The CFTC proposes to strengthen swap dealer reporting requirements for commodity-based swaps—reporting that the CFTC uses for surveillance, oversight, and to avoid systemic risk.  Swaps markets contributed to the 2008 financial crisis, and were previously opaque, leaving regulators blind to emerging risks.[1]  Dodd Frank Act reforms required swap dealers to report transaction-level data to swap data repositories and the CFTC.

The proposed rule would require more granular data that will promote the Commission’s ability to oversee and regulate swap markets.  Last week, in remarks that referenced the CFTC’s access to transaction-level data on swaps trades reported into registered trade repositories, Treasury Undersecretary of Domestic Finance Nellie Liang discussed the importance of data for financial stability saying, “A key lesson from the global financial crisis is that opacity about critical markets and institutions resulting from lack of high-quality data can contribute to financial instability…Simply put, in a dynamic, interconnected economy such as ours, regulators cannot effectively safeguard financial stability or respond to crises if they do not have good data….”[2]

Accurate, timely, and high-quality data on swaps is fundamental to transparency, accountability, and the avoidance of systemic risk.  The Dodd-Frank Act recognized that transparency is critical to fair and orderly markets, the resilience of swap dealers and other market participants, and the stability of the U.S. financial system.

After a decade since Dodd-Frank Act swap data reporting rules have been in effect, the CFTC is strengthening swap data reporting from both an enforcement and regulatory standpoint.  The Commission has brought several recent enforcement actions for violating swap data reporting laws, including against JP Morgan,[3] Goldman Sachs,[4] Bank of America and Merrill Lynch,[5] and BNP Paribas.[6]  Their failure to follow the law hurt the Commission’s ability to carry out its Dodd-Frank Act mandate to ensure transparency in swap markets and to identify and reduce risks that could become systemic.

The CFTC must continuously guard against post-crisis complacency towards Dodd-Frank rules—rules that promote transparency, accountability, and financial stability.  Swap dealers must do the same and are reminded that they need to comply with swap reporting laws or face an enforcement action.

On the regulatory side, the CFTC has been involved in international coordination efforts to obtain more granular detail on swap reporting.[7]  As a result of that international coordination, on February 16, 2023, the Commission designated unique product identifiers for swap data reporting for credit, equity, foreign exchange, and interest rate swaps.[8]

The updates in this proposed rule would require unique product identifiers for commodity-based swaps, enabling the Commission to receive additional accurate and high-quality swap data.  These updates reflect CFTC engagement with swap dealers, swap data repositories, and industry groups about the technical specifications and implementation of unique product identifiers.

For commodity-based swaps, the CFTC proposes to require high-quality data that would expose risk at a granular level.  For example, one proposed new reporting field would include custom baskets that can be more bespoke in terms of the product and exposure risks.  Another new proposed reporting field would be the “Crypto asset underlying indicator” for commodity swaps.  This data would give the CFTC a level of insight that it does not currently have to safeguard against risks.  The Financial Stability Oversight Council’s 2023 Annual Report issued last week raised risks related to crypto-assets including “the potential for fraud, illicit finance, sanctions evasion, operational failures, liquidity and maturity mismatches, and risks to investors and consumers, as well as contagion within the crypto-asset market.”[9]

With these proposed updates, the Commission is furthering its Dodd-Frank mandate that CFTC’s regulations promote transparency and financial stability.  I thank the staff for their engagement and work.  I encourage commenters to let the CFTC know if there are additional data elements or updates to the CFTC’s technical instructions to ensure that the Commission will receive accurate and high-quality data that will enable the CFTC to increase transparency and financial stability.