On September 17, 2020, the Commodity Futures Trading Commission (CFTC) held an open meeting during which it unanimously approved three final rules related to swap data reporting. The amendments create broad changes in the CFTC’s swap data reporting framework, relieving swap counterparties of reporting obligations in some cases, and creating new obligations in others, adding, changing and removing definitions, and reorganizing parts of the regulatory framework.
The compliance date for these final rules is 18 months from the date of publication in the Federal Register. Although the publication date in the Federal Register is unknown, if the final rules are published in October 2020, the compliance date would be in April 2022.
CFTC regulations implemented under the Commodity Exchange Act (CEA), as amended by the Dodd-Frank Act, created a complex framework for reporting swap transactions and pricing data for public dissemination and regulatory purposes. Following the initial adoption of swap data reporting rules, the CFTC’s Division of Market Oversight (DMO) began reviewing those rules. In July 2017, the DMO announced a "Roadmap to Achieve High-Quality Swaps Data" (Roadmap), outlining plans to improve the accuracy, completeness and quality of swap data while streamlining the CFTC’s swap data reporting requirements. Since that time, the CFTC has issued several proposed rulemakings intended to address the Roadmap issues. The swaps data reporting amendments are the culmination of this process.
One critical aspect of the new reporting framework is that reporting counterparties must reconcile their books and records against reports provided by a swap data repository (‘SDR’). Suppose the reporting counterparty discovers (or should have discovered) errors or omissions in the SDR reports. In that case, the reporting counterparty must correct those reports within seven business days of discovering the error or omission. If the reporting counterparty cannot correct the error or omission within seven business days, then the reporting counterparty must notify the CFTC’s Division of Market Oversight and include a remediation plan if such a plan is available. These new obligations will impose a significant burden on the compliance, legal, and technology departments across the industry to address reporting errors and potentially interact with the regulator on an accelerated timeframe.
The Commission also approved two other measures: a final rule governing compliance by non-U.S.-based derivatives clearing organizations (‘DCOs’), and a re-proposed rule regarding DCO bankruptcies. The rule set creates a framework to allow certain clearing organizations not based in the U.S. to register with the agency while relying largely on their home country regulatory regimes.
This article discusses several key changes to the final swap data reporting rules and derivatives clearing organization (DCO) registration requirements approved at the open meeting.