2023-03661
[Federal Register Volume 88, Number 37 (Friday, February 24, 2023)]
[Rules and Regulations]
[Pages 11790-11793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03661]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 45
Order Designating the Unique Product Identifier and Product
Classification System To Be Used in Recordkeeping and Swap Data
Reporting
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') has
issued an Order to designate a unique product identifier and product
classification system to be used in swap recordkeeping and data
reporting. The Commission has determined that the unique product
identifiers issued by the Derivatives Service Bureau Limited for swaps
in the credit, equity, foreign exchange, and interest rate asset
classes comply with the Commission's requirements for a unique product
identifier and product classification system, and have designated them
as such. The Order requires registered entities and swap counterparties
to use unique product identifiers issued by the Derivatives Service
Bureau Limited for swaps in the credit, equity, foreign exchange, and
interest rate asset classes to comply with certain of the Commission's
swap recordkeeping and reporting requirements.
DATES: The Order of Designation is effective on February 24, 2023.
FOR FURTHER INFORMATION CONTACT: Tom Guerin, Assistant Chief Counsel,
Division of Market Oversight, (202) 836-1933, [email protected] or Owen
Kopon, Associate Chief Counsel, Division of Market Oversight, (202)
418-5360, [email protected], Commodity Futures Trading Commission, Three
Lafayette Centre, 1151 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
A. Unique Product Identifiers: CEA Section 21(b) and Section 45.7 of
the Commission's Regulations
Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'') \1\ amended the Commodity Exchange
Act (``CEA'') \2\ to establish a comprehensive regulatory framework for
swaps. Amendments to the CEA included the addition of provisions
requiring the retention, and the reporting to swap data repositories
(``SDRs''), of data regarding swap transactions in order to enhance
transparency, promote standardization, and reduce systemic risk.\3\
Pursuant to these CEA amendments, the Commission added to its
regulations part 45,\4\ which sets forth recordkeeping rules, and rules
for the reporting of swap transaction data to SDRs.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 7 U.S.C. 1-26.
\3\ See, e.g., 7 U.S.C. 2(a)(13)(G), which requires all swaps,
whether cleared or uncleared, to be reported to an SDR; 7 U.S.C.
24a(b), which directs the Commission to prescribe standards for swap
data reporting and attendant recordkeeping.
\4\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136 (January 13, 2012).
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Under the authority granted by section 21(b) of the CEA, which,
among other things, directs the Commission to ``prescribe standards
that specify the data elements for each swap that shall be collected
and maintained'' by an SDR,\5\ the Commission, in its part 45
regulations, prescribed the use of a unique product identifier and
product classification system in recordkeeping and swap data
reporting.\6\ Regulation Sec. 45.7 provides that each swap shall be
identified in all recordkeeping and all swap data reporting pursuant to
part 45 by means of a unique product identifier and product
classification system as specified in this section.\7\
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\5\ 7 U.S.C. 24a(b)(1).
\6\ 17 CFR 45.7.
\7\ Id. Regulation Sec. 45.7 provides that each swap
sufficiently standardized to receive a unique product identifier
shall be identified by a unique product identifier while each swap
that is not sufficiently standardized shall be identified by its
description using the product classification system.
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Regulation Sec. 45.7 sets forth requirements for the elements and
Commission designation of a unique product identifier and product
classification system.\8\ The unique product identifier and product
classification system must identify and describe the swap asset class
and the sub-type within that asset class to which the swap belongs, and
the underlying product for the swap, with sufficient distinctiveness
and specificity to: (i) enable the Commission and other regulators to
fulfill their regulatory responsibilities, and (ii) assist in real-time
public reporting of swap transaction and pricing data pursuant to part
43.\9\ The level of distinctiveness and specificity which the unique
product identifier will provide is required to be determined separately
for each asset class.\10\ Further, upon its required determination that
an acceptable unique product identifier and product classification
system that contains the Sec. 45.7 required elements is available, the
Commission must designate this identifier and system for use in
recordkeeping and swap data reporting.\11\
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\8\ 17 CFR 45.7(a).
\9\ Id. Real-time public reporting of swap transaction and
pricing data pursuant to part 43 seeks to enhance transparency and
price discovery of the swaps market. Publishing a unique product
identifier as part of the swap transaction and pricing data for a
transaction would provide information needed to describe the
publicly reportable swap transaction and enable market participants
and the public to compare such publicly reportable swap transaction
to other similar publicly reportable swap transactions.
\10\ Id.
\11\ 17 CFR 45.7(b).
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[[Page 11791]]
When it adopted Sec. 45.7 in 2012, the Commission acknowledged the
absence of a unique product identifier or product classification system
that adequately classified and described swaps products.\12\ The
Commission noted that the Bank for International Settlements Committee
on Payment and Settlement Systems (``CPSS'') and the Board of the
International Organization of Securities Commissions (``IOSCO'') had
recommended that the ``Financial Stability Board direct further
international consultation and coordination by financial and data
experts from both regulators and industry'' concerning the creation of
a swaps product classification system.\13\
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\12\ See 77 FR at 2165-66.
\13\ Id. The Financial Stability Board (FSB) is an international
body that monitors and makes recommendations about the global
financial system. Members of the FSB include the Board of Governors
of the Federal Reserve System, Department of the Treasury, and the
Securities and Exchange Commission. The Commission, though not an
FSB member, is a member of IOSCO.
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B. CPMI and IOSCO Technical Guidance on the Harmonization of the Unique
Product Identifier
Following a meticulous, conscientious process of international
coordination, the Bank for International Settlements Committee on
Payments and Market Infrastructures (``CPMI'') and IOSCO published
Technical Guidance on the Harmonization of the Unique Product
Identifier (``UPI Technical Guidance'') during September 2017.\14\ CPMI
and IOSCO, in the UPI Technical Guidance, specify the requirements
necessary for a product identifier to facilitate the reporting of swap
data to trade repositories and the aggregation of such data by
authorities.\15\ CPMI and ISOCO concluded that semantically meaningless
codes should be assigned to each unique product, with the product
attributes associated with each code discoverable by reference to
standardized tables (``Reference Data Library'').\16\ CPMI and IOSCO,
in the UPI Technical Guidance, require that the Reference Data Library
contain specific reference data elements that vary by asset class.
These required reference data elements detail the asset class, asset
class sub-types, underlying asset, and other swap product
attributes.\17\ CPMI and IOSCO also concluded that a unique product
identifier should satisfy fifteen distinct technical principles,\18\
and appointed the FSB to designate one or more service providers to
issue product codes and operate and maintain the Reference Data
Library, upon determining such provider would meet the principles in
doing so.\19\
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\14\ CPMI and IOSCO, Technical Guidance: Harmonisation of the
Unique Product Identifier, (Sept. 2017), available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD580.pdf.
\15\ Id.
\16\ Id.
\17\ Id.
\18\ Id. The fifteen technical principles identified by CPMI and
IOSCO are: jurisdiction neutrality, uniqueness, consistency,
persistence, adaptability, clarity, ease of assignment/retrieval/
query, long-term viability, scope neutrality, compatibility,
comprehensiveness, extensibility, precision, public dissemination,
and representation.
\19\ Id.
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The Commission played an integral role in the creation of the UPI
Technical Guidance. In addition to approving the issuance of the
guidance as an IOSCO Member, the Commission co-chaired the joint CPMI
and IOSCO workgroup that drafted the guidance. In this key position,
the Commission was able to ensure that the UPI Technical Guidance
defined a unique product identifier at a level of specificity and
distinctiveness that met the needs of the Commission.
C. FSB Designation of the Derivatives Service Bureau Limited
The FSB proposed that an entity or entities (``UPI Service
Provider'') provide for the timely issuance of unique product
identifier codes and maintenance of the Reference Data Library.\20\ The
FSB published a call for self-assessments from prospective UPI Service
Providers during July 2018.\21\ The FSB requested that each prospective
UPI Service Provider submit business and self-governance plans that
explained how the respondent could satisfy the UPI Technical Guidance
and certain other governance criteria.\22\ After reviewing the self-
assessments in coordination with CPMI and IOSCO, the FSB designated the
Derivatives Service Bureau Limited (``DSB'') as the UPI Service
Provider.\23\
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\20\ See, e.g., FSB, Governance arrangements for the unique
product identifier: key criteria and functions, (Oct. 2017),
available at: https://www.fsb.org/wp-content/uploads/P031017.pdf.
\21\ FSB, Self-assessment questionnaire for prospective UPI
Service Providers, (July 2018), available at: https://www.fsb.org/wp-content/uploads/P160718-2.pdf.
\22\ Id.
\23\ FSB, Press Release: FSB designates DSB as Unique Product
Identifier Service Provider (May 2, 2019), available at: https://www.fsb.org/2019/05/fsb-designates-dsb-as-unique-product-identifier-upi-service-provider/.
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The FSB published its final conclusions and implementation plan
regarding governance arrangements for the unique product identifier
system during October 2019 (``UPI Governance Report'').\24\ The FSB, in
the UPI Governance Report, enumerated the components of unique product
identifier governance arrangements and allocated governance functions
among the components. The components identified by the FSB include a
UPI Service Provider(s) that would issue unique product identifier
codes and maintain the Reference Data Library, and an International
Governance Body that would provide overall oversight of the UPI Service
Provider and the broader unique product identifier system.\25\ The FSB
also recommended that FSB jurisdictions undertake any actions relevant
to their situation to require the reporting of unique product
identifier codes to trade repositories in a manner consistent with the
UPI Technical Guidance and the UPI Governance Report.\26\
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\24\ FSB, Governance arrangements for the UPI: Conclusions,
implementation plan, and next steps to establish the International
Governance Body, (Oct. 2019), available at: https://www.fsb.org/wp-content/uploads/P091019.pdf.
\25\ Id. The FSB identified the Legal Entity Identifier
Regulatory Oversight Committee (``ROC'') as the entity best situated
to be the International Governance Body. The ROC is a group of more
than 65 financial markets regulators and other public authorities
and 19 observers from more than 50 countries that promotes the broad
public interest by improving the quality of data used in financial
data reporting, improving the ability to monitor financial risk, and
lowering regulatory reporting costs through the harmonization of
these standards across jurisdictions. The Commission is a ROC
member. Since assuming responsibilities as the International
Governance Body, the ROC has provided oversight of DSB.
\26\ Id.
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The Commission played a central role in the FSB's review of self-
assessments from prospective UPI Service Providers and in the creation
of the UPI Governance Report. The Commission co-chaired the FSB
workgroup that both reviewed self-assessments from prospective UPI
Service Providers and drafted the UPI Governance Report. In this key
role, the Commission was able to assist the FSB in ensuring that any
UPI Service Provider designated by the FSB had demonstrated an intent
and ability to comply with the UPI Technical Guidance.
The Commission is a member of the ROC and participates in oversight
of the unique product identifier system and DSB consistent with the UPI
Governance Report. The Commission also co-chairs the ROC committee that
focuses on oversight of DSB. In these roles at the ROC, the Commission
is able to assist the ROC in meeting its FSB-mandated responsibility to
oversee DSB and its adherence to the UPI Technical Guidance.
[[Page 11792]]
II. Commission Determination of an Acceptable Unique Product Identifier
and Product Classification System
For reasons explained below, the Commission has determined that the
unique product identifier codes issued by DSB for swaps in the credit,
equity, foreign exchange, and interest rate asset classes (``Covered
Asset Classes'') are acceptable to the Commission and satisfy the
requirements set forth in part 45.7 of the Commission's regulations in
that they identify and describe swap products with sufficient
distinctiveness and specificity to: (i) enable the Commission and other
regulators to fulfill their regulatory responsibilities, and (ii)
assist in real-time public reporting of swap transaction and pricing
data.
A. The UPIs Issued by DSB for Swaps in the Covered Asset Classes
Identify and Describe Swap Products With Sufficient Distinctiveness and
Specificity To Enable the Commission and Other Regulators To Fulfill
Their Regulatory Responsibilities
DSB issues unique product identifier codes for swaps in the Covered
Asset Classes in a manner consistent with the UPI Technical Guidance.
In accordance with the UPI Technical Guidance, each unique product
identifier code issued by DSB for swaps in the Covered Asset Classes
maps to a Reference Data Library containing specific reference data
elements that vary by asset class. These required reference data
elements detail the asset class, asset class sub-types, underlying
asset, and other swap product attributes.\27\
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\27\ The Commission and other financial regulators coordinated
under the auspices of CPMI and IOSCO to define the UPI Technical
requirements as including a requirement that the UPI have sufficient
detail and level of granularity to enable authorities to fulfil
their regulatory responsibilities. CPMI and IOSCO, Technical
Guidance: Harmonisation of the Unique Product Identifier at p.11.
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Identification of swaps using unique product identifier codes
issued by DSB in the Covered Asset Classes would enable the Commission
and other regulators to aggregate swap transaction data at various
levels of product classification, providing enhanced transparency of
market activity and facilitating oversight of the swaps markets. For
example, the reporting of unique product identifier codes issued by DSB
to all four SDRs provisionally registered with the Commission would
enable the Commission to not only aggregate transactions by unique
product identifier code across all SDRs, but to aggregate by any
reference data element contained in the Reference Data Library. This
would allow the Commission to aggregate not just all interest rate swap
transactions with the same unique product identifier, but also to
aggregate all interest rate swap transactions referencing the same
underlying interest rate index.
Combined with other standardized identifiers already used in swaps
recordkeeping and reporting, such as legal entity identifiers, unique
product identifier codes issued by DSB will provide a crucial
regulatory tool to facilitate the Commission's ability to link and
aggregate data to detect and mitigate systemic risk and prevent market
manipulation, among other important purposes of the Dodd-Frank Act.\28\
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\28\ For example, the aggregation of open credit swap
transactions by underlier and counterparty would provide the
Commission transparency into market participants' exposures to
credit events associated with particular underliers.
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B. The UPIs Issued by DSB for Swaps in the Covered Asset Classes
Identify and Describe Swap Products With Sufficient Distinctiveness and
Specificity To Assist in the Real Time Reporting of Swaps as Provided
in the CEA and the Commission's Regulations
Unique product identifier codes issued by DSB for swaps in the
Covered Asset Classes would assist the real time reporting of swaps
required by the CEA and part 43 of the Commission's regulations in
several important ways. Most importantly, inclusion of unique product
identifier codes issued by DSB in real-time public swaps reports will
assist public transparency because those codes identify products with
sufficient precision to allow for price discovery.\29\ The inclusion of
unique product identifier codes issued by DSB in real-time public swaps
reports will also assist in increasing the standardization of real time
public reporting across SDRs and facilitating a more efficient
reporting of swap products. Instead of the different product
identifiers and classification systems currently used across SDRs, the
inclusion of unique product identifier codes issued by DSB in all
public disseminations for swaps in the Covered Asset Classes will
facilitate the price discovery of swap transactions in the same product
that are published by different SDRs. This will enable market
participants and the public to more easily compare a publicly
reportable swap transaction published by one SDR with publicly
reportable swap transactions relating to the same product published by
a different SDR. Additionally, the inclusion of unique product
identifier codes issued by DSB in real-time swap reports will enable
the communication of many product characteristics in a single data
field. Since unique product identifier codes issued by DSB link to the
Reference Data Library maintained by DSB, the reporting of the code in
a single data field negates the need for the reporting of the
associated data contained in the Reference Data Library. This assists
real-time public reporting by reducing the number of data fields
required to be transmitted to facilitate price discovery.
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\29\ The Commission and other regulators coordinated under the
auspices of the CPMI and IOSCO to define the swap asset class, asset
class sub-types, and level of required precision that was necessary,
determined separately for each asset class, to support the real-time
public reporting of swap transaction and pricing data.
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III. Order of Designation of the Unique Product Identifier and Product
Classification System To Be Used in Recordkeeping and Swap Data
Reporting Pursuant to the Commission's Regulations for Swaps in the
Credit, Equity, Foreign Exchange, and Interest Rate Asset Classes
Based upon the foregoing, including the following facts:
(1) The Commission played an integral role in the creation of the
UPI Technical Guidance to ensure that the guidance defined a unique
product identifier at a level of specificity and distinctiveness that
met the needs of the Commission.
(2) The Commission worked with FSB to ensure that any UPI Service
Provider designated by the FSB had demonstrated an intent and ability
to comply with the UPI Technical Guidance.
(3) The UPI Technical Guidance requires that the Reference Data
Library contain specific reference data elements that vary by asset
class, detailing the asset class, asset class sub-types, underlying
asset, and other swap product attributes.
(4) In accordance with the UPI Technical Guidance, each unique
product identifier code issued by DSB for swaps in the Covered Asset
Classes maps to a Reference Data Library containing specific reference
data elements that vary by asset class. These required reference data
elements detail the asset class, asset class sub-types, underlying
asset, and other swap product attributes.
Accordingly, the Commission FINDS that, as required by Commission
regulation Sec. 45.7, the unique product identifiers issued by DSB for
swaps in the credit, equity, foreign exchange, and interest rate asset
classes are acceptable to the Commission and satisfy the requirements
set forth in part 45.7 of the Commission's regulations.
[[Page 11793]]
Therefore:
It is hereby ordered that:
1. Pursuant to section 21(b) of the Act and Commission regulation
Sec. 45.7, the product identifiers issued by the Derivatives Service
Bureau Limited as unique product identifiers (DSB UPIs) for swaps in
the credit, equity, foreign exchange, and interest rate asset classes
are designated as the unique product identifier and product
classification system to be used in recordkeeping and swap data
reporting pursuant to the Commission's regulations; this Order gives
notice of this designation.
2. Registered entities and swap counterparties shall use DSB UPIs
for swaps in the credit, equity, foreign exchange, and interest rate
asset classes in all recordkeeping and swap data reporting pursuant to
Part 45, and shall similarly use DSB UPIs for swaps in the credit,
equity, foreign exchange, and interest rate asset classes to facilitate
real-time public reporting as required by Part 43.
3. The Commission expects compliance with paragraph 2., above, by
no later than January 29, 2024. For this purpose, registered entities
and swap counterparties may contact the Derivatives Service Bureau
Limited at: 107 Cheapside, London, EC2V 6DN, England, +44 20 3880 2200,
DSB.com">[email protected]. Information concerning the procedures for
acquiring DSB UPIs may be accessed at https://www.anna-dsb.com/upi/.
Authority: 7 U.S.C. 24a(b).
Issued in Washington, DC, on February 16, 2023, by the
Commission.
Robert Sidman,
Deputy Secretary of the Commission.
NOTE: The following appendices will not appear in the Code of
Federal Regulations.
Appendices To Order Designating the Unique Product Identifier and
Product Classification System To Be Used in Recordkeeping and Swap Data
Reporting--Voting Summary and Chairman's and Commissioner's Statement
Appendix 1--Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson,
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No
Commissioner voted in the negative.
Appendix 2--Statement of Commissioner Christy Goldsmith Romero in
Support of Increasing Transparency in Swap Markets Through the Use of
Unique Product Identifiers
Swap data reporting is fundamental to post-crisis financial
regulation. Given the important goal of the Dodd-Frank Act to bring
transparency to risk in swap markets that was previously hidden, I
support the Commission's designation of unique product identifiers
for swap data reporting.
By increasing visibility into swap markets through real-time
public reporting and swap data repository reporting, the Commission
brought light to what was previously an opaque market with hidden
risk. Swap data reporting increases regulatory insight into swap
market activity, which is necessary to promote market integrity.
Real-time public reporting also promotes transparency and price
discovery by making swap transaction and pricing information
publicly available.
As swap markets are global markets, global harmonization
enhances the use of swap data for regulators, market participants,
and the public. The CFTC has been collaborating with global
regulators on uniform standards for defining and representing swap
products. I look forward to increased transparency in swap markets
through the use of standardized product identifiers.
[FR Doc. 2023-03661 Filed 2-23-23; 8:45 am]
BILLING CODE 6351-01-P