty
will expend between $1,440 and $3,030 annually to implement Sec.
43.3(e), and each non-reporting counterparty will expend between $48
and $101 annually.
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\411\ Proposal at 84 FR 21076-77 (May 13, 2019).
\412\ See supra note 344 (discussion of BLS wage estimates).
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While the Commission does anticipate incremental costs associated
with Sec. 43.3(e), the Commission believes the amendments to Sec.
43.3(e) are warranted in light of the anticipated benefits related to
error-correction processes that lead to accurate data.
7. Section 15(a) Factors
The Dodd-Frank Act sought to promote the financial stability of the
United States, in part, by improving financial system accountability
and transparency. More specifically, Title VII of the Dodd-Frank Act
directs the Commission to promulgate regulations to increase swaps
market transparency and thereby reduce the potential for counterparty
and systemic risk.\413\ Transaction-based reporting is a fundamental
component of the legislation's objectives to increase transparency,
reduce risk, and promote market integrity within the financial system
generally, and the swaps market in particular. SEFs, DCMs, and
reporting counterparties that submit data to SDRs are central to
achieving the legislation's objectives related to swap reporting.
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\413\ See Congressional Research Service Report for Congress,
The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title
VII, Derivatives, by Mark Jickling and Kathleen Ann Ruane (August
30, 2010); Department of the Treasury, Financial Regulatory Reform:
A New Foundation: Rebuilding Financial Supervision and Regulation 1
(June 17, 2009) at 47-48.
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Section 15(a) of the Act requires the Commission to consider the
costs and benefits of the amendments to parts 43, 45, and 49 with
respect to the following factors:
Protection of market participants and the public;
Efficiency, competitiveness, and financial integrity of
markets;
Price discovery;
[[Page 75652]]
Sound risk management practices; and
Other public interest considerations.
A discussion of these amendments in light of section 15(a) factors
is set out immediately below.
i. Protection of Market Participants and the Public
In the Part 49 Adopting Release, the Commission noted that it
believed that the registration and regulation of SDRs will serve to
better protect market participants by providing the Commission and
other regulators with important oversight tools to monitor, measure,
and comprehend the swaps markets. Inaccurate and incomplete data
reporting hinders the Commission's ability to oversee the swaps market.
The final rules adopted in this release mostly focus on ensuring that
SDRs and reporting counterparties verify and correct errors or
omissions in data reported to SDRs and on streamlining and simplifying
the requirements for SDRs. Both error-correction and verification
processes are steps in a series of data checks or techniques needed to
build accurate data sets. Regardless of whether verification is done
automatically or manually, the accuracy of SDR data should improve
under these final regulations because inaccuracies will be removed.
Overall, the Commission believes that the adoption of all the
amendments to parts 43, 45, and 49 will improve the quality of the data
reported, increase transparency, and enhance the Commission's ability
to fulfill its regulatory responsibilities, including its market
surveillance and enforcement capabilities. In some cases, as discussed
above, the final regulations are expected to be more flexible as
compared to the requirements in the Proposal. The Commission does not
believe that this increased flexibility will encumber the benefits from
better quality data. Rather, the Commission believes that monitoring of
potential risks to financial stability will be more effective with more
accurate data. More accurate data will therefore lead to improved
protection of market participants and the public.
ii. Efficiency, Competitiveness, and Financial Integrity of Markets
The Commission believes that the adoption of the amendments to
parts 43, 45, and 49, together with the swap data recordkeeping and
reporting requirements in parts 43 and 45, will provide a robust source
of information on swaps markets that is expected to promote increased
efficiency and competition. Under the final Roadmap regulations, parts
43, 45, and 49 will work together to establish a data validation and
verification system for SDRs and reporting counterparties. The result
is a data reporting system that fulfills the CEA's mandate that the
Commission prescribe data collection and maintenance standards for
SDRs, and, ultimately, supports the collection of accurate and complete
data.
The Commission believes that accurate swap transaction and pricing
data will lead to greater efficiencies for market participants
executing swap transactions due to a better understanding of their
overall positions within the context of the broader market. This
improved understanding will be facilitated by two distinct channels.
First, amendments adopted in this final rulemaking are expected to
result in improved swap transaction and pricing data being made
available to the public, which will improve the ability of market
participants to monitor real-time activity by other participants and to
respond as they see fit. Second, amendments that result in improved
swap data will improve the Commission's ability to monitor the swaps
markets for abusive practices and improve the Commission's ability to
create policies that ensure the integrity of the swaps markets. This
improvement will be facilitated by the Commission's improved oversight
and enforcement capabilities and the reports and studies published as
part of the Commission's research and information programs.
In particular, the amendments to Sec. Sec. 45.14, 49.2, 49.10,
49.11, 49.12, and 49.26 will help improve the financial integrity of
markets. For example, the verification and correction of swap data will
improve the accuracy and completeness of swap data available to the
Commission. The verification and correction processes also will assist
the Commission with, among other things, improving monitoring of risk
exposures of individual counterparties, monitoring concentrations of
risk exposure, and evaluating systemic risk. The efficient oversight
and accurate data reporting enabled by these amendments will improve
the financial integrity of the swaps markets.
In the Part 49 Adopting Release, the Commission expected that the
introduction of SDRs would further automate the reporting of swap data.
The Commission expected that automation would benefit market
participants and reduce transactional risks through the SDRs and other
service providers offering important ancillary services, such as
confirmation and matching services, valuation, pricing, reconciliation,
position limits management, and dispute resolution. These benefits did
follow and have enhanced the efficiency, competitiveness, and financial
integrity of markets.\414\ The Commission believes that the amendments
in this release will help to further enhance these benefits.
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\414\ See Part 49 Adopting Release at 54573.
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iii. Price Discovery
The CEA requires that swap transaction and pricing data be made
publicly available. The CEA and its existing regulations in part 43
also require swap transaction and pricing data to be available to the
public in real-time. Combined, parts 43 and 49 achieve the statutory
objective of providing transparency and enhanced price discovery to
swap markets in a timely manner. The amendments to Sec. Sec. 43.3,
49.2, 49.10, 49.11, 49.12, and 49.26 improve the fulfillment of these
objectives. The amendments, both directly and indirectly, upgrade the
quality of real-time public reporting of swap transaction and pricing
data by improving the accuracy of information that is reported to the
SDRs and disseminated to the public.
As explained above, many of the final rules adopted in this release
focus on a system for verifying swap data reported to and maintained by
SDRs, who are also charged with disseminating such data to the
Commission. The value of the swap data to the Commission depends on its
accuracy and completeness. Swap data that contains errors or missing
information has limited value because the Commission cannot rely on it
to monitor risk and pricing, measure volume and liquidity, or inform
policy.
Similarly, the Commission believes that inaccurate and incomplete
swap transaction and pricing data hinders the public's use of the data,
which harms transparency and price discovery. The Commission is aware
of at least three publicly-available studies that support this point.
The studies examined data and remarked on incomplete, inaccurate, and
unreliable data. The first study analyzed the potential impact of the
Dodd-Frank Act on OTC transaction costs and liquidity using real-time
CDS trade data. The study found that more than 5,000 reports had
missing data and more than 15,000 reports included a price of zero,
leaving a usable sample of 180,149 reports.\415\ The second study
reported a number of data fields that
[[Page 75653]]
were routinely null or missing, making it difficult to analyze swap
market volumes.\416\ The third study assessed the size of the
agricultural swaps market and described problems in identifying the
underlying commodity as well as other errors in the reported data that
made some data unusable, including, for example, swaps with a reported
notional quantity roughly equal to the size of the entire U.S. soybean
crop.\417\ The Commission expects the final rules will result in more
accurate and complete data, which will improve market participants'
ability to analyze swap transaction and pricing data. This, in turn,
should improve transparency and price discovery.
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\415\ Y.C. Loon, Z. (Ken) Zhong, ``Does Dodd-Frank affect OTC
transaction costs and liquidity? Evidence from real-time trade
reports,'' Journal of Financial Economics (2016), available at
http://dx.doi.org/10.1016/j.jfineco.2016.01.019.
\416\ See Financial Stability Report, Office of Financial
Research (Dec. 15, 2015) at 84-85, available at https://financialresearch.gov/financial-stability-reports/files/OFR_2015-Financial-Stability-Report_12-15-2015.pdf.
\417\ Peterson, P.E. 2014. ``How Large is the Agricultural Swaps
Market?'' Proceedings of the NCCC-134 Conference on Applied
Commodity Price Analysis, Forecasting, and Market Risk Management.
St. Louis, MO, available at http://www.farmdoc.illinois.edu/nccc134.
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iv. Sound Risk Management Practices
In the Part 49 Adopting Release, the Commission stated that part 49
and part 45 will strengthen the risk management practices of the swaps
market.\418\ Prior to the adoption of the Dodd-Frank Act, participants
in the swaps markets operated without obligations to disclose
transactions to regulators or to the public. The Dodd-Frank Act
specifically changed the transparency of the swaps market with the
adoption of CEA section 21 and the establishment of SDRs as the
entities to which swap data and swap transaction and pricing data are
reported and maintained for use by regulators or disseminated to the
public. The Commission believes that the improved reporting of data to
SDRs will serve to improve risk management practices by market
participants. To the extent that better swap transaction and pricing
data improves the ability of market participants to gauge their risks
in the context of the overall market, risk management practices should
improve. Earlier and more-informed discussions between relevant market
participants and regulators regarding systemic risk, facilitated by
accurate swap data, will also lead to improved risk management
outcomes. Market participants should also see improvements in their
risk management practices, as improved swap data allows for more
accurate and timely market analyses that are publicly disseminated by
the Commission.
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\418\ See Part 49 Adopting Release at 54574.
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The Commission believes that the amendments to parts 43, 45, and 49
will improve the quality of SDR data reported to SDRs and, hence,
improve the Commission's ability to monitor the swaps market, react to
potential market emergencies, and fulfill its regulatory
responsibilities generally. The amendments adopted in this final
rulemaking place different obligations on SDRs and reporting
counterparties to verify accuracy and completeness of SDR data. The
Commission believes that access for regulators to accurate and reliable
SDR data is essential for appropriate risk management and is especially
important for regulators' ability to monitor the swaps market for
systemic risk. Moreover, the Commission expects efforts to improve data
quality will increase market participants' confidence in SDR data and
therefore their confidence in any subsequent analyses based on the
data.
v. Other Public Interest Considerations
The Commission believes that the increased transparency resulting
from improvements to the SDR data via the amendments to parts 43, 45,
and 49 has other public interest considerations including: Creating
greater understanding for the public, market participants, and the
Commission of the interaction between the swaps market, other financial
markets, and the overall economy; improving regulatory oversight and
enforcement capabilities; and generating more information for
regulators so that they may establish more effective public policies to
reduce overall systemic risk.
D. Antitrust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA, in issuing any order or adopting any Commission
rule or regulation (including any exemption under section 4(c) or
4c(b)), or in requiring or approving any bylaw, rule, or regulation of
a contract market or registered futures association established
pursuant to section 17 of the CEA.\419\ The Commission believes that
the public interest to be protected by the antitrust laws is generally
to protect competition.
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\419\ 7 U.S.C. 19(b).
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The Commission requested comments on whether the Proposal may have
the potential to be inconsistent with the anti-trust laws or anti-
competitive in nature. The Commission has considered this final rule to
determine whether it is anticompetitive and has identified no
anticompetitive effects.
Because the Commission has determined that the final rule is not
anticompetitive and has no anticompetitive effects, the Commission has
not identified any less anticompetitive means of achieving the purposes
of the CEA.
List of Subjects
17 CFR Part 43
Real-time public swap reporting.
17 CFR Part 45
Data recordkeeping requirements, Data reporting requirements,
Swaps.
17 CFR Part 49
Registration and regulatory requirements, Swap data repositories.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR chapter I as follows:
PART 43--REAL-TIME PUBLIC REPORTING
0
1. The authority citation for part 43 continues to read as follows:
Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Pub. L.
111-203, 124 Stat. 1376 (2010).
0
2. Amend Sec. 43.3 by revising paragraph (e) to read as follows:
Sec. 43.3 Method and timing for real-time public reporting.
* * * * *
(e) Correction of errors--(1) Swap execution facilities, designated
contract markets, and reporting counterparties. Any swap execution
facility, designated contract market, or reporting counterparty that by
any means becomes aware of any error relating to swap transaction and
pricing data that it was required to report under this part shall
correct the error. To correct an error, the swap execution facility,
designated contract market, or reporting counterparty shall submit
complete and accurate swap transaction and pricing data to the swap
data repository that maintains the swap transaction and pricing data
for the relevant swap, or completely and accurately report swap
transaction and pricing data for a swap that was not previously
reported to a swap data repository as required under this part, as
applicable. Except as otherwise provided in this section, the
requirement to correct any error applies regardless of the state of the
swap that is the subject of the swap transaction and pricing data,
including a swap that has terminated, matured, or otherwise is no
longer considered to be an open swap.
[[Page 75654]]
(i) Timing requirement for correcting errors. The swap execution
facility, designated contract market, or reporting counterparty shall
correct any error as soon as technologically practicable after
discovery of the error. In all cases, errors shall be corrected within
seven business days after discovery. Any error that a reporting
counterparty discovers or could have discovered during the verification
process required under Sec. 45.14(b) of this chapter is considered
discovered for the purposes of this section as of the moment the
reporting counterparty began the verification process during which the
error was first discovered or discoverable.
(ii) Notification of failure to timely correct. If the swap
execution facility, designated contract market, or reporting
counterparty will, for any reason, fail to timely correct an error, the
swap execution facility, designated contract market, or reporting
counterparty shall notify the Director of the Division of Market
Oversight, or such other employee or employees of the Commission as the
Director may designate from time to time. The notification shall be in
the form and manner, and according to the instructions, specified by
the Director of the Division of Market Oversight, or such other
employee or employees of the Commission as the Director may designate
from time to time. Unless otherwise instructed by the Director of the
Division of Market Oversight, or such other employee or employees of
the Commission as the Director may designate from time to time, the
notification shall include an initial assessment of the scope of the
error or errors that were discovered, and shall include any initial
remediation plan for correcting the error or errors, if an initial
remediation plan exists. This notification shall be made within 12
hours of the swap execution facility's, designated contract market's,
or reporting counterparty's determination that it will fail to timely
correct the error.
(iii) Form and manner for error correction. In order to satisfy the
requirements of this section, a swap execution facility, designated
contract market, or reporting counterparty shall conform to a swap data
repository's policies and procedures created pursuant to Sec. 49.10 of
this chapter for correction of errors.
(2) Non-reporting counterparties. Any non-reporting counterparty
that by any means becomes aware of any error in the swap transaction
and pricing data for a swap to which it is the non-reporting
counterparty, shall notify the reporting counterparty for the swap of
the error as soon as technologically practicable after discovery, but
not later than three business days following discovery of the error. If
the non-reporting counterparty does not know the identity of the
reporting counterparty, the non-reporting counterparty shall notify the
swap execution facility or designated contract market where the swap
was executed of the error as soon as technologically practicable after
discovery, but no later than three business days following the
discovery. Such notice from the non-reporting counterparty to the swap
execution facility, designated contract market, or reporting
counterparty constitutes discovery under this section.
(3) Exception. The requirements to correct errors set forth in
paragraph (e) of this section only apply to errors in swap transaction
and pricing data relating to swaps for which the record retention
period under Sec. 45.2 of this chapter has not expired as of the time
the error is discovered. Errors in swap transaction and pricing data
relating to swaps for which the record retention periods under Sec.
45.2 of this chapter have expired at the time that the errors are
discovered are not subject to the requirements to correct errors set
forth in paragraph (e) of this section.
(4) Error defined--(i) Errors. For the purposes of this part, there
is an error when swap transaction and pricing data is not completely
and accurately reported. This includes, but is not limited to, the
following circumstances:
(A) Any of the swap transaction and pricing data for a swap
reported to a swap data repository is incorrect or any of the swap
transaction and pricing data that is maintained by a swap data
repository differs from any of the relevant swap transaction and
pricing data contained in the books and records of a party to the swap.
(B) Any of the swap transaction and pricing data for a swap that is
required to be reported to a swap data repository or to be maintained
by a swap data repository is not reported to a swap data repository or
is not maintained by the swap data repository as required by this part.
(C) None of the swap transaction and pricing data for a swap that
is required to be reported to a swap data repository or to be
maintained by a swap data repository is reported to a swap data
repository or is maintained by a swap data repository.
(D) Any of the swap transaction and pricing data for a swap that is
no longer an open swap is maintained by the swap data repository as if
the swap is still an open swap.
(ii) Presumption. For the purposes of this section, there is a
presumption that an error exists if the swap data or the swap
transaction and pricing data that is maintained and disseminated by an
SDR for a swap is not complete and accurate. This includes, but is not
limited to, the swap data that the SDR makes available to the reporting
counterparty for verification under Sec. 49.11 of this chapter.
* * * * *
PART 45--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS
0
3. The authority citation for part 45 continues to read as follows:
Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a, and 24a, 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.
0
4. In Sec. 45.1(a), add a definition for the term ``Open swap'' in
alphabetical order to read as follows:
Sec. 45.1 Definitions.
(a) * * *
Open swap means an executed swap transaction that has not reached
maturity or expiration, and has not been fully exercised, closed out,
or terminated.
* * * * *
Sec. 45.2 [Amended]
0
5. In Sec. 45.2, remove and reserve paragraphs (f) and (g).
0
6. Revise Sec. 45.14 to read as follows:
Sec. 45.14 Correcting errors in swap data and verification of swap
data accuracy.
(a) Correction of errors--(1) Swap execution facilities, designated
contract markets, and reporting counterparties. Any swap execution
facility, designated contract market, or reporting counterparty that by
any means becomes aware of any error relating to swap data that it was
required to report under this part shall correct the error. To correct
an error, the swap execution facility, designated contract market, or
reporting counterparty shall submit complete and accurate swap data to
the swap data repository that maintains the swap data for the relevant
swap, or completely and accurately report swap data for a swap that was
not previously reported to a swap data repository as required under
this part, as applicable. Except as otherwise provided in this section,
the requirement to correct any error applies regardless of the state of
the swap that is the subject of the swap data, including a swap that
has
[[Page 75655]]
terminated, matured, or otherwise is no longer considered to be an open
swap.
(i) Timing requirement for correcting errors. The swap execution
facility, designated contract market, or reporting counterparty shall
correct any error as soon as technologically practicable after
discovery of the error. In all cases, errors shall be corrected within
seven business days after discovery. Any error that a reporting
counterparty discovers or could have discovered during the verification
process required under paragraph (b) of this section is considered
discovered for the purposes of this section as of the moment the
reporting counterparty began the verification process during which the
error was first discovered or discoverable.
(ii) Notification of failure to timely correct. If the swap
execution facility, designated contract market, or reporting
counterparty will, for any reason, fail to timely correct an error, the
swap execution facility, designated contract market, or reporting
counterparty shall notify the Director of the Division of Market
Oversight, or such other employee or employees of the Commission as the
Director may designate from time to time. The notification shall be in
the form and manner, and according to the instructions, specified by
the Director of the Division of Market Oversight, or such other
employee or employees of the Commission as the Director may designate
from time to time. Unless otherwise instructed by the Director of the
Division of Market Oversight, or such other employee or employees of
the Commission as the Director may designate from time to time, the
notification shall include an initial assessment of the scope of the
error or errors that were discovered, and shall include any initial
remediation plan for correcting the error or errors, if an initial
remediation plan exists. This notification shall be made within 12
hours of the swap execution facility's, designated contract market's,
or reporting counterparty's determination that it will fail to timely
correct the error.
(iii) Form and manner for error correction. In order to satisfy the
requirements of this section, a swap execution facility, designated
contract market, or reporting counterparty shall conform to a swap data
repository's policies and procedures created pursuant to Sec. 49.10 of
this chapter for correction of errors.
(2) Non-reporting counterparties. Any non-reporting counterparty
that by any means becomes aware of any error in the swap data for a
swap to which it is the non-reporting counterparty, shall notify the
reporting counterparty for the swap of the error as soon as
technologically practicable after discovery, but not later than three
business days following discovery of the error. If the non-reporting
counterparty does not know the identity of the reporting counterparty,
the non-reporting counterparty shall notify the swap execution facility
or designated contract market where the swap was executed of the error
as soon as technologically practicable after discovery, but no later
than three business days following the discovery. Such notice from the
non-reporting counterparty to the swap execution facility, designated
contract market, or reporting counterparty constitutes discovery under
this section.
(3) Exception. The requirements to correct errors set forth in
paragraph (a) of this section only apply to errors in swap data
relating to swaps for which the record retention period under Sec.
45.2 has not expired as of the time the error is discovered. Errors in
swap data relating to swaps for which the record retention periods
under Sec. 45.2 have expired at the time that the errors are
discovered are not subject to the requirements to correct errors set
forth in paragraph (a) of this section.
(b) Verification that swap data is complete and accurate. Each
reporting counterparty shall verify that there are no errors in the
swap data for all open swaps that the reporting counterparty reported,
or was required to report, to a swap data repository under the
requirements of this part, in accordance with this paragraph (b).
(1) Method of verification. Each reporting counterparty shall
utilize the mechanism for verification that each swap data repository
to which the reporting counterparty reports swap data adopts under
Sec. 49.11 of this chapter. Each reporting counterparty shall utilize
the relevant mechanism(s) to compare all swap data for each open swap
for which it serves as the reporting counterparty maintained by the
relevant swap data repository or repositories with all swap data
contained in the reporting counterparty's internal books and records
for each swap, to verify that there are no errors in the relevant swap
data maintained by the swap data repository. Notwithstanding the
foregoing, a reporting counterparty is not required to verify the
accuracy and completeness of any swap data to which the reporting
counterparty is not permitted access under the Act or Commission
regulations, including, but not limited to, Sec. 49.17 of this
chapter.
(2) Verification policies and procedures. In performing
verification as required by this paragraph, each reporting counterparty
shall conform to each relevant swap data repository's verification
policies and procedures created pursuant to Sec. 49.11 of this
chapter. If a reporting counterparty utilizes a third-party service
provider to perform verification, the reporting counterparty shall
conform to each relevant swap data repository's third-party service
provider verification policies and procedures created pursuant to Sec.
49.11 of this chapter and shall require the third-party service
provider to conform to the same policies and procedures while
performing verification on behalf of the reporting counterparty.
(3) Correcting errors. Any and all errors discovered during the
verification process shall be corrected in accordance with paragraph
(a)(1) of this section.
(4) Frequency. Each reporting counterparty shall perform
verification at a minimum:
(i) If the reporting counterparty is a swap dealer, major swap
participant, or derivatives clearing organization, once every thirty
calendar days; or
(ii) If the reporting counterparty is not a swap dealer, major swap
participant, or a derivatives clearing organization, once every
calendar quarter, provided that there are at least two calendar months
between verifications.
(5) Verification log. Each reporting counterparty shall keep a log
of each verification that it performs. For each verification, the log
shall include all errors discovered during the verification, and the
corrections performed under paragraph (a) of this section. This
requirement is in addition to any other applicable reporting
counterparty recordkeeping requirement.
(c) Error defined--(1) Errors. For the purposes of this part, there
is an error when swap data is not completely and accurately reported.
This includes, but is not limited to, the following circumstances:
(i) Any of the swap data for a swap reported to a swap data
repository is incorrect or any of the swap data that is maintained by a
swap data repository differs from any of the relevant swap data
contained in the books and records of a party to the swap.
(ii) Any of the swap data for a swap that is required to be
reported to a swap data repository or to be maintained by a swap data
repository is not reported to a swap data repository or is not
maintained by the swap data repository as required by this part.
[[Page 75656]]
(iii) None of the swap data for a swap that is required to be
reported to a swap data repository or to be maintained by a swap data
repository is reported to a swap data repository or is maintained by a
swap data repository.
(iv) Any of the swap data for a swap that is no longer an open swap
is maintained by the swap data repository as if the swap is still an
open swap.
(2) Presumption. For the purposes of this section, there is a
presumption that an error exists if the swap data that is maintained
and disseminated by an SDR for a swap is not complete and accurate.
This includes, but is not limited to, the swap data that the SDR makes
available to the reporting counterparty for verification under Sec.
49.11 of this chapter.
PART 49--SWAP DATA REPOSITORIES
0
7. The authority citation for part 49 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2(a), 6r, 12a, and 24a, as amended by
Title VII of the Wall Street Reform and Consumer Protection Act of
2010, Pub. L. 111-203, 124 Stat. 1376 (Jul. 21, 2010), unless
otherwise noted.
0
8. Amend Sec. 49.2 by:
0
a. In paragraph (a)--
0
i. Revising the definition of ``Affiliate'';
0
ii. Adding in alphabetical order a definition for ``As soon as
technologically practicable'';
0
iii. Revising the definitions of ``Asset class,'' ``Commercial use,''
``Control,'' ``Foreign regulator,'' ``Independent perspective,''
``Market participant,'' and ``Non-affiliated third party'';
0
iv. Adding in alphabetical order a definition for ``Open swap'';
0
v. Revising the definitions of ``Person associated with a swap data
repository'' and ``Position'';
0
vi. Removing the definition of ``Registered swap data repository'';
0
vii. Adding in alphabetical order a definition for ``Reporting
counterparty'';
0
viii. Removing the definition of ``Reporting entity'';
0
ix. Adding in alphabetical order a definition for ``SDR data'';
0
x. Revising the definitions of ``SDR Information,'' ``Section 8
material,'' and ``Swap data'';
0
xi. Adding in alphabetical order a definition for ``Swap transaction
and pricing data''; and
0
b. Revising paragraph (b).
The revisions and additions read as follows:
Sec. 49.2 Definitions.
(a) * * *
Affiliate means a person that directly, or indirectly, controls, is
controlled by, or is under common control with, the swap data
repository.
As soon as technologically practicable means as soon as possible,
taking into consideration the prevalence, implementation, and use of
technology by comparable market participants.
Asset class means a broad category of commodities including,
without limitation, any ``excluded commodity'' as defined in section
1a(19) of the Act, with common characteristics underlying a swap. The
asset classes include interest rate, foreign exchange, credit, equity,
other commodity, and such other asset classes as may be determined by
the Commission.
Commercial use means the use of SDR data held and maintained by a
swap data repository for a profit or business purposes. A swap data
repository's use of SDR data for regulatory purposes and/or to perform
its regulatory responsibilities would not be considered a commercial
use regardless of whether the swap data repository charges a fee for
reporting such SDR data.
Control (including the terms ``controlled by'' and ``under common
control with'') means 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 securities, by
contract, or otherwise.
* * * * *
Foreign regulator means a foreign futures authority as defined in
section 1a(26) of the Act, foreign financial supervisors, foreign
central banks, foreign ministries, and other foreign authorities.
Independent perspective means a viewpoint that is impartial
regarding competitive, commercial, or industry concerns and
contemplates the effect of a decision on all constituencies involved.
Market participant means any person participating in the swap
market, including, but not limited to, designated contract markets,
derivatives clearing organizations, swap execution facilities, swap
dealers, major swap participants, and any other counterparty to a swap
transaction.
Non-affiliated third party means any person except:
(1) The swap data repository;
(2) The swap data repository's affiliate; or
(3) A person jointly employed by a swap data repository and any
entity that is not the swap data repository's affiliate (the term
``non-affiliated third party'' includes such entity that jointly
employs the person).
Open swap means an executed swap transaction that has not reached
maturity or expiration, and has not been fully exercised, closed out,
or terminated.
Person associated with a swap data repository means:
(1) Any partner, officer, or director of such swap data repository
(or any person occupying a similar status or performing similar
functions);
(2) Any person directly or indirectly controlling, controlled by,
or under common control with such swap data repository; or
(3) Any person employed by such swap data repository, including a
jointly employed person.
Position means the gross and net notional amounts of open swap
transactions aggregated by one or more attributes, including, but not
limited to, the:
(1) Underlying instrument;
(2) Index, or reference entity;
(3) Counterparty;
(4) Asset class;
(5) Long risk of the underlying instrument, index, or reference
entity; and
(6) Short risk of the underlying instrument, index, or reference
entity.
Reporting counterparty means the counterparty required to report
SDR data pursuant to part 43, 45, or 46 of this chapter.
SDR data means the specific data elements and information required
to be reported to a swap data repository or disseminated by a swap data
repository pursuant to two or more of parts 43, 45, 46, and/or 49 of
this chapter, as applicable in the context.
SDR information means any information that the swap data repository
receives or maintains related to the business of the swap data
repository that is not SDR data.
Section 8 material means the business transactions, SDR data, or
market positions of any person and trade secrets or names of customers.
Swap data means the specific data elements and information required
to be reported to a swap data repository pursuant to part 45 of this
chapter or made available to the Commission pursuant to this part, as
applicable.
Swap transaction and pricing data means the specific data elements
and information required to be reported to a swap data repository or
publicly disseminated by a swap data repository pursuant to part 43 of
this chapter, as applicable.
(b) Other defined terms. Terms not defined in this part have the
meanings assigned to the terms in Sec. 1.3 of this chapter.
[[Page 75657]]
0
9. In Sec. 49.3:
0
a. Revise paragraph (a)(5);
0
b. Remove the phrase ``swap transaction data'' from paragraph (d) and
add in its place ``SDR data''; and
0
c. Remove the reference ``Sec. 40.1(e)'' from paragraph (d) and add in
its place ``Sec. 40.1''.
The revision reads as follows:
Sec. 49.3 Procedures for registration.
(a) * * *
(5) Amendments. If any information reported on Form SDR or in any
amendment thereto is or becomes inaccurate for any reason, whether
before or after the application for registration has been granted under
this paragraph (a), the swap data repository shall promptly file an
amendment on Form SDR updating such information.
* * * * *
0
10. Revise the paragraph heading for Sec. 49.4(c) to read as follows:
Sec. 49.4 Withdrawal from registration.
* * * * *
(c) Revocation of registration for false application. * * *
* * * * *
0
11. Revise Sec. 49.5 to read as follows:
Sec. 49.5 Equity interest transfers.
(a) Equity interest transfer notification. A swap data repository
shall file with the Commission a notification of each transaction
involving the direct or indirect transfer of ten percent or more of the
equity interest in the swap data repository. The Commission may, upon
receiving such notification, request that the swap data repository
provide supporting documentation of the transaction.
(b) Timing of notification. The equity interest transfer notice
described in paragraph (a) of this section shall be filed
electronically with the Secretary of the Commission at its Washington,
DC headquarters at [email protected] and the Division of Market
Oversight at [email protected], at the earliest possible time but
in no event later than the open of business ten business days following
the date upon which a firm obligation is made to transfer, directly or
indirectly, ten percent or more of the equity interest in the swap data
repository.
(c) Certification. Upon a transfer, whether directly or indirectly,
of an equity interest of ten percent or more in a swap data repository,
the swap data repository shall file electronically with the Secretary
of the Commission at its Washington, DC headquarters at
[email protected] and the Division of Market Oversight at
[email protected], a certification that the swap data repository
meets all of the requirements of section 21 of the Act and the
Commission regulations in 17 CFR chapter I, no later than two business
days following the date on which the equity interest of ten percent or
more was acquired.
0
12. Revise Sec. 49.6 to read as follows:
Sec. 49.6 Request for transfer of registration.
(a) Request for approval. A swap data repository seeking to
transfer its registration from its current legal entity to a new legal
entity as a result of a corporate change shall file a request for
approval to transfer such registration with the Secretary of the
Commission in the form and manner specified by the Commission.
(b) Timing for filing a request for transfer of registration. A
swap data repository shall file a request for transfer of registration
as soon as practicable prior to the anticipated corporate change.
(c) Required information. The request for transfer of registration
shall include the following:
(1) The underlying documentation that governs the corporate change;
(2) A description of the corporate change, including the reason for
the change and its impact on the swap data repository, including the
swap data repository's governance and operations, and its impact on the
rights and obligations of market participants;
(3) A discussion of the transferee's ability to comply with the
Act, including the core principles applicable to swap data repositories
and the Commission's regulations;
(4) The governance documents adopted by the transferee, including a
copy of any constitution; articles or certificate of incorporation,
organization, formation, or association with all amendments thereto;
partnership or limited liability agreements; and any existing bylaws,
operating agreement, or rules or instruments corresponding thereto;
(5) The transferee's rules marked to show changes from the current
rules of the swap data repository; and
(6) A representation by the transferee that it:
(i) Will be the surviving entity and successor-in-interest to the
transferor swap data repository and will retain and assume the assets
and liabilities of the transferor, except if otherwise indicated in the
request;
(ii) Will assume responsibility for complying with all applicable
provisions of the Act and the Commission's regulations; and
(iii) Will notify market participants of all changes to the
transferor's rulebook prior to the transfer, including those changes
that may affect the rights and obligations of market participants, and
will further notify market participants of the concurrent transfer of
the registration to the transferee upon Commission approval and
issuance of an order permitting the transfer.
(d) Commission determination. Upon review of a request for transfer
of registration, the Commission, as soon as practicable, shall issue an
order either approving or denying the request for transfer of
registration.
0
13. Revise Sec. 49.9 to read as follows:
Sec. 49.9 Open swaps reports provided to the Commission.
Each swap data repository shall provide reports of open swaps to
the Commission in accordance with this section.
(a) Content of the open swaps report. In order to satisfy the
requirements of this section, each swap data repository shall provide
the Commission with open swaps reports that contain an accurate
reflection, as of the time the swap data repository compiles the open
swaps report, of the swap data maintained by the swap data repository
for every swap data field required to be reported for swaps pursuant to
part 45 of this chapter for every open swap. The report shall be
organized by the unique identifier created pursuant to Sec. 45.5 of
this chapter that is associated with each open swap.
(b) Transmission of the open swaps report. Each swap data
repository shall transmit all open swaps reports to the Commission as
instructed by the Commission. Such instructions may include, but are
not limited to, the method, timing, and frequency of transmission, as
well as the format of the swap data to be transmitted.
0
14. In Sec. 49.10, add paragraph (e) to read as follows:
Sec. 49.10 Acceptance of data.
* * * * *
(e) Error corrections--(1) Accepting corrections. A swap data
repository shall accept error corrections for SDR data. Error
corrections include corrections to errors and omissions in SDR data
previously reported to the swap data repository pursuant to part 43,
45, or 46 of this chapter, as well as omissions in reporting SDR data
for swaps that were not previously reported to a swap data repository
as required under part 43, 45, or 46 of this chapter. The requirement
to accept error corrections applies for all swaps, regardless of the
state of the swap that
[[Page 75658]]
is the subject of the SDR data. This includes swaps that have
terminated, matured, or are otherwise no longer considered to be open
swaps, provided that the record retention period under Sec.
49.12(b)(2) has not expired as of the time the error correction is
reported.
(2) Recording corrections. A swap data repository shall record the
corrections, as soon as technologically practicable after the swap data
repository accepts the error correction.
(3) Dissemination. A swap data repository shall disseminate
corrected SDR data to the public and the Commission, as applicable, in
accordance with this chapter, as soon as technologically practicable
after the swap data repository records the corrected SDR data.
(4) Policies and procedures. A swap data repository shall
establish, maintain, and enforce policies and procedures designed for
the swap data repository to accept error corrections, to record the
error corrections as soon as technologically practicable after the swap
data repository accepts the error correction, and to disseminate
corrected SDR data to the public and to the Commission, as applicable,
in accordance with this chapter.
* * * * *
0
15. Revise Sec. 49.11 to read as follows:
Sec. 49.11 Verification of swap data accuracy.
(a) General requirement. Each swap data repository shall verify the
accuracy and completeness of swap data that it receives from swap
execution facilities, designated contract markets, reporting
counterparties, or third-party service providers acting on their
behalf, in accordance with paragraph (b) of this section.
(b) Verifying swap data accuracy and completeness--(1) Swap data
access. Each swap data repository shall provide a mechanism that allows
each reporting counterparty that is a user of the swap data repository
to access all swap data maintained by the swap data repository for each
open swap for which the reporting counterparty is serving as the
reporting counterparty, as specified in paragraph (b)(2) of this
section. This mechanism shall allow sufficient access, provide
sufficient information, and be in a form and manner to enable each
reporting counterparty to perform swap data verification as required
under Sec. 45.14 of this chapter.
(2) Scope of swap data access. The swap data accessible through the
mechanism provided by each swap data repository shall accurately
reflect the most current swap data maintained by the swap data
repository, as of the time the reporting counterparty accesses the swap
data using the provided mechanism, for each data field that the
reporting counterparty was required to report for each relevant open
swap pursuant to part 45 of this chapter, except as provided in
paragraph (b)(3) of this section. The swap data accessible through the
mechanism provided by each swap data repository shall include
sufficient information to allow reporting counterparties to
successfully perform the swap data verification required under Sec.
45.14 of this chapter.
(3) Confidentiality. The swap data access each swap data repository
shall provide pursuant to this section is subject to all applicable
confidentiality requirements of the Act and this chapter, including,
but not limited to, Sec. 49.17. The swap data accessible to any
reporting counterparty shall not include any swap data that the
relevant reporting counterparty is prohibited to access under any
Commission regulation.
(4) Frequency of swap data access. Each swap data repository shall
allow each reporting counterparty that is a user of the relevant swap
data repository to utilize the mechanism as required under this section
with at least sufficient frequency to allow each relevant reporting
counterparty to perform the swap data verification required under Sec.
45.14 of this chapter.
(5) Third-party service providers. If a reporting counterparty
informs a swap data repository that the reporting counterparty will
utilize a third-party service provider to perform verification as
required pursuant to Sec. 45.14 of this chapter, the swap data
repository will satisfy its requirements under this section by
providing the third-party service provider with the same access to the
mechanism and the relevant swap data for the reporting counterparty
under this section, as if the third-party service provider was the
reporting counterparty. The access for the third-party service provider
shall be in addition to the access for the reporting counterparty
required under this section. The access for the third-party service
provider under this paragraph shall continue until the reporting
counterparty informs the swap data repository that the third-party
service provider should no longer have access on behalf of the
reporting counterparty. The policies and procedures each swap data
repository adopts under paragraph (c) of this section shall include
instructions detailing how each reporting counterparty can successfully
inform the swap data repository regarding a third-party service
provider.
(c) Policies and procedures--(1) Contents. Each swap data
repository shall establish, maintain, and enforce policies and
procedures designed to ensure compliance with the requirements of this
section. Such policies and procedures shall include, but are not
limited to, instructions detailing how each reporting counterparty, or
third-party service provider acting on behalf of a reporting
counterparty, can successfully utilize the mechanism provided pursuant
to this section to perform each reporting counterparty's verification
responsibilities under Sec. 45.14 of this chapter.
(2) Amendments. Each swap data repository shall comply with the
requirements under part 40 of this chapter in adopting or amending the
policies and procedures required by this section.
0
16. Revise Sec. 49.12 to read as follows:
Sec. 49.12 Swap data repository recordkeeping requirements.
(a) General requirement. A swap data repository 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, including, but not limited to, all SDR information and all
SDR data that is reported to the swap data repository pursuant to this
chapter.
(b) Maintenance of records. A swap data repository shall maintain
all records required to be kept by this section in accordance with this
paragraph (b).
(1) A swap data repository shall maintain all SDR information,
including, but not limited to, all documents, policies, and procedures
required by the Act and the Commission's regulations, correspondence,
memoranda, papers, books, notices, accounts, and other such records
made or received by the swap data repository in the course of its
business. All SDR information shall be maintained in accordance with
Sec. 1.31 of this chapter.
(2) A swap data repository shall maintain all SDR data and
timestamps reported to or created by the swap data repository pursuant
to this chapter, and all messages related to such reporting, throughout
the existence of the swap that is the subject of the SDR data and for
five years following final termination of the swap, during which time
the records shall be readily accessible by the swap data repository and
available to the Commission via real-time electronic access, and for a
period of at least ten additional years in archival storage from which
such records are
[[Page 75659]]
retrievable by the swap data repository within three business days.
(c) Records of data errors and omissions. A swap data repository
shall create and maintain records of data validation errors and SDR
data reporting errors and omissions in accordance with this paragraph
(c).
(1) A swap data repository shall create and maintain an accurate
record of all reported SDR data that fails to satisfy the swap data
repository's data validation procedures including, but not limited to,
all SDR data reported to the swap data repository that fails to satisfy
the data validation procedures, all data validation errors, and all
related messages and timestamps. A swap data repository shall make
these records available to the Commission on request.
(2) A swap data repository shall create and maintain an accurate
record of all SDR data errors and omissions reported to the swap data
repository and all corrections disseminated by the swap data repository
pursuant to parts 43, 45, and 46 of this chapter and this part. A swap
data repository shall make these records available to the Commission on
request.
(d) Availability of records. All records required to be kept
pursuant to this part shall be open to inspection upon request by any
representative of the Commission or the United States Department of
Justice in accordance with the provisions of Sec. 1.31 of this
chapter. A swap data repository required to keep, create, or maintain
records pursuant to this section shall provide such records in
accordance with the provisions of Sec. 1.31 of this chapter, unless
otherwise provided in this part.
(e) A swap data repository shall establish policies and procedures
to calculate positions for position limits and any other purpose as
required by the Commission, for all persons with swaps that have not
expired maintained by the swap data repository.
0
17. Revise paragraph (a) and the paragraph (b) heading in Sec. 49.13
to read as follows:
Sec. 49.13 Monitoring, screening and analyzing swap data.
(a) Duty to monitor, screen and analyze SDR data. A swap data
repository shall monitor, screen, and analyze all relevant SDR data in
its possession in such a manner as the Commission may require. A swap
data repository shall routinely monitor, screen, and analyze SDR data
for the purpose of any standing swap surveillance objectives that the
Commission may establish as well as perform specific monitoring,
screening, and analysis tasks based on ad hoc requests by the
Commission.
(b) Capacity to monitor, screen and analyze SDR data. * * *
0
18. Revise Sec. 49.15 to read as follows:
Sec. 49.15 Real-time public reporting by swap data repositories.
(a) Scope. The provisions of this section apply to the real-time
public reporting of swap transaction and pricing data submitted to a
swap data repository pursuant to part 43 of this chapter.
(b) Systems to accept and disseminate data in connection with real-
time public reporting. A swap data repository shall establish such
electronic systems as are necessary to accept and publicly disseminate
swap transaction and pricing data submitted to the swap data repository
pursuant to part 43 of this chapter in order to meet the real-time
public reporting obligations of part 43 of this chapter. Any electronic
system established for this purpose shall be capable of accepting and
ensuring the public dissemination of all data fields required by part
43 this chapter.
(c) Duty to notify the Commission of untimely data. A swap data
repository shall notify the Commission of any swap transaction for
which the real-time swap data was not received by the swap data
repository in accordance with part 43 of this chapter.
0
19. Revise Sec. 49.16 to read as follows:
Sec. 49.16 Privacy and confidentiality requirements of swap data
repositories.
(a) Each swap data repository shall:
(1) Establish, maintain, and enforce written policies and
procedures reasonably designed to protect the privacy and
confidentiality of any and all SDR information and all SDR data that is
not swap transaction and pricing data disseminated under part 43 of
this chapter. Such policies and procedures shall include, but are not
limited to, policies and procedures to protect the privacy and
confidentiality of any and all SDR information and all SDR data (except
for swap transaction and pricing data disseminated under part 43 of
this chapter) that the swap data repository shares with affiliates and
non-affiliated third parties; and
(2) Establish and maintain safeguards, policies, and procedures
reasonably designed to prevent the misappropriation or misuse, directly
or indirectly, of:
(i) Section 8 material;
(ii) Other SDR information or SDR data; and/or
(iii) Intellectual property, such as trading strategies or
portfolio positions, by the swap data repository or any person
associated with a swap data repository. Such safeguards, policies, and
procedures shall include, but are not limited to:
(A) Limiting access to such section 8 material, other SDR
information or SDR data, and intellectual property;
(B) Standards controlling persons associated with a swap data
repository trading for their personal benefit or the benefit of others;
and
(C) Adequate oversight to ensure compliance with this paragraph
(a)(2).
(b) A swap data repository shall not, as a condition of accepting
SDR data from any swap execution facility, designated contract market,
or reporting counterparty, require the waiver of any privacy rights by
such swap execution facility, designated contract market, or reporting
counterparty.
(c) Subject to section 8 of the Act, a swap data repository may
disclose aggregated SDR data on a voluntary basis or as requested, in
the form and manner prescribed by the Commission.
0
20. Amend Sec. 49.17 by:
0
a. Revising paragraph (b)(3);
0
b. Adding paragraph (c) introductory text;
0
c. Revising paragraph (c)(1), the headings to paragraphs (d)(1) and
(5), and paragraph (f)(2);
0
d. Removing paragraph (i); and
0
e. In the table below, for each paragraph indicated in the left column,
remove the text indicated in the middle column from wherever it
appears, and add in its place the text indicated in the right column:
------------------------------------------------------------------------
Paragraphs Remove Add
------------------------------------------------------------------------
(a)......................... swap data........... SDR data.
(a)......................... Section 8 of the Act section 8 of the Act
(b)(1) heading.............. Domestic Regulator.. domestic regulator
(b)(1) introductory text.... Appropriate Domestic appropriate domestic
Regulator. regulator
(b)(2) heading.............. Foreign Regulator... foreign regulator
(b)(2)...................... Appropriate Foreign appropriate foreign
Regulator. regulator
[[Page 75660]]
(b)(2)...................... those Foreign those foreign
Regulators. regulators
(c)(2)...................... analyzing of swap analyzing of SDR
data. data
(c)(2)...................... transfer of data.... transfer of SDR data
(c)(3)...................... swap data provided.. SDR data provided
(c)(3)...................... authorizedusers..... authorized users
(d)(1)(i)................... Appropriate Domestic appropriate domestic
Regulator. regulator
(d)(1)(i)................... Appropriate Foreign appropriate foreign
Regulator. regulator
(d)(1)(ii).................. Appropriate Domestic Appropriate domestic
Regulators and regulators and
Appropriate Foreign appropriate foreign
Regulators seeking. regulators seeking
(d)(1)(ii).................. applicable to applicable to
Appropriate appropriate
Domestic Regulators domestic regulators
and Appropriate and appropriate
Foreign Regulators. foreign regulators
(d)(3) heading.............. Foreign Regulator... Foreign regulator
(d)(3)...................... Foreign Regulator... foreign regulator.
(d)(3)...................... Foreign Regulator's. foreign regulator's
(d)(4) heading.............. requests for data requests for swap
access. data access
(d)(4)(i)................... Appropriate Domestic appropriate domestic
Regulator or regulator or
Appropriate Foreign appropriate foreign
Regulator. regulator
(d)(4)(i)................... Appropriate Domestic appropriate domestic
Regulator's or regulator's or
Appropriate Foreign appropriate foreign
Regulator's. regulator's
(d)(4)(iii)................. Appropriate Domestic appropriate domestic
Regulator or regulator or
Appropriate Foreign appropriate foreign
Regulator. regulator
(d)(4)(iii)................. Appropriate Domestic appropriate domestic
Regulator's or regulator's or
Appropriate Foreign appropriate foreign
Regulator's. regulator's
(d)(5)(i) through (iii)..... Appropriate Domestic appropriate domestic
Regulator or regulator or
Appropriate Foreign appropriate foreign
Regulator. regulator
(d)(6) heading.............. Arrangement......... arrangement
(d)(6)...................... Appropriate Domestic appropriate domestic
Regulator or regulator or
Appropriate Foreign appropriate foreign
Regulator. regulator
(e) introductory text, swap data and SDR SDR data and SDR
(e)(1), and (e)(2). Information. information
(e)(2)...................... swap data or SDR SDR data or SDR
Information. information
(f)(1)...................... swap data maintained SDR data maintained
(g) heading................. Commercial uses of Commercial uses of
data. SDR data
(g) introductory text....... Swap data accepted.. SDR data accepted
(g)(1)...................... swap data required.. SDR data required
(g)(2)(A)................... The swap dealer, The swap execution
counterparty, or facility,
any other designated contract
registered entity. market, or
reporting
counterparty
(g)(2)(A)................... swap data maintained SDR data maintained
(g)(2)(B)................... swap transaction SDR data
data.
(g)(2)(B)................... reporting party..... swap execution
facility,
designated contract
market, or
reporting
counterparty
(g)(2)(B)................... any reported data... any reported SDR
data
(g)(3)...................... real-time swap data. swap transaction and
pricing data
(h)(3) introductory text.... CEA section 21(c)(7) section 21(c)(7) of
the Act
(h)(4)...................... Appropriate Domestic appropriate domestic
Regulator or regulator or
Appropriate Foreign appropriate foreign
Regulator. regulator
------------------------------------------------------------------------
The revisions and addition read as follows:
Sec. 49.17 Access to SDR data.
* * * * *
(b) * * *
(3) Direct electronic access. For the purposes of this section, the
term ``direct electronic access'' shall mean an electronic system,
platform, framework, or other technology that provides internet-based
or other form of access to real-time SDR data that is acceptable to the
Commission and also provides scheduled data transfers to Commission
electronic systems.
(c) Commission access. A swap data repository shall provide access
to the Commission for all SDR data maintained by the swap data
repository pursuant to this chapter in accordance with this paragraph
(c).
(1) Direct electronic access requirements. A swap data repository
shall provide direct electronic access to the Commission or the
Commission's designee, including another registered entity, in order
for the Commission to carry out its legal and statutory
responsibilities under the Act and the Commission's regulations in 17
CFR chapter I. A swap data repository shall maintain all SDR data
reported to the swap data repository in a format acceptable to the
Commission, and shall transmit all SDR data requested by the Commission
to the Commission as instructed by the Commission. Such instructions
may include, but are not limited to, the method, timing, and frequency
of transmission, as well as the format and scope of the SDR data to be
transmitted.
* * * * *
(d) * * *
(1) General procedure for gaining access to swap data repository
data. * * *
* * * * *
(5) Timing, limitation, suspension, or revocation of swap data
access. * * *
(f) * * *
(2) Exception. SDR data and SDR information related to a particular
swap transaction that is maintained by the swap data repository may be
accessed by either counterparty to that particular swap. However, the
SDR data and SDR information maintained by the swap data repository
that may be accessed by either counterparty to a particular swap shall
not include the identity or the legal entity identifier (as such term
is used in part 45 of this chapter) of the other counterparty to the
swap, or the other counterparty's clearing member
[[Page 75661]]
for the swap, if the swap is executed anonymously on a swap execution
facility or designated contract market, and cleared in accordance with
Sec. Sec. 1.74, 23.610, and 39.12(b)(7) of this chapter.
* * * * *
Sec. 49.18 [Amended]
0
21. Amend Sec. 49.18 by:
0
a. Removing from paragraphs (a) and (d) the words ``Appropriate
Domestic Regulator or Appropriate Foreign Regulator'' and ``Appropriate
Domestic Regulator's or Appropriate Foreign Regulator's'' wherever they
appear, and add in their places ``appropriate domestic regulator or
appropriate foreign regulator'' and ``appropriate domestic regulator's
or appropriate foreign regulator's'', respectively; and
0
b. Removing paragraph (e).
Sec. 49.19 [Amended]
0
22. In Sec. 49.19(a), remove the word ``paragraph'' from wherever it
appears and add in its place the word ``section''.
0
23. Amend Sec. 49.20 by:
0
a. Revising paragraphs (b)(2)(v), (b)(2)(vii), and (c)(1)(ii)(B); and
0
b. In the table below, for each paragraph indicated in the left column,
removing the text indicated in the middle column from wherever it
appears, and adding in its place the text indicated in the right
column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
(b) heading................. Governance governance
Arrangements. arrangements
(c)(1)(i) introductory text. Regulation.......... section
(c)(1)(i)(A)(2)............. Independent independent
Perspective. perspective
(c)(1)(i)(B)................ Independent independent
Perspective. perspective
(c)(5)...................... Regulation.......... section
------------------------------------------------------------------------
The revisions read as follows:
Sec. 49.20 Governance arrangements (Core Principle 2).
* * * * *
(b) * * *
(2) * * *
(v) A description of the manner in which the board of directors, as
well as any committee referenced in paragraph (b)(2)(ii) of this
section, considers an independent perspective in its decision-making
process, as Sec. 49.2(a) defines such term;
* * * * *
(vii) Summaries of significant decisions impacting the public
interest, the rationale for such decisions, and the process for
reaching such decisions. Such significant decisions shall include
decisions relating to pricing of repository services, offering of
ancillary services, access to SDR data, and use of section 8 material,
SDR information, and intellectual property (as referenced in Sec.
49.16). Such summaries of significant decisions shall not require the
swap data repository to disclose section 8 material or, where
appropriate, information that the swap data repository received on a
confidential basis from a swap execution facility, designated contract
market, or reporting counterparty.
* * * * *
(c) * * *
(1) * * *
(ii) * * *
(B) A description of the relationship, if any, between such members
and the swap data repository or any swap execution facility, designated
contract market, or reporting counterparty user thereof (or, in each
case, affiliates thereof, as Sec. 49.2(a) defines such term); and
* * * * *
0
24. Amend Sec. 49.22 by:
0
a. In the table below, for each paragraph indicated in the left column,
removing the text indicated in the middle column from wherever it
appears, and adding in its place the text indicated in the right
column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
(a) heading................. Board of Directors.. board of directors
(b)(1) heading.............. Compliance Officer.. compliance officer
(b)(2) heading.............. Chief Compliance chief compliance
Officer. officer
(b)(2)(i)................... Sections............ section
(d)(1)...................... Section............. section
(d)(4)...................... Section............. section
(e)(2) introductory text and Section............. section
(e)(2)(i).
(f)(3)...................... (e)(67)............. (e)(6)
(g)(1)(iii)(A).............. Created, sent or Created, sent, or
received in received in
connection with the connection with the
annual compliance annual compliance
report and. report; and
------------------------------------------------------------------------
0
b. Revising the paragraph (c)(1) heading, the paragraph (f) heading,
and paragraph (f)(2) to read as follows:
Sec. 49.22 Chief compliance officer.
* * * * *
(c) * * *
(1) Appointment and compensation of chief compliance officer
determined by board of directors. * * *
* * * * *
(f) Submission of annual compliance report to the Commission. * * *
(2) The annual compliance report shall be provided electronically
to the Commission not more than 60 days after the end of the swap data
repository's fiscal year.
* * * * *
Sec. 49.23 [Amended]
0
25. Amend Sec. 49.23 by:
0
a. Removing from paragraph (a) the words ``swap transaction data'' and
adding in their place ``SDR data''; and
0
b. Removing from the heading of paragraph (e) the word ``commission''
and adding in its place ``Commission''.
0
26. Amend Sec. 49.24 by:
0
a. Revising paragraph (d); and
0
b. In the table below, for each paragraph indicated in the left column,
removing the text indicated in the middle column from wherever it
[[Page 75662]]
appears, and adding in its place the text indicated in the right
column:
------------------------------------------------------------------------
Paragraphs Remove Add
------------------------------------------------------------------------
(a) introductory text....... all swap data in its all SDR data in its
custody. custody
(e)(3)(i)................... dissemination of dissemination of SDR
swap data. data
(e)(3)(ii).................. normal swap data.... normal SDR data
(f)(2)...................... all swap data all SDR data
contained. contained
(i) introductory text and Sec. Sec. 1.31 Sec. 1.31
(i)(5). and 45.2.
(j)(1) definitions of data and information SDR data and SDR
``Controls'' and information
``Enterprise technology
risk assessment''.
(j)(1) definition of or integrity of data , or integrity of
``Security incident''. SDR data
(k)(1) and (2).............. report swap data.... report SDR data
(l)(3)...................... any data related to. any SDR data related
to
(m)......................... Board of Directors.. board of directors
------------------------------------------------------------------------
The revision reads as follows:
Sec. 49.24 System safeguards.
* * * * *
(d) A swap data repository shall maintain a business continuity-
disaster recovery plan and business continuity-disaster recovery
resources, emergency procedures, and backup facilities sufficient to
enable timely recovery and resumption of its operations and resumption
of its ongoing fulfillment of its duties and obligations as a swap data
repository following any disruption of its operations. Such duties and
obligations include, without limitation, the duties set forth in
Sec. Sec. 49.10 through 49.18, Sec. 49.23, and the core principles
set forth in Sec. Sec. 49.19 through 49.21 and Sec. Sec. 49.25
through 49.27, and maintenance of a comprehensive audit trail. The swap
data repository's business continuity-disaster recovery plan and
resources generally should enable resumption of the swap data
repository's operations and resumption of ongoing fulfillment of the
swap data repository's duties and obligation during the next business
day following the disruption. A swap data repository shall update its
business continuity-disaster recovery plan and emergency procedures at
a frequency determined by an appropriate risk analysis, but at a
minimum no less frequently than annually.
* * * * *
0
27. In Sec. 49.25, revise paragraph (a)(1) to read as follows:
Sec. 49.25 Financial resources.
(a) * * * (1) A swap data repository shall maintain sufficient
financial resources to perform its statutory and regulatory duties set
forth in this chapter.
* * * * *
0
28. Amend Sec. 49.26 by:
0
a. Revising the introductory text;
0
b. In the table below, for each paragraph indicated in the left column,
removing the text indicated in the middle column from wherever it
appears, and adding in its place the text indicated in the right
column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
(a)......................... swap data maintained SDR data maintained.
(c)......................... safeguarding of swap safeguarding of SDR
data. data.
(d)......................... any and all swap any and all SDR
data. data.
(d)......................... reporting entity.... swap execution
facility,
designated contract
market, or
reporting
counterparty.
(e)......................... swap data that it SDR data that it
receives. receives.
(e)......................... market participant, swap execution
any registered facility,
entity, or any designated contract
other person; market, or
reporting
counterparty;
(h)......................... rebates; and........ rebates;
(i)......................... arrangements........ arrangements; and.
------------------------------------------------------------------------
0
c. Adding paragraph (j).
The revisions and additions read as follows:
Sec. 49.26 Disclosure requirements of swap data repositories.
Before accepting any SDR data from a swap execution facility,
designated contract market, or reporting counterparty; or upon a swap
execution facility's, designated contract market's, or reporting
counterparty's request; a swap data repository shall furnish to the
swap execution facility, designated contract market, or reporting
counterparty a disclosure document that contains the following written
information, which shall reasonably enable the swap execution facility,
designated contract market, or reporting counterparty to identify and
evaluate accurately the risks and costs associated with using the
services of the swap data repository:
* * * * *
(j) The swap data repository's policies and procedures regarding
the reporting of SDR data to the swap data repository, including the
swap data repository's SDR data validation procedures, swap data
verification procedures, and procedures for correcting SDR data errors
and omissions.
Sec. 49.27 [Amended]
0
29. Amend Sec. 49.27 by removing the term ``Regulation'' from
paragraph (a)(2) and add in its place the term ``section'', and by
removing ``reporting of swap data'' from paragraph (b)(1) and adding in
its place ``reporting of SDR data''.
0
30. Add Sec. 49.28 to read as follows:
Sec. 49.28 Operating hours of swap data repositories.
(a) Except as otherwise provided in this paragraph (a), a swap data
[[Page 75663]]
repository shall have systems in place to continuously accept and
promptly record all SDR data reported to the swap data repository as
required in this chapter and, as applicable, publicly disseminate all
swap transaction and pricing data reported to the swap data repository
as required in part 43 of this chapter.
(1) A swap data repository may establish normal closing hours to
perform system maintenance during periods when, in the reasonable
estimation of the swap data repository, the swap data repository
typically receives the least amount of SDR data. A swap data repository
shall provide reasonable advance notice of its normal closing hours to
market participants and to the public.
(2) A swap data repository may declare, on an ad hoc basis, special
closing hours to perform system maintenance that cannot wait until
normal closing hours. A swap data repository shall schedule special
closing hours during periods when, in the reasonable estimation of the
swap data repository in the context of the circumstances prompting the
special closing hours, the special closing hours will be the least
disruptive to the swap data repository's SDR data reporting
responsibilities. A swap data repository shall provide reasonable
advance notice of its special closing hours to market participants and
to the public whenever possible, and, if advance notice is not
reasonably possible, shall provide notice of its special closing hours
to market participants and to the public as soon as reasonably possible
after declaring special closing hours.
(b) A swap data repository shall comply with the requirements under
part 40 of this chapter in adopting or amending normal closing hours
and special closing hours.
(c) During normal closing hours and special closing hours, a swap
data repository shall have the capability to accept and hold in queue
any and all SDR data reported to the swap data repository during the
normal closing hours or special closing hours.
(1) Upon reopening after normal closing hours or special closing
hours, a swap data repository shall promptly process all SDR data
received during normal closing hours or special closing hours, as
required pursuant to this chapter, and, pursuant to part 43 of this
chapter, publicly disseminate all swap transaction and pricing data
reported to the swap data repository that was held in queue during the
normal closing hours or special closing hours.
(2) If at any time during normal closing hours or special closing
hours a swap data repository is unable to receive and hold in queue any
SDR data reported pursuant to this chapter, then the swap data
repository shall immediately issue notice to all swap execution
facilities, designated contract markets, reporting counterparties, and
the public that it is unable to receive and hold in queue SDR data.
Immediately upon reopening, the swap data repository shall issue notice
to all swap execution facilities, designated contract markets,
reporting counterparties, and the public that it has resumed normal
operations. Any swap execution facility, designated contract market, or
reporting counterparty that was obligated to report SDR data pursuant
to this chapter to the swap data repository, but could not do so
because of the swap data repository's inability to receive and hold in
queue SDR data, shall report the SDR data to the swap data repository
immediately after receiving such notice.
0
31. Add Sec. 49.29 to read as follows:
Sec. 49.29 Information relating to swap data repository compliance.
(a) Requests for information. Upon the Commission's request, a swap
data repository shall file with the Commission information related to
its business as a swap data repository and such information as the
Commission determines to be necessary or appropriate for the Commission
to perform the duties of the Commission under the Act and regulations
in 17 CFR chapter I. The swap data repository shall file the
information requested in the form and manner and within the time period
the Commission specifies in the request.
(b) Demonstration of compliance. Upon the Commission's request, a
swap data repository shall file with the Commission a written
demonstration, containing supporting data, information, and documents,
that it is in compliance with its obligations under the Act and the
Commission's regulations in 17 CFR chapter I, as the Commission
specifies in the request. The swap data repository shall file the
written demonstration in the form and manner and within the time period
the Commission specifies in the request.
0
32. Add Sec. 49.30 to read as follows:
Sec. 49.30 Form and manner of reporting and submitting information to
the Commission.
Unless otherwise instructed by the Commission, a swap data
repository shall submit SDR data reports and any other information
required under this part to the Commission, within the time specified,
using the format, coding structure, and electronic data transmission
procedures approved in writing by the Commission.
0
33. Add Sec. 49.31 to read as follows:
Sec. 49.31 Delegation of authority to the Director of the Division of
Market Oversight relating to certain part 49 matters.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, the following functions to the Director of
the Division of Market Oversight and to such members of the Commission
staff acting under his or her direction as he or she may designate from
time to time:
(1) All functions reserved to the Commission in Sec. 49.5.
(2) All functions reserved to the Commission in Sec. 49.9.
(3) All functions reserved to the Commission in Sec. 49.10.
(4) All functions reserved to the Commission in Sec. 49.12.
(5) All functions reserved to the Commission in Sec. 49.13.
(6) All functions reserved to the Commission in Sec. 49.16.
(7) All functions reserved to the Commission in Sec. 49.17.
(8) All functions reserved to the Commission in Sec. 49.18.
(9) All functions reserved to the Commission in Sec. 49.22.
(10) All functions reserved to the Commission in Sec. 49.23.
(11) All functions reserved to the Commission in Sec. 49.24.
(12) All functions reserved to the Commission in Sec. 49.25.
(13) All functions reserved to the Commission in Sec. 49.29.
(14) All functions reserved to the Commission in Sec. 49.30.
(b) The Director of the Division of Market Oversight may submit to
the Commission for its consideration any matter that has been delegated
under paragraph (a) of this section.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated in this section.
0
34. Revise appendix A to part 49 to read as follows:
Appendix A to Part 49--Form SDR
COMMODITY FUTURES TRADING COMMISSION FORM SDR
SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR
REGISTRATION
REGISTRATION INSTRUCTIONS
Intentional misstatements or omissions of material fact may
constitute federal criminal violations (7 U.S.C. 13 and 18 U.S.C.
1001) or grounds for disqualification from registration.
[[Page 75664]]
DEFINITIONS
Unless the context requires otherwise, all terms used in this
Form SDR have the same meaning as in the Commodity Exchange Act, as
amended (``Act''), and in the General Rules and Regulations of the
Commodity Futures Trading Commission (``Commission'') thereunder (17
CFR chapter I).
For the purposes of this Form SDR, the term ``Applicant'' shall
include any applicant for registration as a swap data repository or
any applicant amending a pending application.
GENERAL INSTRUCTIONS
1. This Form SDR, which includes instructions, a Cover Sheet,
and required Exhibits (together ``Form SDR''), is to be filed with
the Commission by all Applicants, pursuant to section 21 of the Act
and the Commission's regulations thereunder. Upon the filing of an
application for registration in accordance with the instructions
provided herein, the Commission will publish notice of the filing
and afford interested persons an opportunity to submit written
comments concerning such application. No application for
registration shall be effective unless the Commission, by order,
grants such registration.
2. Individuals' names, except the executing signature, shall be
given in full (Last Name, First Name, Middle Name).
3. Signatures on all copies of the Form SDR filed with the
Commission can be executed electronically. If this Form SDR is filed
by a corporation, it shall be signed in the name of the corporation
by a principal officer duly authorized; if filed by a limited
liability company, it shall be signed in the name of the limited
liability company by a manager or member duly authorized to sign on
the limited liability company's behalf; if filed by a partnership,
it shall be signed in the name of the partnership by a general
partner duly authorized; if filed by an unincorporated organization
or association that is not a partnership, it shall be signed in the
name of such organization or association by the managing agent,
i.e., a duly authorized person who directs manages or who
participates in the directing or managing of its affairs.
4. If this Form SDR is being filed as an application for
registration, all applicable items must be answered in full. If any
item is inapplicable, indicate by ``none,'' ``not applicable,'' or
``N/A,'' as appropriate.
5. Under section 21 of the Act and the Commission's regulations
thereunder, the Commission is authorized to solicit the information
required to be supplied by this Form SDR from any Applicant seeking
registration as a swap data repository. Disclosure by the Applicant
of the information specified in this Form SDR is mandatory prior to
the start of the processing of an application for registration as a
swap data repository. The information provided in this Form SDR will
be used for the principal purpose of determining whether the
Commission should grant or deny registration to an Applicant. The
Commission may determine that additional information is required
from an Applicant in order to process its application. A Form SDR
that is not prepared and executed in compliance with applicable
requirements and instructions may be returned as not acceptable for
filing. Acceptance of this Form SDR, however, shall not constitute a
finding that the Form SDR has been filed as required or that the
information submitted is true, current, or complete.
6. Except in cases where confidential treatment is requested by
the Applicant and granted by the Commission pursuant to the Freedom
of Information Act and Commission Regulation Sec. 145.9,
information supplied on this Form SDR will be included in the public
files of the Commission and will be available for inspection by any
interested person. The Applicant must identify with particularity
the information in these exhibits that will be subject to a request
for confidential treatment and supporting documentation for such
request pursuant to Commission Regulations Sec. 40.8 and Sec.
145.9.
APPLICATION AMENDMENTS
1. An Applicant amending a pending application for registration
as a swap data repository shall file an amended Form SDR
electronically with the Secretary of the Commission in the manner
specified by the Commission.
2. When filing this Form SDR for purposes of amending a pending
application, an Applicant must re-file the entire Cover Sheet,
amended if necessary, include an executing signature, and attach
thereto revised Exhibits or other materials marked to show any
amendments. The submission of an amendment to a pending application
represents that all unamended items and Exhibits remain true,
current, and complete as previously filed.
WHERE TO FILE
This Form SDR shall be filed electronically with the Secretary
of the Commission in the manner specified by the Commission.
BILLING CODE 6351-01-P
[[Page 75665]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.038
[[Page 75666]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.039
[[Page 75667]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.040
[[Page 75668]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.041
BILLING CODE 6351-01-C
EXHIBITS INSTRUCTIONS
The following Exhibits must be included as part of Form SDR and
filed with the Commission by each Applicant seeking registration as
a swap data repository pursuant to section 21 of the Act and the
Commission's regulations thereunder. Such Exhibits must be labeled
according to the items specified in this Form SDR. If any Exhibit is
inapplicable, please specify the Exhibit letter and indicate by
``none,'' ``not applicable,'' or ``N/A,'' as appropriate. The
Applicant must identify with particularity the information in these
Exhibits that will be subject to a request for confidential
treatment and supporting documentation for such request pursuant to
Commission Regulations Sec. 40.8 and Sec. 145.9.
If the Applicant is a newly formed enterprise and does not have
the financial statements required pursuant to Items 27 and 28 of
this form, the Applicant should provide pro forma financial
statements for the most recent six months or since inception,
whichever is less.
EXHIBITS I--BUSINESS ORGANIZATION
14. Attach as Exhibit A, any person who owns ten (10) percent or
more of Applicant's equity or possesses voting power of any class,
either directly or indirectly, through agreement or otherwise, in
any other manner, may control or direct the management or policies
of Applicant. ``Control'' for this purpose is defined in Commission
Regulation Sec. 49.2(a).
State in Exhibit A the full name and address of each such person
and attach a copy of the agreement or, if there is none written,
describe the agreement or basis upon which such person exercises or
may exercise such control or direction.
15. Attach as Exhibit B, a narrative that sets forth the fitness
standards for the board of directors and its composition including
the number or percentage of public directors.
Attach a list of the present officers, directors (including an
identification of the public directors), governors (and, if the
[[Page 75669]]
Applicant is not a corporation, the members of all standing
committees grouped by committee), or persons performing functions
similar to any of the foregoing, of the swap data repository or of
the entity identified in Item 16 that performs the swap data
repository activities of the Applicant, indicating for each:
a. Name
b. Title
c. Date of commencement and, if appropriate, termination of
present term of position
d. Length of time each present officer, director, or governor
has held the same position
e. Brief account of the business experience of each officer and
director over the last five (5) years
f. Any other business affiliations in the securities industry or
OTC derivatives industry
g. A description of:
(1) any order of the Commission with respect to such person
pursuant to section 5e of the Act;
(2) any conviction or injunction within the past 10 years;
(3) any disciplinary action with respect to such person within
the last five (5) years;
(4) any disqualification under sections 8b and 8d of the Act;
(5) any disciplinary action under section 8c of the Act; and
(6) any violation pursuant to section 9 of the Act.
h. For directors, list any committees on which the director
serves and any compensation received by virtue of their
directorship.
16. Attach as Exhibit C, the following information about the
chief compliance officer who has been appointed by the board of
directors of the swap data repository or a person or group
performing a function similar to such board of directors:
a. Name
b. Title
c. Dates of commencement and termination of present term of
office or position
d. Length of time the chief compliance officer has held the same
office or position
e. Brief account of the business experience of the chief
compliance officer over the last five (5) years
f. Any other business affiliations in the derivatives/securities
industry or swap data repository industry
g. A description of:
(1) any order of the Commission with respect to such person
pursuant to section 5e of the Act;
(2) any conviction or injunction within the past 10 years;
(3) any disciplinary action with respect to such person within
the last five (5) years;
(4) any disqualification under sections 8b and 8d of the Act;
(5) any disciplinary action under section 8c of the Act; and
(6) any violation pursuant to section 9 of the Act.
17. Attach as Exhibit D, a copy of documents relating to the
governance arrangements of the Applicant, including, but not limited
to:
a. The nomination and selection process of the members on the
Applicant's board of directors, a person or group performing a
function similar to a board of directors (collectively, ``board''),
or any committee that has the authority to act on behalf of the
board, the responsibilities of each of the board and such committee,
and the composition of each board and such committee;
b. a description of the manner in which the composition of the
board allows the Applicant to comply with applicable core
principles, regulations, as well as the rules of the Applicant; and
c. a description of the procedures to remove a member of the
board of directors, where the conduct of such member is likely to be
prejudicial to the sound and prudent management of the swap data
repository.
18. Attach as Exhibit E, a narrative or graphic description of
the organizational structure of the Applicant. Note: If the swap
data repository activities are conducted primarily by a division,
subdivision, or other segregable entity within the Applicant's
corporation or organization, describe the relationship of such
entity within the overall organizational structure and attach as
Exhibit E only such description as applies to the segregable entity.
Additionally, provide any relevant jurisdictional information,
including any and all jurisdictions in which the Applicant or any
affiliated entity is doing business and registration status,
including pending application (e.g., country, regulator,
registration category, date of registration). In addition, include a
description of the lines of responsibility and accountability for
each operational unit of the Applicant to (i) any committee thereof
and/or (ii) the board.
19. Attach as Exhibit F, a copy of the conflicts of interest
policies and procedures implemented by the Applicant to minimize
conflicts of interest in the decision-making process of the swap
data repository and to establish a process for the resolution of any
such conflicts of interest.
20. Attach as Exhibit G, a list of all affiliates of the swap
data repository and indicate the general nature of the affiliation.
Provide a copy of any agreements entered into or to be entered by
the swap data repository, including partnerships or joint ventures,
or its participants, that will enable the Applicant to comply with
the registration requirements and core principles specified in
section 21 of the Act. With regard to an affiliate that is a parent
company of the Applicant, if such parent controls the Applicant, an
Applicant must provide (i) the board composition of the parent,
including public directors, and (ii) all ownership information
requested in Exhibit A for the parent. ``Control'' for this purpose
is defined in Commission Regulation Sec. 49.2(a).
21. Attach as Exhibit H, a copy of the constitution; articles of
incorporation or association with all amendments thereto; existing
by-laws, rules, or instruments corresponding thereto, of the
Applicant. The Applicant shall also provide a certificate of good
standing dated within one week of the date of the application.
22. Where the Applicant is a foreign entity seeking registration
or filing an amendment to an existing registration, attach as
Exhibit I, an opinion of counsel that the swap data repository, as a
matter of law, is able to provide the Commission with prompt access
to the books and records of such swap data repository and that the
swap data repository can submit to onsite inspection and examination
by the Commission.
23. Where the Applicant is a foreign entity seeking
registration, attach as Exhibit I-1, a form that designates and
authorizes an agent in the United States, other than a Commission
official, to accept any notice or service of process, pleadings, or
other documents in any action or proceedings brought against the
swap data repository to enforce the Act and the regulations
thereunder.
24. Attach as Exhibit J, a current copy of the Applicant's
rules, as defined in Commission Regulation Sec. 40.1, consisting of
all the rules necessary to carry out the duties as a swap data
repository.
25. Attach as Exhibit K, a description of the Applicant's
internal disciplinary and enforcement protocols, tools, and
procedures. Include the procedures for dispute resolution.
26. Attach as Exhibit L, a brief description of any material
pending legal proceeding(s), other than ordinary and routine
litigation incidental to the business, to which the Applicant or any
of its affiliates is a party or to which any of its or their
property is the subject. Include the name of the court or agency in
which the proceeding(s) are pending, the date(s) instituted, and the
principal parties thereto, a description of the factual basis
alleged to underlie the proceeding(s) and the relief sought. Include
similar information as to any such proceeding(s) known to be
contemplated by the governmental agencies.
EXHIBITS II--FINANCIAL INFORMATION
27. Attach as Exhibit M, a balance sheet, statement of income
and expenses, statement of sources and application of revenues, and
all notes or schedules thereto, as of the most recent fiscal year of
the Applicant. If a balance sheet and statements certified by an
independent public accountant are available, such balance sheet and
statement shall be submitted as Exhibit M.
28. Attach as Exhibit N, a balance sheet and an income and
expense statement for each affiliate of the swap data repository
that also engages in swap data repository activities as of the end
of the most recent fiscal year of each such affiliate.
29. Attach as Exhibit O, the following:
a. A complete list of all dues, fees, and other charges imposed,
or to be imposed, by or on behalf of Applicant for its swap data
repository services and identify the service or services provided
for each such due, fee, or other charge.
b. Furnish a description of the basis and methods used in
determining the level and structure of the dues, fees, and other
charges listed in paragraph a of this item.
c. If the Applicant differentiates, or proposes to
differentiate, among its customers, or classes of customers in the
amount of any dues, fees, or other charges imposed for the same or
similar services, so
[[Page 75670]]
state and indicate the amount of each differential. In addition,
identify and describe any differences in the cost of providing such
services, and any other factors, that account for such
differentiations.
EXHIBITS III--OPERATIONAL CAPABILITY
30. Attach as Exhibit P, copies of all material contracts with
any swap execution facility, designated contract market, clearing
agency, central counterparty, or third party service provider. To
the extent that form contracts are used by the Applicant, submit a
sample of each type of form contract used. In addition, include a
list of swap execution facilities, designated contract markets,
clearing agencies, central counterparties, and third party service
providers with whom the Applicant has entered into material
contracts. Where swap data repository functions are performed by a
third-party, attach any agreements between or among the Applicant
and such third party, and identify the services that will be
provided.
31. Attach as Exhibit Q, any technical manuals, other guides or
instructions for users of, or participants in, the market.
32. Attach as Exhibit R, a description of system test
procedures, test conducted or test results that will enable the
Applicant to comply, or demonstrate the Applicant's ability to
comply, with the core principles for swap data repositories.
33. Attach as Exhibit S, a description in narrative form, or by
the inclusion of functional specifications, of each service or
function performed as a swap data repository. Include in Exhibit S a
description of all procedures utilized for the collection,
processing, distribution, publication, and retention (e.g., magnetic
tape) of information with respect to transactions or positions in,
or the terms and conditions of, swaps entered into by market
participants.
34. Attach as Exhibit T, a list of all computer hardware
utilized by the Applicant to perform swap data repository functions,
indicating where such equipment (terminals and other access devices)
is physically located.
35. Attach as Exhibit U, a description of the personnel
qualifications for each category of professional employees employed
by the swap data repository or the division, subdivision, or other
segregable entity within the swap data repository as described in
Item 16.
36. Attach as Exhibit V, a description of the measures or
procedures implemented by Applicant to provide for the security of
any system employed to perform the functions of a swap data
repository. Include a general description of any physical and
operational safeguards designed to prevent unauthorized access
(whether by input or retrieval) to the system. Describe any
circumstances within the past year in which the described security
measures or safeguards failed to prevent any such unauthorized
access to the system and any measures taken to prevent a
reoccurrence. Describe any measures used to verify the accuracy of
information received or disseminated by the system.
37. Attach as Exhibit W, copies of emergency policies and
procedures and Applicant's business continuity-disaster recovery
plan. Include a general description of any business continuity-
disaster recovery resources, emergency procedures, and backup
facilities sufficient to enable timely recovery and resumption of
its operations and resumption of its ongoing fulfillment of its
duties and obligations as a swap data repository following any
disruption of its operations.
38. Where swap data repository functions are performed by
automated facilities or systems, attach as Exhibit X a description
of all backup systems or subsystems that are designed to prevent
interruptions in the performance of any swap data repository
function as a result of technical malfunctions or otherwise in the
system itself, in any permitted input or output system connection,
or as a result of any independent source. Include a narrative
description of each type of interruption that has lasted for more
than two minutes and has occurred within the six (6) months
preceding the date of the filing, including the date of each
interruption, the cause, and duration. Also state the total number
of interruptions that have lasted two minutes or less.
39. Attach as Exhibit Y, the following:
a. For each of the swap data repository functions:
(1) Quantify in appropriate units of measure the limits on the
swap data repository's capacity to receive (or collect), process,
store, or display (or disseminate for display or other use) the data
elements included within each function (e.g., number of inquiries
from remote terminals);
(2) identify the factors (mechanical, electronic, or other) that
account for the current limitations reported in answer to (1) on the
swap data repository's capacity to receive (or collect), process,
store, or display (or disseminate for display or other use) the data
elements included within each function.
b. If the Applicant is able to employ, or presently employs, the
central processing units of its system(s) for any use other than for
performing the functions of a swap data repository, state the
priorities of assignment of capacity between such functions and such
other uses, and state the methods used or able to be used to divert
capacity between such functions and such other uses.
EXHIBITS IV--ACCESS TO SERVICES
40. Attach as Exhibit Z, the following:
a. As to each swap data repository service that the Applicant
provides, state the number of persons who presently utilize, or who
have notified the Applicant of their intention to utilize, the
services of the swap data repository.
b. For each instance during the past year in which any person
has been prohibited or limited in respect of access to services
offered by the Applicant as a swap data repository, indicate the
name of each such person and the reason for the prohibition or
limitation.
c. Define the data elements for purposes of the swap data
repository's real-time public reporting obligation. Appendix A to
Part 43 of the Commission's Regulations (Data Elements and Form for
Real-Time Reporting for Particular Markets and Contracts) sets forth
the specific data elements for real-time public reporting.
41. Attach as Exhibit AA, copies of any agreements governing the
terms by which information may be shared by the swap data
repository, including with market participants. To the extent that
form contracts are used by the Applicant, submit a sample of each
type of form contract used.
42. Attach as Exhibit BB, a description of any specifications,
qualifications, or other criteria that limit, are interpreted to
limit, or have the effect of limiting access to or use of any swap
data repository services furnished by the Applicant and state the
reasons for imposing such specifications, qualifications, or other
criteria, including whether such specifications, qualifications, or
other criteria are imposed.
43. Attach as Exhibit CC, any specifications, qualifications, or
other criteria required of participants who utilize the services of
the Applicant for collection, processing, preparing for
distribution, or public dissemination by the Applicant.
44. Attach as Exhibit DD, any specifications, qualifications, or
other criteria required of any person, including, but not limited
to, regulators, market participants, market infrastructures, venues
from which data could be submitted to the Applicant, and third party
service providers who request access to data maintained by the
Applicant.
45. Attach as Exhibit EE, policies and procedures implemented by
the Applicant to review any prohibition or limitation of any person
with respect to access to services offered or data maintained by the
Applicant and to grant such person access to such services or data
if such person has been discriminated against unfairly.
EXHIBITS V--OTHER POLICIES AND PROCEDURES
46. Attach as Exhibit FF, a narrative and supporting documents
that may be provided under other Exhibits herein, that describes the
manner in which the Applicant is able to comply with each core
principle and other requirements pursuant to Commission Regulation
Sec. 49.19.
47. Attach as Exhibit GG, policies and procedures implemented by
the Applicant to protect the privacy of any and all SDR data,
section 8 material, and SDR information that the swap data
repository receives from reporting entities.
48. Attach as Exhibit HH, a description of safeguards, policies,
and procedures implemented by the Applicant to prevent the
misappropriation or misuse of (a) any confidential information
received by the Applicant, including, but not limited to, SDR data,
section 8 material, and SDR information, about a market participant
or any of its customers; and/or (b) intellectual property by
Applicant or any person associated with the Applicant for their
personal benefit or the benefit of others.
49. Attach as Exhibit II, policies and procedures implemented by
the Applicant regarding its use of the SDR data, section 8 material,
and SDR information that it receives from a market participant, any
registered entity, or any person for non-commercial and/or
commercial purposes.
[[Page 75671]]
50. Attach as Exhibit JJ, procedures and a description of
facilities of the Applicant for effectively resolving disputes over
the accuracy of the SDR data and positions that are maintained by
the swap data repository.
51. Attach as Exhibit KK, policies and procedures relating to
the Applicant's calculation of positions.
52. Attach as Exhibit LL, policies and procedures that are
reasonably designed to prevent any provision in a valid swap from
being invalidated or modified through the procedures or operations
of the Applicant.
53. Attach as Exhibit MM, Applicant's policies and procedures
that ensure that the SDR data that are maintained by the Applicant
continues to be maintained after the Applicant withdraws from
registration as a swap data repository, which shall include
procedures for transferring the SDR data to the Commission or its
designee (including another swap data repository).
0
35. Revise appendix B to part 49 to read as follows:
Appendix B to Part 49--Confidentiality Arrangement for Appropriate
Domestic Regulators and Appropriate Foreign Regulators To Obtain Access
To Swap Data Maintained by Swap Data Repositories Pursuant to
Sec. Sec. 49.17(d)(6) and 49.18(a)
[GRAPHIC] [TIFF OMITTED] TR25NO20.042
The U.S. Commodity Futures Trading Commission (``CFTC'') and the
[name of foreign/domestic regulator (``ABC'')] (each an
``Authority'' and collectively the ``Authorities'') have entered
into this Confidentiality Arrangement (``Arrangement'') in
connection with [whichever is applicable] [CFTC Regulation
49.17(b)(1)[(i)-(vi)]/the determination order issued by the CFTC to
[ABC] (``Order'')] and any request for swap data by [ABC] to any
swap data repository (``SDR'') registered or provisionally
registered with the CFTC.
Article One: General Provisions
1. ABC is permitted to request and receive swap data directly
from an SDR (``Swap Data'') on the terms and subject to the
conditions of this Arrangement.
2. This Arrangement is entered into to fulfill the requirements
under Section 21(d) of the Commodity Exchange Act (``Act'') and CFTC
Regulation 49.18. Upon receipt by an SDR, this Arrangement will
satisfy the requirement for a written agreement pursuant to Section
21(d) of the Act and CFTC Regulation 49.17(d)(6). This Arrangement
does not apply to information that is [reported to an SDR pursuant
to [ABC]'s regulatory regime where the SDR also is registered with
[ABC] pursuant to separate statutory authority, even if such
information also is reported pursuant to the Act and CFTC
regulations][reported to an SDR pursuant to [ABC]'s regulatory
regime where the SDR also is registered with, or recognized or
otherwise authorized by, [ABC], which has supervisory authority over
the repository pursuant to foreign law and/or regulation, even if
such information also is reported pursuant to the Act and CFTC
regulations.] \1\
---------------------------------------------------------------------------
\1\ The first bracketed phrase will be used for ADRs; the second
will be used for AFRs. The inapplicable phrase will be deleted.
---------------------------------------------------------------------------
3. This Arrangement is not intended to limit or condition the
discretion of an Authority in any way in the discharge of its
regulatory responsibilities or to prejudice the individual
responsibilities or autonomy of any Authority.
4. This Arrangement does not alter the terms and conditions of
any existing arrangements.
Article Two: Confidentiality of Swap Data
5. ABC will be acting within the scope of its jurisdiction in
requesting Swap Data and employs procedures to maintain the
confidentiality of Swap Data and any information and analyses
derived therefrom (collectively, the ``Confidential Information'').
ABC undertakes to notify the CFTC and each relevant SDR promptly of
any change to ABC's scope of jurisdiction.
6. ABC undertakes to treat Confidential Information as
confidential and will employ safeguards that:
a. To the maximum extent practicable, identify the Confidential
Information and maintain it separately from other data and
information;
b. Protect the Confidential Information from misappropriation
and misuse;
c. Ensure that only authorized ABC personnel with a need to
access particular Confidential Information to perform their job
functions related to such Confidential Information have access
thereto, and that such access is permitted only to the extent
necessary to perform their job functions related to such particular
Confidential Information;
d. Prevent the disclosure of aggregated Confidential
Information; provided, however, that ABC is permitted to disclose
any sufficiently aggregated Confidential Information that is
anonymized to prevent identification, through disaggregation or
otherwise, of a market participant's business transactions, trade
data, market positions, customers, or counterparties;
e. Prohibit use of the Confidential Information by ABC personnel
for any improper purpose, including in connection with trading for
their personal benefit or for the benefit of others or with respect
to any commercial or business purpose; and
f. Include a process for monitoring compliance with the
confidentiality safeguards described herein and for promptly
notifying the CFTC, and each SDR from which ABC has received Swap
Data, of any violation of such safeguards or failure to fulfill the
terms of this Arrangement.
7. Except as provided in Paragraphs 6.d. and 8, ABC will not
onward share or otherwise disclose any Confidential Information.
8. ABC undertakes that:
a. If a department, central bank, or agency of the Government of
the United States, it will not disclose Confidential Information
except in an action or proceeding under the laws of the United
States to which it, the CFTC, or the United States is a party;
b. If a department or agency of a State or political subdivision
thereof, it will not disclose Confidential Information except in
connection with an adjudicatory action or proceeding brought under
the Act or the laws of [name of either the State or the State and
political subdivision] to which it is a party; or
c. If a foreign futures authority or a department, central bank,
ministry, or agency of a foreign government or subdivision thereof,
or any other Foreign Regulator, as defined in Commission Regulation
49.2(a)(5), it will not disclose Confidential Information except in
connection with an adjudicatory action or proceeding brought under
the laws of [name of country, political subdivision, or (if a
supranational organization) supranational lawmaking body] to which
it is a party.
9. Prior to complying with any legally enforceable demand for
Confidential Information, ABC will notify the CFTC of such demand in
writing, assert all available appropriate legal exemptions or
privileges with respect to such Confidential Information, and use
its best efforts to protect
[[Page 75672]]
the confidentiality of the Confidential Information.
10. ABC acknowledges that, if it does not fulfill the terms of
this Arrangement, the CFTC may direct any SDR to suspend or revoke
ABC's access to Swap Data.
11. ABC will comply with all applicable security-related
requirements imposed by an SDR in connection with access to Swap
Data maintained by the SDR, as such requirements may be revised from
time to time.
12. ABC will promptly destroy all Confidential Information for
which it no longer has a need or which no longer falls within the
scope of its jurisdiction, and will certify to the CFTC, upon
request, that ABC has destroyed such Confidential Information.
Article Three: Administrative Provisions
13. This Arrangement may be amended with the written consent of
the Authorities.
14. The text of this Arrangement will be executed in English,
and may be made available to the public.
15. On the date this Arrangement is signed by the Authorities,
it will become effective and may be provided to any SDR that holds
and maintains Swap Data that falls within the scope of ABC's
jurisdiction.
16. This Arrangement will expire 30 days after any Authority
gives written notice to the other Authority of its intention to
terminate the Arrangement. In the event of termination of this
Arrangement, Confidential Information will continue to remain
confidential and will continue to be covered by this Arrangement.
This Arrangement is executed in duplicate, this __day of __.
__________[name of Chairman]
Chairman,
U.S. Commodity Futures Trading Commission
__________[name of signatory]
[title]
[name of foreign/domestic regulator]
[Exhibit A: Description of Scope of Jurisdiction. If ABC is not
enumerated in Commission Regulations 49.17(b)(1)(i)-(vi), it must
attach the Determination Order received from the Commission pursuant
to Commission Regulation 49.17(h). If ABC is enumerated in
Commission Regulations 49.17(b)(1)(i)-(vi), it must attach a
sufficiently detailed description of the scope of ABC's jurisdiction
as it relates to Swap Data maintained by SDRs. In both cases, the
description of the scope of jurisdiction must include elements
allowing SDRs to establish, without undue obstacles, objective
parameters for determining whether a particular Swap Data request
falls within such scope of jurisdiction. Such elements could include
legal entity identifiers of all jurisdictional entities and could
also include unique product identifiers of all jurisdictional
products or, if no CFTC-approved unique product identifier and
product classification system is yet available, the internal product
identifier or product description used by an SDR from which Swap
Data is to be sought.]
0
36. Further amend part 49 by removing all references to ``registered
swap data repository'', ``Registered Swap Data Repository'', and
``registered swap data repositories'', and adding in their place ``swap
data repository'', ``Swap Data Repository'', and ``swap data
repositories'', respectively, wherever they appear.
Issued in Washington, DC, on September 24, 2020, by the
Commission.
Christopher Kirkpatrick,
Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Amendments to Regulations Relating to Certain Swap Data
Repository and Data Reporting Requirements--Commission Voting Summary,
Chairman's Statement, and Commissioners' Statements
Appendix 1--Commission Voting Summary
On this matter, Chairman Tarbert and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Heath P. Tarbert
I am pleased to support today's final swap data reporting rules
under Parts 43, 45, and 49 of the CFTC's regulations, which are
foundational to effective oversight of the derivatives markets. As I
noted when these rules were proposed in February, ``[d]ata is the
lifeblood of our markets.'' \1\ Little did I know just how timely
that statement would prove to be.
---------------------------------------------------------------------------
\1\ Statement of Chairman Heath P. Tarbert in Support of
Proposed Rules on Swap Data Reporting (Feb. 20, 2020), https://www.cftc.gov/PressRoom/SpeechesTestimony/tabertstatement022020
(hereinafter, Tarbert, Proposal Statement).
---------------------------------------------------------------------------
COVID-19 Crisis and Beyond
In the month following our data rule proposals, historic
volatility caused by the coronavirus pandemic rocketed through our
derivatives markets, affecting nearly every asset class.\2\ I said
at the time that while our margin rules acted as ``shock absorbers''
to cushion the impact of volatility, the Commission was also
considering data rules that would expand our insight into potential
systemic risk. In particular, the data rules ``would for the first
time require the reporting of margin and collateral data for
uncleared swaps . . . significantly strengthen[ing] the CFTC's
ability to monitor for systemic risk'' in those markets.\3\ Today we
complete those rules, shoring up the data-based reporting systems
that can help us identify--and quickly respond to--emerging systemic
threats.
---------------------------------------------------------------------------
\2\ See Heath P. Tarbert, Volatility Ain't What it Used to Be,
Wall Street Journal (Mar. 23, 2020), https://www.wsj.com/articles/volatility-aint-what-it-used-to-be-11585004897?mod=searchresults&page=1&pos=1 (hereinafter Tarbert,
Volatility).
\3\ Id.
---------------------------------------------------------------------------
But data reporting is not just about mitigating systemic risk.
Vibrant derivatives markets must be open and free, meaning
transparency is a critical component of any reporting system. Price
discovery requires robust public reporting that supplies market
participants with the information they need to price trades, hedge
risk, and supply liquidity. Today we double down on transparency,
ensuring that public reporting of swap transactions is even more
accurate and timely. In particular, our final rules adjust certain
aspects of the Part 43 proposal's block-trade \4\ reporting rules to
improve transparency in our markets. These changes have been
carefully considered to enhance clarity, one of the CFTC's core
values. \5\
---------------------------------------------------------------------------
\4\ The final rule's definition of ``block trade'' is provided
in regulation 43.2.
\5\ See CFTC Core Values, https://www.cftc.gov/About/Mission/index.htm.
---------------------------------------------------------------------------
Promoting clarity in our markets also demands that we, as an
agency, have clear goals in mind. Today's final swap data reporting
rules reflect a hard look at the data we need and the data we
collect, building on insights gleaned from our own analysis as well
as feedback from market participants. The key point is that more
data does not necessarily mean better information. Instead, the core
of an effective data reporting system is focus.
As Aesop reminds us, ``Beware lest you lose the substance by
grasping at the shadow.'' \6\ Today's final swap data reporting
rules place substance first, carefully tailoring our requirements to
reach the data that really matters, while removing unnecessary
burdens on our market participants. As Bill Gates once remarked,
``My success, part of it certainly, is that I have focused in on a
few things.'' \7\ So too are the final swap data reporting rules
limited in number. The Part 45 Technical Specification, for example,
streamlines hundreds of different data fields currently required by
swap data repositories into 128 that truly advance the CFTC's
regulatory goals. This focus will simplify the data reporting
process without undermining its effectiveness, thus fulfilling the
CFTC's strategic goal of enhancing the regulatory experience for
market participants at home and abroad.\8\
---------------------------------------------------------------------------
\6\ Aesop, ``The Dog and the Shadow,'' The Harvard Classics,
https://www.bartleby.com/17/1/3.html.
\7\ ABC News, One-on-One with Bills Gates (Feb. 21, 2008),
https://abcnews.go.com/WNT/CEOProfiles/story?id=506354&page=1.
\8\ See CFTC Strategic Plan 2020-2024, at 4 (discussing
Strategic Goal 3), https://www.cftc.gov/media/3871/CFTC2020_2024StrategicPlan/download.
---------------------------------------------------------------------------
That last point is worth highlighting: our final swap data
reporting rules account for market participants both within and
outside the United States. A diversity of market participants, some
of whom reside beyond our borders and are accountable to foreign
regulatory regimes, contribute to vibrant derivatives markets. But
before today, inconsistent international rules meant some swap
dealers were left to navigate what I have called ``a byzantine maze
of disparate data fields and reporting timetables'' for the very
same swap.\9\ While perfect alignment
[[Page 75673]]
may not be possible or even desirable, the final rules significantly
harmonize reportable data fields, compliance timetables, and
implementation requirements to advance our global markets. Doing so
brings us closer to realizing the CFTC's vision of being the global
standard for sound derivatives regulation.\10\
---------------------------------------------------------------------------
\9\ Tarbert, Proposal Statement, supra note 1.
\10\ See CFTC Vision Statement, available at https://
www.cftc.gov/About/
AboutTheCommission#:~:text=CFTC%20Vision%20Statement,standard%20for%2
0sound%20derivatives%20regulation.
---------------------------------------------------------------------------
Overview of the Swap Data Reporting Rules
It is important to understand the specific function of each of
the three swap data reporting rules, which together form the CFTC's
reporting system. First, Part 43 relates to the real-time public
reporting of swap pricing and transaction data, which appears on the
``public tape.'' Swap dealers and other reporting parties supply
Part 43 data to swap data repositories (SDRs), which then make the
data public. Part 43 includes provisions relating to the treatment
and public reporting of large notional trades (blocks), as well as
the ``capping'' of swap trades that reach a certain notional amount.
Second, Part 45 relates to the regulatory reporting of swap data
to the CFTC by swap dealers and other covered entities. Part 45 data
provides the CFTC with insight into the swaps markets to assist with
regulatory oversight. A Technical Specification available on the
CFTC's website \11\ includes data elements that are unique to CFTC
reporting, as well as certain ``Critical Data Elements,'' which
reflect longstanding efforts by the CFTC and other regulators to
develop global guidance for swap data reporting.\12\
---------------------------------------------------------------------------
\11\ See CFTC, Technical Specification Document, https://www.cftc.gov/media/3496/DMO_Part43_45TechnicalSpecification022020/download.
\12\ Since November 2014, the CFTC and regulators in other
jurisdictions have collaborated through the Committee on Payments
and Market Infrastructures (``CPMI'') and the International
Organization of Securities Commissions (``IOSCO'') working group for
the harmonization of key over-the-counter (``OTC'') derivatives data
elements (``Harmonisation Group''). The Harmonisation Group
developed global guidance for key OTC derivatives data elements,
including the Unique Transaction Identifier, the Unique Product
Identifier, and critical data elements other than UTI and UPI.
---------------------------------------------------------------------------
Finally, Part 49 requires data verification to help ensure that
the data reported to SDRs and the CFTC in Parts 43 and 45 is
accurate. The final Part 49 rule will provide enhanced and
streamlined oversight of SDRs and data reporting generally. In
particular, Part 49 will now require SDRs to have a mechanism by
which reporting counterparties can access and verify the data for
their open swaps held at the SDR. A reporting counterparty must
compare the SDR data with the counterparty's own books and records,
correcting any data errors with the SDR.
Systemic Risk Mitigation
Today's final swap data reporting rules are designed to fulfill
our agency's first Strategic Goal: To strengthen the resilience and
integrity of our derivatives markets while fostering the
vibrancy.\13\ The Part 45 rule requires swap dealers to report
uncleared margin data for the first time, enhancing the CFTC's
ability to ``to monitor systemic risk accurately and to act quickly
if cracks begin to appear in the system.'' \14\ As Justice Brandeis
famously wrote in advocating for transparency in organizations,
``sunlight is the best disinfectant.'' \15\ So too it is for
financial markets: the better visibility the CFTC has into the
uncleared swaps markets, the more effectively it can address what
until now has been ``a black box of potential systemic risk.'' \16\
---------------------------------------------------------------------------
\13\ See CFTC Strategic Plan, supra note 7, at 5.
\14\ Tarbert, Proposal Statement, supra note 1, note 2.
\15\ Hon. Louis D. Brandeis, Other People's Money 62 (National
Home Library Foundation ed. 1933).
\16\ Tarbert, Proposal Statement, supra note 1.
---------------------------------------------------------------------------
Doubling Down on Transparency
Justice Brandeis's words also resonate across other areas of the
final swap data reporting rules. The final swap data reporting rules
enhance transparency to the public of pricing and trade data.
1. Blocks and Caps
A critical aspect of the final Part 43 rule is the issue of
block trades and dissemination delays. When the Part 43 proposal was
issued, I noted that ``[o]ne of the issues we are looking at closely
is whether a 48-hour delay for block trade reporting is
appropriate.'' \17\ I encouraged market participants to ``provide
comment letters and feedback concerning the treatment of block
delays.'' \18\ Market participants responded with extensive
feedback, much of which advocated for shorter delays in making block
trade data publicly available. I agree with this view, and support a
key change in the final Part 43 rule. Rather than apply the
proposal's uniform 48-hour dissemination delay on block trade
reporting, the final rule returns to bespoke public reporting
timeframes that consider liquidity, market depth, and other factors
unique to specific categories of swaps. The result is shorter
reporting delays for most block trades.
---------------------------------------------------------------------------
\17\ Tarbert, Proposal Statement, supra note 1, note 14.
\18\ Id.
---------------------------------------------------------------------------
The final Part 43 rule also changes the threshold for block
trade treatment, raising the amount needed from a 50% to 67%
notional calculation. It also increases the threshold for capping
large notional trades from 67% to 75%. These changes will enhance
market transparency by applying a stricter standard for blocks and
caps, thereby enhancing public access to swap trading data. At the
same time, the rule reflects serious consideration of how these
thresholds are calculated, particularly for block trades. In
excluding certain option trades and CDS trades around the roll
months from the 67% notional threshold for blocks, the final rule
helps ensure that dissemination delays have their desired effect of
preventing front-running and similar disruptive activity.
2. Post-Priced and Prime-Broker Swaps
The swaps market is highly complex, reflecting a nearly endless
array of transaction structures. Part 43 takes these differences
into account in setting forth the public reporting requirements for
price and transaction data. For example, post-priced swaps are
valued after an event occurs, such as the ringing of the daily
closing bell in an equity market. As it stands today, post-priced
swaps often appear on the public tape with no corresponding pricing
data--rendering the data largely unusable. The final Part 43 rule
addresses this data quality issue and improves price discovery by
requiring post-priced swaps to appear on the public tape after
pricing occurs.
The final Part 43 rule also resolves an issue involving the
reporting of prime-brokerage swaps. The current rule requires that
offsetting swaps executed with prime brokers--in addition to the
initial swap reflecting the actual terms of trade--be reported on
the public tape. This duplicative reporting obfuscates public
pricing data by including prime-broker costs and fees that are
unrelated to the terms of the swap. As I explained when the rule was
proposed, cluttering the public tape with duplicative or confusing
data can impair price discovery.\19\ The final Part 43 rule
addresses this issue by requiring that only the initial ``trigger''
swap be reported, thereby improving public price information.
---------------------------------------------------------------------------
\19\ Tarbert, Proposal Statement, supra note 1.
---------------------------------------------------------------------------
3. Verification and Error Correction
Data is only as useful as it is accurate. The final Part 49 rule
establishes an efficient framework for verifying SDR data accuracy
and correcting errors, which serves both regulatory oversight and
public price discovery purposes.
Improving the Regulatory Experience
Today's final swap data reporting rules improve the regulatory
experience for market participants at home and abroad in several key
ways, advancing the CFTC's third Strategic Goal.\20\ Key examples
are set forth below.
---------------------------------------------------------------------------
\20\ CFTC Strategic Plan, supra note 7, at 7.
---------------------------------------------------------------------------
1. Streamlined Data Fields
As I stated at the proposal stage, ``[s]implicity should be a
central goal of our swap data reporting rules.'' \21\ This sentiment
still holds true, and a key improvement to our final Part 45
Technical Specification is the streamlining of reportable data
fields. The current system has proven unworkable, leaving swap
dealers and other market participants to wander alone in the digital
wilderness, with little guidance about the data elements that the
CFTC actually needs. This uncertainty has led to ``a proliferation
of reportable data fields'' required by SDRs that ``exceed what
market participants can readily provide and what the [CFTC] can
realistically use.'' \22\
---------------------------------------------------------------------------
\21\ Tarbert, Proposal Statement, supra note 1.
\22\ Id.
---------------------------------------------------------------------------
We resolve this situation today by replacing the sprawling mass
of disparate SDR fields--sometimes running into the hundreds or
thousands--with 128 that are important to the CFTC's oversight of
the swaps markets. These fields reflect an honest look at the data
we are collecting and the data we can use, ensuring that our market
participants are not burdened with swap
[[Page 75674]]
reporting obligations that do not advance our statutory mandates.
2. Regulatory Harmonization
The swaps markets are integrated and global; our data rules must
follow suit.\23\ To that end, the final Part 45 rule takes a
sensible approach to aligning the CFTC's data reporting fields with
the standards set by international efforts. Swap data reporting is
an area where harmonization simply makes sense. The costs of failing
to harmonize are high, as swap dealers and other reporting parties
must provide entirely different data sets to multiple regulators for
the very same swap.\24\ A better approach is to conform swap data
reporting requirements where possible.
---------------------------------------------------------------------------
\23\ See Tarbert, Proposal Statement, supra note 1.
\24\ See id.
---------------------------------------------------------------------------
Data harmonization is not just good for market participants: it
also advances the CFTC's vision of being the global standard for
sound derivatives regulation.\25\ The CFTC has a long history of
leading international harmonization efforts in data reporting,
including by serving as a co-chair of the Committee on Payments and
Infrastructures and the International Organization of Securities
Commissioners (CPMI-IOSCO) working group on critical data elements
(CDE) in swap reporting.\26\ I am pleased to support a final Part 45
rule that advances these efforts by incorporating CDE fields that
serve our regulatory goals.
---------------------------------------------------------------------------
\25\ See CFTC Vision Statement, https://www.cftc.gov/About/
AboutTheCommission#:~:text=CFTC%20Vision%20Statement,standard%20for%2
0sound%20derivatives%20regulation.
\26\ The CFTC also co-chaired the Financial Stability Board's
working group on UTI and UPI governance.
---------------------------------------------------------------------------
In addition to certain CDE fields, the final Part 45 rule also
adopts other important features of the CPMI-IOSCO Technical
Guidance, such as the use of a Unique Transaction Identifier (UTI)
system in place of today's Unique Swap Identifier (USI) system. This
change will bring the CFTC's swap data reporting system in closer
alignment with those of other regulators, leading to better data
sharing and lower burdens on market participants.
Last, the costs of altering data reporting systems makes
implementation timeframes especially important. To that effect, the
CFTC has worked with ESMA to bring our jurisdictions' swap data
reporting compliance timetables into closer harmony, easing
transitions to new reporting systems.
3. Verification and Error Correction
The final Part 49 rule has changed since the proposal stage to
facilitate easier verification of SDR data by swap dealers. Based on
feedback we received, the final rule now requires SDRs to provide a
mechanism for swap dealers and other reporting counterparties to
access the SDR's data for their open swaps to verify accuracy and
address errors. This approach replaces a message-based system for
error identification and correction, which would have produced
significant implementation costs without improving error
remediation. The final rule achieves the goal--data accuracy--with
fewer costs and burdens.\27\
---------------------------------------------------------------------------
\27\ Limiting error correction to open swaps--versus all swaps
that a reporting counterparty may have entered into at any point in
time--is also a sensible approach to addressing risk in the markets.
The final Part 49 rule limits error correction to errors discovered
prior to the expiration of the five-year recordkeeping period in
regulation 45.2, ensuring that market participants are not tasked
with addressing old or closed transactions that pose no active risk.
---------------------------------------------------------------------------
4. Relief for End Users
I have long said that if our derivatives markets are not working
for agriculture, then they are not working at all.\28\ While swaps
are often the purview of large financial institutions, they also
provide critical risk-management functions for end users like
farmers, ranchers, and manufacturers. Our final Part 45 rule removes
the requirement that end users report swap valuation data, and it
provides them with a longer ``T+2'' timeframe to report the data
that is required. I am pleased to support these changes to end-user
reporting, which will help ensure that our derivatives markets work
for all Americans, advancing another CFTC strategic goal.\29\
---------------------------------------------------------------------------
\28\ Opening Statement of Chairman Heath P. Tarbert Before the
April 22 Agricultural Advisory Committee Meeting (April 22, 2020),
https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbertstatement042220.
\29\ CFTC Strategic Plan, supra note 7, at 6.
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Conclusion
The derivatives markets run on data. They will be even more
reliant on it in the future, as digitization continues to sweep
through society and industry. I am pleased to support the final
rules under Parts 43, 45, and 49, which will help ensure that the
CFTC's swap data reporting systems are effective, efficient, and
built to last.
Appendix 3--Supporting Statement of Commissioner Brian Quintenz
The Commodity Exchange Act (CEA) specifically directs the
Commission to ensure that real-time public reporting requirements
for swap transactions (i) do not identify the participants; (ii)
specify the criteria for what constitutes a block trade and the
appropriate time delay for reporting such block trades, and (iii)
take into account whether public disclosure will materially reduce
market liquidity.\1\ The Commission has long recognized the
intrinsic tension between the policy goals of enhanced transparency
versus market liquidity. In fact, in 2013, the Commission noted that
the optimal point in this interplay between enhanced swap
transaction transparency and the potential that, in certain
circumstances, this enhanced transparency could reduce market
liquidity ``defies precision.'' \2\ I agree with the Commission that
the ideal balance between transparency and liquidity is difficult to
ascertain and necessarily requires not only robust data but also the
exercise of reasoned judgement, particularly in the swaps
marketplace with a finite number of institutional investors trading
hundreds of thousands of products, often by appointment.
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\1\ CEA Section 2(a)(13)(E).
\2\ Procedures to Establish Appropriate Minimum Block Sizes for
Large Notional Off-Facility Swaps and Block Trades, 78 FR 32866,
32917 (May 31, 2013).
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Unfortunately, I fear the balance struck in this rule misses
that mark. The final rule before us today clearly favors
transparency over market liquidity, with the sacrifice of the latter
being particularly more acute given the nature of the swaps market.
In this final rule, the Commission asserts that the increased
transparency resulting from higher block trade thresholds and cap
sizes will lead to increased competition, stimulate more trading,
and enhance liquidity and pricing. That is wishful thinking, which
is no basis upon which to predicate a final rule. As numerous
commenters pointed out, this increased transparency comes directly
at the expense of market liquidity, competitive pricing for end-
users, and the ability of dealers to efficiently hedge their large
swap transactions. While the Commission hopes the 67% block
calculation will bring about the ample benefits it cites, I think
the exact opposite is the most probable outcome. I remain
unconvinced that the move from the 50% notional amount calculation
for block sizes to the 67% notional amount calculation is necessary
or appropriate. Unfortunately, the decision to retain the 67%
calculation, which was adopted in 2013 but never implemented, was
not seriously reconsidered in this rule.
Instead, in the final rule, the Commission asserts that it
``extensively analyzed the costs and benefits of the 50-percent
threshold and 67-percent threshold when it adopted the phased-in
approach'' in 2013. Respectfully, I believe that statement
drastically inflates the Commission's prior analysis. I have no
doubt the Commission ``analyzed'' the costs and benefits in 2013 to
the best of its ability. However, the reality is that in 2013, as
the Commission acknowledged in its own cost-benefit analysis, ``in a
number of instances, the Commission lacks the data and information
required to precisely estimate costs, owing to the fact that these
markets do not yet exist or are not yet fully developed.'' \3\ In
2013, the Commission was just standing up its SEF trading regime,
had not yet implemented its trade execution mandate, and had adopted
interim time delays for all swaps--meaning that, in 2013 when it
first adopted this proposal, no swap transaction data was publicly
disseminated in real time. Seven years later, the Commission has a
robust, competitive SEF trading framework and a successful real-time
reporting regime that results in 87% of IRS trades and 82% of CDS
trades being reported in real time. In light of the sea change that
has occurred since 2013, I believe the Commission should have
undertaken a comprehensive review of whether the transition to a 67%
block trade threshold was appropriate.
---------------------------------------------------------------------------
\3\ Id.
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In my opinion, the fact that currently 87% of IRS and 82% of CDS
trades are reported in real time is evidence that the transparency
policy goals underlying the real-time reporting requirements have
already been achieved. In 2013, the Commission, quoting directly
from the Congressional Record,
[[Page 75675]]
noted that when it considered the benefits and effects of enhanced
market transparency, the ``guiding principle in setting appropriate
block trade levels [is that] the vast majority of swap transactions
should be exposed to the public market through exchange trading.''
\4\ The current block sizes have resulted in exactly that--the vast
majority of trades being reported in real time. The final rule,
acknowledging these impressively high percentages, nevertheless
concludes that because less than half of total IRS and CDS notional
amounts is reported in real time, additional trades should be forced
into real-time reporting. I reach the exact opposite conclusion. By
my logic, the 13% of IRS and 18% of CDS trades that currently
receive a time delay represent roughly half of notional for those
asset classes. In other words, these trades are huge. In my view,
these trades are exactly the type of outsized transactions that
Congress appropriately decided should receive a delay from real-time
reporting.
---------------------------------------------------------------------------
\4\ Id. at 32870 n.41 (quoting from the Congressional Record--
Senate, S5902, S5922 (July 15, 2010) (emphasis added)).
---------------------------------------------------------------------------
Despite my reservations, I am voting for the real-time reporting
rule before the Commission today for several reasons. First, I
worked hard to ensure that this final rule contains many significant
improvements from the initial draft we were first presented, as well
as the original proposal which I supported. For example, in order to
make sure the CDS swap categories are representative, the Commission
established additional categories for CDS with optionality. In
addition, the Commission is also providing guidance that certain
risk-reduction exercises, which are not arm's length transactions,
are not publicly reportable swap transactions, and therefore should
be excluded from the block size calculations.
Second, while most of the changes to the part 43 rules will have
a compliance period of 18 months, compliance with the new block and
cap sizes will not be not be required until one year later,
providing market participants with a 30-month compliance period and
the Commission with an extra 12 months to revisit this issue with
actual data analysis, as good government and well-reasoned public
policy demands. This means that when any final block and cap sizes
go into effect for the amended swap categories, it will be with the
benefit of cleaner, more precise data resulting from our part 43
final rule improvements adopted today. It is my firm expectation
that DMO staff will review the revised block trade sizes, in light
of the new data, at that time to ensure they are appropriately
calibrated for each swap category. In addition, as required by the
rule, DMO will publish the revised block trade and cap sizes the
month before they go effective. I am hopeful that with the benefit
of time, cleaner data and public comment, the Commission can, if
necessary, re-calibrate the minimum block sizes to ensure they
strike the appropriate balance built into our statute between the
liquidity needs of the market and transparency. To the extent market
participants also have concerns about maintaining the current time
delays for block trades given the move to the 67% calculation, I
encourage them to reach out to DMO and my fellow Commissioners
during the intervening 30-month window. That time frame is more than
enough to further refine the reporting delays, as necessary, for the
new swap categories based on sound data.
Appendix 4--Concurring Statement of Commissioner Rostin Behnam
I respectfully concur in the Commission's amendments to its
regulations regarding real-time public reporting, recordkeeping, and
swap data repositories. The three rules being finalized together
today are the culmination of a multi-year effort to streamline,
simplify, and internationally harmonize the requirements associated
with reporting swaps. Today's actions represent the end of a long
procedural road at the Commission, one that started with the
Commission's 2017 Roadmap to Achieve High Quality Swap Data.\1\
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\1\ Roadmap to Achieve High Quality Swap Data, available at
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
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But the road really goes back much further than that, to the
time prior to the 2008 financial crisis, when swaps were largely
exempt from regulation and traded exclusively over-the-counter.\2\
Lack of transparency in the over-the-counter swaps market
contributed to the financial crisis because both regulators and
market participants lacked the visibility necessary to identify and
assess swaps market exposures, counterparty relationships, and
counterparty credit risk.\3\
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\2\ See Commodity Futures Modernization Act of 2000, Public Law
106-554, 114 Stat. 2763 (2000).
\3\ See The Financial Crisis Inquiry Commission, The Financial
Crisis Inquiry Report: Final Report of the National Commission on
the Causes of the Financial and Economic Crisis in the United States
(Official Government Edition), at 299, 352, 363-364, 386, 621 n. 56
(2011), available at https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
---------------------------------------------------------------------------
In the aftermath of the financial crisis, Congress enacted the
Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010
(Dodd-Frank Act).\4\ The Dodd-Frank Act largely incorporated the
international financial reform initiatives for over-the-counter
derivatives laid out at the 2009 G20 Pittsburgh Summit, which sought
to improve transparency, mitigate systemic risk, and protect against
market abuse.\5\ With respect to data reporting, the policy
initiative developed by the G20 focused on establishing a consistent
and standardized global data set across jurisdictions in order to
support regulatory efforts to timely identify systemic risk. The
critical need and importance of this policy goal given the
consequences of the financial crisis cannot be overstated.
---------------------------------------------------------------------------
\4\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\5\ G20, Leaders' Statement, The Pittsburgh Summit (Sept. 24-25,
2009) at 9, available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
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Among many critically important statutory changes, which have
shed light on the over-the-counter derivatives markets, Title VII of
the Dodd-Frank Act amended the Commodity Exchange Act (``CEA'' or
``Act'') and added a new term to the Act: ``Real-time public
reporting.'' \6\ The Act defines that term to mean reporting ``data
relating to swap transaction, including price and volume, as soon as
technologically practicable after the time at which the swap
transaction has been executed.'' \7\
---------------------------------------------------------------------------
\6\ 7 U.S.C. 2(a)(13)(A).
\7\ Id.
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As we amend these rules, I think it is important that we keep in
mind the Dodd-Frank Act's emphasis on transparency, and what
transpired to necessitate that emphasis. However, the Act is also
clear that its purpose, in regard to transparency and real time
public reporting, is to authorize the Commission to make swap
transaction and pricing data available to the public ``as the
Commission determines appropriate to enhance price discovery.'' \8\
The Act expressly directs the Commission to specify the criteria for
what constitutes a block trade, establish appropriate time delays
for disseminating block trade information to the public, and ``take
into account whether the public disclosure will materially reduce
market liquidity.'' \9\ So, as we keep Congress's directive
regarding public transparency (and the events that necessitated that
directive) in mind as we promulgate rules, we also need to be
cognizant of instances where public disclosure of the details of
large transactions in real time will materially reduce market
liquidity. This is a complex endeavor, and the answers vary across
markets and products. I believe that these final rules strike an
appropriate balance.
---------------------------------------------------------------------------
\8\ 7 U.S.C. 2(a)(13)(B).
\9\ 7 U.S.C. 2(a)(13)(C)(ii-iv).
---------------------------------------------------------------------------
Today's final rules amending the swap data and recordkeeping and
reporting requirements also culminate a multi-year undertaking by
dedicated Commission staff and our international counterparts
working through the Committee on Payments and Market Infrastructures
and the International Organization of Securities Commissions working
group for the harmonization of key over-the-counter derivatives data
elements. The amendments benefit from substantial public
consultation as well as internal data and regulatory analyses aimed
at determining, among other things, how the Commission can meet its
current data needs in support of its duties under the CEA. These
include ensuring the financial integrity of swap transactions,
monitoring of substantial and systemic risks, formulating bases for
and granting substituted compliance and trade repository access, and
entering information sharing agreements with fellow regulators.
I wish to thank the responsible staff in the Division of Market
Oversight, as well as in the Offices of International Affairs, Chief
Economist, and General Counsel for their efforts and engagement over
the last several years as well as their constructive dialogues with
my office over the last several months. Their timely and fulsome
responsiveness amid the flurry of activity at the Commission
[[Page 75676]]
as we continue to work remotely is greatly appreciated.
The final rules should improve data quality by eliminating
duplication, removing alternative or adjunct reporting options,
utilizing universal data elements and identifiers, and focusing on
critical data elements. To the extent the Commission is moving
forward with mandating a specific data standard for reporting swap
data to swap data repositories (``SDRs''), and that the standard
will be ISO 20022, I appreciate the Commission's thorough discussion
of its rationale in support of that decision. I also commend
Commission staff for its demonstrated expertise in incorporating the
mandate into the regulatory text in a manner that provides certainty
while acknowledging that the chosen standard remains in development.
The rules provide clear, reasonable and universally acceptable
reporting deadlines that not only account for the minutiae of local
holidays, but address the practicalities of common market practices
such as allocation and compression exercises.
I am especially pleased that the final rules require consistent
application of rules across SDRs for the validation of both Part 43
and Part 45 data submitted by reporting counterparties. I believe
the amendments to part 49 set forth a practical approach to ensuring
SDRs can meet the statutory requirement to confirm the accuracy of
swap data set forth in CEA section 21(c) \10\ without incurring
unreasonable burdens.
---------------------------------------------------------------------------
\10\ 7 U.S.C. 24a(c)(2).
---------------------------------------------------------------------------
I appreciate that the Commission considered and received
comments regarding whether to require reporting counterparties to
indicate whether a specific swap: (1) Was entered into for dealing
purposes (as opposed to hedging, investing, or proprietary trading);
and/or (2) needs not be considered in determining whether a person
is a swap dealer or need not be counted towards a person's de
minimis threshold for purposes of determining swap dealer status
under Commission regulations.\11\ While today's rules may not be the
appropriate means to acquire such information, I continue to believe
that that the Commission's ongoing surveillance for compliance with
the swap dealer registration requirements could be enhanced through
data collection and analysis.
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\11\ Commission staff has identified the lack of these fields as
limiting constraints on the usefulness of SDR data to identify which
swaps should be counted towards a person's de minimis threshold, and
the ability to precisely assess the current de minimis threshold or
the impact of potential changes to current exclusions. See De
Minimis Exception to the Swap Dealer Definition, 83 FR 27444, 27449
(proposed June 12, 2018); Swap Dealer De Minimis Exception Final
Staff Report at 19 (Aug. 15, 2016); (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf; Swap Dealer De Minimis
Exception Preliminary Report at 15 (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf.
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Thank you again to the staff who worked on these rules. I
support the overall vision articulated in these several rules and am
committed to supporting the acquisition and development of
information technology and human resources needed for execution of
that vision. As data forms the basis for much of what we do here at
the Commission, especially in terms of identifying, assessing, and
monitoring risk, I look forward to future discussions with staff
regarding how the CFTC's Market Risk Advisory Committee which I
sponsor may be of assistance.
Appendix 5--Statement of Commissioner Dan M. Berkovitz
Introduction
I support today's final rules amending the swap data reporting
requirements in parts 43, 45, 46, and 49 of the Commission's rules
(the ``Reporting Rules''). The amended rules provide major
improvements to the Commission's swap data reporting requirements.
They will increase the transparency of the swap markets, enhance the
usability of the data, streamline the data collection process, and
better align the Commission's reporting requirements with
international standards.
The Commission must have accurate, timely, and standardized data
to fulfill its customer protection, market integrity, and risk
monitoring mandates in the Commodity Exchange Act (``CEA'').\1\ The
2008 financial crisis highlighted the systemic importance of global
swap markets, and drew attention to the opacity of a market valued
notionally in the trillions of dollars. Regulators such as the CFTC
were unable to quickly ascertain the exposures of even the largest
financial institutions in the United States. The absence of real-
time public swap reporting contributed to uncertainty as to market
liquidity and pricing. One of the primary goals of the Dodd-Frank
Act is to improve swap market transparency through both real-time
public reporting of swap transactions and ``regulatory reporting''
of complete swap data to registered swap data repositories
(``SDRs'').\2\
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\1\ See CEA section 3b.
\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
section 727, Public Law 111-203, 124 Stat. 1376 (2010) (the ``Dodd-
Frank Act''), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.
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As enacted by the Dodd-Frank Act, CEA section 2(a)(13)(G)
directs the CFTC to establish real-time and comprehensive swap data
reporting requirements, on a swap-by-swap basis. CEA section 21
establishes SDRs as the statutory entities responsible for
receiving, storing, and facilitating regulators' access to swap
data. The Commission began implementing these statutory directives
in 2011 and 2012 in several final rules that addressed regulatory
and real-time public reporting of swaps; established SDRs to receive
data and make it available to regulators and the public; and defined
certain swap dealer (``SD'') and major swap participant (``MSP'')
reporting obligations.\3\
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\3\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136 (Jan. 13, 2012); and Swap Data Repositories: Registration
Standards, Duties and Core Principles, 76 FR 54538 (Sept. 1, 2011).
---------------------------------------------------------------------------
The Commission was the first major regulator to adopt data
repository and swap data reporting rules. Today's final rules are
informed by the Commission's and the market's experience with these
initial rules. Today's revisions also reflect recent international
work to harmonize and standardize data elements.
Part 43 Amendments (Real-time Public Reporting)
Benefits of Real Time Public Reporting
Price transparency fosters price competition and reduces the
cost of hedging. In directing the Commission to adopt real-time
public reporting regulations, the Congress stated ``[t]he purpose of
this section is to authorize the Commission to make swap transaction
and pricing data available to the public in such form and at such
times as the Commission determines appropriate to enhance price
discovery.'' \4\ For real-time data to be useful for price
discovery, SDRs must be able to report standardized, valid, and
timely data. The reported data should also reflect the large
majority of swaps executed within a particular swap category. The
final Reporting Rules for part 43 address a number of infirmities in
the current rules affecting the aggregation, validation, and
timeliness of the data. They also provide pragmatic solutions to
several specific reporting issues, such as the treatment of prime
broker trades and post-priced swaps.
---------------------------------------------------------------------------
\4\ CEA section 2(13)(B) (emphasis added).
---------------------------------------------------------------------------
Block Trade Reporting
The Commission's proposed rule for block trades included two
significant amendments to part 43: (1) refined swap categories for
calculating blocks; and (2) a single 48-hour time-delay for
reporting all blocks. In addition, the proposed rule would give
effect to increased block trade size thresholds from 50% to 67% of a
trimmed (excluding outliers) trade data set as provided for in the
original part 43. The increases in the block sizing thresholds and
the refinement of swap categories were geared toward better meeting
the statutory directives to the Commission to enhance price
discovery through real-time reporting while also providing
appropriate time delays for the reporting of swaps with very large
notional amounts, i.e., block trades.
Although I supported the issuance of the proposed rule, I
outlined a number of concerns with the proposed blanket 48-hour
delay. As described in the preamble to the part 43 final rule, a
number of commenters supported the longer delay as necessary to
facilitate the laying off of risk resulting from entering into swaps
in illiquid markets or with large notional amounts. Other commenters
raised concerns that such a broad, extended delay was unwarranted
and could impede, rather than foster, price discovery. The delay
also would provide counterparties to large swaps with an information
advantage during the 48-hour delay.
The CEA directs the Commission to provide for both real-time
reporting and appropriate block sizes. In developing the final rule
the Commission has sought to achieve these objectives.
[[Page 75677]]
As described in the preamble, upon analysis of market data and
consideration of the public comments, the Commission has concluded
that the categorization of swap transactions and associated block
sizes and time delay periods set forth in the final rule strikes an
appropriate balance to achieve the statutory objectives of enhancing
price discovery, not disclosing ``the business transactions and
market positions of any person,'' preserving market liquidity, and
providing appropriate time delays for block transactions. The final
part 43 includes a mechanism for regularly reviewing swap
transaction data to refine the block trade sizing and reporting
delays as appropriate to maintain that balance.
Consideration of Additional Information Going Forward
I have consistently supported the use of the best available data
to inform Commission rulemakings, and the periodic evaluation and
updating of those rules, as new data becomes available. The preamble
to the final rules for part 43 describes how available data,
analytical studies, and public comments informed the Commission's
rulemaking. Following press reports about the contents of the final
rule, the Commission recently has received comments from a number of
market participants raising issues with the reported provisions in
the final rule. These commenters have expressed concern that the
reported reversion of the time delays for block trades to the
provisions in the current regulations, together with the 67%
threshold for block trades, will impair market liquidity, increase
costs to market participants, and not achieve the Commission's
objectives of increasing price transparency and competitive trading
of swaps. Many of these commenters have asked the Commission to
delay the issuance of the final rule or to re-propose the part 43
amendments for additional public comments.
I do not believe it would be appropriate for the Commission to
withhold the issuance of the final rule based on these latest
comments and at this late stage in the process. The Commission has
expended significant time and resources in analyzing data and
responding to the public comments received during the public comment
period. As explained in the preamble, the Commission is already
years behind its original schedule for revising the block
thresholds. I therefore do not support further delay in moving
forward on these rules.
Nonetheless, I also support evaluation and refinement of the
block reporting rules, if appropriate, based upon market data and
analysis. The 30-month implementation schedule for the revised block
sizes provides market participants with sufficient time to review
the final rule and analyze any new data. Market participants can
then provide their views to the Commission on whether further,
specific adjustments to the block sizes and/or reporting delay
periods may be appropriate for certain instrument classes. This
implementation period is also sufficient for the Commission to
consider those comments and make any adjustments as may be
warranted. The Commission should consider any such new information
in a transparent, inclusive, and deliberative manner. Amended part
43 also provides a process for the Commission to regularly review
new data as it becomes available and amend the block size thresholds
and caps as appropriate.
Cross Border Regulatory Arbitrage Risk
The International Swaps and Derivatives Association, Inc.
(``ISDA'') and the Securities Industry and Financial Markets
Association (``SIFMA'') commented that higher block size thresholds
may put swap execution facilities (``SEFs'') organized in the United
States at a competitive disadvantage as compared to European trading
platforms that provide different trading protocols and allow longer
delays in swap trade reporting. SIFMA and ISDA commented that the
higher block size thresholds might incentivize swap dealers to move
at least a portion of their swap trading from United States SEFs to
European trading platforms. They also noted that this regulatory
arbitrage activity could apply to swaps that are subject to
mandatory exchange trading. Importantly, European platforms allow a
non-competitive single-quote trading mechanism for these swaps while
U.S. SEFs are required to maintain more competitive request-for-
quotes mechanisms from at least three parties. The three-quote
requirement serves to fulfill important purposes delineated in the
CEA to facilitate price discovery and promote fair competition.
The migration of swap trading from SEFs to non-U.S. trading
platforms to avoid U.S. trade execution and/or swap reporting
requirements would diminish the liquidity in and transparency of
U.S. markets, to the detriment of many U.S. swap market
participants. Additionally, as the ISDA/SIFMA comment letter notes,
it would provide an unfair competitive advantage to non-U.S. trading
platforms over SEFs registered with the CFTC, who are required to
abide by CFTC regulations. Such migration would fragment the global
swaps market and undermine U.S. swap markets.\5\
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\5\ In my dissenting statement on the Commission's recent
revisions to it cross-border regulations, I detailed a number of
concerns with how those revisions could provide legal avenues for
U.S. swap dealers to migrate swap trading activity currently subject
to CFTC trade execution requirements to non-U.S. markets that would
not be subject to those CFTC requirements.
---------------------------------------------------------------------------
I have supported the Commission's substituted compliance
determinations for foreign swap trading platforms in non-U.S.
markets where the foreign laws and regulations provide for
comparable and comprehensive regulation. Substituted compliance
recognizes the interests of non-U.S. jurisdictions in regulating
non-U.S. markets and allows U.S. firms to compete in those non-U.S.
markets. However, substituted compliance is not intended to
encourage--or permit--regulatory arbitrage or circumvention of U.S.
swap market regulations. If swap dealers were to move trading
activity away from U.S. SEFs to a foreign trading platform for
regulatory arbitrage purposes, such as, for example, to avoid the
CFTC's transparency and trade execution requirements, it would
undermine the goals of U.S. swap market regulation, and constitute
the type of fragmentation of the swaps markets that our cross-border
regime was meant to mitigate. It also would undermine findings by
the Commission that the non-U.S. platform is subject to regulation
that is as comparable and comprehensive as U.S. regulation, or that
the non-U.S. regime achieves a comparable outcome.
The Commission should be vigilant to protect U.S. markets and
market participants. The Commission should monitor swap data to
identify whether any such migration from U.S. markets to overseas
markets is occurring and respond, if necessary, to protect the U.S.
swap markets.
PART 45 (Swap Data Reporting), PART 46 (Pre-enactment and Transition
Swaps), and PART 49 (Swap Data Repositories) Amendments
I also support today's final rules amending the swap data
reporting, verification, and SDR registration requirements in parts
45, 46, and 49 of the Commission's rules. These regulatory reporting
rules will help ensure that reporting counterparties, including SDs,
MSPs, designated contract markets (``DCMs''), SEFs, derivatives
clearing organizations (``DCOs''), and others report accurate and
timely swap data to SDRs. Swap data will also be subject to a
periodic verification program requiring the cooperation of both SDRs
and reporting counterparties. Collectively, the final rules create a
comprehensive framework of swap data standards, reporting deadlines,
and data validation and verification procedures for all reporting
counterparties.
The final rules simplify the swap data reports required in part
45, and organize them into two report types: (1) ``Swap creation
data'' for new swaps; and (2) ``swap continuation data'' for changes
to existing swaps.\6\ The final rules also extend the deadline for
SDs, MSPs, SEFs, DCMs, and DCOs to submit these data sets to an SDR,
from ``as soon as technologically practicable'' to the end of the
next business day following the execution date (T+1). Off-facility
swaps where the reporting counterparty is not an SD, MSP, or DCO
must be reported no later than T+2 following the execution date.
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\6\ Swap creation data reports replace primary economic terms
(``PET'') and confirmation data previously required in part 45. The
final rules also eliminate optional ``state data'' reporting, which
resulted in extensive duplicative reports crowding SDR databases,
and often included no new information.
---------------------------------------------------------------------------
The amended reporting deadlines will result in a moderate time
window where swap data may not be available to the Commission or
other regulators with access to an SDR. However, it is likely that
they will also improve the accuracy and reliability of data.
Reporting parties will have more time to ensure that their data
reports are complete and accurate before being transmitted to an
SDR.\7\
---------------------------------------------------------------------------
\7\ The amended reporting deadlines are also consistent with
comparable swap data reporting obligations under the Securities and
Exchange Commission's and European Securities and Markets
Authority's rules.
---------------------------------------------------------------------------
The final rules in part 49 will also promote data accuracy
through validation procedures
[[Page 75678]]
to help identify errors when data is first sent to an SDR, and
periodic reconciliation exercises to identify any discrepancies
between an SDR's records and those of the reporting party that
submitted the swaps. The final rules provide for less frequent
reconciliation than the proposed rules, and depart from the
proposal's approach to reconciliation in other ways that may merit
future scrutiny to ensure that reconciliation is working as
intended. Nonetheless, the validation and periodic reconciliation
required by the final rule is an important step in ensuring that the
Commission has access to complete and accurate swap data to monitor
risk and fulfill its regulatory mandate.
The final rules also better harmonize with international
technical standards, the development of which included significant
Commission participation and leadership. These harmonization efforts
will reduce complexity for reporting parties without significantly
reducing the specific data elements needed by the Commission for its
purposes. For example, the final rules adopt the Unique Transaction
Identifier and related rules, consistent with CPMI-IOSCO technical
standards, in lieu of the Commission's previous Unique Swap
Identifier. They also adopt over 120 distinct data elements and
definitions that specify information to be reported to SDRs. Clear
and well-defined data standards are critical for the efficient
analysis of swap data across many hundreds of reporting parties and
multiple SDRs. Although data elements may not be the most riveting
aspect of Commission policy making, I support the Commission's
determination to focus on these important, technical elements as a
necessary component of any effective swap data regime.
Conclusion
Today's Reporting Rules are built upon nearly eight years of
experience with the current reporting rules and benefitted from
extensive international coordination. The amendments make important
strides toward fulfilling Congress's mandate to bring transparency
and effective oversight to the swap markets. I commend CFTC staff,
particularly in Division of Market Oversight and the Office of Data
and Technology, who have worked on the Reporting Rules over many
years. Swaps are highly variable and can be difficult to represent
in standardized data formats. Establishing accurate, timely, and
complete swap reporting requirements is a difficult, but important
function for the Commission and regulators around the globe. This
proposal offers a number of pragmatic solutions to known issues with
the current swap data rules. For these reasons, I am voting for the
final Reporting Rules.
[FR Doc. 2020-21570 Filed 11-24-20; 8:45 am]
BILLING CODE 6351-01-P