Statement of Commissioner Dawn D. Stump Regarding Final Rules: Swap Data Reporting
September 17, 2020
I am very pleased to be here today finalizing improvements to the Commission’s swap data reporting rules, which I will refer to collectively as the “Final Rules.” I have always felt that the entire suite of swap data reporting rules must be considered holistically to ensure that the CFTC delivers the best regulations possible. I am happy to see that the Commission will today act on all three of these Final Rules concurrently.
This set of regulations is a massive undertaking as it encompasses not only three different rule sets that are intrinsically linked, but also must intertwine the activities of different entities that compose the swap data reporting ecosystem. The parties and interests involved include: (1) reporting parties of all types, such as the Swap Dealers (SDs), Swap Execution Facilities, Derivatives Clearing Organizations (DCOs), and End Users that report the data; (2) the Swap Data Repositories (SDRs) that collect the data; (3) bodies that foster data quality through standard-setting efforts; (4) domestic and international regulators with mandates to require swap data reporting; and (5) recommendations of international regulatory groups, such as the Committee on Payments and Market Infrastructures, the International Organization of Securities Commissions (CPMI-IOSCO) and the Financial Stability Board (FSB).
I would like to thank the staff of the Division of Market Oversight (DMO) for their efforts over the past several years and I applaud their perseverance and commitment to adopting these rules. In addition, I appreciate the many folks across the Office of Data and Technology, Office of the Chief Economist, and Office of the General Counsel who contributed greatly to the Final Rules before us today. I am grateful for their attention to incorporating suggestions from my Office.
The most obvious challenge for the over-the-counter (OTC) swaps regulation during the financial crisis was the lack of information. I have long believed that lack of information, especially concerning swaps markets, was among the most fundamental issues to be addressed post-crisis. In 2012, the Commission tackled the difficult task of being the first mover to implement swap data reporting regulations, which I will refer to as the “Original Rules.” Unfortunately, the resulting data was of limited utility due to a variety of challenges and shortcomings. The G-20 Leaders’ Statement from the Pittsburgh Summit in 2009 included an expectation that members would “assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.” The CFTC has done such a review, and thus today is able to improve scores of reporting regulations.
The Final Rules will clarify the obligations and processes for reporting swaps data and result in a substantial improvement in the quality of swaps data presented to both the public and the CFTC. With the benefit of time and experience, we now are able to better harmonize with other regulators around the world, reasonably refine reporting obligations to a common set of reportable elements, improve the accuracy of regulatory reporting, and reduce the burden placed on market participants. I consider swap data reporting to be foundational to effectuating reforms in the OTC swaps market, and I expect the Commission will leverage the robust swaps data set resulting from the Final Rules to make informed and data-driven policy determinations going forward.
Positive Improvements Finalized Today
I expect much of the public attention devoted to the Final Rules will focus on the unfortunate process by which the Commission is advancing the block trade thresholds. While I acknowledge the process surrounding blocks was less than transparent and poorly communicated, that criticism resides with the Commission, and not the staff who have worked diligently to improve the broader application of swap data. Neglecting to distinguish the many other aspects of the Final Rules that deserve a positive reception would be an unfortunate oversight in recognizing the tremendous improvements the rule-writing teams have made elsewhere to our reporting regime. Today’s actions will establish what was previously messaged in the Roadmap to Achieve High Quality Swaps Data and should be touted as a tremendous accomplishment.
I feel it is important to highlight the multitude of positive improvements included within the breadth of changes we are making to the swap data reporting rules. The Final Rules:
- Streamline swap data reporting into a single message type, instead of requiring two separate types of data to be submitted (referred to as Primary Economic Terms and Confirmation Data in the Original Rules);
- Refine the swap data elements that must be reported based on identified use-cases, rather than the unlimited scope of the Original Rules that required a much broader amount of information;
- Allow for more accurate and complete reporting of swaps data within a T+1 timeframe for SD and DCO reporting counterparties and T+2 for End Users, in contrast to the near real-time-after-execution reporting that generates inaccurate information flows and necessitates subsequent corrections under the current regime;
- Provide a clear and standardized technical specification including definitions, formats, allowable values, and validations, whereas the previous iteration did not provide a technical format but only a list of fields and comments;
- Harmonize with other domestic and international regulators, such as the Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA), while applying the CPMI-IOSCO Technical Guidance as appropriate, versus continuing the misalignment that resulted from being the first mover to adopt swap data reporting many years ago with other regulators applying vastly different approaches later;
- Remove the obligation to report the “mirror swap” component of the prime brokerage process to minimize the dissemination of non-price forming events, appropriately postpone the reporting of post-priced swaps, and create a mechanism to highlight these unique transaction types on the public tape, whereas the Original Rules did not address these events;
- Require consistent validations of all required data elements and format, whereas the Original Rules did not specify validations with the result that SDRs apply different approaches;
- Require the verification of data accuracy for all open swaps at SDRs to improve data quality, instead of the current system where swaps data is not being reviewed and checked on a regular basis;
- Remove the unnecessary quarterly reporting of swap valuations by End Users contained in the Original Rules; and
- Do not require DCOs to report margin and collateral information for cleared swaps to SDRs and instead appropriately utilize other data sets already collected by the Commission.
In short: Today’s Final Rules create a mechanism for achieving higher quality swaps data through standardization and harmonization. At the end of the day, the Final Rules are about so much more than just blocks—they are a tremendous effort in improving swap data reporting.
As I have previously mentioned, finalizing these rules is not the last step in enhancing the swap data reporting process as three other key components remain that require our attention. First, the Commission, reporting counterparties, and SDRs will need to work together to prepare for an efficient implementation. Our experience adopting prior swap data reporting rules and working with affected parties through the years has taught that significant effort, time, and coordination is required to appropriately make such changes. The 18-month compliance schedule should allow for this work to be properly effectuated in order to successfully transition to these new regulations.
Second, attention should turn to the analysis and eventual outcomes-based granting of substituted compliance determinations with respect to swap data reporting regimes in other jurisdictions. While efforts have been made to harmonize where possible, each jurisdiction’s reporting rules will undoubtedly retain some unique characteristics. Substituted compliance is essential considering the global nature of the swaps market and that 56% of CFTC registered swap dealers are non-US persons.
Third, the sharing of harmonized, high-quality swaps data with other domestic and international regulators should progress in earnest where appropriate. After all, such regulatory coordination to facilitate oversight of global swaps markets is one of the driving forces behind the swap market reforms and data reporting efforts agreed to at the G-20 Pittsburgh Summit.
* * * * *
I again want to express my thanks to the numerous staff across the agency for their hard work on the complex and technical challenge of improving swap data reporting through today’s Final Rules.
 Parts 43, 45, and 49 of the Commission’s regulations, 17 CFR Parts 43, 45, and 49.
 See Leaders’ Statement from the 2009 G-20 Summit in Pittsburgh, Pa. at 9 (Sept. 24-25, 2009), available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
 See Roadmap to Achieve High Quality Swaps Data (DMO July 10, 2017), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf, published with CFTC Letter 17-33, Division of Market Oversight Announces Review of Swap Reporting Rules in Parts 43, 45, and 49 of Commission Regulations (DMO July 10, 2017), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf.
 See Harmonisation of the Unique Product Identifier – Technical Guidance, CPMI Papers No. 169 (Sept. 28, 2017), available at https://www.bis.org/cpmi/publ/d169.htm; Harmonisation of Critical OTC Derivatives Data Elements (Other than UTI and UPI) – Technical Guidance, CPMI Papers No. 175 (April 9, 2018), available at https://www.bis.org/cpmi/publ/d175.htm; Governance Arrangements for the Unique Transaction Identifier (UTI): Conclusions and Implementation Plan, Financial Stability Board (Dec. 29, 2017), available at https://www.fsb.org/wp-content/uploads/P291217.pdf.