Federal Register, Volume 77 Issue 113 (Tuesday, June 12, 2012)[Federal Register Volume 77, Number 113 (Tuesday, June 12, 2012)]
[Rules and Regulations]
[Pages 35200-35239]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12531]
[[Page 35199]]
Vol. 77
Tuesday,
No. 113
June 12, 2012
Part IV
Commodity Futures Trading Commission
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17 CFR Part 46
Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and
Transition Swaps; Final Rule
Federal Register / Vol. 77, No. 113 / Tuesday, June 12, 2012 / Rules
and Regulations
[[Page 35200]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 46
[3038-AD48]
Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment
and Transition Swaps
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is adopting rules to further implement the Commodity Exchange
Act (``CEA'' or ``Act'') with respect to the new statutory framework
regarding swap data recordkeeping and reporting established by the
Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank
Act''). The Dodd-Frank Act, which amended the CEA, directs that rules
adopted by the Commission shall provide for the reporting of data
relating to swaps entered into before the date of enactment of the
Dodd-Frank Act, the terms of which have not expired as of the date of
enactment of the Dodd-Frank Act (``pre-enactment swaps'') and data
relating to swaps entered into on or after the date of enactment of the
Dodd-Frank Act and prior to the compliance date specified in the
Commission's final swap data reporting rules (``transition swaps'').
These final rules establish swap data recordkeeping and reporting
requirements for pre-enactment swaps and transition swaps.
DATES: The effective date of this part is August 13, 2012. Compliance
dates: (1) Swap dealers and major swap participants shall commence full
compliance with this part with respect to credit swaps and interest
rate swaps on the later of: July 16, 2012; or 60 calendar days after
publication in the Federal Register of the later of the Commission's
final rule defining the term ``swap'' or the Commission's final rule
defining the terms ``swap dealer'' and ``major swap participant;'' (2)
Swap dealers and major swap participants shall commence full compliance
with this part with respect to equity swaps, foreign exchange swaps,
and other commodity swaps on or before 90 days after the compliance
date for credit swaps and interest rate swaps; (3) Non-SD/MSP
counterparties shall commence full compliance with this part with
respect to all swaps on or before 90 days after the compliance date
applicable to swap dealers and major swap participants with respect to
equity swaps, foreign exchange swaps, and other commodity swaps.
FOR FURTHER INFORMATION CONTACT: David Taylor, Associate Director,
Division of Market Oversight, 202-418-5488, [email protected]; Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW., Washington, DC 20851.
SUPPLEMENTARY INFORMATION: The Commission is adopting new part 46 of
its regulations relating to recordkeeping and reporting requirements
applicable to both pre-enactment and transition swaps. These rules,
when adopted, will supersede interim final rules previously adopted by
the Commission in part 44 of its regulations.
Table of Contents
I. Background.............................................. ...........
A. Introduction........................................ ...........
B. Swap Data Provisions of the Dodd-Frank Act.......... ...........
C. The Commission's Part 45 Rules on Swap Data ...........
Recordkeeping and Reporting Requirements..............
D. The Interim Final Rules for Pre-Enactment and ...........
Transition Swaps......................................
E. Summary of the Proposed Part 46 Rule................ ...........
1. Fundamental Goals............................... ...........
2. Historical Swap Recordkeeping................... ...........
3. Historical Swap Data Reporting.................. ...........
4. Unique Identifiers.............................. ...........
5. Determination of Which Counterparty Must Report. ...........
6. Third-Party Facilitation of Reporting........... ...........
7. Reporting a Swap to a Single SDR................ ...........
8. Reporting Swaps in an Asset Class Not Accepted ...........
By Any SDR........................................
9. Data Standards.................................. ...........
10. Reporting Errors in Previously Reported Data... ...........
F. Overview of Comments Received....................... ...........
II. Part 46 of the Commission's Regulations................ ...........
A. Recordkeeping Requirements.......................... ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
B. Swap Data Reporting................................. ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
C. Unique Identifiers.................................. ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
D. Determination of the Reporting Counterparty......... ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
E. Third-Party Facilitation of Data Reporting.......... ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
F. Reporting to a Single Swap Data Repository.......... ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
[[Page 35201]]
3. Final Rule...................................... ...........
G. Data Reporting for Swaps in a Swap Asset Class Not ...........
Accepted by any Swap Data Repository..................
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
H. Required Data Standards............................. ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
I. Reporting of Errors and Omissions in Previously ...........
Reported Data.........................................
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
J. Compliance Dates.................................... ...........
1. Proposed Rule................................... ...........
2. Comments Received............................... ...........
3. Final Rule...................................... ...........
III. Related Matters....................................... ...........
A. Regulatory Flexibility Act.......................... ...........
B. Paperwork Reduction Act............................. ...........
1. Introduction.................................... ...........
2. Need for Information Collection................. ...........
3. Comment on proposed information collection...... ...........
4. Recordkeeping burdens........................... ...........
5. Reporting Burdens............................... ...........
C. Consideration of Costs and Benefits................. ...........
1. Introduction.................................... ...........
2. Recordkeeping................................... ...........
3. Reporting....................................... ...........
IV. Compliance Dates....................................... ...........
A. Introduction........................................ ...........
B. Compliance dates for swap dealers and major swap ...........
participants..........................................
C. Compliance date for non-SD/MSP counterparties....... ...........
Final Rules................................................ ...........
I. Background
A. Introduction
On July 21, 2010, President Obama signed into law the Dodd-Frank
Act.\1\ Title VII of the Dodd-Frank Act \2\ amended the CEA \3\ to
establish a comprehensive new regulatory framework for swaps and
security-based swaps. The legislation was enacted to reduce risk,
increase transparency, and promote market integrity within the
financial system by, among other things: providing for the registration
and comprehensive regulation of swap dealers (``SDs'') and major swap
participants (``MSPs''); imposing clearing and trade execution
requirements on standardized derivatives products; creating robust
recordkeeping and reporting regimes with respect to swaps, including
real time reporting; and enhancing the Commission's rulemaking and
enforcement authorities with respect to, among others, all registered
entities, intermediaries and swap counterparties subject to the
Commission's jurisdiction.
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010). The text of the Dodd-
Frank Act may be accessed at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\3\ 7 U.S.C. 1 et seq.
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B. Swap Data Provisions of the Dodd-Frank Act
To enhance transparency, promote standardization, and reduce
systemic risk, Section 727 of the Dodd-Frank Act added to the CEA new
section 2(a)(13)(G), which requires all swaps, whether cleared or
uncleared, to be reported to swap data repositories (``SDRs''),\4\
which are new registered entities created by section 728 of the Dodd-
Frank Act to collect and maintain data related to swap transactions as
prescribed by the Commission, and to make such data electronically
available to regulators.\5\ New section 21(b) of the CEA, added by
section 728 of the Dodd-Frank Act, directs the Commission to prescribe
standards for swap data recordkeeping and reporting. Specifically, CEA
section 21(b)(1)(A) provides that:
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\4\ See also CEA Sec. 1a(40)(E).
\5\ Regulations governing core principles and registration
requirements for, and the duties of, SDRs are the subject of part 49
of this chapter.
The Commission shall prescribe standards that specify the data
elements for each swap that shall be collected and maintained by
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each registered swap data repository.
These standards are to apply to both registered entities and
counterparties involved with swaps. CEA section 21(b)(1)(B) provides
that:
In carrying out [the duty to prescribe data element standards],
the Commission shall prescribe consistent data element standards
applicable to registered entities and reporting counterparties.
CEA section 21 also directs the Commission to prescribe data standards
for SDRs. Specifically, CEA section 21(b)(2) provides that:
The Commission shall prescribe data collection and data
maintenance standards for swap data repositories.
These standards are to be comparable to those for clearing
organizations. CEA section 21(b)(3) provides that:
The [data] standards prescribed by the Commission under this
subsection shall be comparable to the data standards imposed by the
Commission on derivatives clearing organizations in connection with
their clearing of swaps.
In addition, CEA section 21(c)(3) provides that, once the data elements
prescribed by the Commission are reported to an SDR, the SDR shall:
maintain the data [prescribed by the Commission for each swap] in
such form, in such manner, and for such period as may be required by
the Commission.
[[Page 35202]]
Section 727 of the Dodd-Frank Act, which added to the CEA new
section 2(a)(13)(G), provides that ``Each swap (whether cleared or
uncleared) shall be reported to a registered swap data repository.''
Section 729 of the Dodd-Frank Act added to the CEA new section 4r,
which addresses reporting and recordkeeping requirements for uncleared
swaps. Pursuant to this section, each swap not accepted for clearing by
any derivatives clearing organization (``DCO'') must be reported to an
SDR (or to the Commission if no repository will accept the swap). In a
July 15, 2010 floor statement concerning swap data reporting as well as
other aspects of the Dodd-Frank Act, Senator Blanche Lincoln emphasized
that these provisions should be interpreted as complementary to one
another to assure consistency between them, stating that: ``All swap
trades, even those which are not cleared, would still be reported to
regulators, a swap data repository, and subject to the public reporting
requirements under the legislation.'' \6\
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\6\ Senator Blanche Lincoln, ``Wall Street Transparency and
Accountability Act,'' Congressional Record, July 15, 2010, at S5905.
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CEA Section 4r(a)(3) ensures that at least one counterparty to a
swap has an obligation to report data concerning that swap. The
determination of this reporting counterparty depends on the status of
the counterparties involved. If only one counterparty is an SD, the SD
is required to report the swap. If one counterparty is an MSP, and the
other counterparty is neither an SD nor an MSP (``non-SD/MSP
counterparty''), the MSP must report. For any other swap, CEA section
4r(a)(3)(C) provides that the counterparties to the swap shall select a
counterparty to report the swap as specified in section 4r.7
In addition, CEA section 4r provides for reporting to the
Commission of swaps neither cleared nor accepted by any SDR. Under this
provision, counterparties to such swaps must maintain books and records
pertaining to their swaps in the manner and for the time required by
the Commission, and must make these books and records available for
inspection by the Commission or other specified regulators if requested
to do so.\8\ It also requires counterparties to such swaps to provide
reports concerning such swaps to the Commission upon its request, in
the form and manner specified by the Commission.\9\ Such reports must
be as comprehensive as the data required to be collected by SDRs.\10\
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\8\ CEA Sec. 4r(c)(2) requires individuals or entities that
enter into a swap transaction that is neither cleared nor accepted
by an SDR to make required books and records open to inspection by
any representative of the Commission; an appropriate prudential
regulator; the Securities and Exchange Commission; the Financial
Stability Oversight Council; and the Department of Justice.
\9\ CEA Sec. 4r(a)(1)(B) and Sec. 4r(c).
\10\ CEA Sec. 4r(d).
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Section 729 of the Dodd-Frank Act establishes in new CEA section
4r(a)(2)(A) a transitional rule applicable to pre-enactment swaps.
Section 4r(a)(2)(A) provides for the reporting of pre-enactment swaps
the terms of which have not expired as of the enactment of the Dodd-
Frank Act to an SDR or the Commission, by a date that the Commission
determines to be appropriate.\11\ Section 4r(a)(2)(B) directed the
Commission to promulgate an interim final rule within 90 days of the
date of enactment of the Dodd-Frank Act providing for the reporting of
such pre-enactment swaps.\12\
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\11\ Subsection (A) of CEA Section 4r(a)(2) provides: ``Each
swap entered into before the date of enactment of the Wall Street
Transparency and Accountability Act of 2010, the terms of which have
not expired as of the date of enactment of that Act, shall be
reported to a registered swap data repository or the Commission by a
date that is not later than--(i) 30 days after issuance of the
interim final rule; or (ii) such other period as the Commission
determines to be appropriate.''
\12\ Pursuant to Section 4r(a)(2)(B), the Commission on October
14, 2010 published in part 44 of its regulations an interim final
rule instructing specified counterparties to pre-enactment swaps to
report data to a registered SDR or to the Commission by a compliance
date to be established in reporting rules to be promulgated under
Section 2(h)(5)(A) of the CEA and advising counterparties of the
necessity, inherent in the reporting requirement, to retain
information pertaining to the terms of such swaps until reporting
can be effectuated under permanent rules. See CFTC Interim Final
Rule for Reporting Pre-Enactment Swap Transactions (``Pre-Enactment
Swaps IFR''), 75 FR 63080 (Oct. 14, 2010).
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Section 723 of the Dodd-Frank Act, which added to the CEA new
Section 2(h)(5), addressed the reporting of swap data for both swaps
executed before the enactment of the Dodd-Frank Act \13\ and swaps
executed on or after the date of that enactment but before the
compliance date specified in the Commission's final swap data
recordkeeping and reporting rules.\14\ As discussed above, in a July
15, 2010 floor statement concerning swap data reporting as well as
other aspects of the Dodd-Frank Act, Senator Lincoln emphasized that
these provisions should be interpreted as complementary in order to
assure consistency between them, and emphasized that ``[T]his is
particularly true with respect to issues such as the effective dates of
these reporting requirements, the applicability of these provisions to
cleared and/or uncleared swaps, and their applicability--or non-
applicability--to swaps whose terms have expired at the date of
enactment.'' \15\
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\13\ See Pre-Enactment Swaps IFR.
\14\ See CFTC Interim Final Rule for Reporting Post-Enactment
Swap Transactions (``Post-Enactment Swaps IFR'' or ``Transition
Swaps IFR''), 75 FR 78892 (Dec. 17, 2010).
\15\ Senator Blanche Lincoln, ``Wall Street Transparency and
Accountability Act,'' Congressional Record, July 15, 2010, at S5923.
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This part refers to the two types of swaps addressed in CEA Section
2(h)(5) as follows. ``Pre-enactment swap'' means a swap executed before
date of enactment of the Dodd-Frank Act (i.e., before July 21, 2010)
the terms of which have not expired as of the date of enactment of
Dodd-Frank Act.\16\ ``Transition swap'' means a swap executed on or
after the date of enactment of the Dodd-Frank Act (i.e., July 21, 2010)
and before the applicable compliance date set forth in this part and
also specified in the final swap data reporting and recordkeeping
requirements regulations in part 45 of this chapter.\17\ Collectively,
this part refers to pre-enactment swaps and transition swaps as
``historical swaps.''
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\16\ Subsection (A) of CEA Section 2(h)(5) Reporting Transition
Rules provides: ``Swaps entered into before the date of the
enactment of this subsection shall be reported to a registered swap
data repository or the Commission no later than 180 days after the
effective date of this subsection.''
\17\ Subsection (B) of CEA Section 2(h)(5) Reporting Transition
Rules provides: ``Swaps entered into on or after such date of
enactment shall be reported to a registered swap data repository or
the Commission no later than the later of (i) 90 days after [the]
effective date [of Section 2(h)(5)] or (ii) such other time after
entering into the swap as the Commission may prescribe by rule or
regulation.''
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C. The Commission's Part 45 Rules on Swap Data Recordkeeping and
Reporting Requirements
On January 13, 2012, the Commission published in new part 45 of its
regulations final rules establishing swap data recordkeeping and
reporting requirements applicable to SDs, MSPs, and non-SD/MSP
counterparties,\18\ as well as to registered SDRs, DCOs, designated
contract markets (``DCMs''), and swap execution facilities
(``SEFs'').\19\
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\18\ The category of non-SD/MSP counterparties includes but is
not limited to counterparties who are entitled, with respect to any
swap, to elect the clearing requirement exception pursuant to CEA
section 2(h)(7) with respect to particular swaps.
\19\ 77 FR 2136 (February 13, 2012).
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With respect to recordkeeping, part 45 requires SDs and MSPs to
keep records of all activities relating to their business with respect
to swaps, and requires non-SD/MSP counterparties to keep records with
respect to each swap in which they are a counterparty. Required records
must be kept by all swap counterparties throughout the existence of a
swap and for five years following termination of the swap. In the case
of an SD or MSP, the records must be readily accessible
[[Page 35203]]
throughout the life of the swap and for two years following its
termination, and retrievable by the SD or MSP within three business
days during the remainder of the retention period. In the case of a
non-SD/MSP counterparty, the records must be retrievable by the
counterparty within five business days throughout the retention period.
In order to ensure that complete data concerning swaps is available
to regulators, part 45 calls for electronic reporting to an SDR of swap
data from each of two important stages of the existence of a swap: the
creation of the swap, and the continuation of the swap over its
existence until its final termination or expiration. Creation data
required to be reported pursuant to part 45 includes both primary
economic terms (``PET'') data and confirmation data for a swap.
Continuation data required to be reported includes all changes to
primary economic terms and all required valuation data. For swaps
executed on or after the applicable compliance date, part 45
establishes a streamlined reporting regime calling for reporting by the
entity or reporting counterparty the Commission believes has the
easiest, fastest, and cheapest access to the data. For all swaps
executed on a SEF or DCM, all required creation data is reported by the
SEF or DCM. For off-facility swaps accepted for clearing within the
applicable deadline for reporting PET data, all required swap creation
data is reported by the DCO. For off-facility swaps not cleared or not
accepted for clearing within the applicable deadline, required swap
creation data is reported by the reporting counterparty. Continuation
data for cleared swaps is reported by the DCO, though SD and MSP
reporting counterparties must also report valuation data. For uncleared
swaps, all continuation data is reported by the reporting counterparty.
Part 45 notes that the obligations of swap counterparties with
respect to historical swaps, i.e., swaps executed prior to the
applicable compliance date and in existence on or after the date of
enactment of the Dodd-Frank Act, will be as provided in part 46.
D. The Interim Final Rules for Pre-Enactment and Transition Swaps
Interim Final Rule for Pre-Enactment Swaps. New section 4r(a)(2) to
the CEA, added by the Dodd-Frank Act, provided for the reporting of
pre-enactment swaps and directed that the Commission promulgate, within
90 days of enactment of the Dodd-Frank Act, an interim final rule
(``IFR'') providing for the reporting of such swaps. On October 14,
2010, pursuant to the mandate of section 4r(a)(2)(B), the Commission
published in new part 44 of its regulations an IFR advising specified
counterparties to pre-enactment of the Commission's intent to
promulgate rules pursuant to CEA sections 2(h)(5) and 4r requiring that
such data be reported to a registered SDR or to the Commission by a
compliance date to be established in those rules, and advising such
counterparties of the necessity, inherent in the reporting requirement,
to preserve information pertaining to the terms of such swaps until
reporting was effectuated under permanent rules.\20\ This Pre-Enactment
Swaps IFR stated that the reporting and recordkeeping provisions
established by Section 4r and sections 44.00-44.02 of the Commission's
regulations would remain in effect until the effective date of the
permanent reporting rules to be adopted by the Commission pursuant to
Section 2(h)(5) of the CEA.\21\ A principal purpose of this IFR was to
advise counterparties of the need to retain data related to swap
transactions so that reporting could be effectuated under permanent
rules subsequently to be adopted.
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\20\ See Pre-Enactment Swaps IFR, supra note 17, at 63083.
\21\ See Pre-Enactment Swaps IFR, supra note 17.
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With respect to the scope and coverage of the Pre-Enactment Swaps
IFR, the Commission acknowledged that while new CEA Section 4r(a)(2)
limits reportable pre-enactment swaps to those whose terms have not
expired on the date of enactment of the Dodd-Frank Act, Section 2(h)(5)
does not contain the same qualifying language. As discussed in the Pre-
Enactment Swaps IFR, the Commission believes that failure to limit the
term ``pre-enactment swap'' to unexpired swaps would require reporting
of every swap that has ever been entered into; accordingly, the
Commission concluded that reportable pre-enactment swaps should be
limited to those whose terms had not expired at the time of
enactment.\22\
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\22\ Id. at 63082.
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Interim Final Rule for Transition Swaps. Section 2(h)(5) also
prescribes reporting requirements applicable to swaps entered into on
or after the date of enactment (``Transition Swaps''). To provide
clarity and guidance with respect to such swaps, the Commission
promulgated an IFR for transition swaps to establish that these swaps
will be subject to Commission regulations to be promulgated under
Section 2(h)(5)(B). The Commission also believed it was prudent to
advise potential counterparties to such swaps that implicit in this
prospective reporting requirement is the need to retain relevant data
until such time as reporting can be effected. Accordingly, on December
17, 2010 the Commission published under Part 44 of its regulations
interim final rules establishing that counterparties to transition
swaps will be subject to permanent recordkeeping and reporting
requirements to be adopted by the Commission pursuant to Section
2(h)(5)(B) of the CEA.\23\
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\23\ See Transition Swaps IFR, supra note 18.
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The Commission intended both the Pre-Enactment Swaps IFR and the
Transition Swaps IFR to put counterparties on notice that swap data
should be retained pending the adoption of permanent rules prescribing
recordkeeping and reporting requirements for pre-enactment and
transition swaps under part 46 of the Commission's regulations. With
respect to both pre-enactment and transition swaps, the Commission
stated that counterparties to these transactions should retain material
information about such transactions. The Commission emphasized,
however, that in the context of the interim rules, no counterparty was
being required to create new records with respect to transactions that
occurred in the past; instead, records relating to the terms of such
transactions could be retained in their existing format to the extent
and in such form as they presently exist.\24\
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\24\ See Pre-Enactment Swaps IFR, supra note 17, at 63086, and
Transition Swaps IFR, supra note 18, at 78894.
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Comments Received. The Commission received a number of comments in
response to each of the IFRs and considered them all. Comments
generally fell into one or more of several broad categories and in a
number of instances were common to both IFRs. Some commenters observed
that issuance of IFRs in advance of regulations further defining the
term ``swap'' (or defining other key terms in the Dodd-Frank Act)
creates legal and regulatory uncertainty and increases compliance risk;
most of these commenters urged the Commission to further detail the
record retention aspects of the interim final rules.\25\ In this
connection, commenters requested that the Commission issue guidance
[[Page 35204]]
clarifying and limiting the information that must be retained,\26\ or
create a safe harbor for good faith compliance efforts.\27\ Several
commenters recommended that the Commission should ensure that end users
need only report basic data in a simplified reporting scheme, or should
outline categories of information that need not be retained by persons
who anticipate becoming eligible for the end user exemption under the
Dodd-Frank Act.\28\ One commenter urged greater specificity with
respect to the Pre-Enactment IFR's requirements, as well as consistency
with the standards adopted by the Securities and Exchange Commission
(``SEC'') and international regulators, and proposed alternatives to
the requirements adopted in the IFR for pre-enactment swaps,
particularly with respect to reporting protocols, record retention, and
confidentiality issues (notably, those confidentiality issues arising
in the context of cross-border transactions).\29\ Another commenter
urged that U.S. swap data reporting requirements should not apply with
respect to foreign swaps transactions, where counterparties are non-
U.S. entities.\30\
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\25\ See, e.g., letters dated November 15, 2010 and January 18,
2011 from the Working Group of Commercial Energy Firms (``Working
Group letters''); letter dated November 15, 2010 from Hess
Corporation (``Hess Corporation letter''); letter dated November 15,
2010 from the Edison Electric Institute (``EEI letter''); letters
dated November 15, 2010 and January 18, 2011 from the Not-for-Profit
Electric End User Coalition (``Coalition letters''); letter dated
January 18, 2011 from the American Gas Association (``AGA letter'').
\26\ EEI letter.
\27\ Working Group letters; EEI letter; Hess Corporation letter.
\28\ AGA letter; Coalition letters.
\29\ Letter dated November 12, 2010, from the International
Swaps and Derivatives Association, Inc. and the Futures Industry
Association.
\30\ Letter dated January 11, 2011, from Barclays Bank PLC, BNP
Paribas S.A., Deutsche Bank AG, Royal Bank of Canada, The Royal Bank
of Scotland Group PLC, Soci[eacute]t[eacute] G[eacute]n[eacute]rale
and UBS AG.
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The Commission considered these comments in preparing its part 46
Notice of Proposed Rulemaking (``NOPR'') with respect to historical
swaps.\31\
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\31\ See CFTC Swap Data Recordkeeping and Reporting
Requirements: Pre-Enactment and Transition Swaps, 76 FR 22833 (April
25, 2011).
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E. Summary of the Proposed Part 46 Rule
1. Fundamental Goals
The fundamental goals of the part 46 NOPR were to provide for
recordkeeping and reporting with respect to pre-enactment swaps and
transition swaps as required by the Dodd-Frank Act; to provide
specificity and clarity, to the extent possible, concerning what
records must be kept and what data must be reported with respect to
such historical swaps; and to ensure that data needed by regulators
concerning historical swaps is available to regulators through SDRs
when swap data reporting begins.
2. Historical Swap Recordkeeping
The NOPR proposed limited recordkeeping requirements for
counterparties to historical swaps. For swaps in existence on or after
April 25, 2011, the date of publication of the NOPR, counterparties
would be required to keep records of specified, minimum primary
economic terms for a swap of the asset class in question, listed in
Tables in the Appendix to the NOPR. In addition, if a historical swap
counterparty had a confirmation of the historical swap as of that date,
the NOPR called for the counterparty to keep it. For historical swaps
that expired or were terminated prior to April 25, 2011, the NOPR
provided that counterparties should keep the records they already have,
in the form they are already kept. For all historical swaps, the
required records would have to be kept throughout any remaining
existence of a historical swap and for five years following its final
termination or expiration.
3. Historical Swap Data Reporting
a. Historical swaps in existence on or after April 25, 2011. For
each historical swap in existence on or after April 25, 2011, the NOPR
called for an initial data report by the reporting counterparty on the
applicable compliance date, and for ongoing reporting of data from the
continuation of the historical swap during its remaining existence. As
proposed, the initial data report would include the minimum primary
economic terms for a historical swap of the asset class in question, as
specified in the appropriate Table in the Appendix to the rule. If the
reporting counterparty possessed a confirmation of the historical swap
on or after April 25, 2011, the confirmation terms recorded in the
automated system of the reporting counterparty would also be included
in the initial data report. For historical swaps already reported to an
existing repository prior to the effective date of the final reporting
rules, the NOPR would not require duplicate reporting. With respect to
ongoing reporting of continuation data during the remaining existence
of a historical swap, the NOPR aligned with the proposed part 45 rule
in following the life cycle approach for credit swaps and equity swaps,
and the state or snapshot approach for interest rate swaps, currency
swaps, and other commodity swaps.
b. Historical swaps expired or terminated prior to April 25, 2011.
For each historical swap which expired or was terminated prior to April
25, 2011, the NOPR called for the reporting counterparty to report such
information relating to the terms of the transaction as was in the
reporting counterparty's possession as of issuance of the interim final
rule, in either electronic or non-electronic form at the option of the
reporting counterparty.
4. Unique Identifiers
The NOPR called for the initial data report for each historical
swap in existence on or after April 25, 2011, to include the legal
entity identifier (``LEI''),\32\ as provided in part 45 of this
chapter, of the reporting counterparty. The NOPR proposed giving the
non-reporting counterparty for each such historical swap an additional
180 days after the applicable compliance date to obtain an LEI. Once
this LEI was obtained, the NOPR called for it to be provided to the
reporting counterparty and reported by the reporting counterparty to
the SDR. After LEIs were obtained for either counterparty, the NOPR
proposed requiring the counterparty identified by an LEI and the SDR to
comply with the LEI requirements of part 45 of this chapter with
respect to LEIs. The NOPR provided that the LEI requirements of parts
45 and 46 of this chapter would not apply to historical swaps expired
or terminated prior to April 25, 2011.
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\32\ The NOPRs for both parts 45 and 46 of this chapter used the
term ``unique counterparty identifier'' in this context. As
explained in the final part 45 rule, in response to comments the
Commission has decided to use the term ``legal entity identifier,''
which refers to the same identifier and is in common international
use, in order to prevent confusion.
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The NOPR proposed that the unique swap identifier and unique
product identifier requirements of part 45 of this chapter would not
apply to historical swaps.
5. Determination of Which Counterparty Must Report
The NOPR provided that determination of which counterparty is the
reporting counterparty for a historical swap would be made in the same
way provided in part 45 of this chapter. Counterparty reporting would
follow the hierarchy outlined in the statute, giving SDs or MSPs the
duty to report when possible, and limiting reporting by non-SD/MSP
counterparties to situations where there is no SD or MSP counterparty.
Where both counterparties have the same hierarchical status, the NOPR
required them to agree as one term of their swap which of them is to
report. Where only one counterparty to a historical swap is a U.S.
person, the NOPR called for that counterparty to be the reporting
[[Page 35205]]
counterparty. For historical swaps in existence as of the applicable
compliance date, the NOPR called for determination of the reporting
counterparty to be made by applying the above provisions to the current
counterparties to the swap as of the compliance date. For historical
swaps for which reporting is required, but which have terminated prior
to the compliance date, the NOPR called for determination of the
reporting counterparty to be made as of the date of the swap's
expiration or termination.
6. Third-Party Facilitation of Reporting
The NOPR proposed explicit permission for third-party facilitation
of data reporting with respect to historical swaps, without removing
the reporting responsibility from the appropriate reporting
counterparty.
7. Reporting a Swap To a Single SDR
To avoid fragmentation of data for a given historical swap across
multiple SDRs, the NOPR provided that all data for a particular
historical swap must be reported to the same SDR to which the initial
data report concerning the swap is made.
8. Reporting Swaps in an Asset Class Not Accepted by any SDR
As required by section 729 of the Dodd-Frank Act, the NOPR provided
that if there were an asset class for which no SDR currently accepted
data, registered entities or counterparties required to report
concerning historical swaps in such an asset class would be required to
report the same data to the Commission at a time and in a form and
manner determined by the Commission.
9. Data Standards
The NOPR required reporting counterparties for historical swaps to
use the facilities, methods, or data standards provided or required by
the SDR to which the counterparty reports swap data.
10. Reporting Errors in Previously Reported Data
Finally, the NOPR required reporting counterparties to report any
errors or omissions in reported data, in the same format as the
original data report, as soon as technologically practicable after
their discovery. Non-reporting counterparties discovering an error or
omission would be required to notify the reporting counterparty, who in
turn would be required to report them to the SDR.
F. Overview of Comments Received
The Commission received 12 comment letters in response to its
proposal. Commission staff also held three public roundtables relating
to swap data reporting, on September 14, 2010, January 28, 2011, and
June 6, 2011, which provided input from a broad cross-section of
industry and private sector experts concerning issues relating to the
NOPR. Comments are addressed in the discussion below. Some comments
received by the Commission requested further clarification relating to
definitions provided in the NOPR, or regarding the application of NOPR
provisions in various contexts. Additional or modified definitions
included in the final rule are provided for clarification and do not
impose new substantive requirements.
II. Part 46 of the Commission's Regulations
New part 46 contains provisions governing swap data recordkeeping
and reporting for pre-enactment swaps and transition swaps. Definitions
are set forth in Sec. 46.1. Section 46.2 establishes swap
recordkeeping requirements for swap counterparties subject to the
Commission's jurisdiction. Section 46.3 establishes swap data reporting
requirements. Required use of unique identifiers in swap data
recordkeeping and reporting for historical swaps is addressed in Sec.
46.4. Determination of which counterparty must report swap data for
each swap is established by Sec. 46.5. Third-party facilitation of
swap data reporting is addressed by Sec. 46.6. Section 46.7
establishes requirements for reporting all data concerning a swap to a
single SDR. Section 46.8 addresses data reporting for swaps in a swap
asset class not accepted by any SDR. Section 46.9 addresses voluntary
supplemental reporting. Section 46.10 establishes required data
standards for swap data reporting. Finally, Sec. 46.11 sets forth
requirements for reporting concerning errors and omissions in
previously reported swap data.
A. Recordkeeping Requirements
1. Proposed Rule
For historical swaps in existence on or after April 25, 2011, the
NOPR imposed limited, specific recordkeeping obligations.
Counterparties to such swaps would be required to keep records of an
asset class-specific set of specified, minimum primary economic terms.
They would also be required to keep records of a confirmation of their
swaps if they had that information in their possession on or after
April 25, 2011, the date from which public notice of specific
recordkeeping requirements for historical swaps was available. In
parallel with the proposed rules in part 45 of this chapter, the NOPR
also called for counterparties to such swaps to keep copies of any
master agreement or credit support agreement pertaining to the swap, if
such copies were in the counterparty's possession on or after April 25,
2011. For a historical swap in existence on or after April 25, 2011,
that remains in existence after the applicable compliance date,
counterparties would also be required to keep for that swap any records
required by Sec. 45.2 of this chapter, to the extent that such records
are created by or become available to the counterparty on or after the
compliance date.
For a pre-enactment swap expired or terminated prior to April 25,
2011, the NOPR called for counterparties to keep the information and
documents relating to the terms of the swap that were possessed by the
counterparty on or after October 15, 2010, the publication date for the
Interim Final Rule For Pre-Enactment Swaps. For a transition swap
expired or terminated prior to April 25, 2011, the NOPR called for
counterparties to keep the information and documents relating to the
terms of the swap that were possessed by the counterparty on or after
December 17, 2010, the date of publication of the Interim Final Rule
For Transition Swaps. For all such historical swaps, the NOPR provided
that counterparties could retain this information in the format in
which it existed on or after the relevant Interim Final Rule
publication date, or in such other format as the counterparty chooses
to retain it.
For all historical swaps, the NOPR called for retention of required
records through the life of the swap and for five years following its
termination. Records kept by SDs and MSPs would be required to be
readily accessible through the life of the swap and for two years
following its termination, and retrievable within three business days
during the remainder of the retention period. Records kept by non-SD/
MSP counterparties would be required to be retrievable within three
business days throughout the retention period.
2. Comments Received
a. Recordkeeping for historical swaps in existence on or after
April 25, 2011. The Coalition of Physical Energy Companies (``COPE'')
and the Electric Trade Association (``ETA'') supported limiting the
records required for historical swaps in existence on or after April
25, 2011, to minimum PET data and related documentation as proposed.
[[Page 35206]]
Both these commenters stated that such data includes commercially
relevant terms typically retained by most swap counterparties, although
both noted that small entities involved in few swaps might not retain
all such data. COPE also stated that requiring a counterparty to keep
records of ``all terms'' of any confirmation in its possession is too
vague, and that a counterparty could not be sure of meeting a
requirement to keep records of any modification of a master or credit
support agreement. The International Swaps and Derivatives Association
(``ISDA'') stated that the scope and nature of the required minimum PET
data, particularly time of trade data for credit swaps, could require
some retroactive data creation. The Financial Services Roundtable
(``FSR'') noted that its members might not necessarily have all the
specified minimum PET data, particularly in the context of mergers or
identification of settlement agents for historical currency swaps.
b. Recordkeeping for historical swaps expired prior to April 25,
2011. ISDA noted that, for historical swaps expired prior to April 25,
2011, the proposed rule did not require parties to alter the format in
which they already retain records, and requested clarification
concerning whether this conflicted with the NOPR's general requirement
for records to be kept in a form and manner acceptable to the
Commission. ISDA argued that reporting counterparties whose current
recordkeeping format would not enable making records electronically
accessible in real time should not have to meet this accessibility
requirement for historical swaps already reported to a repository that
registers as an SDR. ISDA further recommended that SDs and MSPs not be
required to keep records readily accessible during the first two years
of the five years following termination of the swap, but instead that
they should be required to make such records accessible within a
reasonable time during the five years following termination of the
swap. The Working Group of Commercial Energy Firms (``WGCEF'')
requested clarification that keeping records in the form in which they
are already retained would be acceptable to the Commission for all
historical swaps, and requested that its members be required to make
records available within three business days throughout the retention
period. COPE stated that the requirement for counterparties to keep
whatever information and documents they have relating to the terms of a
historical swap expired before April 25, 2011, is too vague and
overbroad, and asked that the requirement be limited to only the PET
data listed in the NOPR Appendix.
c. Records relating to credit support agreements. With respect to
the NOPR requiring for counterparties to keep records of credit support
agreements or ``equivalent documentation relating to the swap,'' WGCEF
commented that the term ``equivalent documentation'' was overbroad, and
asked for clarification of what constitutes such documentation.
3. Final Rule
a. Recordkeeping for historical swaps in existence on or after
April 25, 2011. The Commission has considered all of the comments,
including the comments stating that most counterparties to historical
swaps will have records of the commercially relevant, limited set of
minimum PET data called for in the NOPR. It has also considered the
comments stating that all counterparties to historical swaps in
existence on or after April 25, 2011, and particularly smaller
counterparties not involved in large numbers of swaps, might not have
records of all such terms for each such swap in which they were a
counterparty, and the comments noting the undesirability of retroactive
creation or recreation of records concerning historical swaps,
particularly records of execution times, which some counterparties may
not have. In light of these considerations, and in order to limit
burdens on counterparties to the extent consistent with the minimum
information the Commission will need concerning historical swaps, the
Commission has determined that the final rule will require
counterparties to historical swaps in existence on or after April 25,
2011 (the date on which publication of the NOPR provided notice of what
records would be required) to keep records of all information specified
in the minimum PET data tables included in Appendix 1 which was in
their possession on or after April 25, 2011. The NOPR provided that a
counterparty to such a swap must keep records of confirmation terms,
and of master or credit support agreements and modifications thereto,
only if such records are in the possession of the counterparty on or
after April 25, 2011. The Commission does not believe this requirement
is unclear or unduly burdensome, and has determined that it should be
retained in the final rule.
b. Recordkeeping for historical swaps expired prior to April 25,
2011. The Commission has considered these comments, and has determined
that the final rule should retain the NOPR provisions concerning
limited recordkeeping for historical swaps expired prior to April 25,
2011, which required counterparties to keep only the information and
documents concerning such swaps that were in their possession on or
after the date of the applicable Interim Final Rule. The final rule
provides that counterparties may keep these records in any format they
choose. The final rule calls for all counterparties to historical swaps
expired prior to April 25, 2011 to be able to retrieve such records
within five business days throughout the retention period, rather than
requiring counterparties to keep the records readily accessible for
part of the retention period or to be able to retrieve records within
three business days, as provided in the NOPR. This reduced
retrievability requirement is designed to mitigate costs for
counterparties to historical swaps expired prior to April 25, 2011,
while achieving the same regulatory objective.
c. Records relating to credit support agreements. The Commission
has considered the comment requesting clarification of the meaning of
``equivalent documentation'' in the context of records of credit
support agreements for historical swaps. The Commission recognizes
that, while some swap counterparties may enter into credit support
agreements, others may enter into other agreements that fulfill the
same function. The Commission believes that records of such agreements
can be important for market supervision and enforcement purposes as
well as for prudential supervision. To clarify the intent of the rule
in this regard, the final rule eliminates the phrase ``equivalent
documentation,'' and addresses records of credit support agreements or
other agreements between counterparties having the same function as a
credit support agreement.
B. Swap Data Reporting
1. Proposed Rule
a. Reporting for historical swaps in existence on or after April
25, 2011. For each pre-enactment or transition swap in existence on or
after April 25, 2011, the NOPR called for an initial data report on the
applicable compliance date; and, if the swap has not expired or been
terminated as of the compliance date, for ongoing reporting of required
swap continuation data, as defined in part 45 of this chapter, during
the remaining existence of the swap.
The NOPR called for the initial data report for such swaps to
include either all of the minimum primary economic terms specified in
the NOPR Appendix,
[[Page 35207]]
or all of the terms of the confirmation of the swap if those terms
include all of the minimum primary economic terms specified in the NOPR
Appendix. It also called for the initial data report to include: the
LEI of the reporting counterparty and the internal identifier used by
the automated systems of the reporting counterparty to identify the
non-reporting counterparty; \33\ the internal transaction identifier
used by the automated systems of the reporting counterparty to identify
the swap; and the internal master agreement identifier (if any) used by
the automated systems of the reporting counterparty to identify the
master agreement governing the swap.
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\33\ The NOPR also called for later reporting of the LEI of the
non-reporting counterparty, after that LEI was obtained as provided
in the NOPR.
---------------------------------------------------------------------------
Where the reporting counterparty has reported any of the
information required as part of the initial data report to a trade
repository prior to the applicable compliance date, if that repository
has registered as an SDR by the compliance date the NOPR provided that
the reporting counterparty would not be required to report such
previously reported information again, and would be required to report
only such initial data report information as had not been previously
reported.
With respect to continuation data reporting, the NOPR followed the
proposed rules for part 45 of this chapter in calling for continuation
data reporting to follow the life cycle approach for credit swaps and
equity swaps, and the snapshot approach for interest rate swaps,
currency swaps, and other commodity swaps. Where the snapshot approach
was required, the NOPR called for SD and MSP reporting counterparties
to report all continuation data required under part 45, but limited
such reporting by non-SD/MSP reporting counterparties to the data
elements in the PET data tables in the Appendix to part 46 in cases
where they did not possess all continuation data specified in part 45
on the compliance date.
b. Reporting for historical swaps expired or terminated prior to
April 25, 2011. For historical swaps expired or terminated prior to
April 25, 2011, the NOPR proposed only a single data report, made on
the applicable compliance date. In the case of a pre-enactment swap,
this report would include such information relating to the terms of the
swap as was in the reporting counterparty's possession on or after
October 14, 2010, the date of publication of the Interim Final Rule for
Pre-Enactment Swaps. In the case of a transition swap, this report
would include such information relating to the terms of the swap as was
in the reporting counterparty's possession on or after December 17,
2010, the date of publication of the Interim Final Rule for Transition
Swaps. In both cases, the information would be permitted to be reported
via any method or in any format selected by the reporting counterparty.
2. Comments Received
a. PET data for historical swaps. Commenters made a number of
suggestions with respect to the PET data required to be reported for
historical swaps in existence on or after April 25, 2011. Commenters
generally viewed the NOPR requirement for reporting a specified,
limited set of minimum PET data for historical swaps as reasonable,
since they believed the specified PET data elements reflect the
commercially relevant terms typically retained by swap counterparties.
However, ETA, WGCEF, ISDA, and the Global Foreign Exchange Division
(``Global Forex'') recommended that the requirement to report PET data
should be limited to the data elements in the minimum PET data tables
that are in the possession of the reporting counterparty. They argued
that some counterparties, particularly smaller counterparties that may
not trade swaps frequently, may not have captured or retained all of
the specified data elements.
Three commenters, ISDA, ETA, and WGCEF, requested that the
Commission drop the catch-all category of ``any other primary economic
term'' verified or matched by the counterparties from the required PET
data for historical swaps, arguing that it would be better to define
PET data precisely for historical swaps. ETA stated that requiring such
information could require extensive text submissions of non-
standardized transaction terms, complicating the compilation task of
the SDRs.
Both ISDA and Global Forex requested that the Commission not
require reporting the time of trade for a historical swap, arguing that
in many cases counterparties may not have recorded this information
when a historical swap was executed.
ISDA recommended that the PET data tables should not include
indications of whether either or both counterparties are SDs or MSPs,
arguing that if the SDR already has this information from registration,
it would be simpler and more reliable for this indication to be
centrally supplied by the SDR. ISDA requested that reporting
counterparties be permitted to report the legally binding record
already present in an existing trade repository (called a ``gold
record'' by some existing trade repositories), in lieu of reporting the
required minimum PET data.
b. Master agreement identifiers. ISDA, ETA, Global Forex, and WGCEF
recommended eliminating the requirement to report master agreement
identifiers. Global Forex noted that providing this data would impose a
significant burden because such information is not routinely stored on
the same systems as the other PET data specified in the tables. WGCEF
argued that counterparties are in the best position to make exposure
calculations and that the Commission already has the ability to request
such information from them. The Coalition of Derivative End-Users
(``End-User Coalition'') requested that the Commission explain the use
and value of reporting master agreement identifiers.
c. Continuation data reporting. ETA requested that non-SD/MSP
reporting counterparties not be required to report continuation data,
arguing that transactions not involving SDs and MSPs represent only a
small portion of the swaps market, and that such a requirement would be
unduly burdensome. Alternatively, ETA asked that non-SD/MSP reporting
counterparties be permitted to report continuation data for historical
energy swaps on a quarterly basis.
d. Electronic images of swap documentation. WGCEF disagreed with
the Commission's proposed prohibition on the electronic transmission of
an image of a document to satisfy the electronic reporting requirements
of the proposed rule, arguing that by prohibiting the use of images for
reporting, the Commission is effectively requiring market participants
to rely on more burdensome, costly, and less efficient means of
gathering and submitting required data to SDRs. WGCEF asked the
Commission to allow reporting counterparties to submit images of
confirmations and other paper swap documentation in lieu of submission
of normalized data in data fields.
e. Reporting of data beyond specified PET data. WGCEF requested
that reporting counterparties be permitted to report data beyond the
data required in the proposed rules, including all data pertaining to
the swap if that is less burdensome for the reporting counterparty, as
long as the data required by the proposed rules is included in the data
reported.
f. Reporting by both counterparties to a swap. WGCEF asked the
Commission to allow both counterparties to a historical swap report the
data to an
[[Page 35208]]
SDR if they so choose. WGCEF argued that permitting such dual reporting
would avoid the need for counterparties of equal reporting hierarchy
status to negotiate which will be the reporting counterparty.\34\
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\34\ WGCEF also stated that dual reporting may be necessary if
the Commission has not issued a final rule on entity definitions
before data reporting begins, since in that event counterparties
would be unable to determine which of them has the obligation to
report. The compliance dates established in parts 45 and 46 for swap
data reporting eliminate this issue, since the initial compliance
date will be the later of July 16, 2012 or 60 days after issuance of
entity and product definitions.
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g. Safe harbor for good faith reporting. Global Forex asked that
counterparties be allowed to meet their reporting and recordkeeping
obligations on a best efforts basis without the need to recreate or
report data that might have been lost. Global Forex expressed concerned
that parties to FX swaps who use the SWIFT Accord system or use paper
confirmations to keep records would need to transfer this information
to new systems to meet the proposed reporting and retrieval
requirements of the rules. It noted that in the time between the
enactment of the Dodd-Frank Act and the compliance date for reporting,
internal systems may have gone through a number of upgrades or
migrations, potentially resulting in loss of information and thus in
incomplete data. The Financial Services Roundtable (``FSR'') also
requested a safe harbor for institutions that have complied with the
previously issued interim-final rules by preserving all information on
file, yet do not have full records for pre-enactment swaps. ETA also
asked the Commission to create a safe harbor for non-financial entities
that keep records for historical swaps consisting of data elements
routinely captured prior to enactment of the Dodd-Frank Act, in the
format in which they are already kept, and report only such data,
whether or not it includes all of the data required by the final rules,
without having to gather any required data from paper records.
3. Final Rule
a. PET data for historical swaps. The Commission has considered the
comments stating that the minimum PET data proposed to be reported for
historical swaps reflects the commercially relevant terms typically
retained by swap counterparties. It has also considered the comments
noting that some counterparties, particularly smaller counterparties
that may not trade swaps frequently, may not have captured or retained
all of the specified data elements. In order to mitigate costs and
burdens for swap counterparties while achieving the same regulatory
objective, the Commission has determined that the final rule will
require reporting of all of the minimum primary economic terms
specified in Appendix 1 that were in the possession of the reporting
counterparty on or after April 25, 2011. The final rule will not
require reporting of unspecified, additional primary economic terms
matched or verified by the counterparties to such swaps. With respect
to execution times, the final rule will require reporting the date of
execution, and call for reporting the time of execution only if that
time was recorded when the trade was executed and is known to the
reporting counterparty on or after April 25, 2011.
The Commission believes that the minimum PET data for historical
swaps should include indications of whether either or both
counterparties are SDs or MSPs, and that this information should be
provided to SDRs. SDs and MSPs will register with the Commission, and
their status will be determined by Commission rules. SDs and MSP will
need to possess this information in order to comply with the final
rule, and the Commission believes they will have automated systems
capable of recording and reporting it. The Commission has also
determined that the final rule will not provide for reporting a legally
binding record already present in an existing trade repository in lieu
of reporting the required minimum PET data. Both the NOPR and the final
rule provide that reporting counterparties need not re-report required
PET data already reported to an existing trade repository that
registers with the Commission as an SDR prior to the applicable
compliance date for reporting.
b. Master agreement identifiers. The Commission has considered the
comments recommending elimination of the requirement to report master
agreement identifiers for historical swaps. In the final swap data
reporting rules in part 45 of this chapter, the Commission has already
determined that it should not require master agreement reporting in its
first swap data reporting final rules. As noted in the Joint Study on
the Feasibility of Mandating Algorithmic Descriptions for Derivatives
released by the CFTC and SEC in April 2011, at present the terms of
such agreements are not readily reportable in an electronic format, as
market participants have not developed electronic fields representing
terms of a master agreement.\35\ For these reasons, the Commission has
determined that the final rule will not require reporting of master
agreement identifiers. The Commission may choose to revisit this issue
at some point in the future, if and when market participants and SDRs
develop ways to represent the terms of such agreements electronically.
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\35\ Commodity Futures Trading Commission and Securities and
Exchange Commission, Joint Study on the Feasibility of Mandating
Algorithmic Descriptions for Derivatives, April 7, 2011, available
at http://www.sec.gov/news/studies/2011/719b-study.pdf.
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c. Continuation data reporting. The Commission believes that
continuation data reporting for uncleared historical swaps must be
retained to enable regulators to monitor exposures and systemic risk,
and to fulfill their market supervision and enforcement
responsibilities.\36\ Quarterly reports concerning changes to the
primary economic terms of such a swap would impede regulators' ability
to see a current and accurate picture of the swap market. To take just
one example, delaying reporting of a partial novation for a quarter
would give regulators an inaccurate picture of what counterparties are
exposed to the swap for a substantial period of time. The Commission
has therefore determined that the final rule will retain the NOPR
requirements with respect to continuation data reporting for uncleared
historical swaps.\37\
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\36\ The final part 45 rules, which apply to continuation data
reporting for uncleared historical swaps, extend and phase in
continuation data reporting for non-SD/MSP counterparties in order
to reduce burdens to the extent consistent with the purposes of such
reporting.
\37\ Section 46.3(a)(2) of this final rule provides that ``For
each uncleared pre-enactment or transition swap in existence on or
after April 25, 2011, throughout the existence of the swap following
the compliance date, the reporting counterparty must report all
required swap continuation data * * * .'' This means that reporting
counterparties for such swaps must report changes to primary
economic terms occurring after the applicable compliance date. It
does not require reporting of changes occurring after execution of
the historical swap but prior to the compliance date.
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Continuation data reporting for cleared historical swaps in
existence on or after April 25, 2011, is affected by the fact that such
swaps will have been cleared prior to the start of reporting on the
applicable compliance date. Part 45 requires DCOs to report
continuation data, including valuation data, for cleared swaps, and
limits continuation data reporting by reporting counterparties to
reporting of valuation data by SD or MSP reporting counterparties. For
swaps executed after the applicable compliance date, continuation data
reporting will be linked to the original swap through use of unique
swap identifiers. However, the Interim Final Rules for pre-enactment
and transition swaps and the
[[Page 35209]]
NOPR took the fundamental approach that the data reported for
historical swaps should be the data possessed by those involved in
originating such swaps. Neither the Interim Final Rules nor the NOPR
placed an obligation on DCOs to report to an SDR or to be able to trace
the link between a historical swap submitted for clearing on or after
April 25, 2011, and the transactions or positions resulting from
novation of such a historical swap to the clearing house.\38\ The
Commission understands that it therefore could be problematic for a DCO
to be able to report valuation data for historical swaps cleared prior
to the applicable compliance date. In addition, neither the Interim
Final Rules nor the NOPR directly addressed the effect of clearing on
the reporting requirements for the swap. In light of these factors, and
in order to reduce burdens to the extent consistent with the purposes
of the Dodd-Frank Act, the Commission has determined that this final
rule regarding swap data reporting for historical swaps will not
require reporting of continuation data for cleared historical swaps.
This determination is limited to the reporting of cleared historical
swaps pursuant to part 46 and has no effect on reporting required under
part 45. As noted above, all historical swaps in existence on or after
April 25, 2011 that have been accepted for clearing will be reported by
the reporting counterparty, and these reports will include an
indication that the swap has been accepted for clearing and the
identity of the DCO clearing the swap.\39\ Under part 46, a DCO will
have no duty to make an initial data report for the resulting novated
swaps. The Commission plans to further clarify how novated and cleared
historical swaps should be reported under the Commission's data
reporting rules
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\38\ Unique swap identifiers will not be available for such
swaps.
\39\ If further information concerning a cleared historical swap
is needed, the Commission will have ability to obtain it through its
special call authority.
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d. Electronic images of swap documentation. The Commission believes
that permitting reporting to be limited to submission of images would
prevent regulators from searching, retrieving, aggregating, and
manipulating historical swap data in SDRs for essential purposes,
including monitoring systemic risk, conducting market oversight and
enforcement, and calculating block trade sizes relevant to real time
reporting, among others. The NOPR proposed to reduce the reporting
burden to the extent possible in this respect, by allowing submission
of images to fulfill reporting requirements for historical swaps that
expired prior to April 25, 2011. The Commission is adopting the rule as
proposed and, in so doing, notes that a reporting counterparty that
maintained information concerning a historical swap in paper form could
fulfill the final rule electronic reporting requirements by entering
the minimum PET data from a paper confirmation into a web interface
provided by the SDR.
e. Reporting of data beyond specified PET data. With respect to the
comment requesting that reporting counterparties be permitted to report
data beyond the data required by the final rule, as long as the
required data is included in the data reported, the Commission notes
that neither the NOPR nor the final rule bars reporting of additional
data beyond the minimum required, provided that such additional data is
accepted by the SDR to which required swap data is reported. The
Commission also notes that it is a business decision of the SDR whether
to accept such additional data.
f. Reporting by both counterparties to a swap. The Commission has
considered the comment asking that the final rule permit voluntary
reporting for a historical swap by the non-reporting counterparty. The
Commission received a number of comments to the same effect in
connection with the swap data reporting rules in part 45 of this
chapter.
The Commission determined in part 45 that voluntary supplement
reporting is technologically feasible and may have benefits for both
data accuracy and counterparty business processes.\40\ As noted in part
45, while the Dodd-Frank Act requires swap data reporting by only one
counterparty and establishes a hierarchy for choosing the reporting
counterparty, it does not prohibit voluntary swap data reporting to an
SDR that supplements required reporting. The Commission's final part 49
rules permit counterparties to access to information in SDRs concerning
their own swaps, and notes that nothing forbids swap counterparties to
use an SDR as a provider of third-party services going beyond
acceptance of required swap data reports for regulatory purposes. For
these reasons, the final rules in part 45 provide for voluntary
supplemental reporting to any SDR by either counterparty of swap data
that part 45 does not require that counterparty to report.
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\40\ 77 FR 2136 (January 13, 2012), at 2171.
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The Commission also determined in part 45 that, to avoid double-
counting of the same swap due to voluntary supplemental reports, and to
ensure that data reported via a voluntary supplemental report (``VSR'')
to the same SDR to which required data is reported is integrated into
that SDR's record for the swap, each VSR must include minimum VSR
information that ensures achievement of these purposes. As provided in
part 45, this required VSR information includes: an indication that the
report is a VSR; the USI for the swap that has been created as required
by this part; the identity of the SDR to which all required creation
data and continuation data is reported for the swap, if the VSR is made
to a different SDR; the LEI of the counterparty making the VSR; and if
applicable, an indication that the VSR is made pursuant to the law of a
jurisdiction outside the U.S. To avoid confusion and double-counting,
and to ensure that each VSR includes the USI for the swap, part 45 also
provides that a VSR may not be made until after the USI for the swap
has been created as provided in Sec. 45.5 and transmitted to the
counterparty making the VSR.
In light of these comments and considerations, the Commission has
determined that the final rules in this part should align with part 45
and permit voluntary supplemental reporting for historical swaps in
existence on or after April 25, 2011. The Commission believes, for the
reasons noted above, and as provided in part 45, that appropriate
safeguards are needed with respect to such VSRs, to avoid confusion and
double counting with respect to these swaps. The final rule therefore
provides that a VSR concerning a historical swap may not be made until
after the initial data report required by part 46 concerning the swap
is made. The final rule also provides that a VSR concerning a
historical swap must include: an indication that the report is a VSR;
the identity of the SDR to which the required initial data report
concerning the swap has been made; the LEI of the counterparty making
the VSR; and, if applicable, an indication that the VSR is made
pursuant to the law of a jurisdiction outside the U.S.
One of the safeguards provided in part 45 is the inclusion in each
VSR of the USI for the swap in question. SDRs are required by part 45
to create USIs for swaps with a non-SD/MSP reporting counterparty
through what is known as the ``name space'' method, under which the
first characters of each USI created by an SDR will consist of a unique
code that identifies that SDR, given to the SDR by the Commission
during the SDR registration process. The automated systems of SDRs will
create an identifier for each historical swap reported in the normal
course of SDR operation. Due to the above-mentioned requirements of
part 45, SDRs will have the capacity to
[[Page 35210]]
create SDR identifiers for historical swaps using the name space
technique. This would make the SDR identifiers for historical swaps
functionally equivalent to USIs. The part 46 NOPR provided that the USI
requirements of part 45 would not apply to historical swaps, and the
final rule retains this provision. To provide for historical swaps an
essential safeguard against confusion and double-counting in the
context of VSRs similar to the safeguard provided for swaps reported
pursuant to part 45 by USIs, the final part 46 rule requires that each
VSR for a historical swap in existence on or after April 25, 2011, must
include the SDR identifier assigned to the swap by the automated
systems of the SDR to which the required initial data report concerning
the swap is made. The Commission strongly encourages all SDRs to use
the name space capability they are required to have pursuant to part 45
to create such SDR identifiers using the name space technique, making
them functionally equivalent to USIs.\41\ This would enhance the
safeguard provided by such SDR identifiers.
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\41\ The Commission is mindful in this connection of a comment
made by TriOptima in the context of part 45 of this chapter
concerning USIs. TriOptima noted that the swap market has a
relatively large outstanding stock of transactions, some quite long-
dated, and a relatively thin flow of new transactions, and stated
that having USIs for new transactions only would result in a long
transition period where there are live contracts both with and
without USIs, something TriOptima stated would be problematic from a
technology perspective. TriOptima recommended the creation of USIs
via the name-space technique as the best way to resolve the issue.
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g. Safe harbor for good faith reporting. The Commission has
considered the comments which addressed possible safe harbor
provisions. As discussed above, the Commission has determined in
response to comments that the final rule will only require
counterparties to historical swaps in existence on or after April 25,
2011, the publication date of the NOPR, to report specified information
in their possession as of that date. The final rule will only require
counterparties to historical swaps expired or terminated prior to April
25, 2011, to report whatever information was in their possession as of
publication of the relevant Interim Final Rule. The Commission believes
this is the appropriate way to address the fundamental concerns raised
in these comments, which centered on problems that could be caused by
requiring reporting of information not possessed by some counterparties
and on the technological burdens involved.
C. Unique Identifiers
1. Proposed Rule
The NOPR called for the initial data report for each historical
swap in existence on or after April 25, 2011, to include the legal
entity identifier (``LEI''),\42\ as provided in part 45 of this
chapter, of the reporting counterparty, as well as the reporting
counterparty's internal system identifiers for the non-reporting
counterparty and the particular swap transaction in question. The NOPR
proposed giving the non-reporting counterparty for each such historical
swap an additional 180 days after the applicable compliance date to
obtain an LEI. Once this LEI was obtained, the NOPR called for it to be
provided to the reporting counterparty and reported by the reporting
counterparty to the SDR. After LEIs were obtained for either
counterparty, the NOPR proposed requiring the counterparty identified
by an LEI and the SDR to to comply with the LEI requirements of part 45
of this chapter with respect to LEIs. The NOPR provided that the LEI
requirements of parts 45 and 46 would not apply to historical swaps
expired or terminated prior to April 25, 2011. The NOPR proposed that
the unique swap identifier and unique product identifier requirements
of part 45 of this chapter would not apply to historical swaps.
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\42\ The NOPRs for both parts 45 and 46 of this chapter used the
term ``unique counterparty identifier'' in this context. As
explained in the final part 45 rule, in response to comments the
Commission has decided to use the term ``legal entity identifier,''
which refers to the same identifier and is in common international
use, in order to prevent confusion.
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2. Comments Received
a. Obtaining LEIs by the compliance date. The End-User Coalition,
ETA, and ISDA raised concerns regarding whether counterparties will be
able to obtain LEIs by the compliance date. ISDA commented that the
requirement for reporting an LEI for each counterparty would require
finalization of parts 45 and 46 in advance of the compliance date to
allow the LEI system to be built. In the event that LEIs are not
available by the applicable compliance date, WGCEF asked that the final
rule LEI provisions not require re-reporting a historical swap in order
to include LEIs in the data for such a swap, but instead permit
submission of a cross-referenced table of counterparties' internal
counterparty identifiers matched with the new LEIs.
b. Non-SD/MSPs and LEIs. ETA asked that non-SD/MSP counterparties
be placed on a compliance schedule separate from SDs and MSPs to allow
time for entities to develop and implement the requisite systems and
procedures to input and report identifiers. The End-User Coalition
asked that non-SD/MSP counterparties be given at least 18 months after
the final rule is issued to obtain LEIs, stating that a potential
``logistical traffic jam'' of entities seeking LEIs, as well as the
currently undefined process for obtaining the identifiers, could make
obtaining LEIs difficult for non-SD/MSP counterparties.
3. Final Rule
a. Obtaining LEIs by the compliance date. The Commission has
determined that the final rule should maintain the NOPR provisions
requiring use of LEIs in data reporting for historical swaps in
existence on or after April 25, 2011. LEIs will be a crucial tool for
enabling the Commission and other regulators to search, aggregate, and
use the swap data reported to SDRs to fulfill the purposes of the Dodd-
Frank Act. Both the NOPR and the final rule address concerns regarding
whether a Commission-approved LEI will be available by the compliance
date by applying the provisions of part 45 of this chapter, including
the provision for use of a substitute counterparty identifier in the
event that an LEI is not available on the compliance date, until a
Commission-approved LEI is available.
b. Non-SD/MSPs and LEIs. The Commission has determined that the
final rule should maintain the NOPR provisions concerning LEIs for non-
SD/MSP counterparties. The applicable compliance date set in the final
rule for non-SD/MSP counterparties is 180 days after the compliance
date for SDs and MSPs, and the final rule provides an additional 180
days after the applicable compliance date for non-reporting
counterparties to obtain an LEI. The Commission believe this
appropriately addresses commenters' concerns relating to obtaining LEIs
for non-SD/MSP counterparties.
c. USIs and UPIs. The final rule retains the NOPR provision stating
that the USI and UPI requirements of part 45 do not apply to historical
swaps.
D. Determination of the Reporting Counterparty
1. Proposed Rule
The NOPR provided that determination of which counterparty is the
reporting counterparty for a historical swap would be made in the same
way provided in part 45 of this chapter. Counterparty reporting would
follow the hierarchy outlined in the
[[Page 35211]]
statute, giving SDs or MSPs the duty to report when possible, and
limiting reporting by non-SD/MSP counterparties to situations where
there is no SD or MSP counterparty. Where both counterparties have the
same hierarchical status, the NOPR required them to agree as one term
of their swap which of them is to report. Where only one counterparty
to a historical swap is a U.S. person, the NOPR called for that
counterparty to be the reporting counterparty. For historical swaps in
existence as of the applicable compliance date, the NOPR called for
determination of the reporting counterparty to be made by applying the
above provisions to the current counterparties to the swap as of the
compliance date. For historical swaps for which reporting is required,
but which have terminated prior to the compliance date, the NOPR called
for determination of the reporting counterparty to be made as of the
date of the swap's expiration or termination.
2. Comments Received
a. Non-agreement by counterparties at the same hierarchical level.
WGCEF, Global Forex, ISDA, ETA, and Encana Marketing (``Encana'') each
raised the issue of how to assign the reporting obligation in cases
where counterparties cannot come to an agreement. ETA recommended that
the Commission clarify that the parties are under no obligation to
renegotiate the transaction to provide for additional consideration,
and should structure its rules to assume that the transaction data will
be reported by one or both counterparties, or neither. WGCEF
recommended allowing both counterparties to report if they cannot
agree. ISDA stated that in cases where the hierarchy does not resolve
the issue, the final rules should designate the calculation agent as
the reporting counterparty. Global Forex recommended not requiring
reporting of historical swaps that expire prior to the compliance date,
to reduce the number of instances where counterparties would need to
agree on which of them should report.
b. Date for determining counterparty reporting obligations. For
historical swaps which must be reported but which have expired prior to
the compliance date, the proposed regulations called for determining
the reporting counterparty by applying the statutory reporting
hierarchy to the parties who were counterparties to the swap when it
expired. ISDA noted that it may be difficult or impossible to determine
whether a counterparty was an SD or MSP as of an expiration that
occurred before final SD or MSP definitions and a registration system
are put in place, and recommended that the reporting counterparty for
such swaps be determined as of the compliance date.
c. Non-U.S. counterparties. The End-User Coalition, ETA, WGCEF and
ISDA recommended that a foreign SD or MSP should be the reporting
counterparty for a historical swap in which the other counterparty is a
U.S. non-SD/MSP. ISDA argued that requiring a non-SD/MSP to report in
circumstances where the counterparty is a foreign SD could dissuade
U.S. parties from engaging in transactions with foreign SDs. In
contrast, Encana supported the proposed rule provision requiring the
U.S. person to be the reporting counterparty in circumstances where
only one of the parties is a U.S. person.
d. Historical swaps platform-executed or cleared prior to the
compliance date. ETA recommended that the final regulations should
provide that, if a reportable historical swap between non-SD/MSP
counterparties was executed prior to the compliance date on a platform
later registered as a SEF or DCM, or was cleared prior to the
compliance date by a DCO, the SEF, DCM, or DCO should be required to
make the initial data report for the swap, in lieu of a report by
either non-SD/MSP counterparty.
3. Final Rule
a. Non-agreement by counterparties at the same hierarchical level.
The Commission has determined that the final rule should substantially
maintain the NOPR provisions concerning determination of the reporting
counterparty. The Commission believes that requiring swap
counterparties to agree on which of them is the reporting counterparty
``as one term of their swap transaction'' could require potentially
problematic renegotiation of a pre-existing swap agreement.
Accordingly, the final regulations remove the phrase ``as one term of
their swap transaction'' from Sec. 46.5. The final rule requires
counterparties to a historical swap at the same hierarchical level to
agree prior to the applicable compliance date on which of them is the
reporting counterparty, but does not require them to do so as a term of
the swap.\43\ The final rule follows part 45 of this chapter in
providing an additional decision factor for determining the reporting
counterparty for a swap between two non-SD/MSP counterparties: in such
situations, if only one of the two non-SD/MSP counterparties is a
financial entity as defined in the Dodd-Frank Act, the financial entity
will be the reporting counterparty. The final rule addresses the
concern raised in one comment about the difficulty of determining the
reporting counterparty in the absence of definitions of swap dealer and
major swap participant, by providing that the compliance dates on which
historical swaps must be reported will come no less than 60 days after
publication of such definitions.
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\43\ The Commission expects to provide interpretative guidance
concerning determination of the reporting counterparty in situations
where a historical swap was executed and submitted for clearing via
a platform on which the counterparties to the swap do not know each
other's identity.
---------------------------------------------------------------------------
b. Date for determining counterparty reporting obligations. The
Commission believes that it is prudent to determine the reporting
counterparty for a historical swap as of the applicable compliance date
where possible. The final rule provides that for historical swaps in
existence as of the applicable compliance date, the reporting
counterparty shall be determined by applying Sec. 46.5 to the current
counterparties as of that date. For historical swaps expired or
terminated prior to the compliance date, the final rule requires
determination of the reporting counterparty by applying Sec. 46.5 to
the counterparties to the swap as of the date of its expiration or
termination (except for determination of a counterparty's status as an
SD or MSP, which shall be determined as of the compliance date).
c. Non-U.S. counterparties. The Commission has considered the
comments recommending that a non-U.S. SD or MSP in a historical swap
with a U.S. counterparty at a lower hierarchical level should be the
reporting counterparty despite its status as a non-U.S. person. The
Commission received a large number of similar comments in connection
with its part 45 rules. It determined in part 45 in response to those
comments that, because non-U.S. SDs and MSPs will be required to
register with the Commission in this connection, the Commission will
have sufficient oversight and enforcement authority with respect to
such counterparties.\44\ The Commission therefore determined in part 45
that, with a single exception, the determination of the reporting
counterparty in situations where only one counterparty is a U.S. person
should be made by applying the normal counterparty determination
procedure. In cases where both counterparties are non-SD/MSP
counterparties and only one counterparty is a U.S. person, part 45
requires the U.S. person to be the reporting counterparty, which is
[[Page 35212]]
necessary in such situations because the non-U.S. non-SD/MSP
counterparty will not be required to register with the Commission.
Where neither counterparty to a swap executed on a SEF or DCM,
otherwise executed in the U.S., or cleared on a DCO is a U.S. person,
part 45 applies the same hierarchical selection criteria as for other
swaps. In response to the comments on this subject made in connection
with both parts 45 and 46, and for the same reasons, the Commission has
determined that this final rule will follow part 45, as set forth
above, with respect to determination of the reporting counterparty in
this context.
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\44\ 77 FR 22136 (January 13, 2012), at 2167.
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d. Historical swaps platform-executed or cleared prior to the
compliance date. The NOPR did not call for platform reporting of PET
data or DCO reporting of confirmation data with respect to historical
swaps, but mandated reporting by the reporting counterparty. The
Commission has determined that the final rule should maintain these
NOPR provisions. Counterparties to historical swaps in existence on or
after April 25, 2011, were put on notice by the NOPR to retain records
of the minimum PET data that will be required to be reported for such
swaps, and as discussed above, the final rule limits required reporting
for such swaps to the specified minimum PET data in the possession of
the reporting counterparty as of April 25, 2011. Such reporting by the
reporting counterparty should therefore be practicable. The Commission
believes it may be impracticable to require execution facilities or
DCOs to report data for swaps executed or cleared by them at a time
when they were neither required by a rule nor on notice pursuant to a
notice of proposed rulemaking to retain data for the purpose of making
such a report.\45\
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\45\ As discussed above at pages 31-33, the Commission plans to
further clarify how novated and cleared historical swaps should be
reported under the Commission's data reporting rules.
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E. Third-Party Facilitation of Data Reporting
1. Proposed Rule
The NOPR proposed explicit permission for third-party facilitation
of data reporting with respect to historical swaps, without removing
the reporting responsibility from the appropriate reporting
counterparty.
2. Comments Received
The Commission received no comments concerning this NOPR provision.
3. Final Rule
The Commission has determined that the final rule should maintain
this NOPR provision as proposed.
F. Reporting to a Single Swap Data Repository
1. Proposed Rule
To avoid fragmentation of data for a given historical swap across
multiple SDRs, the NOPR provided that all data for a particular
historical swap must be reported to the same SDR to which the initial
data report concerning the swap is made.
2. Comments Received
The Commission received no comments concerning this NOPR provision.
3. Final Rule
The Commission has determined that the final rule should maintain
this NOPR provision as proposed.
G. Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any
Swap Data Repository
1. Proposed Rule
As required by section 729 of the Dodd-Frank Act, the NOPR provided
that if there were an asset class for which no SDR currently accepted
data, registered entities or counterparties required to report
concerning historical swaps in such an asset class would be required to
report the same data to the Commission at a time and in a form and
manner determined by the Commission.
2. Comments Received
The Commission received no comments concerning this NOPR provision.
3. Final Rule
The Commission determined in part 45 that, in this circumstance,
data should be reported at times announced by the Commission and in an
electronic format acceptable to the Commission. Part 45 delegates to
the Commission's Chief Information Officer the authority to determine
such times and formats. Since the part 46 NOPR called for reporting in
this context at a time and in a form and manner determined by the
Commission, the final rule must specify the Commission's requirements
in these respects. The Commission has determined that, for historical
swaps in existence on or after April 25, 2011, the final rule should
provide, in parallel with part 45, that in this circumstance, data must
be reported at times announced by the Commission and in an electronic
format acceptable to the Commission. The final rule delegates to the
Commission's Chief Information Officer, also in parallel with part 45,
the authority to determine such times, and to determine with respect to
historical swaps in existence on or after April 25, 2011, the
electronic format for making the report. For historical swaps expired
or terminated as of that date, the final rule permits reporting in any
format chosen by the reporting counterparty.
H. Required Data Standards
1. Proposed Rule
The NOPR required reporting counterparties for historical swaps to
use the facilities, methods, or data standards provided or required by
the SDR to which the counterparty reports swap data.
2. Comments Received
The Commission received no comments concerning this NOPR provision.
3. Final Rule
The Commission has determined that the final rule should maintain
these NOPR provisions as proposed.
I. Reporting of Errors and Omissions in Previously Reported Data
1. Proposed Rule
The NOPR required reporting counterparties to report any errors or
omissions in reported data, in the same format as the original data
report, as soon as technologically practicable after their discovery.
Non-reporting counterparties discovering an error or omission would be
required to notify the reporting counterparty, who in turn would be
required to report them to the SDR.
2. Comments Received
The Commission received no comments concerning this NOPR provision.
3. Final Rule
The Commission has determined that the final rule should maintain
these NOPR provisions as proposed.
J. Compliance Dates
1. Proposed Rule
The proposed rules require swap data reporting for historical swaps
to commence on the compliance date specified in the Commission's final
swap data recordkeeping and reporting regulations in part 45.
2. Comments Received
a. Compliance date on which reporting begins. Due to the dependence
[[Page 35213]]
of part 46 on other rulemakings, especially final rules defining
``swap,'' ``swap dealer,'' and ``major swap participant,'' several
commenters requested that Part 46 compliance and implementation take
place on a staggered basis that takes the need for such definitions
into account. Commenters stated that differences between asset classes
with respect to both existing automation and existing data
normalization are significant and should also be taken into account.
Commenters made several specific recommendations concerning compliance
dates and phasing also made by them in connection with part 45, which
the Commission has already considered and addressed in part 45, and
will not address again here.
b. Using the same compliance dates for parts 45 and 46. WGCEF
stated that the compliance date on which the initial data report for
historical swaps must be made should not be the same compliance date
provided for the beginning of swap data reporting pursuant to part 45,
in order to avoid subjecting SDRs to a logjam of data on that date, and
advocated setting the part 46 compliance date for historical swap data
reporting somewhat earlier than the part 45 compliance date.
3. Final Rule
a. Compliance date on which reporting begins. The Commission
believes that the compliance dates for swap data reporting under part
46 should take into account the need for Commission definitions of
``swap,'' ``swap dealer,'' and ``major swap participant.'' The
Commission also believes that the compliance dates for swap data
reporting should take both asset class differences and the needs of
non-SD/MSP reporting counterparties into account. As set forth in part
45, the compliance dates established in part 45 phase in compliance
dates in both these respects. Accordingly, the Commission has
determined that this final rule will maintain the NOPR provision
setting the same compliance dates for both parts 45 and 46. The
Commission believes that these compliance dates strike the appropriate
balance between the need for swaps data by the Commission charged with
achieving the purposes of the Dodd-Frank Act and potential costs and
burdens that may be imposed on market participants.
b. Using the same compliance dates for parts 45 and 46. Since
automated systems for swap data reporting must be developed, tested,
and used for reporting with respect to both historical and new swaps,
the Commission believes that setting the same compliance dates for data
reporting in both part 45 and part 46, as provided in the proposed
rules, remains appropriate. However, the Commission recognizes that
having some initial data reporting for historical swaps pursuant to
part 46 precede the start of data reporting for new swaps pursuant to
part 45 could have the practical benefit of reducing the volume of data
SDRs would have to receive on a single day if data reporting for all
historical swaps as well as new swaps began on the same date. In light
of comments and these considerations, the final rule will permit
voluntary initial data reporting for historical swaps prior to the
applicable compliance date, if a registered SDR is prepared to accept
the initial data report required by this part prior to the applicable
compliance date. Where such a voluntary early initial data report is
made, continuation data reporting for the swap in question will still
be required to commence as of the applicable compliance date.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires that agencies consider the impact of their rules on ``small
entities.'' As provided in the NOPR, this part will have a direct
effect on SDs, MSPs, and non-SD/MSP counterparties who are
counterparties to one or more pre-enactment or transition swaps and
subject to the Commission's jurisdiction.
As stated in the NOPR,\46\ the Commission proposed that certain
entities for which the Commission had not previously made a
determination for RFA purposes--namely SDs, and MSPs--should not be
considered to be small entities, for reasons set forth in the NOPR.
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\46\ 76 FR 22833.
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As noted in the NOPR, this part requires limited swap data
reporting by a non-SD/MSP counterparty regarding pre-enactment and
transition swaps only with respect to the swaps in which neither
counterparty is an SD or MSP. With respect to such swaps, which
represent a minority of swap transactions, only one of the swap non-SD/
MSP counterparties will be required to report--the counterparty
designated as the reporting counterparty. In addition, the Commission
has determined that the final rule provides that for swaps between non-
SD/MSP counterparties where only one counterparty is a ``financial
entity'' as defined in CEA section 2(h)(7)(C), the financial entity
shall be the reporting counterparty. As the NOPR noted, most end users
and other non-SD/MSP counterparties who are regulated by the Employee
Retirement Income Security Act of 1974 (``ERISA''), such as pension
funds, which are among the most active participants in the swap market,
are prohibited from transacting directly with other ERISA-regulated
participants.\47\
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\47\ 29 U.S.C. 1106.
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With respect to SDs, the Commission previously has determined that
Futures Commission Merchants (``FCMs'') should not be considered to be
small entities for purposes of the RFA.\48\ Like FCMs, SDs will be
subject to minimum capital and margin requirements and are expected to
comprise the largest global financial firms.\49\ Similarly, with
respect to MSPs, the Commission has previously determined that large
traders are not ``small entities'' for RFA purposes.\50\ Like large
traders, MSPs will maintain substantial positions, creating substantial
counterparty exposure that could have serious adverse effects on the
financial stability of the U.S. banking system or financial markets.
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\48\ 47 FR 18618 (Apr. 30, 1982).
\49\ Additionally, the Commission is required to exempt from
designation entities that engage in a de minimis level of swaps. Id.
at 18619.
\50\ 47 FR at 18620.
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For these reasons, the Commission does not believe that the
regulations would have a significant economic impact on a substantial
number of small entities. The Commission believes these provisions of
the final rule reduce the economic impact on any non-SD/MSP
counterparties that may be considered to be small entities under the
RFA.
Due to the operation of certain provisions of the CEA and the final
rule, non-SD/MSP counterparties who may be considered small entities
for RFA purposes are never required to report any swap creation data.
Under the CEA, a non-SD/MSP counterparty is required to transact on a
SEF or DCM unless that non-SD/MSP is an Eligible Contract Participant
(``ECP'').\51\ The Commission
[[Page 35214]]
has previously determined that ECPs are not ``small entities'' for RFA
purposes.\52\ For all swaps executed on a SEF or DCM, the final rule
requires the SEF or DCM to report all required swap creation data.
Therefore, no ``small entities'' for RFA purposes are required to
report any swap creation data under the final rule.
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\51\ CEA section 2(e) provides that ``It shall be unlawful for
any person, other than an eligible contract participant, to enter
into a swap unless the swap is entered into on, or subject to the
rules of, a board of trade designated as a contract market under
section 5.'' Congress created the ECP category in the Commodity
Futures Modernization Act in 2000, to include individuals and
entities that Congress determined to be sufficiently sophisticated
in financial matters that they should be permitted to trade over-
the-counter swaps without the protection of federal regulation. See,
e.g., ``Report of the President's Working Group on Financial
Markets'' (Nov. 1999) at 16 (recommending that ``sophisticated
counterparties that use OTC derivatives simply do not require the
same protections under the CEA as those required by retail
investors''). In the Dodd-Frank Act, Congress made two changes to
the statutory ECP definition, both of which increased the thresholds
to qualify as an ECP, making it harder for some entities and
individuals to qualify. Compare CEA section 1a(12), 7 U.S.C. 1a(12)
(2009), with Sec. Sec. 721(a)(1) and (9) of the Dodd-Frank Act,
respectively redesignating section 1a(12) as section 1a(18) and
increasing thresholds for certain categories of ECP.
\52\ 66 FR 20740, 20743, Apr. 25, 2001.
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In the NOPR, the Chairman, on behalf of the Commission, certified
that the rulemaking would not have a significant economic effect on a
substantial number of small entities. Nonetheless, the Commission
specifically requested comment on the impact these proposed rules may
have on small entities. The Commission received one comment on its RFA
statement, from the Electric Coalition, stating that the vast majority
of members of the National Rural Electric Cooperative Association and
the American Public Power Association are considered small entities for
purposes of the RFA. The Electric Coalition recommended that the
Commission should consider the overall impact of its Dodd-Frank Act
rules on nonfinancial entities, including small entities, and conduct a
comprehensive analysis under the RFA.
In response to this comment, and to other comments by non-SD/MSP
counterparties, the Commission has adjusted the final reporting regime
to reduce burdens and costs for non-SD/MSP counterparties in a variety
of ways, as set forth in detail in the discussion above concerning
Sec. Sec. 45.3 and 45.4 of the final rule. The Commission notes that
the commenter did not dispute the reasons for the Commission's
conclusion that this part does not have a significant impact on a
substantial number of small entities. For these reasons, and for the
reasons stated above and in the NOPR, the Commission continues to
believe that this part will not have a significant impact on a
substantial number of small entities. Therefore, the Chairman, on
behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.
605(b), that this part as finally adopted will not have a significant
economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
1. Introduction
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number issued by the Office of Management and
Budget (``OMB''). Provisions of Commission Regulations 46.2, 46.3,
46.4, 45.8, 45.10 and 45.11 result in information collection
requirements within the meaning of the Paperwork Reduction Act
(``PRA'').\53\ The Commission submitted the NOPR and supporting
documentation to OMB for review in accordance with 44 U.S.C. 3507(d)
and 5 CFR 1320.11. The Commission requested that OMB approve, and
assign a new control number for, the collections of information covered
by the NOPR.
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\53\ 44 U.S.C. 3301 et. seq.
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The title for the proposed collection of information under part 46
is ``Swap Data Recordkeeping and Reporting: Pre-Enactment and
Transition Swaps.'' The OMB has assigned this collection control number
3038-0089. The responses to this new collection of information are
mandatory. The Commission will protect proprietary information
according to the Freedom of Information Act and 17 CFR part 145,
``Commission Records and Information.'' In addition, section 8(a)(1) of
the Act strictly prohibits the Commission, unless specifically
authorized by the Act, from making public ``data and information that
would separately disclose the business transactions or market positions
of any person and trade secrets or names of customers.'' The Commission
also is required to protect certain information contained in a
government system of records according to the Privacy Act of 1974, 5
U.S.C. 552a.
2. Need for Information Collection
To the extent that the recordkeeping and reporting requirements in
this rulemaking overlap with the requirements of other rulemakings for
which the Commission prepared and submitted an information collection
request to OMB, the burdens associated with those requirements are not
being accounted for in the information collection request for this
rulemaking, to avoid unnecessary duplication of information collection
burdens.
The collection of information under these regulations is necessary
to implement certain provisions of the CEA, as amended by the Dodd-
Frank Act. Specifically, it is essential to reducing risk, achieve
market transparency, and for market supervision purposes for which the
Dodd-Frank Act was enacted. Such data will be needed to give the
Commission a complete picture of the swap market. Data concerning
historical swaps also is necessary for the Commission to prepare the
semi-annual reports it is required to provide to Congress regarding the
swap market.
3. Comment on Proposed Information Collection
The Commission invited the public and other federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
estimates. There was one comment from Encana relating to the collection
of information estimates. Encana commented that the 10 hour one-time
burden estimate in the proposal for non-reporting entities was too low.
The Commission addresses this and other related comments as follows.
Under the final rules, the Commission has revised its estimates
provided for in the proposal for reporting entities and persons who
will provide information under sections 46.2, 46.3, 46.4, 45.8, 45.10
and 45.11 of this part. The information provided under each regulation
is set forth below, together with burden estimates that were
calculated, through research and through consultation with the
Commission's technology staff, using wage rate estimates based on
salary information for the securities industry compiled by the
Securities Industry and Financial Markets Association (``SIFMA'').\54\
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\54\ These wage estimates are derived from an industry-wide
survey of participants and thus reflect an average across entities;
the Commission notes that the actual costs for any individual
company or sector may vary from the average. The Commission
estimated the dollar costs of hourly burdens for each type of
professional using the following calculations:
(1) [(2009 salary + bonus) * (salary growth per professional
type, 2009-2010)] = Estimated 2010 total annual compensation. The
most recent data provided by the SIFMA report describe the 2009
total compensation (salary + bonus) by professional type, the growth
in base salary from 2009 to 2010 for each professional type, and the
2010 base salary for each professional type; thus, the Commission
estimated the 2010 total compensation for each professional type,
but, in the absence of similarly granular data on salary growth or
compensation from 2010 to 2011 and beyond, did not estimate dollar
costs beyond 2010.
(2) [(Estimated 2010 total annual compensation)/(1,800 annual
work hours)] = Hourly wage per professional type.]
(3) [Hourly wage) * (Adjustment factor for overhead and other
benefits, which the Commission has estimated to be 1.3)] = Adjusted
hourly wage per professional type.]
(4) [(Adjusted hourly wage) * (Estimated hour burden for
compliance)] = Dollar cost of compliance for each hour burden
estimate per professional type.]
The sum of each of these calculations for all professional types
involved in compliance with a given element of the final rule
represents the total cost for each counterparty, reporting
counterparty, SD, MSP, SEF, DCM, or SDR, as applicable to that
element of the final rule.
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[[Page 35215]]
4. Recordkeeping Burdens
Section 46.2. Under Sec. 46.2, counterparties to a swap unexpired
on or after April 25, 2011 are required to keep records containing
minimum primary economic terms data, and (if they have them)
confirmation documentation, master agreements, credit support or
similar agreements, and any records required by Sec. 45.2 if the swap
remains unexpired after the compliance date. The final rules allow
counterparties to keep either paper or electronic records as long as
they are reportable but require swap dealers and major swap
participants to keep electronic records unless their paper records were
``originally created and exclusively maintained'' in paper form.
For historical swaps that expired prior to April 25, 2011, the
final rules require that each counterparty ``retain the information and
documents relating to the terms of the transaction that were possessed
by the counterparty on or after the publication date of the relevant
Interim Final Rule (October 14, 2010 for pre-enactment swaps and
December 17, 2010 for transition swaps). They do not require
counterparties to create or confirm any data that they possessed prior
to October 14, 2010 for pre-enactment swaps or December 17, 2010 for
transition swaps. The Commission has not calculated the burden for this
requirement to the extent the Commission has previously calculated such
burden in the PRA analyses for the Interim Final Rules covering ``pre-
enactment swaps'' and ``transition swaps.''
For historical swaps still in existence on or after April 25, 2011,
the final rules require that records kept by swap dealers or major swap
participants be readily accessible via real time electronic access
throughout the life of the swap and for two years following
termination. Following this two year-post expiration period, the final
rules require that records be retrievable within three business days
``through the remainder of the period following final termination of
the swap during which it is required to be kept.'' For records
maintained by non-SD/MSP counterparties the final rules require that
they be retrievable within five business days ``through the remainder
of the period following final termination of the swap during which it
is required to be kept.'' The Commission has calculated the
recordkeeping burden for the time period beginning on or after April
25, 2011, and ending on the compliance date; the burden occurring after
the compliance date having been already considered in the Commission's
final swap data rules.\55\
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\55\ These are one-time recordkeeping costs, which necessarily
take place in the period prior to the compliance date; therefore,
the applicable recordkeeping burden applies during the period
between the publication date and compliance date of Part 46, rather
than the one year noted in the proposal.
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The Commission believes that some percentage of the estimated
30,000 non-SD/MSP counterparties who would be subject to the
recordkeeping requirements of section 46.2 would contract with third-
party service providers to fulfill these requirements, and would
therefore pay some fee to such providers in lieu of incurring the
Commission's estimated costs of reporting. The identity of such third
parties, the composition of the marketplace for third party services,
and the costs to third parties to provide recordkeeping services given
the economies of scale and scope they may realize in providing those
services are all presently unknowable. Therefore, the Commission does
not believe it is feasible to quantify the fees charged by third
parties to non-SD/MSPs at the present time, but believes that they will
likely vary with the volume of records to be retained. The remaining
non-SD/MSP counterparties would elect to perform these functions
themselves and incur the costs enumerated below.\56\ The Commission
notes that this final rule allows non-SD/MSP counterparties to retain
records in either an electronic or paper form, which will facilitate
recordkeeping for less technologically resourced counterparties, who
will likely choose to retain the records in the form in which they
currently exist. For historical swaps still in existence on or after
April 25, 2011, non-SD/MSP counterparties will already be required to
normalize the data for those swaps to the minimum PET data tables, and
the burdens associated with this task are addressed in the discussion
of reporting burdens below; however, the recordkeeping requirements of
section 46.2 do not require non-SD/MSP counterparties to retroactively
revise or recreate data for those swaps. Non-SD/MSP counterparties will
therefore not be required to manipulate, move, or update swap records
in any way to comply with the recordkeeping requirements of the final
rule; accordingly, the Commission believes that the recordkeeping
requirements of this final rule will not impose costs on non-SD/MSP
counterparties.\57\
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\56\ The proposed rule estimated an average one-time per-entity
burden of 40 hours (for SD/MSP reporting counterparties) and 10
hours (for non-SD/MSP counterparties). These estimates have been
revised following additional research by OCE staff and consultation
with staff in the Commission's Office of Data and Technology.
\57\ The Commission estimates that the percentage of non-SD/MSP
counterparties that will contract with a third-party service
provider to perform this function will likely be very low, given
that the Commission has estimated that the recordkeeping
requirements of section 46.2 would not impose costs on non-SD/MSP
counterparties, which would not be required to manipulate, move, or
update records, and would therefore not present a burden that could
be more efficiently satisfied by contracting with a third-party
service provider. Nevertheless, the Commission recognizes that some
non-SD/MSP counterparties may contract with third-party service
providers for a variety of regulatory compliance services, and may
elect to engage a third-party service provider to manage its
historical swap records, either as an individual service to satisfy
the recordkeeping requirements of section 46.2, as part of a broader
set of data management services for regulatory compliance, or to
otherwise facilitate its own internal recordkeeping.
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With respect to SDs and MSPs (an estimated 125 entities or
persons),\58\ which will have higher levels of swap recording activity
\59\ than non-SD/MSP counterparties, the Commission estimates that this
requirement would impose an initial non-recurring burden of 335 hours
per SD/MSP reporting counterparty at a cost of $22,172, equating to an
aggregate estimated one-time burden of 41,875 hours at a cost of
$2,771,500 for all SD/MSP reporting counterparties. The Commission also
estimates that Sec. 46.2 will result in retrieval costs for swap
counterparties that do not currently have the ability to retrieve
records within the required timeframe. The Commission expects that this
requirement will present costs to registered entities and swap
counterparties in the form of non-recurring investments in
technological systems and personnel associated with establishing data
retrieval processes, and recurring expenses associated with the actual
retrieval of swap data records. These same costs (including non-
recurring investments in technological
[[Page 35216]]
systems and personnel associated with establishing data storage and
retrieval systems, and recurring expenses associated with data storage
and retrieval, and maintenance of data storage systems), however, are
required to comply with the requirements of part 45. Accordingly, they
are not incremental to, and inappropriate for, consideration in this
rulemaking.\60\
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\58\ The Commission previously estimated that as many as 250 SDs
and 50 MSPs would register. After recently receiving additional
information, particularly a letter from Thomas Sexton, NFA Senior
Vice President and General Counsel to Gary Barnett, Director of the
Division of Swap Dealer and Intermediary Oversight, the Commission
is revising its estimate downward. Accordingly, the Commission now
believes that approximately 125 Swaps Entities, including only a
handful of MSPs, will register with the Commission as SDs or MSPs.
\59\ For purposes of this Paperwork Reduction Act analysis, the
Commission estimates that ``high activity'' entities or persons are
those who process or enter into hundreds or thousands of swaps per
week that are subject to the jurisdiction of the Commission. Low
activity users would be those who process or enter into
substantially fewer than the high activity users.
\60\ These are one-time recordkeeping costs, which necessarily
take place in the period prior to the compliance date. For the
purposes of this rulemaking, the Commission has considered only the
one-time costs associated with recordkeeping; as noted in the Part
46 Consideration of Costs and Benefits section, the forward-looking
(recurring) costs associated with recordkeeping are already covered
by the recurring costs of recordkeeping enumerated in the Part 45
Consideration of Costs and Benefits section. See Final Data Rules,
77 FR 2136, 2171.
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5. Reporting Burdens
Sections 46.3, 46.4, 46.8, 46.10 and 46.11. Pursuant to Sec. Sec.
46.3 and 46.4, each historical swap in existence on or after April 25,
2011 will be reported to an SDR electronically [on or before the
applicable compliance date], or to the Commission if no SDR accepts
such a swap under Sec. 46.8. The initial data report must contain all
of the minimum primary economic terms data listed in Appendix 1 that
were in the possession of the reporting counterparty on or after April
25, 2011, the legal entity identifier of the reporting counterparty,
the internal counterparty identifier used by the reporting counterparty
to identify the non-reporting counterparty, and the internal
transaction identifier used by the reporting counterparty to identify
the swap. For each such swap that remains in existence after the
compliance date, the reporting counterparty must report swap
continuation data as provided in part 45 of this chapter, with the
exception that such reports need only include changes to the minimum
primary economic terms listed in Appendix 1 to this part, rather than
changes to the larger list of primary economic terms provided in part
45. Continuation data must be reported to the same SDR which received
the initial data report. In parallel with part 45 of this chapter, the
final rule provides that multi-asset historical swaps must be reported
to a single SDR that accepts swaps in the asset class that is treated
as the primary asset class involved in the swap by the reporting
counterparty; and provides that mixed historical swaps must be reported
to an SDR or security-based SDR registered with both the Commission and
the SEC.
For historical swaps that expired prior to April 25, 2011, the
final rules require that counterparties report to a SDR on the
compliance date such information relating to the terms of the
transaction as was in the counterparty's possession on or after the
publication date of the relevant Interim Final Rule (October 14, 2010
for pre-enactment swaps and December 17, 2010 in the case of transition
swaps.) This information may be reported via any method selected by the
reporting counterparty. The Commission has not calculated the burden
for this requirement to the extent the Commission has previously
calculated such burden in the PRA analyses for the Interim Final Rule
covering ``pre-enactment swaps'' and ``transition swaps.''
For historical swaps still in existence on or after April 25, 2011,
the Commission anticipates that the reporting required by Sec. Sec.
46.3 and 46.4 will to a significant extent be automatically completed
by electronic computer systems; the following burden hours are
calculated based on the annual burden hours necessary to oversee,
maintain, and utilize the reporting functionality. SDs and MSPs (an
estimated 125 entities or persons) are anticipated to have high levels
of reporting activity; the Commission estimates that their average one-
time burden may be approximately 285 hours per MSP or SD reporting
counterparty at a cost of $20,169,\61\ equating to an estimated one-
time aggregate burden of 35,625 hours at a cost of $2,521,125 for all
SD/MSP reporting counterparties. The Commission believes that this is a
reasonable assumption due to the volume of swap transactions that will
be processed or entered into by these entities, the varied nature of
the information required to be reported, and the frequency with which
information may be required to be reported.\62\
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\61\ The Commission obtained this estimate in consultation with
the Commission's information technology staff.
\62\ The estimated burden hours have been adjusted from the
proposal. The estimated burden hours were obtained in consultation
with the Commission's information technology staff.
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Non-SD/MSP counterparties who would be required to report--which
presently would include an estimated 1,000 entities \63\--are
anticipated to have lower levels of activity with respect to reporting.
Of those 1,000 non-SD/MSPs, the Commission believes that a majority,
estimated now at 75%, or 750 entities, will contract with third parties
to satisfy their reporting obligations. The identity of such third
parties, the composition of the marketplace for third party services,
and the costs to third parties to provide reporting services given the
economies of scale and scope they may realize in providing those
services are all presently unknowable. Therefore, the Commission does
not believe it is feasibly to quantify the fees charged by third
parties to non-SD/MSPs at the present time, but believes that they will
likely vary with the volume of reports to be made. For those estimated
250 non-SDs/non-MSPs who are required to report swap transaction and
pricing data to an SDR and do not contract with a third party, the
Commission estimates a one-time burden of 55 hours per non-SD/MSP
reporting counterparty at a cost of $4,191, equating to an aggregate
estimated one-time burden of 13,750 hours at a cost of $1,047,750 for
all non-SD/MSP reporting counterparties that do not contract with a
third party.\64\ For swaps unexpired on or after April 25, 2011, the
reporting counterparty shall obtain for itself an LEI as provided in
Sec. 45.6 (or substitute LEI if applicable) and include such
identifier in the relevant initial report. Within 180 days of the
compliance date non-reporting counterparties must provide their LEI (or
substitute if applicable) to the reporting counterparty, which then
must report it to the relevant SDR, as set forth in part 45. Final
Sec. 46.5 sets forth the criteria for determining which counterparty
must report. For unexpired swaps the provisions apply to the current
counterparties as of the compliance date, notwithstanding whether they
were the original counterparties.
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\63\ The estimated burden hours have been adjusted from the
proposal. This is the estimated number of non-SD/MSP counterparties
who will be required to report in a given year. Only one
counterparty to a swap is required to report, typically an SD or a
MSP as determined by Sec. 45.8. Therefore, a non-SD/MSP
counterparty that is in a swap with an SD or MSP counterparty will
not be subject to the reporting obligations of Sec. Sec. 45.3 and
45.4.
\64\ In the event that all estimated 1,000 non-SD/MSP reporting
counterparties elect to perform their reporting functions
themselves, rather than contract with a third-party service
provider, the aggregate burden would be 55,000 hours at a cost of
$4,191,000.
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Final Sec. 46.9 permits voluntary early submission of the initial
data report (and of subsequent continuation data reports) prior to the
applicable compliance date if a registered SDR is prepared to accept
the reports and Sec. 46.10 require that each counterparty use the
``facilities, methods, or data standards provided for or required by''
the SDR to which the counterparty reports the data. Final Sec. 46.11
also requires that corrections be reported ``as soon as technologically
practicable'' to the applicable SDR in the same format that data was
reported erroneously or omitted. It provides that reporting
counterparties who report state data can report error corrections by
updating
[[Page 35217]]
their next daily report. Recordkeeping and reporting requirements that
exist after compliance dates and those of Sec. Sec. 46.9, 46.10 and
46.11 are covered by other rulemakings for which the Commission
prepared and submitted an information collection request to OMB, the
burdens associated with those requirements are not being accounted for
in the information collection request for this rulemaking.\65\
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\65\ Costs associated with reporting are already covered by the
Part 45 rules. See Data Final Rules, 77 FR 2136, 2171.
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C. Consideration of Costs and Benefits
1. Introduction
The Dodd-Frank Act's swap reporting requirements apply to all swaps
in existence on or after the date of the legislation's enactment.
Previously, in its separate Part 45 rulemaking, the Commission adopted
final rules to implement the data reporting and recordkeeping
requirements for swaps entered into on or after the applicable
compliance date specified in Part 45. This final Part 46 rulemaking
implements the mandate of sections 723 and 729 of the Dodd-Frank Act
\66\ requiring that data be reported to SDRs for historical swaps. In
so doing, the final rule specifies the Commission's recordkeeping
requirements with respect to historical swaps; and specifies the manner
and form for reporting historical swap transaction data to an SDR,
including the identification of entities and transactions through
unique identifiers.
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\66\ These sections established new sections 2(h)(5) and
4r(a)(2)(A) of the CEA, respectively. This rulemaking is undertaken
to implement those two CEA sections. They are discussed in greater
detail in section [ ], supra, including their interrelationship and
the import of the Commission's October 14, 2010 and December 17,
2010 Part 44 interim final rules.
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As discussed in more detail below, the requirements of Part 46,
working in tandem with Part 45, will enhance swaps market transparency
beyond the level afforded by Part 45 alone; this enriches its value to
regulators for the ultimate benefit of swap market participants and the
general public. More specifically, the benefits of the improved
transparency engendered by this rule include improved regulatory
oversight of markets (with respect to surveillance, enforcement, and
analysis); improved regulatory understanding of the behavior of swap
market participants; improved regulatory understanding of the
concentrations of risk in swap markets; and greater market integrity.
In addition, the requirements of the regulation, in tandem with the
requirements of Part 45, promote the development of firm-level
infrastructure and practices well-suited to improve market
participants' risk management capabilities. Further, market
participants will be able to use data associated with their own
historical swaps for which continuation data reporting extends past the
Part 45 compliance date to better understand and manage the risk
associated with their swap exposure.
The Commission also recognizes that compliance with these rules
will impose costs. However, because certain non-SD/MSP counterparties
are subject to the Commission's part 45 regulations, which impose swap
data recordkeeping and reporting requirements similar in certain key
respects to those of part 46, the Commission does not consider
expenditures to be costs of this regulation if they are also required
to comply with part 45. These expenditures would only constitute costs
of this final rule, independent of the costs of part 45, in the case of
a market participant that exits the swap market entirely immediately
following the part 45 compliance date.\67\ Such an entity would not be
required to comply with part 45, having no active swap data to report,
but would still be required to report its historical swap data pursuant
to part 46, because it was active during the pre-compliance date time
period affected by this rule. The Commission cannot presently estimate
the number of entities that may exit the swap market immediately after
the compliance date.
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\67\ For discussion of costs of compliance with part 45, see 77
FR 2136 (January 13, 2012) at 2176 et seq.
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The two chief cost-driver categories in this final rulemaking are
recordkeeping and reporting (including unique identifier requirements).
For both categories, the Commission identifies the costs and benefits
of the final rule, discusses comments regarding them, and considers
them in relation to the five broad areas of market and public concern
as required by section 15(a) of the CEA.
a. Section 15(a) of the CEA
Section 15(a) of the CEA \68\ requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing an order. Section 15(a) further specifies that
the costs and benefits shall be evaluated in light of the following
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations. Accordingly, the Commission considers is the costs and
benefits resulting from its discretionary determinations with respect
to the Section 15(a) factors.
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\68\ 7 U.S.C. 19(a).
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b. Cost Estimation Methodology
In the NOPR, the Commission asked for public comment on the costs
and benefits of the proposed regulations, and specifically invited
commenters ``to submit any data or other information that they may have
quantifying or qualifying the costs and benefits'' of the proposed
requirements.\69\ The Commission also asked for comments on the overall
costs and benefits of the proposed rules implementing the Dodd-Frank
Act.\70\ The Commission received numerous comments addressing various
cost and benefit considerations of the proposed rule, including several
that recommended alternatives, but none provided data from which the
costs and benefits of the rule could be quantified. Nevertheless, the
Commission has endeavored to estimate quantifiable costs and benefits
of the final rule where possible.\71\ Where estimation or
quantification is not feasible, the Commission provides a qualitative
assessment of the costs and benefits.
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\69\ 75 FR 76574 (December 8, 2010), at 76597.
\70\ Id.
\71\ The Commission made these estimates in consultation with
experts on its information technology staff through a collaborative
process that involved determining the types of personnel needed to
complete each aspect of the tasks necessary for compliance,
determining the number of hours required of each of those personnel
types, and comparing the burden estimates for separate tasks to
identify and eliminate any redundancies.
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The Part 46 final rules will affect three types of market
participants, including SD/MSP counterparties, non-SD/MSP
counterparties, and SDRs. To serve as the reference point for
estimating the costs of these rules to non-SD/MSP counterparties, the
Commission selected a non-SD/MSP counterparty that is not a financial
entity as defined in CEA section (2)(h)(7)(C).\72\
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\72\ To aid in cost estimates, the Commission at times has used
wage rate estimates compiled by the Securities Industry and
Financial Markets Association (``SIFMA''). These wage estimates are
derived from a securities industry-wide survey of participants and
thus reflect an average across entities; the Commission notes that
the actual costs for any individual company or sector may differ.
The Commission estimated the dollar costs of hourly burdens for
each type of professional using the following calculations:
(5) [(2009 salary + bonus) * (salary growth per professional
type, 2009-2010)] = Estimated 2010 total annual compensation. The
most recent data provided by the SIFMA report describe the 2009
total compensation (salary + bonus) by professional type, the growth
in base salary from 2009 to 2010 for each professional type, and the
2010 base salary for each professional type; using this, the
Commission estimated the 2010 total compensation for each
professional type. In the absence of similar data for 2011 and
beyond, the Commission did not estimate dollar costs beyond 2010.
(6) [(Estimated 2010 total annual compensation)/(1,800 annual
work hours)] = Hourly wage per professional type.
(7) [(Hourly wage) * (Adjustment factor for overhead and other
benefits, which the Commission has estimated to be 1.3)] = Adjusted
hourly wage per professional type.
(8) [(Adjusted hourly wage) * (Estimated hour burden for
compliance)] = Dollar cost of compliance for each hour burden
estimate per professional type.
The sum of each of these calculations for all professional types
involved in compliance with a given element of the final rule
represents the total cost for each counterparty, reporting party,
SD, MSP, SEF, DCM, or SDR, as applicable to that element of the
final rule.
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[[Page 35218]]
The Commission expects that the actual costs to established market
participants will often be lower than this reference point--perhaps
significantly so, depending on the extent to which swap counterparties
currently format, organize, and store swap transaction data that would
be reported as historical swap data pursuant to this final rule.
To address costs specific to SDRs, the Commission has estimated the
incremental costs SDRs would incur to comply with the reporting and
recordkeeping requirements of this rulemaking above the base operating
costs for SDRs to comply with part 45 regulations.\73\
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\73\ Again, because these costs have been considered in the
context of the part 45 rulemaking, to reconsider them in this
rulemaking would double-count them.
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2. Recordkeeping
a. Summary of Final Rule
The final rule requires counterparties to a historical swap in
existence on or after April 25, 2011 to keep records of the minimum
primary economic terms data specified in the Appendix to the rule, as
well as copies (if they have them) of confirmation documentation,
master agreements, credit support or similar agreements. If the swap
remains unexpired after the applicable compliance date, counterparties
must also keep any records required by section 45.2 of this chapter.
Non-SD counterparties may keep records in either paper or electronic
form so long as they are retrievable and reportable as required, while
SD or MSP counterparties must keep electronic records unless their
paper records were originally created and are exclusively maintained in
paper form. Records kept by SDs and MSPs must be readily accessible
during the existence of the swap and for two years thereafter, and be
retrievable within three business days during the remainder of the
retention period, while records kept by non-SD/MSP counterparties must
be retrievable within five business days throughout the retention
period.
For historical swaps that expired prior to April 25, 2011, each
counterparty must retain the information and documents relating to the
terms of the transaction that were in its possession on or after the
date of the relevant Interim Final Rule (October 14, 2010 for pre-
enactment swaps and December 17, 2010 for transition swaps). The final
rule does not require counterparties to create or retain records of
information regarding such swaps that was not in their possession as of
those dates, or to alter how the records are organized or stored.
For all historical swaps, the final rule requires retention of
records throughout the existence of the swap and for five years
following expiration of the swap.
b. Benefits
By providing for the collection and retention of historical swap
data (as well as its reporting), part 46 ensures the availability of
data that will enhance the transparency of the swap markets. The
Commission believes that improved swap market transparency (including
transparency with respect to the historical swap transaction activity
subject to Part 46's recordkeeping requirements) is important to the
Commission's efforts to better identify, assess, and respond to risks,
including systemic risks that swaps market may pose for market
participants and the public in the future. The recordkeeping
requirements of part 46 will increase the Commission's and other
regulatory agencies' visibility into the activities and exposures of
swap market participants and the dynamics of the swap market at large.
This serves the public interest in effective regulatory enforcement.
These recordkeeping requirements will enable Commission oversight and
enforcement staff to reconstruct a comprehensive, sequenced record of
swap transactions active between the enactment of the Dodd-Frank Act
and this final rule's compliance date. This data is necessary to
effectively monitor and investigate activities that could compromise
the integrity of swap markets. Additionally, the presence of an
effective monitoring and investigation regime may deter parties from
engaging in behavior that undermines the integrity of swap markets.
In addition, the requirement to retain historical swap records for
five years provides substantial benefit to market participants and the
public because it affords the Commission the capability to analyze
market trends through time-series analysis for a reasonable period of
time in the future. This in turn enhances the Commission's ability to
efficiently regulate the markets subject to its jurisdiction. A swap
can continue to exist for a substantial period of time prior to its
final termination or expiration, and key economic terms of the swap can
change during this time. Thus, recordkeeping requirements with respect
to a swap must necessarily cover the entire period of time during which
the swap exists, as well as an appropriate period following final
termination or expiration of the swap. A five-year retention period
following termination of the swap also will ensure document retention
consistent with the information that the Commission needs to carry out
its oversight and enforcement responsibilities. It parallels the
Commission's existing five-year record retention requirement in the
context of futures and is consistent with the Commission's final part
49 rules regarding SDR registration. The identical retention periods
provided in parts 45 and 46 will ensure that a single, comprehensive
record is produced in the event that regulators require a data set
spanning both Part 45 and Part 46 data. Additionally, data collected on
swap market activity both before and after the compliance date of part
45 and part 46 will be available to inform any pre/post-Dodd-Frank Act
comparative analysis that might be performed in the future. Part 46
data would provide the starting point for such an assessment.
c. Costs
The Commission believes that the incremental\74\ costs to comply
with the recordkeeping requirements of this part are limited to those
related to historical swap data storage. The rules do not require
counterparties to recreate data that does not presently exist, and thus
imposes no costs in this respect.\75\
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\74\ Swap counterparties that currently do not retain historical
swap records for the period of time and in the form required by this
final rule will incur costs to comply with these requirements. These
same costs (including non-recurring investments in technological
systems and personnel associated with establishing data storage and
retrieval systems, and recurring expenses associated with data
storage and retrieval, and maintenance of data storage systems),
however, are required to comply with the requirements of part 45.
Accordingly, they are not incremental to, and inappropriate for,
consideration in this rulemaking.
\75\ For pre-enactment swaps, the rule allows swap
counterparties to retain swap data in whatever form it currently
exists. For transition swaps, the rule only requires the retention
of data to populate the minimum PET data tables for swaps that were
in existence after the issuance of the proposed rule.
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[[Page 35219]]
The Commission believes that any incremental costs will be incurred
primarily by SD/MSP swap counterparties, which are required to retain
historical swap data according to the format and retrieval requirements
of Sec. 46.2. The costs to SDRs of retaining historical swap data
reported by swap counterparties pursuant to this final rule will be
addressed in the discussion of the costs and benefits of reporting
historical swap data in this Consideration of Costs and Benefits.
Historical swap data storage. The Commission believes that storing
historical swap data for the period of time required by this final rule
will impose a one-time burden on swap counterparties associated with
gathering and transferring the historical swap data onto a server for
secure storage.\76\
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\76\ While swap counterparties also may have costs to maintain
data storage infrastructure and/or costs to require the necessary
data retrieval ability, these costs duplicate those that would be
incurred to comply with part 45. Accordingly, they are not
incremental to, and appropriate for, consideration in this
rulemaking.
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Non-SD/MSP counterparties are permitted by the rule to keep records
in either electronic or paper form at their discretion, so as to
eliminate the burden of gathering and transferring historical swap data
for recordkeeping. To satisfy the recordkeeping provision of this final
rule, non-SD/MSP counterparties can simply retain their records as and
wherever they currently exist.
For SD/MSPs, the Commission estimates a one-time burden of 335
hours per SD/MSP counterparty\77\ at an estimated cost of $22,172.\78\
The Commission anticipates that SD/MSPs will likely be required to
process a larger volume of historical swap data than non-SD/MSPs,
though many may be able to leverage existing technology and personnel
expertise to reduce the burden to perform this function.
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\77\ The costs of historical swap data storage were estimated
based on the costs to SD/MSPs that decide not to contract with a
third party to comply with the recordkeeping requirements of Part
46. See ``Overview of Cost Calculations.'' This estimate is
calculated as follows: [(Computer Operations Supervisor at 80 hours)
+ (Computer Operations Group/Section Manager at 80 hours) +
(Computer Operations Department Manager at 40 hours) + (Sr. Database
Administrator at 40 hours) + (Programmer at 40 hours) + (Systems
Analyst at 20 hours) + (Compliance Manager at 10 hours) + (Director
of Compliance at 5 hours) + (Compliance Attorney at 20 hours)] = 335
hours per SD/MSP counterparty; [(335 hours per SD/MSP) x (125 SD/
MSPs) = 41,875 aggregate hours. The Commission believes that
information on swap transactions is currently being retained by many
market participants in the ordinary course of business, which may
result in lesser burden for those parties.
\78\ See Table 2.
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d. Comments, Alternatives, and Cost Mitigation
Recordkeeping for historical swaps in existence on or after April
25, 2011. The Commission received several comments related to the costs
of recordkeeping for swaps in existence on or after April 25, 2011.
COPE supported the NOPR provision that limited the records required to
be kept for such swaps to the minimum PET data specified in the NOPR
Appendix (plus any confirmation, master agreement, or credit support
agreement that the counterparty has), stating this is a reasonable
requirement. COPE added that the specified PET data elements reflect
the commercially relevant terms typically retained by swap
counterparties, although a counterparty involved in few swaps might not
retain all of this data in the ordinary course of its business. ETA
also supported the requirement to keep records of the specified minimum
PET data, stating that it believes all or most counterparties will have
this data, although it could not be certain that all smaller non-
financial entities in the energy sector will have all of it.
As noted above, ISDA and Global Forex requested that the Commission
eliminate the time of trade from the NOPR's required PET data, arguing
that including the time of trade would require some participants to
retroactively create data they do not possess. FSR stated that its
members have made best efforts to comply with the interim final rules
for historical swaps by retaining the records in their possession, but
that they do not necessarily have all of the required minimum PET data.
The specific concerns FSR raised include identifying the settlement
agent for pre-enactment currency swaps, and having data for pre-
enactment swaps that were acquired through merger or acquisition.
The Commission made two important modifications in the final rule
in an effort to address these comments and mitigate the costs of the
final rule while achieve the same regulatory benefits.
First, as discussed above, the final rule requires counterparties
to keep records of only the minimum PET data specified in Appendix 1
that was in their possession as of publication of the NOPR, which gave
notice of what records would be required. The Commission believes that
this will reduce costs and burdens associated with recordkeeping by
counterparties to historical swaps to the extent consistent with
ensuring the availability of swap data needed to fulfill the purposes
of the Dodd-Frank Act.
Second, as discussed above, the final rule will require reporting
the date of execution for a historical swap, and require reporting the
time of execution only if that time was recorded when the trade was
executed and is known to the reporting counterparty on or after April
25, 2011, the NOPR publication date. As noted above, the Commission
believes that it would be undesirable for counterparties who did not
record the execution time when a historical swap was executed to
attempt to assign an execution time retroactively.
Recordkeeping for historical swaps expired prior to April 25, 2011.
ISDA noted that, for historical swaps expired prior to the publication
date of the NOPR, the NOPR does not require parties to alter the format
in which they already retain records concerning such swaps. ISDA asked
the Commission to clarify whether this requirement allowed
counterparties to keep records in the form already used. Similarly,
WGCEF requested clarification that keeping records in the form in which
they are already retained will be acceptable to the Commission for all
historical swaps.
As discussed above, and in order to achieve the benefits of the
rule, the Commission has determined that the final rule should retain
the NOPR provisions concerning limited recordkeeping for such swaps,
which required counterparties to keep only the information and
documents concerning such swaps that were in their possession on or
after the publication date of the applicable Interim Final Rule. The
final rule provides that counterparties may keep such records in any
format they choose. The retrievability requirement for all
counterparties to such swaps will require counterparties to be able to
retrieve such records within five business days throughout the
retention period, rather than to keep records readily accessible for
part of the retention period or to be able to retrieve records within
three business days, as provided in the NOPR. This reduced
retrievability requirement is designed to further reduce costs and
burdens for counterparties to historical swaps that have expired prior
to April 25, 2011.
e. Recordkeeping in Light of CEA Section 15(a)
The Commission has evaluated the benefits of the recordkeeping
provisions of this part in light of the specific considerations
identified in section 15(a) of the CEA as follows:
Protection of market participants and the public. The Commission
believes that the recordkeeping requirements in
[[Page 35220]]
the final rule protect market participants and the public by improving
the ability of the Commission and other regulatory agencies to fulfill
their oversight and enforcement responsibilities, and contributing to
improved transparency necessary to identify and assess risks that swaps
markets may pose.
The record retention periods in the final rule are consistent with
both the Commission's existing retention requirement in the context of
futures, pursuant to Commission Regulation 1.31, and with applicable
statutes of limitation. A general five-year record retention
requirement helps assure the Commission ready access to records and
data essential to its mission to protect market participants and the
public from violations of the CEA and Commission regulations. For
example, records retained pursuant to Part 46 will enable Commission
staff to reconstruct a comprehensive, sequenced record of swap
transactions active during the window between statutory enactment and
the final rule's compliance date for purposes of analysis;
investigation; and, if appropriate, prosecution of an enforcement
action.
Moreover, by providing for the collection and retention of
historical swap data (as well as its reporting), Part 46 assures that
data valuable to enrich the depth and perspective of regulators'
understanding of swap markets over time is available for reporting and
regulatory analysis. In this way, historical recordkeeping requirements
serve an important role in counteracting the swap market opacity and
potential for under-appreciation of systemic risk that contributed to
the financial crisis of 2008. The Commission believes that improved
swap market transparency (including transparency with respect to the
historical swap transaction activity subject to Part 46's recordkeeping
requirements) is critical to the Commission's efforts to better
identify, assess, and respond to risks that swap markets may pose for
market participants and the public in the future.
Efficiency, competitiveness, and financial integrity. This rule
promotes efficiency and competitiveness. The historical swaps
transaction data subject to these recordkeeping requirements will
provide a basis for comparative assessments of the swap markets that
might be conducted in the future (including potential comparative
assessments of market efficiency and competitiveness \79\). In
addition, electronic recordkeeping, which will aid required electronic
reporting, may improve efficiency and reduce initiation and maintenance
costs in the future.
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\79\ For example, such assessments may compare measures such as
the concentration of swap activity by type of market participant,
the volumes of cleared and uncleared swap transactions, or the
effective cost to the user of engaging in similar swap transactions
in the pre- and post-compliance marketplace.
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Further, the Commission believes that the final Part 46
recordkeeping requirements promote swap market financial integrity. As
previously discussed, the Commission believes that historical swap
transaction data as collected and retained under these final rules will
aid it in effective swap market oversight and legal enforcement,
including by helping to assure the availability of records needed to
monitor and investigate market abuses. Also, by ensuring a data pool
that provides historical swap transaction transparency to better inform
regulators' swap market analysis, the recordkeeping requirements serve
an important role in counteracting swap market opacity that, as
evidenced in the 2008 financial crisis, may contribute to a loss of
confidence in market integrity.
The Commission does not believe that costs of these recordkeeping
requirements will impede swaps market efficiency, competitiveness, or
integrity.
Price discovery. The Commission does not believe that this
requirement has a significant effect on the price discovery process.
Sound risk management practices. The Commission believes that the
final rule's recordkeeping requirements, in tandem with the
recordkeeping requirements of Part 45, will serve to improve the
soundness of the risk management practices of market participants. The
Commission is essentially requiring the maintenance of accurate records
in a manner that makes them appropriately available for reproduction to
regulators. Market participants may leverage the highly organized and
streamlined internal records system they will possess in order to
comply with Parts 45 and 46 for an ancillary risk management benefit;
the system will be useful for analysis and for development of enhanced
risk management practices.\80\ The cost of implementation of the
recordkeeping rule may be partially compensated by error avoidance and
the mitigation of internal risk.
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\80\ The Commission notes that non-SD/MSP counterparties will be
able to retain either electronic or paper records at their
discretion; if paper rather than electronic records are retained,
this system will not be necessary for compliance, and thus this
ancillary risk management benefit will not apply.
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3. Reporting
a. Summary of Final Rule
The final rule requires that each historical swap in existence on
or after April 25, 2011 be reported to a SDR electronically on or
before the applicable compliance date. The initial data report must
contain all of the minimum primary economic terms data listed in
Appendix 1 that were in the possession of the reporting counterparty on
or after April 25, 2011, the legal entity identifier of the reporting
counterparty, the internal counterparty identifier used by the
reporting counterparty to identify the non-reporting counterparty, and
the internal transaction identifier used by the reporting counterparty
to identify the swap. For each such swap that remains in existence
after the compliance date, the reporting counterparty must report swap
continuation data as provided in part 45 of this chapter, with the
exception that such reports need only include changes to the minimum
primary economic terms listed in Appendix 1 to this part, rather than
change to the larger list of primary economic terms provided in part
45. Continuation data must be reported to the same SDR that received
the initial data report. In parallel with part 45 of this chapter, the
final rule provides that multi-asset historical swaps must be reported
to a single SDR that accepts swaps in the asset class that is treated
as the primary asset class involved in the swap by the reporting
counterparty, and that mixed historical swaps must be reported to an
SDR or security-based SDR registered with both the Commission and the
SEC.
For historical swaps that expired prior to April 25, 2011, the
final rule requires that counterparties report to an SDR on the
applicable compliance date such information relating to the terms of
the transaction as was in the counterparty's possession on or after the
publication date of the relevant Interim Final Rule (October 14, 2010
for pre-enactment swaps and December 17, 2010 in the case of transition
swaps). This information may be reported via any method selected by the
reporting counterparty.
The rule permits voluntary early submission of the initial data
report (and of subsequent continuation data reports) prior to the
applicable compliance date if a registered SDR is prepared to accept
the reports.
For historical swaps in existence on or after April 25, 2011, by
the applicable compliance date the reporting counterparty must obtain,
report, and provide to its counterparty an LEI as
[[Page 35221]]
provided in part 45. Within 180 days of the applicable compliance date,
the non-reporting counterparty must obtain an LEI and provide it to the
reporting counterparty, which then must report it to the relevant SDR.
The final rule sets forth the criteria for determining which
counterparty must report. For historical swaps in existence on the
applicable compliance date, these provisions apply to the current
counterparties as of the compliance date, notwithstanding whether they
were the original counterparties. If only one counterparty is an SD,
the SD reports. If neither counterparty is an SD and only one is an
MSP, the MSP reports. If both counterparties are non-SD/MSP
counterparties, and only one is a financial entity as defined in CEA
section 2(h)(7)(C), the financial entity reports. If the counterparties
share the same status, the rule requires them to agree which of them is
the reporting counterparty for that swap. If both counterparties are
non-SD/MSP counterparties but only one is a U.S. person, the U.S person
must report. After the initial data report is made, if the reporting
counterparty exits the original transaction (e.g., through an
assignment), the new reporting counterparty will be: The SD (or the MSP
if there is no SD) if only one is present; the U.S. person if both
counterparties are non-SD/MSP counterparties and only one is a U.S.
person; or, in all other cases, the counterparty that replaced the
previous reporting counterparty, unless otherwise agreed by the
counterparties.
The final rule provides for third-party facilitation of reporting.
It also requires that all data for a historical swap must be reported
to the same SDR to which the initial data report is made. It permits
either counterparty to make voluntary supplemental reports (``VSRs''),
to either the same or a different SDR. To provide minimum safeguards
against confusion or double-counting resulting from VSRs, the rule
requires that each VSR must include an indication that it is a VSR, as
well as the SDR identifier created for the swap by the automated
systems of the SDR to which the required, initial data report is made.
The final rule requires the reporting counterparty to use the
facilities, methods, or data standards provided or required by the SDR
to which it reports the data. Corrections must be reported, as soon as
technologically practicable after discovery of an error or omission, to
the same SDR that received the initial data report.
b. Benefits
The Commission believes that the part 46 reporting requirements
will improve regulatory oversight, enforcement, and understanding of
systemic risks.
The Commission's harmonization of the reporting requirements of
this part with those of part 45 will benefit market participants by
enabling reporting counterparties to satisfy the reporting requirements
of both parts in the same way, and avoiding redundant costs that could
be caused by differing reporting requirements.
Historical swap reporting under part 46 also benefits the general
public by supporting the Commission's supervision of the swaps market.
As considered above in the discussion of the benefits of historical
swap recordkeeping in this final rule, the reporting requirements
provide a means for the Commission to gain a better understanding of
the swaps market.
The incorporation of unique identifier requirements within the part
46 reporting regime also provides important benefits to market
participants and the public by enhancing the quality and usability of
the historical swap data that will be provided to the Commission.\81\
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\81\ Unique identifier use also reflects a harmonized approach
between the part 45 and part 46 regulations. Accordingly, historic
swaps will be reported in a consistent fashion with part 45 swaps,
ensuring comparable data for analysis. The use of unique identifiers
also enabled the Commission to allow for historical swap reporting
through a VSR; without unique identifiers, the value and usability
of the data reported in a VSR would be greatly diminished because of
potential double-counting (recording the same transaction from the
reporting counterparty and from the VSR reported by the non-
reporting counterparty), and would not be readily comparable to the
data reported pursuant to Part 45 after the compliance date (which
are required to incorporate unique identifiers).
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The beneficial contributions attributable to the specific unique
identifiers addressed in the final rule, including both SDR identifiers
for VSRs and LEIs, are as follows:
SDR identifiers will facilitate the collating of
various data reports concerning a swap into a single, accurate data
record. Through them it is possible to identify the origins of each
swap as well as events that affect the swap during its existence;
aggregate transaction information without double-counting swaps
reported to different SDRs or to foreign trade repositories, or
reported in VSRs; and create a clear and unified data stream that
spans the pre- and post-part 46 compliance date periods.
Accordingly, the Commission believes they provide a vital tool for
regulatory agencies' analysis of historical swap market data to
better protect market participants and the public from systemic
risk.
LEIs will enhance the ability of the Commission and
other regulatory agencies to oversee swap markets by providing
necessary clarity and cohesion to the swap data used for regulatory
analyses, particularly with regard to clearly understanding the
activities of participants in the pre- and post- part 46 compliance
date periods. Among the benefits of an LEI regime, GFMA identified
more efficient data aggregation; more powerful modeling and risk
analysis; facilitation of information sharing and reconciliation
between regulators; better supervision of cross-border firms and
firms whose business lines are overseen by multiple regulators; and
facilitating identification of affiliates and parent companies. GFMA
also called the LEI regime ``a powerful tool for regulators in
monitoring and managing systemic risks.'' \82\ As recognized in the
CPSS-IOSCO Report on OTC Derivatives Data Reporting and Aggregation
Requirement, which recommends expeditious development of a global
LEI:
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\82\ GFMA, Creating a Global Legal Entity Identifier (LEI)
Standard, September 21, 2001, p. 10. Publicly available at http://www.sifma.org/uploadedfiles/issues/technology_and_operations/legal_entity_identifier/lei-project-summary-slides.pdf.
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[A] standard system of LEIs is an essential tool for aggregation
of OTC derivatives data. An LEI would contribute to the ability of
authorities to fulfill the systemic risk mitigation, transparency,
and market abuse protection goals established by the G20 commitments
related to OTC derivatives, and would benefit efficiency and
transparency in many other areas. As a universally available system
for uniquely identifying legal entities in multiple financial data
applications, LEIs would constitute a global public good.\83\
\83\ CPSS-IOSCO Report on OTC Derivatives Data Reporting and
Aggregation Requirement, August 2011, p.36. Publicly available at
http://www.bis.org/publ/cpss96.pdf.
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c. Costs
Incremental \84\ costs to comply with the reporting requirements of
this part
[[Page 35222]]
will be incurred only by reporting counterparties for historical swaps,
most of whom will be SDs or MSPs. The reporting requirements of the
final rule apply only to reporting counterparties. They will incur
costs associated with normalizing required PET data for historical
swaps in existence on or after April 25, 2011 in data fields for
electronic reporting, and obtaining LEIs and including them in reported
data as required by the rule. SDRs will incur costs for data receipt
and storage. The SDR identifiers used to provide a safeguard against
confusion and double-counting of historical swaps in the context of
VSRs will be created automatically by the automated systems of SDRs
when they receive the initial data report for a historical swap and
transmit that identifier to the counterparties to the swap in the
normal course of their business. SDRs are already required by part 45
to have the systems and personnel necessary to create unique swap
identifiers, and the creation of SDR identifiers by SDR automated
systems will not impose any additional costs in these respects due to
the requirements of part 46.
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\84\ Swap counterparties that have not previously established a
reporting infrastructure, including connectivity to an SDR (or the
Commission in the absence of an SDR that collects data for a given
asset class), will incur costs to comply with these requirements.
The Commission anticipates, however, that swap counterparties will
satisfy the reporting requirements of part 46 with a single, non-
recurring transmission of data to an SDR occurring at the same time
and through the same mechanism as its initial transmission of swap
creation and continuation data pursuant to part 45. Thus, the costs
(including non-recurring investments to train personnel, implement
data reporting technology, and establish the required data
connectivity; and recurring expenses associated with personnel hours
and maintenance of the data reporting technology infrastructure), to
comply with part 46 are already necessitated by part 45 and were
considered in that rulemaking. Accordingly, they are not incremental
to, and inappropriate for, consideration in this rulemaking.
Similarly, swap counterparties will experience a one-time cost
to format swap records subject to part 46 and part 45 to the same
minimum PET data tables required in both regulations. Because these
costs were considered previously in the part 45 rulemaking, they are
not incremental to, and inappropriate for, consideration in this
rulemaking.
SDRs will also incur recurring costs to maintain their data
storage infrastructure. Since the same SDR infrastructure expectedly
will support storage activities under part 45, however, the
Commission believes that the same maintenance activities undertaken
to support part 45 will support part 46. Because these costs were
considered previously in the part 45 rulemaking, they are not
incremental to, and inappropriate for, consideration in this
rulemaking.
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Normalizing data for electronic reporting. The Commission
anticipates that formatting transition swaps to populate the minimum
PET data tables would impose a one-time burden on swap counterparties
associated with the manipulation of the electronic files from their
existing form to the form required by the final rule. For SDs and MSPs,
the Commission estimates a one-time burden of 285 hours per SD or MSP
counterparty \85\ at an estimated cost of $20,169.\86\ For non-SD/MSPs,
the Commission estimates a one-time burden of 55 hours per non-SD/MSP
counterparty \87\ at an estimated cost of $4,191.\88\ The Commission
estimates that this requirement will present a larger burden for SD and
MSP counterparties than for non-SD/MSP counterparties, because SDs and
MSPs are likely to be required to process a larger volume of historical
swap data. The Commission notes that this burden may be reduced for
swap counterparties, especially SDs or MSPs that are able to leverage
existing technology and personnel expertise to perform this function.
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\85\ The costs of normalizing data for historical swaps in
existence on or after April 25, 2011 in data fields for electronic
reporting were estimated based on the costs to SD/MSPs that decide
not to contract with a third party to comply with the recordkeeping
requirements of Part 46. See ``Overview of Cost Calculations.'' This
estimate is calculated as follows: [(Sr. Database Administrator at
80 hours) + (Programmer at 80 hours) + (Systems Analyst at 80 hours)
+ (Compliance Manager at 20 hours) + (Director of Compliance at 5
hours) + (Compliance Attorney at 20 hours)] = 285 hours per SD/MSP
counterparty; [(285 hours per SD/MSP) x (125 SD/MSPs) = 35,625
aggregate hours. The Commission believes that information on swap
transactions is currently being retained by many market participants
in the ordinary course of business, which may result in lesser
burden for those parties.
\86\ See Table 1.
\87\ The costs of formatting transition swaps for storage were
estimated based on the costs to non-SD/MSPs that decide not to
contract with a third party to comply with the recordkeeping
requirements of Part 46. See ``Overview of Cost Calculations.'' This
estimate is calculated as follows: [(Compliance Manager at 10 hours)
+ (Director of Compliance at 5 hours) + (Compliance Attorney at 20
hours) + (Compliance Clerk at 20 hours)] = 55 hours per non-SD/MSP
counterparty; [(55 hours per non-SD/MSP) x (1,000 non-SD/MSPs) =
55,000 aggregate hours. The Commission believes that information on
swap transactions is currently being retained by many market
participants in the ordinary course of business, which may result in
lesser burden for those parties.
\88\ See Table 1.
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Applying unique identifiers. The Commission anticipates that
including LEIs in historical swap data, as required by this final rule,
would impose a one-time burden on swap counterparties associated with
reviewing the subset of historical swap data and appending the LEIs.
The Commission believes that it may be possible to achieve a high
degree of automation or computer-assisted processing for the task of
reporting the LEI and adding it to the historical swap data files in
storage.
For SD and MSP reporting counterparties, the Commission estimates a
one-time burden of 440 hours per SD or MSP reporting counterparty \89\
at an estimated cost of $29,681.\90\ For non-SD/MSP reporting
counterparties, the Commission estimates a one-time burden of 220 hours
per non-SD/MSP reporting counterparty \91\ at an estimated cost of
$18,481.\92\ The Commission estimates that this requirement will
present a larger burden for SDs and MSPs than for non-SD/MSP reporting
counterparties because SDs and MSPs are likely to be required to
process a larger volume of historical swap data. The Commission notes
that this burden may be reduced for swap counterparties, especially SDs
or MSPs that are able to leverage existing technology and personnel
expertise to perform this function.
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\89\ The costs of applying unique identifiers to historical swap
data were estimated based on the costs to SD/MSPs that decide not to
contract with a third party to comply with the recordkeeping/
reporting requirements of Part 46. See ``Overview of Cost
Calculations.'' This estimate is calculated as follows: [(Sr.
Database Administrator at 80 hours) + (Programmer at 160 hours) +
(Systems Analyst at 160 hours) + (Compliance Manager at 20 hours) +
(Director of Compliance at 10 hours) + (Compliance Attorney at 10
hours)] = 440 hours per SD/MSP counterparty; [(440 hours per SD/MSP)
x (125 SD/MSPs) = 55,000 aggregate hours. The Commission believes
that information on swap transactions is currently being retained by
many market participants in the ordinary course of business, which
may result in lesser burden for those parties.
\90\ See Table 3. The Commission notes that while tasks required
for compliance with the unique identifier requirements of this rule
may ultimately overlap to some extent with the tasks required for
compliance with the unique identifier requirements of part 45, the
Commission believes that the process of appending a unique
identifier to historical data submissions will be substantially
different than the process of incorporating a unique identifier into
the submissions of active swaps from a technological implementation
perspective, and has therefore estimated the burden of the two
processes separately. The Commission notes that, in the event that
SD/MSP counterparties find it practical to combine duplicative
elements of the two task (for example, writing a single program to
process both historical and active swaps), the burden of compliance
with the unique identifier requirements of this rule may be reduced
for those entities.
\91\ The costs of applying unique identifiers to historical swap
data were estimated based on the costs to non-SD/MSPs that decide
not to contract with a third party to comply with the recordkeeping
requirements of Part 46. See ``Overview of Cost Calculations.'' This
estimate is calculated as follows: [(Sr. Database Administrator at
40 hours) + (Programmer at 80 hours) + (Systems Analyst at 80 hours)
+ (Compliance Manager at 10 hours) + (Director of Compliance at 5
hours) + (Compliance Attorney at 5 hours)] = 220 hours per non-SD/
MSP counterparty; [(220 hours per non-SD/MSP) x (1,000 non-SD/MSPs)
= 220,000 aggregate hours. The Commission believes that information
on swap transactions is currently being retained by many market
participants in the ordinary course of business, which may result in
lesser burden for those parties.
\92\ See Table 3.
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Receiving and storing data. The Commission believes that receiving
and storing historical swap data, as required by this final rule, would
impose a one-time burden on SDRs associated with importing, examining/
approving, and organizing/storing the historical swap data. The
Commission anticipates that this incremental burden will involve the
additional usage of the processes and personnel time and expertise
necessary for receiving the stream of swap data reported by market
participants for Part 45 compliance.
The Commission anticipates that some aspects of this task, such as
programming a code to process historical swap data, will require manual
intervention; for other aspects of this task, such as submitting the
code and updating the historical swap data files in storage, it may be
possible to achieve a high degree of automation or computer-assisted
processing. Furthermore, the Commission notes that this burden may be
further reduced to an extent dependent on the ability of an
[[Page 35223]]
SDR to leverage existing technology and personnel expertise to perform
this function. Finally, the Commission notes that SDRs will be required
by Part 45 to have the automated technological systems in place to
assign SDR identifiers to swap data; therefore, assigning SDR
identifiers to VSRs should not impose costs on SDRS. The Commission
estimates a one-time burden of 460 hours per SDR \93\ at a cost of
$29,882 \94\ for receiving and storing historical swap data.
---------------------------------------------------------------------------
\93\ The costs of receiving and storing historical swap data
were estimated based on the costs to SDRs. See ``Overview of Cost
Calculations.'' This estimate is calculated as follows: [(Computer
Operations Supervisor at 80 hours) + (Computer Operations Group/
Section Manager at 80 hours) + (Computer Operations Department
Manager at 20 hours) + (Sr. Database Administrator at 80 hours) +
(Programmer at 80 hours) + (Systems Analyst at 80 hours) +
(Compliance Manager at 20 hours) + (Director of Compliance at 10
hours) + (Compliance Attorney at 10 hours)] = 460 hours per SDR;
[(460 hours per SDR) x (15 SDRs) = 6,900 aggregate hours.
\94\ See Table 4.
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d. Comments, Alternatives, and Cost Mitigation
Parties required to report certain historical swap data. Numerous
commenters urged the Commission to phase in swap data reporting by both
asset class and counterparty type. The Financial Services Roundtable
recommended a phased implementation timeline based on a participant's
level of sophistication, resources and swap trading volume. Global
Forex advocated phased implementation of reporting that takes into
account both the readiness of a particular asset class for reporting
and the type of reporting counterparty involved. ETA urged that
reporting be phased in by asset class and product type, and noted that
one or more SDRs must be prepared to accept data for an asset class
before effective reporting can begin. ETA also advocated beginning
reporting by SDs and MSPs before non-SD/MSP counterparties are required
to report. ISDA called for reporting to be phased in based on the state
of readiness of different asset classes and market participant types.
After considering these comments, the Commission made a number of
modifications in the final rule. The final rule phases in the start of
reporting by counterparty type, by setting the compliance date for non-
SD/MSP reporting counterparties six months after the compliance date
for SDs and MSPs. The Commission believes that this approach reduces
the costs of compliance for reporting counterparties that are likely to
be smaller or less technologically sophisticated, while retaining the
essential benefits of receiving historical swap transaction data from
all swap market participants. This approach parallels that of the part
45 rulemaking, which recognized the appropriateness of a phase-in
period for non-SD/MSP counterparties.
ETA urged that non-SD/MSP reporting counterparties not be required
to report continuation data, arguing that transactions not involving
SDs and MSPs represent only a small portion of the swaps market, and
that such a requirement would be unduly burdensome. Alternatively, they
asked that non-SD/MSP reporting counterparties be permitted to report
continuation data for historical energy swaps on a quarterly basis.
The Commission has determined that the final rule will require
continuation data reporting as provided in part 45 of this chapter.
Timely reporting of changes to primary economic terms of all swaps,
including historical swaps, is necessary to give the Commission and
other regulators the ability to see a current and accurate picture of
the swap market as called for by the Dodd-Frank Act. In light of this
comment, and after further considering the costs to non-SD/MSP
counterparties, the Commission extended and phased in the continuation
data reporting deadlines for non-SD/MSP reporting counterparties. For
non-SD/MSP reporting counterparties, the NOPR applied the same
continuation data reporting deadlines found in Part 45. The final
rule's deadlines for continuation data reporting by non-SD/MSP
counterparties require such reporting no later than the end of the
first business day following a relevant change to a primary economic
term during the first year of reporting, and require such reporting no
later than the end of the second business day following a relevant
change to the primary economic terms of the swap thereafter. This
approach should reduce the costs of Part 46 compliance to non-SD/MSP
counterparties, while retaining the benefits of receiving continuation
data.
Scope of reporting requirements. ISDA and Global Forex requested
that the Commission not require reporting of the time of trade for a
historical swap, arguing that in many cases counterparties may not have
recorded this information when a historical swap was executed. ISDA
argues that it would be undesirable, if not impossible, for a
participant to attempt to recreate an execution time not previously
recorded.
The Commission believes that it would not be desirable for
counterparties to assign an execution time retroactively when no record
exists, and the Commission also recognizes that the costs of doing so
could be significant to reporting counterparties. To mitigate costs and
maintain the integrity of the historical swap data record, the final
rule limits the execution timestamp reporting requirement to the
transaction date, calling for reporting the time of the trade only if
the time was recorded when the trade was executed and is known to the
reporting counterparty when the report is made.
Three commenters, ISDA, ETA, and WGCEF, requested that the
Commission drop the catchall category of ``any other primary economic
term(s)'' from the required PET data for historical swaps, arguing that
it would be better to define PET data precisely. ETA stated reporting
such information could require extensive text submissions of non-
standardized transaction terms, complicating the compilation task of
the SDRs.
In response, the Commission has removed ``any other primary
economic term(s) of the swap matched by the counterparties in verifying
the swap'' from the minimum PET data tables. The Commission believes
the PET data in the NOPR tables provides the minimum information
regulators will need concerning historical swaps, information
counterparties almost surely will possess (e.g., trade date, price,
expiration date). Other primary economic terms that might be captured
by the catch-all category are not crucial to fulfill the purposes of
reporting data on historical swaps under Dodd-Frank, and the PET data
elements specified in the tables should be sufficient in this respect.
In addition, the burden of reporting data on swaps executed prior to
issuance of the Commission's final Dodd-Frank rules would be reduced by
limiting required PET data for historical swaps to specified data
elements.
The End User Coalition requested that the Commission explain the
use and value of reporting Master Agreement Identifiers. ISDA, ETA, and
Global Forex stated that eliminating the requirement to report such
identifiers, arguing that they would not necessarily allow regulators
to calculate net exposures. Global Forex stated that providing this
data would impose a significant burden because such information is not
routinely stored on the same systems as the other PET data specified in
the tables. WGCEF also asked that this requirement be eliminated,
arguing that counterparties are in the best position to make exposure
calculations and that the Commission already has the ability to request
such information from them.
[[Page 35224]]
In response, the Commission has eliminated the requirement to
report master agreement identifiers. The terms of master agreements are
not readily reportable in an electronic format, since no schema for
reporting these terms in data fields has yet been developed. In
addition, Dodd-Frank does not provide explicit authority for requiring
such reporting; Dodd-Frank authorizes transaction-based reporting of
the terms of a swap, and a master agreement is not a transactional
agreement. Furthermore, the Commission notes that reporting of master
agreements may eventually be initiated by the Office of Financial
Research under its statutory authority. Eliminating this requirement
therefore represents a reduction in the costs associated with Part 46
compliance. In addition, because master agreement identifiers are not
required to be reported pursuant to Part 45, eliminating this
requirement also represents improved harmonization between Parts 45 and
46.
Reporting of Valuation Information
ISDA recommended that data elements necessary for a person to
determine the market value of a transaction be dropped from the
proposed data reporting requirements for historical credit swaps. ISDA
stated that such a requirement would be overly burdensome in that it
would require a trader to retain a variety of information irrelevant to
the purposes of the rule, is not currently retained by traders, and may
be proprietary to the trader.
The Commission considered this comment, and does not require these
data elements in the final rule. The Commission eliminated the
requirement to report data elements necessary to value a swap from the
final Part 45 data reporting rule; for the same reasons explained in
that rulemaking, the Commission believes that such a requirement is not
appropriate for inclusion in the historical swaps data reporting rule.
Alternative Submission Formats
WGCEF requested that the Commission allow reporting counterparties
to submit images of confirmations and other paper swap documentation in
lieu of submission of normalized data in data fields, arguing that
prohibiting the use of images for reporting would make the requirement
more burdensome.
The Commission considered this comment, but determined to maintain
the NOPR's requirement for electronic reporting of normalized data for
historical swaps in existence on or after the date the NOPR was issued.
Permitting submission of images in lieu of submission of normalized
data in data fields would hinder regulators' ability to efficiently
search, retrieve, aggregate, and manipulate historical swap data in
SDRs for essential purposes intended in the Dodd-Frank Act, including
monitoring systemic risk and conducting market oversight and
enforcement. In light of these considerations, the Commission believes
that this final rule, by allowing submission of images to fulfill
reporting requirements for swaps that expired prior to issuance of the
NOPR on April 25, 2011 reduces the reporting burden to the extent
appropriate.
e. Reporting in Light of CEA Section 15(a)
The Commission has evaluated the costs and benefits of the
reporting provisions of this part in light of the specific
considerations identified in Section 15(a) of the CEA as follows.
Protection of market participants and the public. The Commission
believes that historical swap data reporting as provided in part 46
enhances protections for market participants and the public in
important ways. Information revealed through the requirements of Sec.
46.3 and the use of unique identifiers as provided in Sec. 46.4 will
provide the Commission with a significant body of previously
unavailable data in a cohesive form that will enhance oversight and
enforcement abilities to the benefit of both market participants and
the public. For reasons identified above in the discussion of reporting
requirement benefits, reporting of historical swap data in the manner
prescribed in part 46 promotes the Commission's market participant and
public protection goals by improving the ability to: (1) Detect and
protect market participants against fraud, manipulation, and abusive
trading practices; (2) conduct effective surveillance to oversee the
integrity and efficiency of market operation; and, (3) understand,
monitor, and appropriately react to systemic risk indicators.
Furthermore, the Commission believes that the requirements of this
final rule, and the associated compliance costs, represent a transfer
of the costs associated with the systemic risks inherent in transacting
in opaque swap markets from the public to private entities,
particularly to those that are better positioned to realize economies
of scale and scope in assuming those costs; the Commission believes
that because historical swap data could be used as a benchmark to
better understand systemic risks associated with swap market activity
in the future, the costs of reporting historical swap data relate to
the systemic risks of ongoing swap market activity, as well as
historical swap market activity.
Efficiency, competitiveness, and financial integrity. This rule
promotes efficiency and competitiveness in several ways. First, the
Commission has exercised its discretion to specify reporting
requirements in a manner designed to mitigate costs to the extent
consistent with statutory requirements and fulfillment of the purposes
of the Dodd-Frank Act.
Second, by allowing reporting parties to utilize third-party
service providers to transmit required data, the Commission provides
flexibility for reporting parties to utilize the most efficient means
for compliance. The Commission believes that, relative to the
capabilities of at least certain reporting parties, third-party
providers likely will have a comparative advantage in data processing
costs. The rule affords reporting parties the opportunity to avail
themselves of potential efficiencies that use of such a third-party
provider could provide.
Third, the reporting hierarchy employed in the final rule assigns
reporting responsibility based on factors including the relative size
and sophistication of market participants (for example, SD/MSP
counterparties, which are likely to have technological resources more
readily available for reporting than non-SD/MSP counterparties, will
serve as the reporting counterparty when facing a non-SD/MSP
counterparty in a swap). The Commission believes that this is an
efficient approach to swap reporting, as it provides the opportunity
for larger, more sophisticated entities to realize economies of scale
and scope in their reporting processes (for example, a swap dealer can
collect data from swaps to which it is a counterparty from a variety of
asset classes and send the data to an SDR in a single report; this
allows for the creation of fewer reports and a reduced burden vis-
[agrave]-vis a system in which numerous small non-SD/MSP counterparties
would need to collect and report data).
Fourth, the Commission believes that the provisions of the final
rule that relate to the format of the historical swap data to be
reported will serve to reduce costs and burdens for registered entities
and swap counterparties by (a) Allowing reporting counterparties to
report data for pre-enactment swaps in the form in which it currently
exists, thereby removing the need for (and costs associated with)
reformatting or recreating the data; (b) allowing reporting entities
and counterparties to
[[Page 35225]]
use whatever facilities, methods, or data standards are provided or
required by the SDR to which data is reported; (c) allowing SDRs to use
various facilities, methods, and data standards to receive data, so
long as the SDR can provide data to the Commission in the format
required by the Commission; and (d) allowing for the dual reporting,
additional information reporting, and early submission of historical
swap data in the form of a VSR. The Commission believes this approach
is preferable to having the Commission mandate that reporting entities
or counterparties adopt a particular format or data standard for
reporting historical swap data and/or a particular form for pre-
enactment swap data, which in some cases could impose the additional
burden of acquiring new technological capability different or more
extensive that what the entity or counterparty already possesses. The
Commission believes that, in light of this provision of the final rule,
market competition is likely to lead SDRs to allow reporting entities
and counterparties to report using data formats or standards that are
easiest and least costly for them. Costs for market participants may
also be lowered by the final rule provision authorizing the
Commission's Chief Information Officer to require use of a particular
data standard in order to accommodate the needs of different
communities of users.\95\
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\95\ This authority could be used, for example, to require SDRs
to accept swap data reports using a particular computer language
already used by firms in a particular segment of the swap
marketplace, so that they are not forced to incur additional cost by
acquiring the capability needed to report using a different computer
language.
---------------------------------------------------------------------------
Furthermore, the Commission does not anticipate that the reporting
requirements (including unique identifier requirements) of this final
rule present costs that would impede the efficiency of swaps markets.
The Commission anticipates that the reporting requirements of this
final rule will work in concert with the recordkeeping requirements of
this final rule to improve the integrity of swap markets. Accordingly,
the manner in which these reporting requirements will aid market
integrity mirrors those considered in the preceding discussion of the
integrity benefits of recordkeeping-- namely, by aiding the prosecution
and deterrence of market abuses and assisting regulatory supervision of
markets through improved transparency.
Price discovery. The Commission does not believe that the
historical swap data reporting requirements (including unique
identifier requirements) of this final rule will impact the price
discovery process.
Sound risk management practices. The Commission does not believe
that the historical swap data reporting requirements (including unique
identifier requirements) of this final rule have a significant effect
on sound risk management practices.
Other public interest considerations. The Commission believes that
the data reporting requirements of this final rule will allow the
Commission to readily acquire and analyze market data, thus
streamlining the surveillance process. The Commission believes that by
receiving historical swap data from the same market participants that
will likely report a comparable stream of creation and continuation
data pursuant to part 45, part 46 will allow the economists and other
analysts employed by the Commission the opportunity to compare aspects
of the swap market before and after the effective date of parts 45 and
46. This will likely create the potential for an analysis of the
effects of implementing these rules.
With regard to unique identifiers, the Commission anticipates that
the unique identifier requirements of this final rule will facilitate
the Commission's efforts in the course of their investigations by
providing a clear framework for data aggregation and comparison across
financial instruments and between the pre- and post- part 46 compliance
date periods.
Table 1--Normalizing Data for Electronic Reporting
------------------------------------------------------------------------
Personnel
Hours cost
------------------------------------------------------------------------
SD/MSPs......................................... 285 $20,169
Non-SD/MSPs..................................... 55 4,191
------------------------------------------------------------------------
Table 2--Historical Swap Data Storage
------------------------------------------------------------------------
Personnel
Hours cost
------------------------------------------------------------------------
SD/MSPs......................................... 335 $22,172
------------------------------------------------------------------------
Table 3--Applying Unique Identifier
------------------------------------------------------------------------
Personnel
Hours cost
------------------------------------------------------------------------
SD/MSPs......................................... 440 $29,681
Non-SD/MSPs..................................... 220 18,481
------------------------------------------------------------------------
Table 4--Receiving and Storing Data
------------------------------------------------------------------------
Personnel
Hours cost
------------------------------------------------------------------------
SDRs............................................ 460 $29,882
------------------------------------------------------------------------
IV. Compliance Dates
A. Introduction
As discussed above, the final rule retains the NOPR provision
requiring compliance with recordkeeping and reporting requirements for
historical swaps to commence on the same compliance dates specified in
the Commission's final swap data recordkeeping and reporting
regulations in part 45 of this chapter. The provisions of both part 45
and part 46 phase in compliance dates by both asset class and
counterparty type. As noted above, this final rule permits voluntary
initial data reporting for historical swaps prior to the applicable
compliance date, if a registered SDR is prepared to accept the required
initial data report prior to the applicable compliance date. Where such
a voluntary early initial data report is made, continuation data
reporting for the swap in question, if applicable, is still required to
commence as of the applicable compliance date.
Accordingly, the Commission has determined that each swap dealer,
major swap participant, and non-SD/MSP counterparty subject to the
jurisdiction of the Commission shall commence full compliance with all
provisions of this part on the applicable compliance dates set forth
below.
B. Compliance Dates for Swap Dealers and Major Swap Participants
Swap dealers, and major swap participants shall commence full
compliance with all provisions of this part as follows:
Credit swaps and interest rate swaps. Compliance date 1, the
compliance date with respect to credit swaps and interest rate swaps,
shall be the later of: July 16, 2012; or 60 calendar days after the
publication in the Federal Register of the later of the Commission's
final rule defining the term ``swap'' or the Commission's final rule
defining the terms ``swap dealer'' and ``major swap participant.''
Equity swaps, foreign exchange swaps, and other commodity swaps.
Compliance date 2, the compliance date with respect to equity swaps,
foreign exchange swaps, and other commodity swaps, shall be 90 calendar
days after compliance date 1.
[[Page 35226]]
C. Compliance Date for Non-SD/MSP Counterparties
Non-SD/MSP counterparties shall commence full compliance with all
provisions of this part for all pre-enactment and transition swaps on
compliance date 3, which shall be 90 calendar days after compliance
date 2.
Final Rules
List of Subjects in 17 CFR Part 46
Swaps, data recordkeeping requirements and data reporting
requirements.
For the reasons set forth in the preamble, and pursuant to the
authority in the Commodity Exchange Act, as amended, and in particular
Sections 2(h)(5) and 4r(a), the Commission amends Chapter 1 of Title 17
of the Code of Federal Regulations by adding Part 46 to read as
follows:
PART 46--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS: PRE-
ENACTMENT AND TRANSITION SWAPS
Sec.
46.1 Definitions.
46.2 Recordkeeping for pre-enactment swaps and transition swaps.
46.3 Swap data reporting for pre-enactment swaps and transition
swaps.
46.4 Unique identifiers.
46.5 Determination of which counterparty must report.
46.6 Third-party facilitation of data reporting.
46.7 Reporting to a single swap data repository.
46.8 Data reporting for swaps in a swap asset class not accepted by
any swap data repository.
46.9 Voluntary supplemental reporting
46.10 Required data standards.
46.11 Reporting of errors and omissions in previously reported data.
Appendix to Part 46--Tables of Minimum Primary Economic Terms Data
for Pre-Enactment and Transition Swaps.
Authority: Title VII, sections 723 and 729, Pub. L. 111-203,
124 Stat. 1738.
Sec. 46.1 Definitions.
Terms used in this part are defined as follows:
Asset class means the broad category of goods, services or
commodities, including any ``excluded commodity'' as defined in CEA
section 1a(19), with common characteristics underlying a swap. The
asset classes include credit, equity, foreign exchange (excluding
cross-currency), interest rate (including cross-currency), other
commodity, and such other asset classes as may be determined by the
Commission.
Compliance date means the applicable date, as specified in part 45
of this chapter, on which a registered entity or swap counterparty
subject to the jurisdiction of the Commission is required to commence
full compliance with all provisions of this part and with all
applicable provisions of part 45 of this chapter, as set forth in the
preamble to this part.
Confirmation (confirming) means the consummation (electronically or
otherwise) of legally binding documentation (electronic or otherwise)
that memorializes the agreement of the parties to all terms of a swap.
A confirmation must be in writing (whether electronic or otherwise) and
must legally supersede any previous agreement (electronically or
otherwise).
Confirmation data means all of the terms of a swap matched and
agreed upon by the counterparties in confirming the swap.
Credit swap means any swap that is primarily based on instruments
of indebtedness, including, without limitation: any swap primarily
based on one or more broad-based indices related to instruments of
indebtedness; and any swap that is an index credit swap or total return
swap on one or more indices of debt instruments.
Electronic reporting (``report electronically'') means the
reporting of data normalized in data fields as required by the data
standard or standards used by the swap data repository to which the
data is reported. Except where specifically otherwise provided in this
chapter, electronic reporting does not include submission of an image
of a document or text file.
Equity swap means any swap that is primarily based on equity
securities, including, without limitation: any swap primarily based on
one or more broad-based indices of equity securities; and any total
return swap on one or more equity indices.
Financial entity has the meaning set forth in CEA section
2(h)(7)(C).
Foreign exchange forward has the meaning set forth in CEA section
1a(24).
Foreign exchange instrument means an instrument that is both
defined as a swap in part 1 of this chapter and included in the foreign
exchange asset class. Instruments in the foreign exchange asset class
include: any currency option, foreign currency option, foreign exchange
option, or foreign exchange rate option; any foreign exchange forward
as defined in CEA section 1a(24); any foreign exchange swap as defined
in CEA section 1a(25); and any non-deliverable forward involving
foreign exchange.
Foreign exchange swap has the meaning set forth in CEA section
1a(25). It does not include swaps primarily based on rates of exchange
between different currencies, changes in such rates, or other aspects
of such rates (sometimes known as ``cross-currency swaps'').
Interest rate swap means any swap which is primarily based on one
or more interest rates, such as swaps of payments determined by fixed
and floating interest rates; or any swap which is primarily based on
rates of exchange between different currencies, changes in such rates,
or other aspects of such rates (sometimes known as ``cross-currency
swaps'').
International swap means a swap required by U.S. law and the law of
another jurisdiction to be reported both to a swap data repository and
to a different trade repository registered with the other jurisdiction.
Major swap participant has the meaning set forth in CEA section
1a(33) and in part 1 of this chapter.
Minimum primary economic terms means, with respect to a historical
swap, the terms included in the list of minimum primary economic terms
for swaps in each swap asset class found in Appendix 1 to this part.
Minimum primary economic terms data means all of the data elements
necessary to fully report all of the minimum primary economic terms
required by this part to be reported for a swap in the swap asset class
of the swap in question.
Mixed swap has the meaning set forth in CEA section 1a(47)(D), and
refers to an instrument that is in part a swap subject to the
jurisdiction of the Commission, and in part a security-based swap
subject to the jurisdiction of the SEC.
Multi-asset swap means a swap that does not have one easily
identifiable primary underlying notional item, but instead involves
multiple underlying notional items within the Commission's jurisdiction
that belong to different asset classes.
Non-SD/MSP counterparty means a swap counterparty that is neither a
swap dealer nor a major swap participant.
Other commodity swap means any swap not included in the credit,
equity, foreign exchange, or interest rate asset classes, including,
without limitation, any swap for which the primary underlying item is a
physical commodity or the price or any other aspect of a physical
commodity.
Pre-enactment swap means any swap entered into prior to enactment
of the Dodd-Frank Act of 2010 (July 21, 2010), the terms of which have
not expired as of the date of enactment of that Act.
Reporting counterparty means the counterparty required to report
swap
[[Page 35227]]
data pursuant to this part, selected as provided in Sec. 46.5.
Required swap continuation data means all of the data elements that
must be reported during the existence of a swap as required by part 45
of this chapter.
Swap data repository has the meaning set forth in CEA section
1a(48), and in part 49 of this chapter.
Swap dealer has the meaning set forth in CEA section 1a(49), and in
part 1 of this chapter.
Transition swap means any swap entered into on or after the
enactment of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to
the applicable compliance date on which a registered entity or swap
counterparty subject to the jurisdiction of the Commission is required
to commence full compliance with all provisions of this part, as set
forth in the preamble to this part.
Sec. 46.2 Recordkeeping for pre-enactment swaps and transition swaps.
(a) Recordkeeping for pre-enactment and transition swaps in
existence on or after April 25, 2011. Each counterparty subject to the
jurisdiction of the Commission that is a counterparty to any pre-
enactment swap or transition swap that is in existence on or after
April 25, 2011 shall keep the following records concerning each such
swap:
(1) Minimum records required. Each counterparty shall keep records
of all of the minimum primary economic terms data specified in Appendix
1 to this part.
(2) Additional records required to be kept if possessed by a
counterparty. In addition to the minimum records required pursuant to
paragraph (a)(1) of this part, a counterparty that is in possession at
any time on or after April 25, 2011 of any of the following
documentation shall keep copies thereof:
(i) Any confirmation of the swap executed by the counterparties.
(ii) Any master agreement governing the swap, and any modification
or amendment thereof.
(iii) Any credit support agreement, or other agreement between the
counterparties having the same function as a credit support agreement,
relating to the swap, and any modification or amendment thereof.
(3) Records created or available after the compliance date. In
addition to the records required to be kept pursuant to paragraphs
(a)(1) and (2) of this section, each counterparty to any pre-enactment
swap or transition swap that remains in existence on the compliance
date shall keep for each such swap, from the compliance date forward,
all of the records required to be kept by section 45.2 of this chapter,
to the extent that any such records are created by or become available
to the counterparty on or after the compliance date.
(4) Retention form. Records required to be kept pursuant to this
section with respect to historical swaps in existence on or after April
25, 2011, must be kept as required by paragraph (a)(4)(i) or (ii) of
this section, as applicable.
(i) Records required to be kept by swap dealers or major swap
participants may be kept in electronic form, or kept in paper form if
originally created and exclusively maintained in paper form, so long as
they are retrievable, and information in them is reportable as required
by this part.
(ii) Records required to be kept by non-SD/MSP counterparties may
be kept in either electronic or paper form, so long as they are
retrievable, and information in them is reportable, as required by this
part.
(b) Recordkeeping for pre-enactment and transition swaps expired or
terminated prior to April 25, 2011. Each counterparty subject to the
jurisdiction of the Commission that is a counterparty to any pre-
enactment swap or transition swap that is expired or terminated prior
to April 25, 2011 shall keep the following records concerning each such
swap:
(1) Pre-enactment swaps expired prior to April 25, 2011. Each
counterparty to any pre-enactment swap that expired or was terminated
prior to April 25, 2011 shall retain the information and documents
relating to the terms of the transaction that were possessed by the
counterparty on or after October 14, 2010 (17 CFR 44.00 through 44.02).
Such information may be retained in the format in which it existed on
or after October 14, 2010, or in such other format as the counterparty
chooses to retain it. This paragraph (b)(1) does not require the
counterparty to create or retain records of information not in its
possession on or after October 14, 2010, or to alter the format, i.e.,
the method by which the information is organized and stored.
(2) Transition swaps expired prior to April 25, 2011. Each
counterparty to any transition swap that expired or was terminated
prior to April 25, 2011 shall retain the information and documents
relating to the terms of the transaction that were possessed by the
counterparty on or after December 17, 2010 (17 CFR 44.03). Such
information may be retained in the format in which it existed on or
after December 17, 2010, or in such other format as the counterparty
chooses to retain it. This paragraph (b)(2) does not require the
counterparty to create or retain records of information not in its
possession on or after December 17, 2010, or to alter the format, i.e.,
the method by which the information is organized and stored.
(c) Retention period. All records required to be kept by this
section shall be kept from the applicable dates specified in paragraphs
(a) or (b) of this section through the life of the swap, and for a
period of at least five years from the final termination of the swap.
(d) Retrieval. Records required to be kept pursuant to this section
shall be retrievable as follows.
(1) Retrieval for pre-enactment and transition swaps in existence
on or after April 25, 2011. Records concerning pre-enactment and
transition swaps in existence on or after April 25, 2011, shall be
retrievable as follows:
(i) Each record required to be kept by a counterparty that is a
swap dealer or major swap participant shall be readily accessible via
real time electronic access by the counterparty throughout the life of
the swap and for two years following the final termination of the swap,
and shall be retrievable by the registrant or its affiliates within
three business days through the remainder of the period following final
termination of the swap during which it is required to be kept.
(ii) Each record required to be kept by a non-SD/MSP counterparty
shall be retrievable by the counterparty within five business days
throughout the period during which it is required to be kept.
(2) Retrieval for pre-enactment and transition swaps expired or
terminated prior to April 25, 2011. Records concerning pre-enactment
and transition swaps expired or terminated prior to April 25, 2011,
shall be retrievable by the counterparty within five business days
throughout the period during which they are required to be kept.
(e) Inspection. All records required to be kept pursuant to this
section by any registrant or its affiliates or by any counterparty
subject to the jurisdiction of the Commission shall be open to
inspection upon request by any representative of the Commission, the
United States Department of Justice, or the Securities and Exchange
Commission, or by any representative of a prudential regulator as
authorized by the Commission. Copies of all such records shall be
provided, at the expense of the entity or person required to keep the
record, to any representative of the Commission upon request. With
respect to historical swaps in existence on or after April 25, 2011,
copies of records required to be kept by any swap dealer or major swap
participant shall
[[Page 35228]]
be provided either by electronic means, in hard copy, or both, as
requested by the Commission, with the sole exception that copies of
records originally created and exclusively maintained in paper form may
be provided in hard copy only; and copies of records required to be
kept by any non-SD/MSP counterparty shall be provided in the form,
whether electronic or paper, in which the records are kept. With
respect to historical swaps expired or terminated prior to April 25,
2011, records shall be provided in the form, whether electronic or
paper, in which the records are kept.
Sec. 46.3 Swap data reporting for pre-enactment swaps and transition
swaps.
(a) Reporting for pre-enactment and transition swaps in existence
on or after April 25, 2011. (1) Initial data report. For each pre-
enactment swap or transition swap in existence on or after April 25,
2011, the reporting counterparty shall report electronically to a swap
data repository (or to the Commission if no swap data repository for
swaps in the asset class in question is available), on the compliance
date, the following:
(i) All of the minimum primary economic terms data specified in
Appendix 1 to this part that were in the possession of the reporting
counterparty on or after April 25, 2011;
(ii) The legal entity identifier of the reporting counterparty
required pursuant to Sec. 46.4; and
(iii) The following additional identifiers:
(A) The internal counterparty identifier or legal entity identifier
used by the reporting counterparty to identify the non-reporting
counterparty; and
(B) The internal transaction identifier used by the reporting
counterparty to identify the swap.
(2) Reporting of required swap continuation data. (i) For each
uncleared pre-enactment or transition swap in existence on or after
April 25, 2011, throughout the existence of the swap following the
compliance date, the reporting counterparty must report all required
swap continuation data required to be reported pursuant to part 45 of
this chapter, with the exception that when a reporting counterparty
reports changes to minimum primary economic terms for a pre-enactment
or transition swap, the reporting counterparty is required to report
only changes to the minimum primary economic terms listed in Appendix 1
to this part and reported in the initial data report made pursuant to
paragraph (a)(1) of this section, rather than changes to all minimum
primary economic terms listed in Appendix 1 to part 45.
(ii) Swap continuation data reporting is not required for a pre-
enactment or transition swap in existence on or after April 25, 2011,
that has been cleared by a designated clearing organization.
(3) Data reporting for multi-asset swaps and mixed swaps. (i) For
each pre-enactment or transition swap in existence on or after April
25, 2011, that is a multi-asset swap, all data required to be reported
by this part shall be reported to a single swap data repository that
accepts swaps in the asset class treated as the primary asset class
involved in the swap by the reporting counterparty making the first
report of required swap creation data pursuant to this section.
(ii) For each pre-enactment or transition swap in existence on or
after April 25, 2011, that is a mixed swap, all data required to be
reported pursuant to this part shall be reported to a swap data
repository registered with the Commission and to a security-based swap
data repository registered with the Securities and Exchange Commission.
This requirement may be satisfied by reporting the mixed swap to a swap
data repository or security-based swap data repository registered with
both Commissions.
(b) Reporting for pre-enactment and transition swaps expired or
terminated prior to April 25, 2011. (1) Pre-enactment swaps expired or
terminated prior to April 25, 2011. For each pre-enactment swap which
expired or was terminated prior to April 25, 2011, the reporting
counterparty shall report to a swap data repository (or to the
Commission if no swap data repository for swaps in the asset class in
question is available), on the compliance date, such information
relating to the terms of the transaction as was in the reporting
counterparty's possession on or after October 14, 2010 (17 CFR 44.00
through 44.02). This information may be reported via any method
selected by the reporting counterparty.
(2) Transition swaps expired or terminated prior to April 25, 2011.
For each transition swap which expired or was terminated prior to April
25, 2011, the reporting counterparty shall report to a swap data
repository (or to the Commission if no swap data repository for swaps
in the asset class in question is available), on the compliance date,
such information relating to the terms of the transaction as was in the
reporting counterparty's possession on or after December 17, 2010 (17
CFR 44.03). This information may be reported via any method selected by
the reporting counterparty.
(c) Voluntary early submission of initial data report. For all pre-
enactment and transition swaps required to be reported pursuant to this
part, the reporting counterparty may make the initial data report
required by paragraph (a)(1) of this section, or the data report
required by paragraph (b) of this section, prior to the applicable
compliance date, if a swap data repository accepting swaps in the asset
class in question is prepared to accept the report. The obligation to
report continuation data as required by paragraph (a)(2) of this
section with respect to a swap for which a voluntary early submission
is made commences on the applicable compliance date. However, the
reporting counterparty may submit continuation data at any time after a
voluntary early submission made pursuant to this paragraph, if the swap
data repository is prepared to accept such continuation data, and if
that repository has registered with the Commission as a swap data
repository as of the applicable compliance date.
(d) Non-duplication of previous reporting. If the reporting
counterparty for a pre-enactment or transition swap has reported any of
the information required as paragraphs (a) or (b) of this section to a
trade repository prior to the compliance date, and if as of the
compliance date that repository has registered with the Commission as a
swap data repository, then:
(1) The counterparty shall not be required to report such
previously reported information to the swap data repository again;
(2) The counterparty shall be required to report to the swap data
repository on the compliance date any information required as part of
the initial data report by paragraph (a) of this section that has not
been reported prior to the compliance date: and
(3) In the case of pre-enactment and transition swaps in existence
on or after April 25, 2011, the initial data report required by
paragraph (a) of this section and all subsequent data reporting
concerning the swap shall be made to the same swap data repository to
which data concerning the swap was first reported prior to the
compliance date (or to its successor in the event that it ceases to
operate, as provided in part 49 of this chapter).
Sec. 46.4 Unique identifiers.
The unique identifier requirements for swap data reporting with
respect to pre-enactment or transition swaps shall be as follows:
(a) By the compliance date, the reporting counterparty (as defined
by part 45 of this chapter) for each pre-
[[Page 35229]]
enactment or transition swap in existence on or after April 25, 2011,
for which an initial data report is required by this part 46, shall
obtain for itself a legal entity identifier as provided in Sec. 45.6
of this chapter (or if the Commission has not yet designated a legal
entity identifier system, a substitute counterparty identifier as
provided in Sec. 45.6(f) of this chapter), and shall include its own
legal entity identifier (or substitute counterparty identifier) in the
initial data report concerning the swap. With respect to the legal
entity identifier (or substitute counterparty identifier) of the
reporting counterparty, the reporting counterparty and the swap data
repository to which the swap is reported shall comply thereafter with
all unique identifier requirements of Sec. 45.6 of this chapter.
(b) Within 180 days after the compliance date, the non-reporting
counterparty for each pre-enactment or transition swap in existence on
or after April 25, 2011, for which an initial data report is required
by this part 46, shall obtain a legal entity identifier as provided in
Sec. 45.6 of this chapter (or if the Commission has not yet designated
a legal entity identifier system, a substitute counterparty identifier
as provided in Sec. 45.6(f) of this chapter), and shall provide its
legal entity identifier (or substitute counterparty identifier) to the
reporting counterparty. Upon receipt of the non-reporting
counterparty's legal entity identifier (or substitute counterparty
identifier), the reporting counterparty shall provide it to the swap
data repository to which swap data for the swap was reported.
Thereafter, with respect to the legal entity identifier (or substitute
counterparty identifier) of the non-reporting counterparty, the
counterparties to the swap and the swap data repository to which it is
reported shall comply with all requirements of Sec. 45.6 of this
chapter.
(c) The legal entity identifier requirements of parts 46 and 45 of
this chapter shall not apply to pre-enactment or transition swaps
expired or terminated prior to April 25, 2011.
(d) The unique swap identifier and unique product identifier
requirements of part 45 of this chapter shall not apply to pre-
enactment or transition swaps.
Sec. 46.5 Determination of which counterparty must report.
(a) Determination of which counterparty must report swap data
concerning each pre-enactment or transition swap shall be made as
follows:
(1) If only one counterparty is a swap dealer, the swap dealer
shall fulfill all counterparty reporting obligations.
(2) If neither party is an swap dealer, and only one counterparty
is an major swap participant, the major swap participant shall fulfill
all counterparty reporting obligations.
(3) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a financial entity as defined in CEA section
2(h)(7)(C), the counterparty that is a financial entity shall be the
reporting counterparty.
(4) For each pre-enactment swap or transition swap for which both
counterparties are swap dealers, or both counterparties are major swap
participants, or both counterparties are non-SD/MSP counterparties that
are financial entities as defined in CEA section 2(h)(7)(C), or both
counterparties are non-SD/MSP counterparties and neither counterparty
is a financial entity as defined in CEA section 2(h)(7)(C), the
counterparties shall agree which counterparty shall fulfill reporting
obligations with respect to that swap; and the counterparty so selected
shall fulfill all counterparty reporting obligations.
(5) Notwithstanding the provisions of paragraphs (a)(1) through (3)
of this section, for pre-enactment or transition swaps for which both
counterparties are non-SD/MSP counterparties, if only one counterparty
is a U.S. person, that counterparty shall be the reporting counterparty
and shall fulfill all counterparty reporting obligations.
(b) For pre-enactment and transition swaps in existence as of the
compliance date, determination of the reporting counterparty shall be
made by applying the provisions of paragraph (a) of this section with
respect to the current counterparties to the swap as of the compliance
date, regardless of whether either or both were original counterparties
to the swap when it was first executed.
(c) For pre-enactment and transition swaps for which reporting is
required, but which have expired or been terminated prior to the
compliance date, determination of the reporting counterparty shall be
made by applying the provisions of paragraph (a) of this section to the
counterparties to the swap as of the date of its expiration or
termination (except for determination of a counterparty's status as an
SD or MSP, which shall be made as of the compliance date), regardless
of whether either or both were original counterparties to the swap when
it was first executed.
(d) After the initial report required by Sec. 46.3 is made, if a
reporting counterparty selected pursuant to this section ceases to be a
counterparty to a swap due to an assignment or novation, the reporting
counterparty for reporting of required swap continuation data following
the assignment or novation shall be selected from the two current
counterparties as provided in paragraphs (d)(1) through (4) of this
section.
(1) If only one counterparty is a swap dealer, the swap dealer
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(2) If neither counterparty is a swap dealer, and only one
counterparty is a major swap participant, the major swap participant
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(3) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a U.S. person, that counterparty shall be the
reporting counterparty and shall fulfill all counterparty reporting
obligations.
(4) In all other cases, the counterparty that replaced the previous
reporting counterparty by reason of the assignment or novation shall be
the reporting counterparty, unless otherwise agreed by the
counterparties.
Sec. 46.6 Third-party facilitation of data reporting.
Counterparties required by this part 46 to report swap data for any
pre-enactment or transition swap, while remaining fully responsible for
reporting as required by this part 46, may contract with third-party
service providers to facilitate reporting.
Sec. 46.7 Reporting to a single swap data repository.
All data reported for each pre-enactment or transition swap
pursuant to this part 46, and all corrections of errors and omissions
in previously reported data for the swap, shall be reported to the same
swap data repository to which the initial data report concerning the
swap is made (or to its successor in the event that it ceases to
operate, as provided in part 49 of this chapter).
Sec. 46.8 Data reporting for swaps in a swap asset class not accepted
by any swap data repository.
(a) Should there be a swap asset class for which no swap data
repository registered with the Commission currently accepts swap data,
each registered entity or counterparty required by this part to report
any required swap creation data or required swap continuation data with
respect to a swap in that asset class must report that same data to the
Commission.
[[Page 35230]]
(b) Data reported to the Commission pursuant to this section shall
be reported at times announced by the Commission. Data reported to the
Commission pursuant to this section with respect to pre-enactment and
transition swaps in existence on or after April 25, 2011 shall be
reported in an electronic format acceptable to the Commission.
(c) Delegation of authority to the Chief Information Officer: The
Commission hereby delegates to its Chief Information Officer, until the
Commission orders otherwise, the authority set forth in paragraph (c)
of this section, to be exercised by the Chief Information Officer or by
such other employee or employees of the Commission as may be designated
from time to time by the Chief Information Officer. The Chief
Information Officer may submit to the Commission for its consideration
any matter which has been delegated in this paragraph. Nothing in this
paragraph prohibits the Commission, at its election, from exercising
the authority delegated in this paragraph. The authority delegated to
the Chief Information Officer by paragraph (c) of this section shall
include:
(1) With respect to all pre-enactment and transition swaps required
to be reported by this part, the authority to determine the dates and
times at which data concerning such swaps shall be reported pursuant to
this part.
(2) With respect to all pre-enactment swaps or transition swaps in
existence on or after April 25, 2011:
(i) The authority to determine the manner, format, coding
structure, and electronic data transmission standards and procedures
acceptable to the Commission for the purposes of paragraphs (a) and (b)
of this section; and
(ii) The authority to determine whether the Commission may permit
or require use by reporting entities or counterparties in reporting
pre-enactment or transition swaps in existence on or after April 25,
2011, of one or more particular data standards (such as FIX, FpML, ISO
20022, or some other standard), in order to accommodate the needs of
different communities of users.
(d) The Chief Information Officer shall publish from time to time
in the Federal Register and on the Web site of the Commission the dates
and times, format, data schema, and electronic data transmission
methods and procedures for reporting acceptable to the Commission with
respect to swap data reporting pursuant to this section.
Sec. 46.9 Voluntary supplemental reporting
(a) For purposes of this section, the term voluntary, supplemental
report means any report of swap data for a pre-enactment or transition
swap to a swap data repository that is not required to be made pursuant
to this part or any other part in this chapter.
(b) A voluntary, supplemental report for a pre-enactment or
transition swap may be made only by a counterparty to the swap in
connection with which the voluntary, supplemental report is made, or by
a third-party service provider acting on behalf of a counterparty to
the swap.
(c) A voluntary, supplemental report for a pre-enactment or
transition swap may be made only after the initial data report for the
swap required by section 46.3(a) or the report required by section
46.3(b), as applicable, has been made.
(d) A voluntary, supplemental report for a pre-enactment or
transition swap may be made either to the swap data repository to which
the initial data report for the swap required by section 46.3(a) or the
report required by section 46.3(b), as applicable, has been made, or to
a different swap data repository.
(e) A voluntary, supplemental report for a pre-enactment or
transition swap must contain:
(1) An indication that the report is a voluntary, supplemental
report.
(2) The swap data repository identifier created for the swap by the
automated systems of the swap data repository to which the initial data
report required by section 46.3(a) or the report required by section
46.3(b), as applicable, has been made.
(3) An indication of the identity of the swap data repository to
which the initial data report required by section 46.3(a) or the report
required by section 46.3(b), as applicable, has been made, if the
voluntary supplemental report is made to a different swap data
repository.
(4) If the pre-enactment or transition swap was in existence on or
after April 25, 2011, the legal entity identifier (or substitute
identifier) of the counterparty making the voluntary, supplemental
report.
(5) If applicable, an indication that the voluntary, supplemental
report is made pursuant to the laws or regulations of any jurisdiction
outside the United States.
(f) If a counterparty that has made a voluntary, supplemental
report discovers any errors in the swap data included in the voluntary,
supplemental report, the counterparty must report a correction of each
such error to the swap data repository to which the voluntary,
supplemental report was made, as soon as technologically practicable
after discovery of any such error.
Sec. 46.10 Required data standards.
In reporting swap data to a swap data repository as required by
this part 46, each reporting counterparty shall use the facilities,
methods, or data standards provided or required by the swap data
repository to which counterparty reports the data.
Sec. 46.11 Reporting of errors and omissions in previously reported
data.
(a) Each swap counterparty required by this part 46 to report swap
data shall report any errors and omissions in the data so reported.
Corrections of errors or omissions shall be reported as soon as
technologically practicable after discovery of any such error or
omission.
(b) For pre-enactment or transition swaps for which this part
requires reporting of continuation data, reporting counterparties
reporting state data as provided in part 45 of this chapter may fulfill
the requirement to report errors or omissions by making appropriate
corrections in their next daily report of state data pursuant to part
45 of this chapter.
(c) Each counterparty to a pre-enactment or transition swap that is
not the reporting counterparty as determined pursuant to Sec. 46.5,
and that discovers any error or omission with respect to any swap data
reported to a swap data repository for that swap, shall promptly notify
the reporting counterparty of each such error or omission. As soon as
technologically practicable after receiving such notice, the reporting
counterparty shall report a correction of each such error or omission
to the swap data repository.
(d) Each swap counterparty reporting corrections to errors or
omissions in data previously reported as required by this part shall
report such corrections in the same format as it reported the erroneous
or omitted data.
Appendix 1 to Part 46--Tables of Minimum Primary Economic Terms Data
For Pre-Enactment and Transition Swaps
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Issued in Washington, DC on May 17, 2012 by the Commission.
David A. Stawick,
Secretary of the Commission.
Appendix to Swap Data Recordkeeping and Reporting Requirements:
Pre-Enactment and Transition Swaps--Commission Voting Summary and
Statement of Chairman Gensler
Note: The following appendix will not appear in the Code of
Federal Regulations.
On this matter, Chairman Gensler and Commissioner Sommers, Chilton,
O'Malia and Wetjen voted in the affirmative; no Commissioner voted in
the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rule establishing swap data recordkeeping
and reporting requirements for pre-enactment and transition swaps,
collectively called ``historical swaps.'' One of the main goals of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) is to bring transparency to the unregulated swaps market.
Starting this summer, light will shine for the first time on this
market with the reporting both to the public and to regulators of
nearly every swap transaction.
The historical swaps rule builds on already completed swaps
market transparency rules. It will help give regulators a complete
picture of the swaps market, including data on swaps in existence at
the time of the Dodd-Frank Act's passage.
The rule provides market participants guidance on the reporting
requirements for pre-enactment swaps (those entered into before the
enactment of the Dodd-Frank Act) as well as transition swaps (those
entered into between the enactment date of the law and the
applicable compliance date for swap data reporting). The rule
specifies clearly what records must be kept and what data must be
reported to swap data repositories (SDRs) with respect to these
historical swaps. It ensures that the historical swaps data needed
by regulators is available through SDRs beginning on the compliance
date for swap data reporting.
The rule achieves the reporting benefits of Dodd-Frank while
reducing the costs and burdens associated with recordkeeping for
historical swaps. Recordkeeping requirements for these swaps are
minimized for counterparties who are not swap dealers or major swap
participants. These counterparties are permitted to maintain records
in any format they choose, and are allowed five days to retrieve
their records.
[FR Doc. 2012-12531 Filed 6-11-12; 8:45 am]
BILLING CODE P
Last Updated: June 12, 2012