FR Doc 2010-30476[Federal Register: December 8, 2010 (Volume 75, Number 235)]
[Proposed Rules]
[Page 76573-76609]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08de10-39]
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Part III
Commodity Futures Trading Commission
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17 CFR Part 45
Swap Data Recordkeeping and Reporting Requirements; Proposed Rule
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 45
RIN 3038-AD19
Swap Data Recordkeeping and Reporting Requirements
AGENCY: Commodity Futures Trading Commission (CFTC).
ACTION: Proposed Rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (``Commission or
CFTC'') is proposing rules to implement new statutory provisions
enacted by Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. These proposed rules apply to swap data recordkeeping
and reporting requirements for swap data repositories, derivatives
clearing organizations, designated contract markets, swap execution
facilities, swap dealers, major swap participants, and swap
counterparties who are neither swap dealers nor major swap participants
(including counterparties who qualify for the end user exception with
respect to particular swaps).
DATES: Comments must be received on or before February 7, 2011.
ADDRESSES: You may submit comments, identified by RIN number 3038-AD19,
by any of the following methods:
Agency Web site, via its Comments Online process: http://
comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
All comments must be submitted in English, or must be accompanied
by an English translation. Contents will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that may be exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the established procedures in
CFTC Regulation 145.9.\1\
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\1\ Commission regulations referred to herein are found at 17
CFR Ch. 1.
FOR FURTHER INFORMATION CONTACT: David Taylor, Special Counsel,
Division of Market Oversight, 202-418-5488, [email protected], or Irina
Leonova, Financial Economist, Division of Market Oversight, 202-418-
5646, [email protected]; Commodity Futures Trading Commission, Three
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Lafayette Centre, 1155 21st Street, NW., Washington, DC 20851.
SUPPLEMENTARY INFORMATION:
Table of Contents
Supplementary Information
I. Background
A. Introduction
B. Swap Data Provisions of the Dodd-Frank Act
C. International Developments Affecting Swap Data Reporting
G-20 and FSB
Standard Setting for Repositories and Data Reporting by
IOSCO and CPSS
BIS
ODRF and ODSG
D. Regulatory Needs for Swap Data
E. Existing Trade Repositories
F. Consultations With Other U.S. Financial Regulators
G. Consultations With International Regulators
Data Reporting Approaches
II. Proposed New Regulations, Part 45
A. Recordkeeping Requirements
B. Swap Data Reporting
Swap Creation Data
Swap Continuation Data
C. Unique Identifiers
Need for Unique Identifiers
Unique Swap Identifiers
Unique Counterparty Identifiers
Unique Product Identifiers
D. Determination of Which Counterparty Must Report
E. Third Party Facilitation of Swap Data Reporting
F. Reporting to a Single SDR
G. Swap Data Reporting for Swaps in Asset Classes Not Accepted
by Any Swap Data Repository
H. Required Data Standards
Reporting of Errors and Omissions in Previously Reported Data
III. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
Cost-Benefit Analysis
Proposed Effective Data
IV. General Solicitation of Comments
Proposed Rules
Sec. 45.1 Definitions
Sec. 45.2 Swap Recordkeeping
Sec. 45.3 Swap Data Reporting
Sec. 45.4 Unique Identifiers
Sec. 45.5 Determination of Which Counterparty Must Report
Sec. 45.6 Third-Party Facilitation of Data Reporting
Sec. 45.7 Reporting to a Single SDR
Sec. 45.8 Data Reporting for Swaps in a Swap Asset Class Not
Accepted by Any SDR
Sec. 45.9 Required Data Standards
Sec. 45.10 Reporting of Errors and Omissions in Previously
Reported Data
Appendix 1 to Part 45--Tables of Minimum Primary Economic Terms Data
and Minimum Valuation Data
Appendix 2 to Part 45--Master Reference Generic Data Fields List
I. Background
A. Introduction
On July 21, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\2\
Title VII of the Dodd-Frank Act \3\ amended the Commodity Exchange Act
(``CEA'' or ``Act'') \4\ to establish a comprehensive new regulatory
framework for swaps and security-based swaps. The legislation was
enacted to reduce systemic 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 derivative
products; creating rigorous recordkeeping and data 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 oversight.
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\2\ See 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.
\3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\4\ 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 728 of the Dodd-Frank Act establishes a newly-
created registered entity--the swap data repository (``SDR'') \5\--to
collect and maintain data related to swap transactions as prescribed by
the Commission, and to make such data electronically available to
regulators.\6\
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\5\ See also CEA Sec. 1a(40)(E).
\6\ Regulations governing core principles and registration
requirements for, and the duties of, SDRs are the subject of a
separate notice of proposed rulemaking under Part 49 of the
Commission's regulations.
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Section 728 directs the Commission to prescribe standards for swap
data recordkeeping and reporting. Specifically, Section 728 provides
that:
The Commission shall prescribe standards that specify the data
elements for each swap
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that shall be collected and maintained by each registered swap data
repository.\7\
\7\ CEA Sec. 21(b)(1)(A).
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These standards are to apply to both registered entities and
counterparties involved with swaps:
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.\8\
\8\ CEA Sec. 21(b)(1)(B).
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Section 727 of the Dodd-Frank Act requires that each swap, either
cleared or uncleared, shall be reported to a registered SDR. That
Section also amends Section 1(a) of the CEA to add the definition of
swap data repository:
The term `swap data repository' means any person that collects and
maintains information or records with respect to transactions or
positions in, or the terms and conditions of, swaps entered into by
third parties for the purpose of providing a centralized recordkeeping
facility for swaps.\9\
\9\ CEA Sec. 1a(48).
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Section 728 also directs the Commission to regulate data collection and
maintenance by SDRs.
The Commission shall prescribe data collection and data
maintenance standards for swap data repositories.\10\
\10\ CEA Sec. 21(b)(2).
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These standards are to be comparable to those for clearing
organizations.
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.\11\
\11\ CEA Sec. 21(b)(3).
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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 designated clearing organization (``DCO'') must be reported to an
SDR (or to the Commission if no repository will accept the swap).
Section 729 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. Where the counterparties have the same status--two
SDs, two MSPs, or two non-SD-MSP counterparties--the counterparties
must select a counterparty to report the swap.\12\
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\12\ See CEA Sec. 4r(a)(3).
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In addition, Section 729 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.\13\ 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.\14\ Such reports must
be as comprehensive as the data required to be collected by SDRs.\15\
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\13\ 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.
\14\ CEA Sec. 4r(c).
\15\ CEA Sec. 4r(d).
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C. International Developments Affecting Swap Data Reporting
An extensive amount of work has been done in the area of over-the-
counter (``OTC'') derivatives reporting, both internationally and
domestically. The Commission has reviewed and considered this work in
preparing these proposed regulations.
G-20 and FSB. In November 2008, as a response to the global
economic crisis, the G-20 met in Washington. In September 2009, G-20
Leaders agreed in Pittsburgh to critical elements relating to the
reform of OTC oversight, including a provision that all ``OTC
derivatives contracts should be reported to trade repositories.'' \16\
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\16\ G-20 Leaders' Statement, The Pittsburg Summit, September
24-25, 2009.
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In October 2010, the Financial Stability Board (``FSB'') published
a report setting out 21 recommendations addressing implementation of G-
20 commitments concerning standardization, central clearing, organized
platform trading, and reporting to trade repositories (``TRs'').\17\
The report stated that regulatory authorities ``must have full and
timely access to the data needed to carry out their respective
mandates.'' \18\ It also provided that:
\17\ Financial Stability Board, Implementing OTC Derivatives
Market Reforms: Report of the OTC Derivatives Working Group, October
20, 2010.
\18\ Id. at 1-2.
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Authorities with the legal mandate to set requirements for the
reporting of transactions to trade repositories should consider the
recommendations set out in the forthcoming report of the FSB Data
Gaps and Systemic Linkages Group, and consult with the Committee on
the Global Financial System (CGFS), the Bank for International
Settlements (BIS), the ODSG and ODRF, to identify the data that
should be reported to trade repositories to enable authorities to
carry out their respective tasks . * * * Further, as the data must
be able to be readily aggregated on a global basis, by end-2011 CPSS
and IOSCO, in consultation with authorities, and with the ODRF,
should develop both for market participants reporting to trade
repositories and for trade repositories reporting to the public and
to regulators: (i) minimum data reporting requirements and
standardised formats, and (ii) the methodology and mechanism for the
aggregation of data on a global basis.\19\
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\19\ Financial Stability Board, Implementing OTC Derivatives
Market Reforms: Report of the OTC Derivatives Working Group, October
20, 2010, at 49.
Standard-Setting for Repositories and Data Reporting by CPSS and
IOSCO. To fulfill the mandate from FSB noted above, the Committee on
Payment and Settlement Systems (``CPSS''), and the International
Organization of Securities Commissions (``IOSCO''), which is recognized
as the international standard setting body for securities markets, have
formed an OTC Derivatives Regulation Task Force (``Task Force''). One
purpose of the Task Force is ``to take a leading role in coordinating
securities and futures regulators' efforts to work together in the
development of supervisory and oversight structures related to
derivatives markets,'' and ``to coordinate other international
initiatives relating to OTC derivatives regulation.'' \20\ Regarding
data reporting, the Task Force will produce a data report, scheduled
for release in July 2011, which:
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\20\ IOSCO Technical Committee Task Force On OTC Derivatives
Regulation, Terms of Reference, at 1-2.
sets out, both for market participants reporting to trade
repositories and for trade repositories reporting to the public and
to regulators for the purpose of macro- and micro-surveillance: (1)
Minimum data reporting requirements and standardised formats; and
(2) the methodology and mechanism for the aggregation of data on a
global basis.\21\
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\21\ Id.
The Commission serves as a Co-Chair of the Task Force, and will
participate in drafting its data report.
In May 2010, the IOSCO Technical Committee and CPSS issued a
consultative report, Considerations for Trade Repositories in OTC
Derivatives Markets (``CPSS-IOSCO Considerations for Trade
Repositories''), that identified
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twelve factors for consideration by trade repositories and relevant
authorities in developing more robust data recordkeeping and reporting
arrangements for derivatives.\22\ Regarding data reporting and
recordkeeping, the report emphasizes that:
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\22\ Committee on Payment and Settlement Systems, and Technical
Committee of the International Organization of Securities
Commissions, Considerations for Trade Repositories in OTC
Derivatives Markets: Consultative Report, May 2010.
[A] trade repository should promptly record the trade
information it receives from its participants. To ensure the
accuracy and currency of data, a trade repository should employ
timely and efficient record keeping procedures to document changes
to recorded trade information resulting from subsequent post-trade
events. Ideally, a trade repository should record to its central
registry trade information it receives from its participants in
real-time, and at a minimum, within one business day.\23\
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\23\ Id. at 11.
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BIS. The Bank for International Settlements (``BIS'') is an
international organization that fosters international monetary and
financial cooperation and serves as a bank for central banks. It is the
parent organization of CPSS, which is a BIS standing committee. BIS's
Coordination Group, a senior group of supervisory standard setters
comprised of the Chairmen and Secretaries of BIS, IOSCO, and the
International Association of Insurance Supervisors, meets twice
annually to allow supervisory standard setting organizations to
exchange views on priorities and key issues. BIS also publishes
statistics on global banking, securities, foreign exchange and
derivatives markets. Its Semiannual Over-the-Counter (OTC) Derivatives
Markets Statistics Report is designed to obtain comprehensive and
internationally consistent information on the size and structure of
major derivatives markets, including information on swaps and options
of foreign exchange, interest rate, equity and commodity derivatives.
Every three years, this semiannual survey is part of a world-wide
exercise concerning activity on derivatives markets. For these reasons,
BIS's expertise is relevant to data recordkeeping and reporting for
derivatives.
ODRF and ODSG. The OTC Derivative's Regulators' Forum (``ODRF'')
brings together representatives from central banks, prudential
supervisors, securities regulators and market regulators to discuss
issues of common interest, regarding central clearing parties
(``CCPs'') and TRs for OTC derivatives.\24\ As part of its support for
application and implementation of standards, the ODRF has developed an
outline of trade repository functionality that is desired by its
members.\25\ The outline is designed to document trade repository
attributes that will support the market transparency and data
availability objectives set out in the CPSS-IOSCO Considerations for
Trade Repositories. The outline addresses types, coverage, quality, and
frequency of TR data, as well as access to TR data and desirable data
elements. When discussing the frequency of data reporting to trade
repositories, the outline suggests that transaction data in trade
repositories should be updated at least once per day, such that all
transaction records can be considered reliable as of the previous day.
The OTC Derivatives Supervisors Group (``ODSG'') brings together the
prudential supervisors of the major OTC derivatives dealers for
coordination among them concerning major industry initiatives in the
OTC derivatives market. The ODSG has worked cooperatively with major
industry participants concerning establishment of trade repositories
for several OTC derivatives asset classes.
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\24\ As the ODRF itself states, ``the Forum is not a legal
entity in its own right with its own separate and independent
authority, nor is it a standard setting body.'' Rather, the ODRF
``provides mutual assistance among the [regulatory] Authorities in
carrying out their respective responsibilities with respect to OTC
derivatives CCPs and TRs. In doing so, the Forum acts without
prejudice to each Authority's statutory duties, and to national and
otherwise applicable laws.'' While the ODRF seeks to promote
consistent standards, ``This does not mean that the Forum will
develop its own standards or provide guidance interpreting
standards, but rather, the Forum supports the application and
implementation of standards set by other bodies in the international
regulatory community.'' OTC Derivatives Regulators' Forum, Scope and
Relationship with International Bodies, March 23, 2010, at 1.
\25\ ODRF, Outline of Trade Repository Functionality Being
Sought by Members of the OTC Derivatives Regulators' Forum (version
2), August 27, 2010.
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D. Regulatory Needs for Swap Data
The various parts of the U.S. financial sector are regulated by
several agencies and institutions: the Commodity Futures Trading
Commission (``CFTC''), Office of the Comptroller of the Currency
(``OCC''), Federal Deposit Insurance Corporation (``FDIC''), Federal
Reserve Board of Governors (``FRB''), National Credit Union
Administration (``NCUA''), and Securities and Exchange Commission
(``SEC'').
The CFTC's mission is to protect market users and the public from
fraud, manipulation, and abusive practices related to the sale of
commodity and financial futures and options, and to foster open,
competitive, and financially sound futures and option markets. The
OCC's primary mission is to charter, regulate, and supervise all
national banks. The OCC supervises the Federal branches and agencies of
foreign banks. The OCC's goal in supervising banks is to ensure that
they operate in a safe and sound manner and in compliance with laws
requiring fair treatment of their customers and fair access to credit
and financial products. The FDIC is an independent agency created by
the Congress to maintain stability and public confidence in the
nation's financial system by: Insuring deposits, examining and
supervising financial institutions for safety and soundness and
consumer protection, and managing receiverships. The Federal Reserve's
duties fall into four general areas: Conducting the nation's monetary
policy by influencing the monetary and credit conditions in the economy
in pursuit of maximum employment, stable prices, and moderate long-term
interest rates; supervising and regulating banking institutions to
ensure the safety and soundness of the nation's banking and financial
system and to protect the credit rights of consumers; maintaining the
stability of the financial system and containing systemic risk that may
arise in financial markets; providing financial services to depository
institutions, the U.S. government, and foreign official institutions,
including playing a major role in operating the nation's payments
system. The NCUA is the independent Federal agency that charters and
supervises Federal credit unions. The mission of the SEC is to protect
investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation.
According to their regulatory mandates, the various U.S. financial
regulators need different types of financial information to fulfill
their missions. Systemic risk regulators, among other things, need data
that will enable them to monitor gross and net counterparty exposures,
wherever possible, not only on notional volumes for each contract but
also market values, exposures before collateral, and exposure values
net of collateral with a full counterparty breakdown. Such data would
allow for the calculation of measures that capture counterparty risk
concentrations both for individual risk categories as well as the
overall market. Market regulators need data that enables them to
promote market competitiveness and efficiency, protect market
participants against fraud, manipulation, and abusive trading
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practices, enforce aggregate speculative position limits as adopted,
and ensure the financial integrity of the clearing process.
International financial regulators have similarly varied data
needs. As noted in FSB's Report on Implementing OTC Derivative Market
Reforms:
The breadth and depth of information needed by authorities
varies according to their respective mandates and may continue to
evolve over time. Such mandates and objectives include, (i)
assessing systemic risk and financial stability; (ii) conducting
market surveillance and enforcement; (iii) supervising market
participants; and (iv) conducting resolution activities.\26\
\26\ Financial Stability Board, Implementing OTC Derivatives
Market Reforms: Report of the OTC Derivatives Working Group, October
20, 2010, at 47.
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When expanding on the level of data that must be collected to
satisfy these regulatory functions, the Report addresses both
transaction level data and portfolio level data. Regarding transaction
level data, the Report says:
Authorities must be able to retrieve transaction event (flow)
data at different levels of granularity, from aggregate statistics
to transaction level information. TRs must collect and maintain data
at a high level of details. Transaction event data must preserve
information on the original terms of the transaction that is
complete as practical and possible, and includes, for example,
preserving the underlying reference, trading counterparties, price,
and the time and date of the original transactions.\27\
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\27\ Id. at 48.
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Regarding portfolio level data, the Report states that:
TRs should collect data to enable monitoring of gross and net
counterparty exposures where possible, not only on notional volumes
for each contract but also market values, exposures before
collateral, and exposure value net of collateral with a full
counterparty breakdown. This would allow for the calculation of
measures that capture counterparty risk concentration both for
individual risk categories as well as the overall market.\28\
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\28\ Id.
E. Existing Trade Repositories
Currently there are global trade repositories for credit, interest
rate, and equity derivatives, in various stages of maturity and
development.
Credit Swaps Repository. The oldest and most fully developed of the
three existing trade repositories is the current repository for credit
swaps, the Depository Trust & Clearing Corporation's (``DTCC's'') Trade
Information Warehouse (``DTCC Warehouse'' or ``Warehouse''). It is
operated by a DTCC subsidiary, The Warehouse Trust Company, LLC, which
is registered as a bank and regulated as a member of the U.S. Federal
Reserve System, and as a limited purpose trust company by the New York
State Banking Department. All G-14 dealers began submitting credit swap
data to DTCC Warehouse in 2009, after they committed to reporting all
credit swap trades to a repository.
In addition to receiving and maintaining swap data, the Warehouse
is substantially focused on providing a number of other services to
swap counterparties. It calculates payments on all confirmed CDS
contracts and creates real-time bilateral nets for each currency.\29\
The Warehouse supports trade processing associated with events of
default, such as bankruptcy, failure to pay and restructuring that may
trigger pay-outs for the buyer of the credit protection for the
underlying reference entity of the credit derivative. Its automated
event processing includes coupon payment recalculations, and
calculation of credit event recovery and rebate amounts based on
auction results, automated exit of the transactions for single-named
trades exhausted by the credit event, factor adjustment and re-
versioning to new identification for affected index transactions.
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\29\ For currency swaps involving foreign exchange (sometimes
called FX swaps), DTCC also provides central, automated settlement
of payments for contracts processed through the Warehouse's Central
Settlement Service, in partnership with CLS Bank International.
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Interest Rate Swaps Repository. In January 2010, TriOptima launched
the Global OTC Derivatives Interest Rate Trade Reporting Repository
(``TriOptima Interest Rate Repository'' or ``TriOptima IRTRR''), after
being selected by the Rates Steering Committee of the International
Swaps and Derivatives Association (``ISDA'') to provide a trade
repository to collect information on trades in the interest rate
derivatives market. The TriOptima IRTRR is regulated by the Swedish
Financial Supervisory Authority. TriOptima is also a provider of post-
trade services for OTC derivatives, including portfolio reconciliation
and compression.
Equity Swaps Repository. The newest existing trade repository is
DTCC's Equity Derivatives Reporting Repository (``EDRR''), launched on
August 5, 2010. EDRR is designed to hold key position data, including
product types, notional value, open trade positions, maturity and
currency denomination for transactions, and counterparty type
indicators. Equity derivatives that EDRR plans to support initially
include equity swaps, dividend swaps, variance swaps, portfolio swaps,
and swaptions, among other categories. DTCC's MarkitSERV subsidiary
will provide operational support, including account management, client
sign-up and customer service, and other product management services.
Derivatives Repository Ltd., the legal company that runs the EDRR
service, is regulated by the United Kingdom Financial Services
Authority (``UK FSA'').
Existing Repository Data Access. Access to data in the existing
repositories requires a Memorandum of Understanding between the primary
regulator of a repository and any competent financial regulatory
authority that requires the data for regulatory purposes.
F. Consultations With Other U.S. Financial Regulators
In developing the swap data recordkeeping and reporting rule,
Commission staff has engaged in extensive consultations with U.S.
domestic financial regulators. The agencies and institutions consulted
include the Federal Reserve Board of Governors (including the Federal
Reserve Bank of New York), Federal Deposit Insurance Corporation,
Office of the Comptroller of Currency, Securities and Exchange
Commission, and the Department of the Treasury. Commission staff
welcomes and will continue consultations with these and other U.S.
agencies and institutions while working on the final version of the
rule.
G. Consultations With International Financial Regulators
In developing the swap data recordkeeping and reporting rule,
Commission staff has had extensive consultations with numerous
international financial regulators and organizations. The international
organizations and institutions consulted have included the European
Commission (``EC''), European Central Bank (``ECB''), Committee of
European Securities Regulators (``CESR''), FSB Data Gaps and Systemic
Linkages Group (``DGSLG''), UK FSA, and financial regulators from
India, Brazil, and Canada, as well as IOSCO and the ODRF. Commission
staff welcomes and will continue consultations with these and other
international agencies, institutions and organizations while working on
the final version of the rule.
H. Data Reporting Approaches
Two Conceptual Approaches to Swap Data Reporting. Conceptually,
there are two distinct approaches to swap data reporting. One is
commonly referred to as a life-cycle or event flow approach,
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and the other is a state or snapshot approach.
The life cycle approach is focused on managing the flow of an
information system's data throughout the life cycle of the flow from
creation and initial storage to the time when it becomes obsolete.
Sometimes called an event flow approach, the life cycle method records
the details of a swap at its inception, and thereafter records
individual events that affect the terms of the swap, when they occur.
Systems based on the life-cycle data reporting approach typically are
based on, or interrelated with, operational infrastructure for other
functions, such as central credit event processing, legal
recordkeeping, settlement services, etc.
The state or snapshot approach is based on a report of all of the
primary economic terms of a swap at its inception, followed by a daily
update of the current state of the swap which incorporates all the
changes that have happened to the swap since the previous snapshot.
This approach also maintains daily synchronization and reconciliation
of the data in a repository with the data of the reporting swap
counterparty. Unlike the life cycle approach, the state or snapshot
approach does not require specifying and prescribing the various events
that require updating of data in a repository.
While both approaches are viable methods of data collection, one
can be more efficient than the other in different assets classes, due
to differences between asset classes in terms of market structure and
market processes. While a life-cycle approach is an efficient and
effective method of data processing for credit swaps, and may also be
suitable for equity swaps, a state or snapshot approach maybe more
appropriate for interest rate swaps, commodity swaps, and currency
swaps.
Illustration of the Life Cycle Approach. The DTCC Warehouse,
currently the only centralized global repository for OTC credit
derivatives contracts, follows the life cycle approach to data
reporting. The Warehouse supports the trade processing associated with
events of default, including bankruptcy, failure to pay, restructuring,
and other life cycle credit events which may trigger payouts for the
buyer of credit protection for the underlying reference entity that is
the subject of the credit swap.
DTCC cites several benefits of using a life cycle approach for
credit swaps. These benefits include greater control over payment
processing, by providing an automated way for participants to start or
stop automatic calculation of coupon payments for a specific trade;
minimization of time and cost by automating payment calculations and
providing bilateral netting of payments for firms participating in the
Warehouse; increased efficiency through streamlining of the trade
adherence process for life cycle events; and reduction of risk by
handling all credit events and successor events identically for each
participant, in the same time frame and with the same deadlines.
DTCC itself recognizes that the life cycle approach is not the
optimum approach for all asset classes, and that it often involves
ancillary services not part of the core function of a repository. In
responding to the CPSS-IOSCO Considerations for Trade Repositories,
DTCC agreed with comments made by a European Commission staff working
paper that highlighted the different fundamental natures of the OTC
derivatives asset classes.\30\ Due to these fundamental asset class
differences, DTCC said, it should be recognized that:
\30\ European Commission Staff Working Paper Accompanying the
Commission Communication ``Ensuring Efficient, Safe and Sound
Derivatives Markets (SEC 2009) 905 final, 3 July 2009).*COM019*
Therefore, for other asset classes (such as interest rates,
equity derivatives, commodities, etc.) the nature of the products
will dictate the overall operational infrastructure. For example,
life cycle credit events are only relevant to CDSs.
DTCC therefore agrees that repository services that fall broadly
under (1) position recording, (2) data cleansing, [and] (3)
reporting to regulators, the public and participant firms should be
provided on a global basis for each OTC asset class. The stated
goals of a repository--``to foster transparency, thus supporting the
efficiency, stability of and orderly functioning (i.e. avoidance of
abusive behavior) of financial markets''--are readily achieved
through these services.
However, DTCC does not believe it is appropriate to extend the
definition of a repository to encompass the aspects of Asset
Services (including legal record keeping) and Settlement Services
that the TIW (Trade Information Warehouse) provides to the CDS
market. These additional services are provided in addition to the
trade repository and are complementary to it, as opposed to being an
integral part.\31\
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\31\ Depository Trust & Clearing Corporation, Response by The
Depository Trust & Clearing Corporation to the CPSS-IOSCO
Consultative Report, June 22, 2010, at 8.
In contrast to the DTCC Warehouse, which offers a full suite of
repository and life cycle event processing services, the DTCC Equity
Derivatives Reporting Repository offers only position recording and
reporting services. This aligns with the industry's primary focus in
developing this repository.
Illustration of the State or Snapshot Approach. The TriOptima
Interest Rate Repository, currently the only centralized, global
repository for OTC interest rate derivatives contracts, uses the state
or snapshot approach to data reporting for interest rate swaps. The
TriOptima IRTRR collects transaction data on interest rate derivatives
from market participants and provides regulators with monthly reports
summarizing outstanding trade volumes and gross notionals as well as
currency breakdown and maturity profiles by product type. It holds
information for all types of both cleared and non-cleared OTC
derivatives interest rate transactions.
TriOptima cites a number of benefits of using the state or snapshot
approach for interest rate swaps. One is that this approach allows the
repository to have complete and up-to-date records at all times for all
live contracts to which the counterparties are legally bound (whether
or not full legal confirmation--which can take weeks--has occurred).
Such swap data comprehensiveness is a key consideration for systemic
risk monitoring. Another is that the state or snapshot approach avoids
a need to specify and prescribe all of the events that would need to be
recorded by a repository. TriOptima notes that this would be extremely
difficult for interest rate swaps--in contrast to credit swaps where
the list of life cycle events is clearly established--due to the wide
variety of different types of interest rate swaps, including
``bespoke'' swaps tailored to the specific needs of non-SD/MSP
counterparties (including end users), and to ongoing interest rate swap
product innovation. Provision of a daily snapshot also ensures that the
swap data in the repository is reconciled and synchronized each day
with the reporting counterparty's internal systems, which improves the
quality of data in the repository through interfacing with the
reporting counterparty's risk management systems.\32\
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\32\ See TriOptima Letter to the Commodity Futures Trading
Commission, October 26, 2010.
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II. Proposed New Regulations, Part 45
A. Recordkeeping Requirements
The Commission's existing requirements for recordkeeping with
respect to futures and options are found in Sections 5(b) and 5(d) of
the CEA; Sec. Sec. 1.31 and 1.35 of the Commission's Regulations;
Appendix B to Part 38 of the Commission's Regulations, Core Principle
17, Recordkeeping; and Appendix A to Part 39 of the
[[Page 76579]]
Commission's Regulations, Core Principle K, Recordkeeping.
Collectively, these provisions establish recordkeeping requirements for
all designated contract markets (``DCMs''), DCOs, futures commission
merchants (``FCMs''), introducing brokers (``IBs''), and members of
contract markets. Each such entity or person is generally required to
keep full and complete records, together with all pertinent data and
memoranda, of all activities relating to the business of the entity or
person that is subject to the Commission's authority. All such records
must be kept for a period of five years from the date of the record,
and must be readily accessible during the first two years of the five-
year period. Copies of all such records must be provided, at the
expense of the person required to keep the records, upon request by any
representative of the Commission or the Department of Justice.
The Commission believes that the rationale for requiring Commission
registrants to keep all records relating to the business involved must
also govern recordkeeping with respect to swaps by registered entities
and swap counterparties. Such records are essential to carrying out the
regulatory functions of not only the Commission but all other financial
regulators, and for appropriate risk management by registered entities
and swap counterparties themselves. The need for such records is also
recognized internationally. As CPSS has noted:
[I]t should be clear that the data recorded in a TR [trade
repository] cannot be a substitute for the records of transactions
at original counterparties. Therefore, it is important that even
where TRs have been established and used, market participants
maintain their own records of the transactions that they are a
counterparty to and reconcile them with their counterparties or TRs
on an ongoing basis (including for their own risk management
purposes).\33\
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\33\ Committee on Payment and Settlement Systems, Considerations
for Trade Repositories in OTC Derivatives Markets, May 2010, at 1.
A swap can continue to exist for a substantial period of time prior
to its final termination or expiration. During this time, which in some
cases can extend for many years, the key economic terms of the swap can
change. 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.
Accordingly, the Commission's proposed regulations establishing
general swap recordkeeping requirements would require that all DCOs,
DCMs, swap execution facilities (``SEFs''), SDs, and MSPs must keep
full, complete, and systematic records, together with all pertinent
data and memoranda, of all activities relating to the business of such
entities or persons with respect to swaps. For all such entities and
swap counterparties, these requirements would include, without
limitation, records of all data required to be reported in connection
with any swap.
The proposed regulations would require that all records required to
be kept by DCOs, DCMs, SEFs, SDs, MSPs, and non-SD/MSP counterparties
must be kept throughout the existence of the swap and for five years
following final termination of the swap.\34\ Records required to be
kept by DCOs, DCMs, SEFs, SDs, and MSPs would be required to be readily
accessible by the registered entity or person in question via real time
electronic access throughout the life of the swap and for two years
following the final termination of the swap, and retrievable within
three business days through the remainder of the required retention
period.
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\34\ The Commission is aware that the European Commission's
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL on OTC derivatives, central counterparties, and trade
repositories, SEC(2010) 1058 and 1059, September 15, 2010, would
require retention of records concerning swaps for ten years
following final termination of a swap. The Commission is proposing
to require record retention for five years following final
termination of a swap because it believes that a ten-year post-
termination retention period may not be necessary for regulatory
purposes, and could possibly impose an undue burden and costs on
registered entities and swap counterparties. The Commission requests
comment concerning the appropriate length of the required post-
termination retention period.
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Non-SD/MSP counterparties, including counterparties who qualify as
end users counterparties pursuant to Section 2(h)(7) of the CEA with
respect to particular swaps, would be required to keep full, complete,
and systematic records, including all pertinent data and memoranda,
with respect to each swap in which they are a counterparty. Each such
record would be required to be retrievable by the counterparty within
three business days during the required retention period.
The proposed rules would place lesser recordkeeping requirements on
non-SD/MSP counterparties than on SD or MSP counterparties or
registered entities because the Commission understands that non-SD/MSP
counterparties are less likely than other counterparties or registered
entities to have appropriate systems in place for this purpose, and
that the number of swaps in which they are counterparties is likely to
be smaller than the corresponding number for SDs or MSPs. The
Commission believes that this approach also effectuates a policy choice
made by Congress in Dodd-Frank to place lesser burdens on non-SD/MSP
counterparties to swaps, where this can be done without damage to the
fundamental systemic risk mitigation, transparency, standardization,
and market integrity purposes of the legislation. The Commission
requests comment concerning whether it should adopt a phase-in approach
for recordkeeping requirements by non-SD/MSP counterparties.
Because of the importance of swap data held in SDRs to all of the
various regulatory functions of financial regulators across the U.S.
financial sector and internationally, the proposed regulations would
require that all records required to be kept by SDRs must be kept by
the SDR both: (a) Throughout the existence of the swap and for five
years following final termination or expiration of the swap, during
which time the records must be readily accessible by the SDR and
available to the Commission via real time electronic access; and (b)
thereafter, for a period determined by the Commission, in archival
storage from which they are retrievable by the SDR within three
business days. The Commission believes that SDR records must be readily
accessible via real time electronic access throughout the existence of
the swap and for five years following final termination or expiration
of the swap in order to make effective the statutory mandate that SDRs
must ``provide direct electronic access to the Commission (or any
designee of the Commission including another registered entity.'' \35\
Regarding the length of the additional period, commencing five years
after final termination or expiration of a swap, during which an SDR
must keep swap records in archival storage, the Commission notes that
the ODRF has called for trade repositories to ``retain historical data
for an indefinite period.'' \36\ The Commission seeks comment
concerning whether SDRs should be required to keep swap data in
archival storage in perpetuity, or whether a limited term in years
should be required, and, if so, what archival storage period should be
required.
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\35\ Dodd-Frank Sec. 728, CEA Sec. 21(c)(4)(A).
\36\ ODRF, Outline of Trade Repository Functionality Being
Sought by Members of the OTC Derivatives Regulators' Forum (version
2), August 27, 2010, at 2.
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The proposed regulations would also require that all records
required to be kept pursuant to the regulations must be
[[Page 76580]]
open to inspection upon request by any representative of the
Commission, the Department of Justice, or the SEC, or by any
representative of a prudential regulator as authorized by the
Commission. The registered entity or swap counterparty involved would
be required to provide copies to the Commission, at the expense of the
registered entity or swap counterparty involved, either by electronic
means, in hard copy, or both, as requested by the Commission.
As referenced in the proposed regulations, in addition to the
general recordkeeping requirements discussed above, specific
recordkeeping requirements are being proposed in the Commission's other
proposed rulemakings concerning SDRs, DCOs, DCMs, SEFs, SDs, MSPs, and
non-SD/MSP counterparties.
The Commission requests comment on all aspects of the proposed
recordkeeping requirements. The Commission specifically requests
comment on the following aspects of the requirements:
The necessity, for risk management and other business
purposes, of the records required to be kept;
The length of time the records are required to be kept
by DCOs, DCMs, SEFs, SDs, MSPs, and non-SD/MSP counterparties; the
technology with which the records can be kept, any burden created by
this requirement, and the usefulness of the records in question over
the time required;
The length of time the records are required to be kept
by SDRs, the technology with which the records would be kept, any
burden created by this requirement, and the usefulness of the
records in question over the time required;
Whether records should be required to be kept by DCOs,
DCMs, SEFs, SDs, MSPs, and non-SD/MSP counterparties for ten years
following final termination of a swap rather than five years; and
The requirement that records be accessible in real time
for the periods required in the proposed regulation.
Whether the Commission should adopt a phase-in approach
to recordkeeping requirements for non-SD/MSP counterparties.
B. Swap Data Reporting
Swap Data Reporting from Two Stages of a Swap's Existence. The
Commission believes that it is important for fulfillment of the
purposes of Dodd-Frank to ensure that complete data concerning swaps is
maintained in SDRs and available to regulators.\37\ Accordingly, the
Commission believes that swap data reporting should include 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.\38\
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\37\ It is important to note that the reporting requirements
addressed in this proposed rulemaking are separate from the public
reporting of swap transactions requirements found in CEA Sec.
2(a)(13)(A) through (F), commonly called real time reporting. Real
time reporting requires swap data to be publicly disseminated in a
manner that protects anonymity. See CEA Sec. Sec. 2(a)(13)(C)(iii)
and 2(a)(13)(E)(i).
It is also important to note that the Commission intends to
establish data recordkeeping and reporting requirements for
``transitional swaps'' in a separate rulemaking. ``Transitional
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 effective
date of the final rule issued pursuant to this present rulemaking.
CEA Section 2(h)(5) Reporting Transition Rules provides that ``Swaps
entered into on or after [the] date of enactment [of the Dodd-Frank
Act] 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.'' The Commission anticipates that the rulemaking for
transitional swaps will address the records, information and data
regarding transitional swaps that must be retained and the timeframe
for reporting such information to the SDR or the Commission.
\38\ The proposed regulation uses the terms ``swap creation
data'' and ``swap continuation data'' to refer to these two stages
in the life of a swap, instead of referring to these stages as, for
example, the ``execution'' and ``life cycle'' of a swap, in order to
avoid the confusion that could result from the fact that those and
other commonly used terms do not have universally accepted
definitions and are used in different ways by different people in
the derivatives marketplace.
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Swap Creation Data Reporting: Two Sets of Data. With regard to the
creation of a swap, the proposed regulation calls for reporting of two
sets of data generated in connection with creation of the swap: Primary
economic terms data, and confirmation data.
Primary Economic Terms Data. The primary economic terms of a swap
include all of the terms of the swap verified or matched by the
counterparties at or shortly after the execution of the swap. Such
terms can differ not only for swaps in different swap asset classes,
but also for standardized versus non-standardized swaps. For swaps
executed on a SEF or DCM, the primary economic terms will be those
specified in the contract listed on the platform in question. For non-
standardized or bespoke swaps executed bilaterally, primary economic
terms are typically far less standardized. However, counterparties
verify the primary or essential economic terms of their swap with each
other in some fashion following execution in the case of every
swap.\39\ The industry does not have a single agreed-upon term for this
verification process, which is variously called affirmation, matching,
or confirmation of primary economic terms. By whatever name, the
proposed regulation would require that all of the terms of the swap
thus verified by the counterparties be reported to an SDR.
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\39\ For example, in the case of a swap involving an SD, the
SD's front office is where the trade starts. The order is placed,
and the SD will price the swap and give the quote to the
counterparty. If the counterparty agrees to the details of the trade
and is willing to enter into the deal, the trade is executed.
Typically, the trade is then captured by the SD's deal capture
system, which will validate all the necessary trade economics. An
acknowledgement is sent to the counterparty with the trade details,
and the counterparty either agrees or disagrees with those details.
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Minimum primary economic terms data. In order to ensure that the
array of primary economic terms reported to an SDR for a swap is
sufficient in each case for regulatory purposes, the proposed
regulations would require that the primary economic terms reported must
include, at a minimum, all of the data elements listed by the
Commission in the table of data elements for a swap of the asset class
involved, found in Appendix 1 to Part 45.\40\ The tables in Appendix 1
to Part 45 are designed to include data elements that reflect generic
economic terms and conditions common to most standardized products in
the asset class in question.\41\ They reflect the focus of required
reporting of primary economic terms data on the basic nature and
essential economic terms of the product involved, and are provided in
order to ensure to the extent possible that most such essential terms
are included when required primary economic terms are reported for each
swap. The proposed regulations are designed to capture the additional,
[[Page 76581]]
unique features of particular swaps in the asset class in question
through required reporting of confirmation data, which will include
reporting of all terms of each swap.
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\40\ When the final regulations are published, the Commission
intends to publish such tables in a separate Federal Register
release, which will be referenced in the final regulations. This
procedure is intended to allow the Commission to update the tables
from time to time, in response to swap market developments, without
a need to issue new regulations. The Commission requests comment
concerning this approach, including comments on its possible
utility, benefits, or drawbacks; on whether the data tables should
instead be published as an Appendix to the final regulations; and on
whether the data tables should be published in some other fashion.
\41\ On December 22, 2008, the FDIC published in the Federal
Register a final rule, effective January 21, 2009, that established
recordkeeping requirements for ``qualified financial contracts''
held by insured depository institutions in a ``troubled condition.''
Recordkeeping Requirements for Qualified Financial Contracts, 12 CFR
part 371, RIN 3064-AD30, December 22, 2008. Both terms are defined
in the rule. Upon written notification by FDIC, such an institution
is required by the rule to produce certain data required by the FDIC
over a period specified by the FDIC. The Commission requests comment
on whether it should incorporate the recordkeeping and data
reporting requirements in this FDIC rule in its final data reporting
rules, in its internal business conduct rules, or in other rules
swap-related rules promulgated by the Commission, and, if so, on how
such requirements should be incorporated.
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In addition to the tables included in Appendix 1 to Part 45,
Appendix 2 to Part 45 contains a Master Reference Generic Data Fields
List, which includes data elements that the Commission believes could
be relevant for standardized swaps in some or all swap asset classes.
The Commission requests comment on whether any of the data fields in
this Master Reference Generic Data Fields List should be included in
one or more of the Tables of Required Minimum Primary Economic Terms
Data for specific swap asset classes, or in the Minimum Valuation Data
table, that are included in Appendix 1 to Part 45.
The minimum primary economic terms data elements listed in the
tables in Appendix 1 to Part 45 include futures contract equivalent
data fields. The rationale for including those fields is the statutory
mandate to the Commission to promulgate regulations to limit the amount
of positions, other than bona fide hedge positions, that may be held by
any person with respect to commodity futures and option contracts in
exempt and agricultural commodities. The Commission would require
position data for not only futures and option contracts but also for
economically equivalent swaps, if the Commission's proposed rules
titled ``Position Reports for Physical Commodity Swaps'' become
final.\42\ In order to decrease potential burdens on persons that could
be subject to the requirement to file position reports under those
proposed rules (should they become final), the Commission requests
comment on whether certain aspects of the proposed position reports
should be a part of data reporting to SDRs.
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\42\ 75 FR 67258 (November 2, 2010).
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Confirmation data. The second set of data generated in connection
with the creation of a swap and required by the proposed regulations to
be reported is confirmation data. The proposed rulemaking defines
``confirmation'' as the full, signed, legal confirmation by the
counterparties of all of the terms of a swap, and defines
``confirmation data'' as all of the terms of a swap matched and agreed
upon by the counterparties in confirming the swap. The proposed
regulations would require reporting of confirmation data, in addition
to the earlier reporting of primary economic terms data, in order to
help ensure the completeness and accuracy of the data maintained in an
SDR with respect to a swap. Reporting of the terms of the confirmation,
which has the assent of both counterparties, provides a means of
fulfilling the statutory directive that an SDR ``shall confirm with
both counterparties to the swap the accuracy of the data that was
submitted.'' \43\ The goal of ensuring the highest possible degree of
swap data accuracy is shared internationally, as noted in the statement
included in the FSB Report Implementing OTC Derivatives Market Reforms
that ``authorities should ensure that market participants report and
TRs collect and provide data of the highest reliability practicable * *
*'' \44\
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\43\ CEA Sec. 21(c)(2).
\44\ FSB, Implementing OTC Derivatives Market Reforms: Report of
the OTC Derivatives Working Group, October 20, 2010, at 47.
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Who Reports Swap Creation Data. Under the proposed regulations,
determination of who must report required swap creation data is based
on two criteria. The first criterion is whether the swap is (1)
executed on a SEF or DCM and cleared on a DCO; (2) executed on a SEF or
DCM but not cleared; (3) not executed on a SEF or DCM but cleared on a
DCO; or (4) not executed on a SEF or DCM and not cleared. The second
criterion is whether the reporting counterparty (as determined
according to Sec. 45.5) is an SD or MSP, or instead is a non-SD/MSP
counterparty. Using these two criteria to determine who reports is
intended to streamline and simplify the data reporting approach, by
calling for reporting of each set of swap creation data by the
registered entity or counterparty that has the easiest, fastest, and
cheapest access to the set of data in question. The results of this
approach are shown in the following table:
Reporting of Swap Creation Data
----------------------------------------------------------------------------------------------------------------
Executed on a Executed on a Not executed on a Not executed on a
Reporting counterparty platform and platform and not platform and platform and not
cleared cleared cleared cleared
----------------------------------------------------------------------------------------------------------------
SD or MSP....................... SEF/DCM (primary SEF (primary SD/MSP (primary SD/MSP (primary
economic terms). economic terms). economic terms). economic terms).
DCO (confirmation) SD/MSP DCO (confirmation) SD/MSP
(confirmation). (confirmation).
Non-SD/MSP Counterparty......... SEF/DCM (primary SEF (primary Non-SD/MSP Non-SD/MSP
economic terms). economic terms). (primary economic (primary economic
terms). terms).
DCO (confirmation) Non-SD/MSP DCO (confirmation) Non-SD/MSP
(confirmation). (confirmation).
----------------------------------------------------------------------------------------------------------------
Who Reports Primary Economic Terms Data. For a swap executed on a
SEF or DCM, the Commission anticipates that the swap contract
certification process conducted by the SEF or DCM will define all or
most of the primary economic terms of the swap, and that all or most of
the required primary economic terms data for the swap will be created,
in electronic form, on the electronic platform by virtue of execution
of the swap contract offered by the SEF or DCM. The proposed
regulations therefore call for the SEF or DCM to report the required
primary economic terms data for the swap to an SDR in electronic
form.\45\ In the case of a swap not executed on a SEF or DCM, primary
economic terms data will be created by the counterparties' verification
of the primary economic terms of the swap. The proposed regulations
therefore call for the reporting counterparty (as defined in the
proposed regulations) to report the required primary economic terms
data for the swap to an SDR in electronic form.
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\45\ To ensure that no required primary economic terms data goes
unreported in any circumstance, the proposed regulations also
contain a ``catch-all'' clause requiring the reporting counterparty
to report any required primary economic terms data not reported by
the SEF or DCM.
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Who Reports Confirmation Data. For cleared swaps, confirmation data
will be generated by DCOs in the course of the normal clearing process.
The proposed regulations thus call for DCOs to report confirmation data
for all cleared swaps to the appropriate SDR in electronic form. For
non-cleared swaps, confirmation will be done by the counterparties, in
many cases with the assistance of a third-party confirmation
[[Page 76582]]
service provider. The proposed regulations therefore would require the
reporting counterparty to report confirmation data for each uncleared
swap.
Time of Reporting for Primary Economic Terms Data. Dodd-Frank does
not specify the timeframes for reporting of swap data to SDRs for
regulatory purposes (as opposed to real time reporting). However, to
further the objectives of Dodd-Frank regarding systemic risk
mitigation, transparency of the entire swaps market to regulators, and
enhanced market surveillance and position limit monitoring, the
Commission believes it is important that swap data be reported to SDRs
either immediately following execution of the swap--the point of time
at which the counterparties become irrevocably bound by contract under
applicable law--or within a short but reasonable time following
execution, rather than waiting until the time that full, signed, legal
confirmation by the counterparties of all terms (not just the primary
economic terms) of the swap is completed.\46\ Requiring reporting only
at or after the time when full legal confirmation is completed, rather
than at the time (shortly after execution) when verification of the
primary economic terms of the swap occurs, could encourage
counterparties to delay full legal confirmation in order to delay the
reporting of a swap. In addition, the Commission has been informed by
various existing trade repositories, third party service providers, and
swap counterparties (notably including non-SD/MSP counterparties) that
full legal confirmation of a swap currently can take weeks or even
months in an appreciable number of cases.
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\46\ Proposed Sec. 45.1(c) defines ``confirmation'' as the
full, signed, legal confirmation by the counterparties of all of the
terms of a swap.
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Allowing the first report of swap data concerning a swap to come
from a DCO following clearing, or from a counterparty following full
legal confirmation, would result in reporting delays that the
Commission does not believe are desirable. Without reporting of primary
economic terms data shortly following execution of a swap, regulators
examining SDR data for regulatory purposes in many cases would not see
the swap in question for hours or in some cases nearly an entire day
(if initial reporting followed clearing), or even for days or weeks (if
initial reporting followed full legal confirmation). This lack of
complete swap data would frustrate fundamental purposes of financial
reform, recognized not only by Congress in passing Dodd-Frank, but
internationally. As the FSB Report Implementing OTC Derivatives Market
Reforms states:
[A]uthorities (i) should ensure that TRs are established to
collect and maintain comprehensive OTC derivative transaction data;
and (ii) must require market participants to report all OTC
transactions, both centrally cleared and non-centrally cleared
accurately and in a timely manner to TRs (or in exceptional
circumstances, to relevant authorities). Where transactions are
centrally cleared or otherwise terminated early, reporting to TRs
also must capture and preserve information on the original terms of
the transaction.\47\
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\47\ FSB, Implementing OTC Derivatives Market Reforms: Report of
the OTC Derivatives Working Group, October 20, 2010, at 44 (emphasis
added).
It would also be undesirable to have all reporting of required swap
creation data for cleared swaps done by DCOs, because such a limitation
could have anti-competitive effects. Dodd-Frank explicitly permits DCOs
to register as SDRs.\48\ However, the statute does not limit SDR
registration to DCOs, and it contemplates free market competition
between registered SDRs on a level playing field (as the existence of
its antitrust provisions makes clear).\49\ If Commission regulations
directed that all reporting of swap creation data for cleared swaps was
to be done by DCOs, this could give DCOs a competitive advantage in
comparison with other non-DCO SDRs, since non-DCO SDRs would not be
able to offer data reporting to an SDR as part of a possible bundling
of services to customers. The proposed regulations are designed to
ensure fair competition in the provision of SDR services.
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\48\ Dodd-Frank Sec. 728, CEA Sec. 21(a)(1)(B).
\49\ See CEA Sec. 21(f)(1).
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Primary Economic Terms Reporting Time for Swaps Executed on a SEF
or DCM. In the case of swaps executed on a SEF or DCM, where the
platform possess the necessary primary economic terms data in
electronic form at the time of execution, the Commission believes that
required primary execution data should be reported to an SDR by the SEF
or DCM electronically, as soon as technologically practicable following
execution of the swap.
Primary Economic Terms Reporting Time for Swaps Not Executed on a
SEF or DCM. With respect to swaps not executed on a SEF or DCM, where
reporting of required primary economic terms data will be done by the
reporting counterparty, the Commission recognizes that the amount of
time needed for reporting could vary depending on, among other things,
the extent to which the swap is standardized, and whether execution of
the swap and verification by the parties of the primary economic terms
of the swap occur electronically or manually.
Based on discussions with industry participants, the Commission
believes that required primary economic terms data would be available
relatively quickly for a swap for which execution and verification of
primary economic terms occur electronically, because in many cases all
of the required data would already be in an electronic format. The
Commission understands that the majority of swaps, which are likely to
have an SD or MSP as the reporting counterparty, are likely to fall
into this category.
Conversely, the Commission is aware that, where execution and
verification of primary economic terms do not occur electronically--a
situation which may occur more frequently for the relatively small
number of swaps between non-SD/MSP counterparties, including end
users--additional time may be needed to put the required data into an
electronic format.
Accordingly, the proposed regulation would require reporting
counterparty to report required primary economic terms data promptly,
but in no event later than:
15 minutes after execution of a swap for which
execution and verification of primary economic terms occur
electronically;
30 minutes after execution of a swap which is not
executed electronically but for which verification of primary
economic terms occurs electronically; or
In the case of a swap for which neither execution nor
verification of primary economic terms occurs electronically, within
a time after execution of the swap to be determined by the
Commission prior to promulgation of its final data reporting
regulations.\50\
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\50\ The Commission requests comment concerning the appropriate
deadline for reporting of required primary economic terms data in
the case of a swap for which neither execution nor verification of
primary economic terms occurs electronically.
The Commission believes that requiring reporting of required
primary economic terms data by a reporting counterparty within 15
minutes of a swap's execution would be appropriate for a swap for which
execution and verification of primary economic terms occur
electronically, because data for such a swap could easily be put into
the necessary electronic format if it is not in such a format already.
The Commission also believes that, for a swap which is not executed
electronically but for which verification of primary economic terms
occurs electronically, the reporting counterparty could need additional
time for reporting. The Commission believes that 30 minutes would be a
sufficient
[[Page 76583]]
amount of time, because the required primary economic terms data for
such a swap would have been put into electronic form for verification
of primary economic terms, which would not require a significant amount
of manual intervention.
Finally, since required primary economic terms data with respect to
a swap for which neither execution nor verification of primary economic
terms occurs electronically would not likely be already in electronic
format, and could require a significant amount of manual intervention,
the Commission believes that additional time would be needed for
reporting. The Commission believes that 24 hours would be a sufficient
amount of time to enable such reporting while still making data for the
swap available to regulators without undue delay, based on
conversations with industry representatives.
Time of Reporting for Confirmation Data. The proposed regulations
follow similar principles for the reporting of required confirmation
data. For swaps cleared on a DCO, where the DCO possesses the necessary
confirmation data in electronic form at the time the swap is cleared,
the Commission believes that required confirmation data should be
reported to an SDR by the DCO electronically, as soon as
technologically practicable following the clearing of the swap. With
respect to swaps not cleared on a DCO, where reporting of required
confirmation data will be done by the reporting counterparty, the
Commission recognizes that the amount of time needed for reporting
could vary, depending on whether the reporting counterparty is an SD or
MSP or conversely is a non-SD/MSP counterparty, and depending on
whether confirmation is done electronically (via the automated systems
of a third-party confirmation service provider or of an SD or MSP
counterparty), or is done manually with a resulting need to put the
confirmation terms into an electronic format for confirmation reporting
purposes.
Accordingly, the proposed regulations would require a DCO to report
required confirmation data for a cleared swap electronically, as soon
as technologically practicable following clearing of the swap. In the
case of an uncleared swap, the proposed regulations would require the
reporting counterparty to report required confirmation data
electronically, making such a report promptly following confirmation,
but in no event later than:
15 minutes after confirmation of a swap for which
confirmation occurs electronically; or
In the case of a swap for which confirmation was done
manually rather than electronically, within a time to be determined by
the Commission prior to promulgation of its final data reporting
regulations.\51\
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\51\ The Commission requests comment concerning the appropriate
deadline for reporting of required confirmation data in the case of
a swap for which confirmation was done manually rather than
electronically.
---------------------------------------------------------------------------
Swap Continuation Data Reporting. As noted earlier, the Commission
believes that it is important to fulfilling the purposes of Dodd-Frank
to ensure that complete data concerning swaps is maintained in SDRs and
available to regulators. This requires reporting of data from the
continuation of a swap over its existence from the time it is created
until its final termination or expiration.
Two Approaches to Swap Continuation Data Reporting. Swap
continuation data reporting can follow either of the two conceptual
approaches to data reporting discussed above: the life cycle or event
flow approach, or the state or snapshot approach. As previously noted,
while both approaches are viable methods of data collection, one can be
more efficient than the other in different assets classes, due to
differences between asset classes in terms of market structure and
market processes. With respect to swap continuation data reporting, the
life cycle approach involves managing the flow of an information
system's data throughout the data's life cycle from creation and
initial storage to the time when it becomes obsolete, while the state
or snapshot approach involves a daily update of the current state of
the swap which incorporates all the changes that have happened to the
swap since the previous snapshot.
Life Cycle Approach for Credit Swap and Equity Swap Asset Classes.
The proposed regulations define the swap continuation data required to
be reported for credit and equity swaps in terms of the life cycle
approach, in part because the Commission understands that the life
cycle approach is likely to be followed in the SEC's proposed
regulations concerning swap data reporting for security-based swaps in
these asset classes. The Commission believes that, to the extent
possible, a unified approach to the reporting of swap data over the
existence of swaps in asset classes where the SEC and the Commission
share jurisdiction may serve the public interest, by avoiding
imposition of differing reporting requirements for security-based and
non-security-based swaps in the same asset class, and thus avoiding
imposition of an undue burden on swap market participants. The
Commission is also aware of the work already done by the industry with
respect to credit swap data reporting using the life cycle approach,
and of the fact that the existing global trade repository for credit
swaps, the DTCC Warehouse, uses the life cycle approach. The Commission
believes that the life cycle approach may be appropriate for the credit
swap asset class, and to an extent for the equity swap asset class, due
to their market structure, market processes, and present degree of
product standardization.
State or Snapshot Approach for Interest Rate Swap, Currency Swap,
and Other Commodity Swap Asset Classes. In light of the work already
done by the industry with respect to data reporting in the other swap
asset classes--notably the interest rate swap asset class--using the
state or snapshot approach, and in light of the fact that the existing
global trade repository for interest rate swaps, the TriOptima Interest
Rate Repository, uses the state or snapshot approach, the proposed
regulations define the swap continuation data required to be reported
for interest rate swaps, currency swaps, and other commodity swaps in
terms of the state or snapshot approach. The Commission believes that
this approach may be better suited to these asset classes, due to their
market structure, market processes, and present degree of product
standardization.
One reason for this is that the Commission understands that the
interest rate swap, currency swap, and other commodity swap asset
classes involve numerous and widely varying types of derivatives
products and a considerable degree of innovation and change with regard
to instrument types. Swaps in these asset classes are often tailored to
the specific needs of non-SD/MSP counterparties including end users.
Thus, it would be very difficult, if not impossible, to enumerate all
of the events that would need to be reported during the continuation of
such swaps. This situation contrasts, for example, with the situation
prevailing in the credit swap asset class, where a greater degree of
standardization exists.
Another reason why the state or snapshot approach may be better
suited to the interest rate swap, currency swap, and other commodity
swap asset classes is that in the life cycle or event flow approach,
reporting counterparties must be able to generate messages to the SDR
not only for all relevant life cycle events, but also for correction of
errors and omissions in previously submitted data. Such messages must
be tracked between reporting counterparties and
[[Page 76584]]
the SDR. This can create a need for manual intervention and produce
information backlog. It also creates a need to reconcile data between
the SDR and the reporting counterparty's internal systems to ensure
that all events have been captured correctly in the SDR's data. These
problems are exacerbated in the case of asset classes with relatively
less standardization of swap terms. By contrast, the state or snapshot
approach eliminates the need to specify and require reporting of all of
the individual life cycle events that require updating of SDR data,
since the current state of all of the primary economic terms of all
existing swaps is submitted daily to the SDR. This daily snapshot
ensures that SDR data is reconciled with a reporting counterparty's
internal systems on a daily basis, and provides automatic daily
corrections of errors and omissions in previously submitted data.
The daily snapshot also ensures that SDR data is continually
refreshed by the data contained in the risk management systems of
reporting counterparties, who for business reasons normally devote
considerable resources to ensuring data correctness. Leveraging the
data quality assurance processes of reporting counterparties in this
way can provide significant benefits in terms of the accuracy of swap
data resident in SDRs.
Finally, the state or snapshot approach eliminates the need for a
complex array of exception management messages, and reduces the
reporting burden for reporting counterparties by permitting the systems
of reporting counterparties to submit one basic type of message, the
daily snapshot of updated primary economic terms. The greater
technological simplicity thus permitted can be a significant benefit
where non-SD/MSP counterparties (including end users) are concerned.
Four Sets of Swap Continuation Data. For the above reasons, with
regard to the continuation of a swap, the proposed regulations would
call for reporting of four sets of data generated in connection with
the continuation of the swap: (1) Life cycle data for credit swaps and
equity swaps; (2) contract-intrinsic data for credit swaps and equity
swaps; (3) daily state data for interest rate swaps, currency swaps,
and other commodity swaps; and (4) valuation data for swaps in all five
swap asset classes.
Life Cycle Event Data Reporting for Credit Swaps and Equity Swaps.
For the purpose of required continuation data reporting for credit
swaps and equity swaps, the proposed regulations require reporting,
throughout the existence of a swap until its final termination or
expiration, of ``life cycle event data'', defined as all of the data
elements necessary to fully report any life cycle event, or any
adjustment due to a life cycle event, that results in a change to data
previously reported for the swap in question. The proposed regulations
define ``life cycle event'' to mean any event that would result in a
change in the data previously reported to an SDR in connection with the
swap, including, without limitation, a counterparty change resulting
from an assignment or novation; a partial or full termination of the
swap; a change in the cash flows originally reported; for a credit swap
or equity swap that is not cleared, any change to the collateral
agreement; or a corporate action affecting a security or securities on
which the swap is based (e.g., a merger, dividend, stock split, or
bankruptcy).
Contract-Intrinsic Data Reporting for Credit Swaps and Equity
Swaps. For the purpose of required continuation data reporting for
credit swaps and equity swaps, the proposed regulations would also
require reporting, throughout the existence of a swap until its final
termination or expiration, of ``contract-intrinsic event data,''
defined as all of the data elements necessary to fully report any
contract-intrinsic event with respect to the swap in question. The
proposed regulations define ``contract-intrinsic event'' to mean a
scheduled, anticipated event occurring during the existence of a swap
that does not result in any change to the contractual terms of the
swap, including, without limitation, the scheduled expiration of a
swap, or a previously described and anticipated interest rate
adjustment.
State Data Snapshot Reporting for Interest Rate Swaps, Currency
Swaps, and Other Commodity Swaps. For the purpose of required
continuation data reporting for interest rate swaps, currency swaps,
and other commodity swaps, the proposed regulations would require
reporting of all ``state data'' for the swap, reported daily throughout
the existence of the swap until its final termination or expiration.
The proposed regulations define ``state data'' to mean all of the data
elements necessary to provide a snapshot view, on a daily basis, of all
of the primary economic terms of a swap, including any changes to such
terms since the last snapshot. The proposed regulations also require
that, at a minimum, this data must include all of the economic terms
reflected in the appropriate table of data elements for a swap of the
asset class involved. These tables can be found in Appendix 1 to Part
45.
Valuation Data Reporting for Swaps in All Swap Asset Classes.
Valuation data is defined in the proposed regulations to mean all of
the data elements necessary for a person to determine the current
market value of a swap, including, without limitation, daily margin,
daily mark-to-market, and other measures of valuation to be determined
by the Commission prior to promulgation of its final swap data
reporting regulations. Swap valuation data is essential to a variety of
the regulatory functions of many financial regulators, and is crucial
to fulfillment of fundamental purposes of Dodd-Frank, including
systemic risk reduction and increased transparency of the derivatives
marketplace to regulators. The Commission and other regulators would
use valuation information regarding swaps reported to SDRs for
prudential oversight, to monitor potential systemic risk, and to
monitor compliance with regulatory requirements for SDs and MSPs. The
importance of reporting swap valuation data to SDRs is recognized
internationally. The FSB Report Implementing OTC Derivatives Market
Reforms provides that:
TRs should collect data to enable monitoring of gross and net
counterparty exposures, wherever possible, not only on notional
volumes for each contract but also market values, exposures before
collateral, and exposure value net of collateral with a full
counterparty breakdown. This would allow for the calculation of
measures that capture counterparty risk concentrations both for
individual risk categories as well as for the overall market.\52\
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\52\ FSB, Implementing OTC Derivatives Market Reforms: Report of
the OTC Derivatives Working Group, October 20, 2010, at 48.
Accordingly, the proposed regulations would require reporting of
valuation data for swaps in all five asset classes.
Who Reports Swap Continuation Data. Under the proposed regulations,
determination of who must report required swap continuation data is
based on two criteria. The first criterion is whether or not the swap
is cleared on a DCO. The second criterion is whether the reporting
counterparty (as provided in the proposed regulations) is an SD or MSP,
or instead is a non-SD/MSP counterparty. Using these two criteria to
determine who reports is intended to streamline and simplify the data
reporting approach, by calling for reporting of each set of swap
[[Page 76585]]
continuation data by the registered entity or counterparty that has the
easiest, fastest, and cheapest access to the set of data in question.
The results of this approach are shown in the following table:
Reporting of Swap Continuation Data
----------------------------------------------------------------------------------------------------------------
Credit and equity asset classes Interest rate, currency, and other
-------------------------------------- commodity asset classes
Reporting counterparty -------------------------------------------
Cleared Not cleared Cleared Not cleared
----------------------------------------------------------------------------------------------------------------
SD or MSP..................... DCO (life-cycle SD/MSP (life- SD/MSP (state SD/MSP (state snapshot
data). cycle data). snapshot data). data).
SD/MSP (intrinsic SD/MSP (intrinsic DCO and SD/MSP SD/MSP (valuation
data). data). (valuation data). data).
DCO and SD/MSP SD/MSP (valuation
(valuation data). data).
Non-SD/MSP Counterparty....... DCO (life-cycle Non-SD/MSP (life- Non-SD/MSP (state Non-SD/MSP (state
data). cycle data). snapshot data). snapshot data).
Non-SD/MSP Non-SD/MSP
(intrinsic data). (intrinsic data).
DCO (valuation Non-SD/MSP DCO (valuation Non-SD/MSP (valuation
data). (valuation data). data). data).
----------------------------------------------------------------------------------------------------------------
Who Reports Life Cycle Event Data and Contract-Intrinsic Event
Data. For a credit swap or equity swap cleared on a DCO, the Commission
understands that the DCO will possess information in electronic form
concerning some life cycle events required to be reported over the
existence of the swap, due to its status as a central counterparty,
while the swap counterparty (as defined in the proposed regulations)
will possess information concerning other life cycle events. The
proposed regulations therefore call for the DCO to report required life
cycle event data in its possession, and for the reporting counterparty
to report life cycle event data in its possession. For a credit swap or
equity swap that is not cleared, the proposed regulations call for the
reporting counterparty to report all required life cycle event data and
all contract-intrinsic event data.
The Commission understands that contract-intrinsic event data,
which involves anticipated events such as scheduled adjustments, will
be available to, and known in advance by, the reporting counterparty.
The proposed regulations thus require the reporting counterparty to
report all required contract-intrinsic event data for all credit swaps
or equity swaps.
Who Reports a Daily Snapshot of State Data. For an interest rate
swap, currency swap, or other commodity swap cleared on a DCO, the
proposed regulations require the reporting counterparty to report all
required state data, on a daily basis.
Who Reports Valuation Data. For cleared swaps in all five swap
assets classes, both the DCO and the reporting counterparty may possess
different types of valuation data.\53\ Therefore, for each cleared
swap, the proposed regulations would call for both the DCO and the
reporting counterparty to report valuation data. For uncleared swaps in
all five swap asset classes, the only source of valuation data will be
a counterparty. Accordingly, for each uncleared swap, the proposed
regulations would call for the reporting counterparty to report
valuation data.
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\53\ As noted earlier, the proposed regulations define
``valuation data'' as including ``other measures of valuation as
determined by the Commission'' in addition to specified valuation
measures. The Commission is requesting comment concerning what other
measures of valuation of a swap should be required to be reported to
an SDR. The Commission's eventual determination as to what other
measures of valuation should be required may affect what valuation
data must be reported by a DCO or by a reporting counterparty.
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Time of Reporting for Life Cycle and Contract-Intrinsic Event Data.
For credit swaps and equity swaps, whether cleared or uncleared, the
proposed regulations would require that life cycle event data must be
reported on the same day in which any life cycle event occurs, while
contract-intrinsic event data must be reported on the same day in which
any contract-intrinsic event occurs.
Time of Reporting for a Daily Snapshot of State Data. For interest
rate swaps, currency swaps, and other commodity swaps, whether cleared
or uncleared, the proposed regulations would require that all required
state data for the swap be reported daily through the existence of the
swap until its final termination or expiration.
Time of Reporting for Valuation Data. For each swap (regardless of
asset class) cleared on a DCO, the proposed regulations would require
the DCO to report all valuation data in its possession on a daily
basis. Where the reporting counterparty for such a swap is an SD or
MSP, the proposed regulations would require the SD or MSP to report all
valuation data in its possession on a daily basis. The Commission
understands that DCOs and SD or MSP reporting counterparties are likely
to have the automated system capacity necessary for such daily
reporting. The Commission also understands that, as of the effective
date of the final swap data reporting regulations, non-SD/MSP reporting
counterparties may not have a comparable level of automated system
capacity. Accordingly, where the reporting counterparty for such a swap
is a non-SD/MSP counterparty, the proposed regulations would call for
the reporting counterparty to report all valuation data in its
possession at times to be determined by the Commission prior to its
adoption of final swap data reporting regulations. The Commission
requests comment concerning the time intervals necessary and
appropriate for reporting of valuation data by non-SD/MSP
counterparties, and concerning whether the Commission should adopt a
phase-in approach to valuation data reporting by non-SD/MSP
counterparties.
Swap Asset Classes and Other Swap Classifications. For the purpose
of the proposed regulations, a swap would be classified as belonging to
one of five swap asset classes, including: (1) Credit swaps; (2)
currency swaps (including FX swaps and their variations); (3) equity
swaps; (4) interest rate swaps; and (5) other commodity swaps. The
proposed regulations would define these swap asset classes as follows.
[[Page 76586]]
``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: Any swap that is an index credit swap or
total return swap on one or more indices of debt instruments.
``Currency swap'' means any swap which is primarily based on rates
of exchange between different currencies, changes in such rates, or
other aspects of such rates. This category includes foreign exchange
swaps as defined in CEA Section 1a(25).\54\
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\54\ CEA Sec. 1a(25) provides that: ``The term `foreign
exchange swap' means a transaction that solely involves--(A) an
exchange of 2 [sic] different currencies on a specific date at a
fixed rate that is agreed upon on the inception of the contract
covering the exchange; and (B) a reverse exchange of the 2 [sic]
currencies described in subparagraph (A) at a later date and at a
fixed rate that is agreed upon on the inception of the contract
covering the exchange.''
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``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; any total return
swap on one or more equity indices.
``Interest rate swap'' means any swap which is primarily based on
one or more reference rates, such as swaps of payments determined by
fixed and floating rates.
``Other commodity swap'' means any swap not included in the credit
swap, currency swap, equity swap, or interest rate swap categories,
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.
``Asset class'' means the particular broad category of goods,
services or commodities underlying a swap. The asset classes include
interest rate, currency, credit, equity, other commodity, and such
other asset classes as may be determined by the Commission.
In addition, the Commission anticipates that some swaps subject to
its jurisdiction may belong to two other swap categories: mixed swaps,
and multi-asset swaps. Generally, a mixed swap is in part a security-
based swap subject to the jurisdiction of the SEC and in part a swap
belonging to one of the swap asset classes subject to the jurisdiction
of the Commission.\55\ Multi-asset swaps are those that do not have one
easily identifiable primary underlying notional item within the
Commission's jurisdiction. The Commission requests comment concerning
how such swaps should be treated with respect to swap data reporting,
and concerning the category or categories under which swap data for
such swaps should be reported to SDRs and maintained by SDRs.
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\55\ Dodd-Frank defines ``mixed swap'' as follows: ``The term
`security-based swap' includes any agreement, contract, or
transaction that is as described in section 3(a)(68)(A) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and is
also based on the value of 1 [sic] or more interest or other rates,
currencies, commodities, instruments of indebtedness, indices,
quantitative measures, other financial or economic interest or
property of any kind (other than a single security or a narrow-based
security index), or the occurrence, non-occurrence, or the extent of
the occurrence of an event or contingency associated with a
potential financial, economic, or commercial consequence (other than
an event described in subparagraph (A)(iii).'' Dodd-Frank Sec.
721(21), CEA Sec. 1a(47)(D).
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Requests for Comment. The Commission requests comment on all
aspects of the proposed data reporting regulation and the definitions
associated with it. The Commission specifically requests comment on the
following questions relating to this proposed regulation.
Is the separation of reporting counterparties into two
categories (SD or MSP, versus non-SD/MSP counterparty) appropriate, and
does it further the purposes described?
Is the second criterion for swap creation data--division
of swaps into four categories depending on whether they are platform
executed and cleared or not--appropriate?
Should the Commission take the internal recordkeeping
systems of SDs and MSPs into account as it does in the proposed
regulation?
Is the concept of primary economic terms data, as defined,
inclusive enough to capture all of the primary economic terms of a swap
upon execution?
What are the benefits or drawbacks of required reporting
of primary economic terms data? Will such reporting serve to verify the
accuracy of swap execution data?
Will the required reporting of confirmation data to an
SDR, after the reporting of primary economic terms data to the SDR,
help enable the SDR to satisfy the statutory requirement to confirm
with both counterparties to the swap the accuracy of the data and
information submitted?
Should back-office confirmation be an acceptable means of
confirming a swap?
What is the proper way to report bunched (block) orders
that are allocated to ultimate owners after execution?
What is the appropriate time delay for reporting of
primary economic terms by (1) SDs, (2) MSPs, and (3) non-SD/MSP
counterparties? Should the time required differ according to these
categories?
What is the appropriate time delay for reporting of
confirmation terms by (1) SDs, (2) MSPs, and (3) non-SD/MSP
counterparties? Should the time required differ according to these
categories?
Is there sufficient industry infrastructure in place to
support the life cycle data reporting approach for credit and equity
swaps?
Is it appropriate to use the life cycle approach to swap
data reporting for credit swaps, or for equity swaps? Why or why not?
Is it appropriate to use the daily snapshot of state data
approach to swap data reporting for interest rate, currency and
commodity swaps? Why or why not?
Is there currently infrastructure in place to support
alternative approaches for data reporting for credit, equity, interest
rate, currency and commodity swaps?
Is the definition of ``multi-asset swap'' appropriate? Why
or why not?
For the purposes of the data recordkeeping and reporting
rule, should a multi-asset swap be reported within any of the following
categories: credit swaps, equity swaps, currency swaps, commodity
swaps, or interest rate swaps? What criteria should govern this
determination?
Should a separate procedure be established for reporting
of multi-asset swaps?
Should the Commission require that, for multi-asset swaps,
reporting counterparties must report all required swap data in each
asset class involved?
Should a separate procedure be established for reporting
of mixed swaps?
Is the list of swap asset classes all-inclusive and
appropriately defined? Why or why not?
Should a phase-in approach be used for the time of
reporting of confirmation by non-SD/MSP counterparties?
Should a separate collateral warehouse system be
established as part of an SDR to enable systemic risk and prudential
regulators to monitor collateral management and gross exposure on a
portfolio level for swap participants? How should this be done?
Should a separate master agreement library system be
established as part of an SDR? How should this be done?
In what asset class should cross-currency swaps be
reported? Should this be done in the interest rate swap asset class, or
in the currency swap asset class?
For multi-asset class swaps, should the swap data required
to be reported
[[Page 76587]]
include all required primary economic terms data for each asset class
involved in any leg or part of the swap?
How should asset class classification be done for the
purpose of data reporting? What should be the criteria to classify a
swap within a certain asset class?
Should foreign exchange swaps be included in the currency
swap asset class, or should they be treated separately for data
reporting purposes? A foreign exchange swap is usually defined as a
financial transaction whereby two parties exchange agreed-upon amounts
of two currencies as a spot transaction, simultaneously agreeing to
unwind the exchange at a future date, based on a rule that reflects
both interest and principal payments.
C. Unique Identifiers
Need for Unique Identifiers. Over the course of the last decade,
virtually all stakeholders in the financial sector have come to
recognize the need for universal, accurate, and trusted methods of
identifying particular financial transactions, the legal entities that
are parties to financial transactions, and the product type involved in
particular financial transactions. Such identifiers will be crucial
tools for financial regulators tasked with measuring and monitoring
systemic risk, preventing fraud and market manipulation, conducting
market and trade practice surveillance, enforcing position limits, and
exercising resolution authority. Without such unique identifiers, and
the ability to aggregate data across multiple markets, entities, and
transactions that they would provide, the enhanced monitoring of
systemic risk and greater market transparency that are fundamental
goals of Dodd-Frank cannot be fully achieved. Such identifiers would
also have great benefits for financial transaction processing, internal
recordkeeping, compliance, due diligence, and risk management by
financial entities. The Commission believes, in light of recent
economic events, that the need for unique identifiers that are based on
open standards and are capable of international adoption is now urgent,
and that their creation has become essential.
The Commission understands that this conceptual approach is
supported by the SEC. Commission staff have consulted closely with SEC
staff concerning the unique ID provisions of these regulations. The
Commission anticipates that proposed regulations issued by SEC with
respect to swap data recordkeeping and reporting will follow the same
principles with respect to unique ID that are included in the unique ID
provisions of the Commission's proposed regulations. The Commission
understands, from discussions with staff of the Department of the
Treasury, that this conceptual approach could also be followed by the
Office of Financial Research (``OFR''), created in the Department of
the Treasury by the Dodd-Frank Act \56\ in part for the purposes of
standardizing the types and formats of data reported and collected by
the OFR with regard to swaps, and of assisting agencies that are
members of the Financial Stability Oversight Council (``FSOC'') in
determining the types and formats of data they will collect, as
required by Dodd-Frank.\57\
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\56\ See Dodd-Frank Act Title 1, Subtitle B, Sections 151
through 156.
\57\ Dodd-Frank Act, Title 1, Sections 153(2) and 153(7).
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The Commission's own need for unique identifiers for swap
transactions, counterparties, and products arises from a need to
aggregate and track information on swap transactions efficiently across
a diverse array of market participants, trading venues, and product
classes. Unlike centralized futures markets where standardized
contracts are traded among participants in a fairly closed system,
swaps have been and will continue to be offered in a variety of forms
and market venues. There is a close relationship between the swap
markets and the underlying cash and futures markets that typically
provide the basis for the price references and benchmark prices. In
addition, because swaps can serve as a substitute for a transaction in
the underlying reference market, market participants are often free to
transact in the market of their choice, meaning that an entity may hold
positions, for example, in both the futures market and in swaps that
reference the futures market price.
With respect to futures markets futures commission merchants,
clearing members, and foreign brokers are required to file reports on
the positions of large traders (as defined by the Commission), and in
doing so to aggregate the positions of traders that may be held in
various accounts at the firm, and to report them under a single,
unique, identifying account number. Thus, at least with respect to
reporting by a single reporting firm, the Commission is able to see the
total position of a trader in a particular futures or option contract
offered at an exchange. By contrast, swap counterparties will not
necessarily conduct their trading through a single entity or trading
venue that could easily aggregate an entity's position. Instead, swaps
having similar underlying product characteristics may be entered into
through a variety of dealers or MSPs, on different DCMs or SEFs, or in
bilateral trades. In addition, because each swap contract potentially
has a unique set of terms and conditions, as opposed to the common set
of terms and conditions that define an exchange-traded futures
contract, defining a position or transaction in a particular contract
can be complicated.
Unique identifiers would also serve the important goal of enabling
the Commission to link together all of the various types of data that
it collects in fulfilling its regulatory missions, including data
concerning swaps, futures, and large traders. This would enhance the
effectiveness of the Commission's various market monitoring tools, and
improve its ability to detect and respond to market risks. The ability
of unique identifiers to serve as a data linchpin will also be of great
benefit to other financial regulators with respect to the different
types of data they collect.
Accordingly, the Commission is proposing to require use of unique
identifiers designed to ensure the Commission's ability to aggregate
transaction and position data for the purpose of conducting market and
financial risk surveillance, enforcing position limits, analyzing
market data, enforcing Commission regulations, monitoring systemic
risk, and improving market transparency. Such unique identifiers will
better enable the Commission to ascertain the overall positions and
activity of traders in and across markets, track activity over the life
of individual transactions, and determine overall activity in
particular product classes.
Unique Swap Identifiers. The Unique Swap Identifier (``USI'')
called for by the proposed rules would be created and assigned to a
swap at the time it is executed, and used to identify that particular
swap transaction throughout its existence. Swaps will typically have a
number of events associated with them over their lifetime, often
referred to as life cycle events. These can include economic revisions,
counterparty changes, early partial or full terminations, normal
terminations, option exercises, credit events, servicing events and
cash flow settlements. Because a swap might have a life that extends
over many years, it is important that the Commission be able to
identify the origins of the transaction as well as events related to
that swap over its lifetime. Without the ability to track transactions
through the use of a unique
[[Page 76588]]
identifier, it would be difficult for the Commission to separate new
transactions from existing ones and to identify changes that have
occurred to a specific swap contract. Use of USIs is also essential to
collating swap creation data, swap continuation data, and error
corrections reported by execution platforms, clearing houses, and
counterparties concerning a single swap into a single, accurate data
record that tracks the swap over its duration.
The Commission believes that workable USIs for all swaps under its
jurisdiction can be created via a ``first-touch'' approach. For a swap
executed on a trading platform, the USI would be created and assigned
by the SEF or DCM involved. For a swap executed bilaterally, the USI
would be created and assigned by the SD or MSP required to report
concerning the swap, or in the case of a swap between non-SD/MSP
counterparties would be created by the SDR to which the swap is
reported.
The proposed rules would ensure the uniqueness of each USI by
specifying that the USI must include two components. The first
component would be the unique, extensible, alphanumeric code assigned
by the Commission to each registered entity required by the proposed
regulations to create USIs, at the time of its registration, for the
purpose of identifying that entity in the context of USI creation. The
second component would be an extensible, alphanumeric code generated
and assigned by the automated systems of the registered entity that
must be unique with respect to all such codes generated and assigned by
the entity.
The registered entity creating the USI would be required to
transmit the USI to all other registered entities and swap
counterparties involved with the swap, as soon as technologically
practicable after its creation and assignment. Thereafter, all
registered entities and swap counterparties would be required to
include the USI in all records and all swap data reporting concerning
that swap, throughout the existence of the swap and for as long as any
records are required to be kept concerning that swap.
BILLING CODE 6351-01-P
[[Page 76589]]
[GRAPHIC] [TIFF OMITTED] TP08DE10.008
BILLING CODE 6351-01-C
The required use of USIs would not prohibit the additional use or
reporting of other identifiers internally generated by the automated
systems of registered entities or counterparties.
The Commission seeks comment concerning the required use of USIs;
the benefits or burdens that required use of USIs would create; the
practicability of the Commission's proposed method of creating USIs;
other possible methods of creating USIs; and possible transmission
methods for USIs among registered entities and reporting parties.
Unique Counterparty Identifiers. The Unique Counterparty Identifier
(``UCI'') called for by the proposed rules would be used for precise,
reliable, and unique identification of each counterparty to any swap
subject to the Commission's jurisdiction, in all recordkeeping and data
reporting concerning swaps. The Commission believes that full
realization of the systemic risk mitigation and transparency purposes
of Dodd-Frank cannot be fully achieved without mandatory use of UCIs.
To assess systemic risk, it is essential to understand how individual
financial firms are exposed to specific risks across all their
activities, and the interconnectedness between firms. The way that
financial firms are identified is critical to understanding those
issues. With such identifiers, regulators will be able to aggregate
exposures consistently and accurately across the financial system. As
noted in February 2010 by Daniel K. Tarullo, member of the Board of
Governors of the Federal Reserve System, in testimony before the U.S.
Senate:
Clearly, the [recent financial] crisis exposed the need for a
regulatory mechanism that will provide real time analysis across
multiple financial markets to identify systemic risk and stresses in
market conditions before they occur. A unique entity identifier for
data sharing and use in data collections between the Federal
financial regulatory agencies is the critical missing component for
this analysis.\58\
\58\ Daniel K. Tarullo, Member, Board of Governors of the
Federal Reserve System, Equipping Financial Regulators With the
Tools Necessary to Monitor Systemic Risk, before the Subcommittee on
Security and International Trade and Finance, Committee on Banking,
Housing, and Urban Affairs, U.S. Senate, Washington, DC, February
12, 2010.
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[[Page 76590]]
An important purpose of the UCI required by the proposed rules
would be to enable effective assessment of counterparty positions and
aggregation of swap data across asset classes, markets, and related
legal entities, in order to effectuate the systemic risk prevention and
transparency purposes of Dodd-Frank.
Policy analysis by financial regulators employs legal entity
reference data as the basic infrastructure for identifying, describing,
classifying, labeling, organizing, and using other information. Such
reference data allows identification of interconnections between firms.
In the business world, legal entity reference data can support
communication between systems, facilitate transaction processing, and
allow for accurate aggregation of positions vis-[agrave]-vis individual
counterparties or classes of counterparties, something necessary for
effective risk management and calculation of margin. Sales, compliance,
and due diligence functions also rely on entity identifiers, and would
benefit from availability of unique entity identifiers.
Today, there is no universal legal entity identification system
available to serve the financial sector and regulatory community.\59\
In the absence of such a universal system, private firms and regulators
have created a variety of identifiers. This creates inefficiencies for
firms, and presents obstacles to regulators and policymakers.
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\59\ Discussions of the concept of a universal legal entity
identification system for financial firms of all types often refer
to a legal entity identifier or ``LEI.'' This is the same concept
addressed by the proposed rule. The proposal refers to the
identifier as a UCI, rather than an LEI, because in the context of
this rule it would be used to identify the legal entities who are
counterparties to a swap. The Commission recognizes that identifiers
provided by a universal legal identification system through an
international consensus process could appropriately be used to
identify legal entities in various other contexts across the
financial sector.
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At private firms, because there is no industry-wide legal entity
identification standard, tracking counterparties and calculating
exposures across multiple data systems is complicated, expensive, and
can result in costly errors. For example, maintaining internal
identifier databases and reconciling entity identification with
counterparties is expensive for large firms and disproportionately so
for small firms. In the worst case scenario, identification problems
can lead to transactions that are broken or fail to settle.
The lack of a universal identification standard also creates
problems for financial regulators. Precise identification of financial
firms is necessary to understand systemic risk, which involves entities
operating across a range of industries. The problems that firms face in
aggregating exposure are magnified in measuring risk across the system.
In addition, futures and securities regulators must often identify
parents and affiliates of futures commission merchants or broker-
dealers manually and by name. Multiple and generally different
identifiers for participants can make it difficult to create a
consolidated order audit trail.
It is worth noting in this context that leaders in the information
technology industry have stated that data standardization is a
significant obstacle to using technology to further the needs of
private industry and regulators. Complete automation of back-office
activities and ``straight through processing'' remain elusive, in part
because of the lack of a universal identifier for legal entities.
The vendor community has attempted to provide solutions for these
private and public challenges. However, none is sufficiently robust,
comprehensive, and open to serve as an industry-wide standard. Indeed,
most of the solutions offered by vendors are proprietary and restricted
in use and redistribution. In addition, current identifiers are not
sufficiently unique or persistent. Current vendor identifiers that are
unique and unrestricted with respect to use and redistribution are
limited in scope; for example, limited to institutions engaged in
payment activities.
All of these challenges are magnified in the international context.
Many in industry and the world regulatory community have recognized the
potential benefit of a universal standard for legal entity
identification for years. For example, the ODRF has stated that:
A number of key data items related to registered OTC derivatives
transactions span OTC derivative asset classes--for example, entity
representation. * * * In order to ensure consistency across asset
classes, infrastructure platforms and services should model these
items in a consistent manner, preferably through the development of
open standards in industry forums.\60\
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\60\ OTC Derivatives Regulators' Forum, Prioritization and
Communication of Regulatory Data Requests: Consolidated Report and
Recommendations, 10 November 2009, at 5 (emphasis added).
ODRF's Outline of Trade Repository Functionality states that trade
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repository data:
should represent the counterparties of the transaction records it
maintains as precise legal entities, enriched with further
counterparty information including affiliate relationships, sector
and geography. Affiliate relationship data should enable the
analysis of aggregated transaction records in terms of netting,
guaranty, and credit support arrangements.\61\
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\61\ ODRF Outline of Trade Repository Functionality Being Sought
by Members of the OTC Derivatives Regulators' Forum, August 27, 2010
(revision 2), at 3.
Efforts have been made to create such a standard through domestic and
international processes. Heretofore, a lack of focus, funding and
investment issues, and competing priorities have prevented consensus
and implementation.
However, circumstances have changed. The financial crisis has
focused both industry and regulators on this issue. Dodd-Frank's
mandate to the Commission and the SEC to promulgate regulations for
swap data reporting has created a window of opportunity for the world
financial sector to come together in creation of a universal,
internationally accepted standard for legal entity identification. The
Commission believes that the data reporting regulations to be issued
simultaneously by the Commission and the SEC pursuant to Dodd-Frank can
and should provide the necessary impetus for achieving this long-sought
goal.
The proposed regulations would mandate that each counterparty in
any swap subject to the Commission's jurisdiction and executed after
the effective date of the Commission's final swap data reporting
regulations must be identified in all recordkeeping and reporting by
means of a single UCI having the characteristics specified by the
Commission.
It should be noted that the UCI requirement included in the
proposed regulations differs markedly from the concept of identifying
the ultimate beneficial owners of particular futures and options
accounts, a subject addressed in a previous Commission proposed
rulemaking.\62\ Unlike identification of the ownership and control of
existing accounts, use of UCIs for swap data reporting would not
require modification of existing systems or alteration of existing
data. The UCI requirement would only apply prospectively to new swap
transactions executed following the effective date of the Commission's
final swap data reporting regulations. No substantial alteration of
system architecture would be required; instead, only a single data
[[Page 76591]]
field would need to be added to the information submitted with an order
for a swap transaction or with a report of swap data to an SDR. Where
compiling the information necessary to create the type of account
ownership and control report addressed in the Commission's proposed
ownership and control rule would depend on collecting data points not
in the possession of any single entity, by contrast, once a legal
entity that intends to be a swap counterparty has obtained an UCI--
something it would only need to do once--it would possess all the
information required for its subsequent use.
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\62\ CFTC, Account Ownership and Control Report, 17 CFR Part 16,
September 9, 2010.
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Information concerning a counterparty's affiliations must be
available in conjunction with UCIs in order to enable regulators to
aggregate data across entities and markets for the purpose of effective
monitoring of systemic risk. For this purpose, regulators need to be
able to identify all swap positions within the same ownership group.
Accordingly, the proposed regulations would require each swap
counterparty to report all of its corporate affiliations into a
confidential, non-public corporate affiliations reference database,
maintained and located as determined by the Commission. Data contained
in the corporate affiliations reference database would be available
only to the Commission, and to other financial regulators via the same
data access procedures applicable to data in SDRs, for regulatory
purposes. For these purposes, ``corporate affiliations'' would mean the
identity of all legal entities that own the counterparty, that are
under common ownership with the counterparty, or that are owned by the
counterparty. The corporate affiliation information reported would be
required to be sufficient to disclose parent-subsidiary and affiliate
relationships, such that each legal entity within or affiliated with
the corporate hierarchy or ownership group to which the counterparty
belongs would be separately identified. Each counterparty would also be
required to report to the corporate affiliations reference database all
changes to the information previously reported concerning the
counterparty's corporate affiliations, so as to ensure that the
corporate affiliation information recorded in the corporate
affiliations reference database remains current and accurate at all
times.
The corporate affiliations reference database would need to be
accessible to both national and international financial regulators in
order to make the identification system involving UCIs fully effective
for regulatory purposes. To ensure the availability of comprehensive
and accurate information, it would therefore appear to be optimal that
there be a single corporate affiliations reference database, maintained
by a single organization in a single location. The Commission seeks
comment on where and by what organization the corporate affiliations
database would best be maintained: whether by an international
voluntary consensus standards body (discussed below); by a self-
regulatory organization; by the Commission; by the OFR; or by some
other organization.
The Commission understands that, while a single identifier
satisfying the requirements included in the proposed regulations is not
currently published by any standard-setting body, market participants
have been working diligently to solve practical issues that stand in
the way of such publication.
The Commission believes, and understands that the SEC and the OFR
also believe, that optimum effectiveness of UCIs for achieving the
systemic risk protection and transparency goals of Dodd-Frank--goals
shared by financial regulators world-wide--would come from creation of
an identification system, including UCIs, on an international basis,
through an international ``voluntary consensus standards body'' as
defined in Office of Management and Budget (``OMB'') Circular No. A-119
Revised. The National Technology Transfer and Advancement Act of 1995
codified OMB Circular No. A-119, and directs Federal agencies to use
voluntary consensus standards in lieu of government-unique standards
except where inconsistent with law or otherwise impractical.\63\ This
provision's intent is to eliminate the cost to the government of
developing its own standards, decrease the burden of complying with
agency regulations, provide incentives and opportunities to establish
standards that serve national needs, encourage long-term growth for
U.S. enterprises, promote efficiency and economic competition through
harmonization of standards, and further the policy of reliance upon the
private sector to supply government needs for goods and services.
Further, to promote trade and implement the provisions of international
treaty agreements, the provision requires Federal agencies to consider
international standards in procurement and regulatory applications.
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\63\ Public Law 104-113, Sec. 12(d).
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As defined in OMB Circular A-119, ``voluntary consensus standards''
are standards developed or adopted by voluntary consensus standards
bodies, both domestic and international. These standards include
provisions requiring that owners of relevant intellectual property have
agreed to make that intellectual property available on a non-
discriminatory, royalty-free or reasonable royalty basis to all
interested parties. ``Voluntary consensus standards bodies'' are
domestic or international organizations that plan, develop, establish,
or coordinate voluntary consensus standards using agreed-upon
procedures.
For the reasons set forth above, the Commission proposes to use its
rulemaking authority to require the use of UCIs in all swap data
reporting subject to its jurisdiction. The Commission prefers to have
its swap data reporting regulations prescribe use of a universally-
available UCI that is part of an identification system created on an
international basis through an international ``voluntary consensus
standards body,'' and intends to promulgate final regulations to that
effect if such an identification is available sufficiently prior to the
implementation date included in the Commission's final swap data
reporting regulations. However, the Commission will prescribe its own
method for creation of UCIs to be used in swap data reporting subject
to the Commission's regulations if no such internationally-accepted
identification system acceptable to the Commission is available prior
to the implementation date of the final regulations.
The Commission anticipates that a system for publication of UCIs
meeting the requirements of the proposed regulations may be developed
through an international voluntary consensus body and be available as
of the implementation date for the UCI requirement. Dodd-Frank
explicitly permits the Commission to ``take into consideration any
evolving standard of the United States or the international
community.'' \64\
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\64\ CEA Sec. 21(f)(4)(B).
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Accordingly, the proposed regulations set forth principles that the
Commission believes must govern the identification system used to
establish UCIs for swap counterparties, among other purposes. Under
these principles, the identification system must:
Result in a unique identifier format that is capable of
becoming the single international standard for unique identification
of legal entities in the financial sector on a global basis.
Be developed via an international ``voluntary consensus
standards body'' as defined in OMB Circular No. A-119 Revised, such
as the International Organization for
[[Page 76592]]
Standardization (``ISO''), and must be maintained by such a body and
an associated Registration Authority. Both the standards body and
Registration Authority must have a formally documented governance
structure acceptable to the Commission.
Be available to all interested parties on a non-
discriminatory, royalty-free or reasonable royalty basis. While
reasonable initial and annual fees would be appropriate to cover the
cost of issuance, maintenance, and initial and ongoing verification
of unique identifiers, fees must not be charged for redistribution,
publication or other use by the counterparty identified or any other
entity or person, and the identification system must be operated on
a non-profit basis. Information concerning the issuance process for
new identifiers and a comprehensive, current directory of the UCIs
issued by the identification system (but not the entity relationship
or affiliation information reported by counterparties), must be
available publicly and free of charge.
Be supported by a trusted and auditable method of
verifying the identity of each legal entity receiving a UCI, both
initially and at appropriate intervals thereafter. The Registration
Authority must maintain reference data sufficient to verify that a
user has been correctly identified as an entity. Issuance of
identifiers must be speedy and unbiased.
Maintain robust quality assurance practices and system
safeguards acceptable to the Commission.
Be sufficiently extensible to cover all existing and
potential future legal entities of all types that are or may become
swap counterparties, are or may become involved in any aspect of the
financial issuance and transactions process, or may be subject to
required due diligence by financial sector entities.
Assign only one unique identifier to any legal entity.
Have a unique identifier format consisting of a single
data field, and contain either no embedded intelligence or as little
embedded intelligence as practicable.
Persist despite all corporate events.
In the event that an identification system satisfying these
principles is not available as of the effective date of the proposed
regulations, the proposed regulations provide that a UCI for each swap
counterparty must be created and assigned by an SDR, using the method
specified for this purpose in the proposed regulations.
The Commission seeks comment concerning the required use of UCIs;
concerning the benefits that required use of UCIs would create;
concerning the required reporting of affiliation information by swap
counterparties and the scope of affiliation information necessary to
achieve regulatory purposes; concerning the principles set forth in the
proposed regulations for development of an identification system
including UCIs; concerning possible means of achieving international
adoption of a suitable identification system for financial sector legal
entities that involves UCIs; and concerning what international
voluntary consensus standards body can best provide the needed
identification standard including UCIs, and what advantages are offered
by the standards body recommended by the commenter.
Unique Product Identifiers. The Unique Product Identifier (``UPI'')
called for by the proposed rules would be used for categorization of
swaps with respect to the underlying products referenced in them. While
the UPI would be assigned to a particular level of the taxonomy of the
asset class or sub-asset class in question, its existence would enable
the Commission and other regulators to aggregate transactions at
various taxonomy levels based on the type of product underlying the
swap. For example, a UPI might identify a swap referencing the NYMEX
futures price for light, sweet crude oil as a NYMEX WTI crude oil
futures price swap. The taxonomy associated with the UPI would enable
regulators to identify the product underlying the swap as a commodity,
an energy product, a petroleum product, a crude oil product, or
ultimately the NYMEX crude oil futures price, as desired.
The ability to identify underlying products in a categorical way
would serve several regulatory purposes. First, it would enhance
transparency, by allowing the Commission or other regulators to
aggregate and report swap activity at a variety of product type levels.
Second, it would enhance position limit enforcement. The Dodd-Frank Act
requires the Commission to establish position limits for agricultural
and exempt commodities that would span across the futures, options and
swap markets. A UPI that provides information indicating what swaps
need to be aggregated with other contracts would enhance the
Commission's ability to develop and oversee its position limit
regulatory program. Third, it would enhance analysis of swap data. For
example, classification of swaps via UPIs would facilitate examination
of the activity of market participants at various levels of a product
class. The Commission is required by Dodd-Frank to prepare semi-annual
reports regarding swap market activity, and such classification via
UPIs would be necessary for meaningful evaluation of such activity.
Effective use of UPIs for regulatory purposes would require a
robust taxonomy for swaps in each swap asset class, as well as
decisions concerning what classification scheme to use, and concerning
the appropriate level for UPI assignment within such taxonomies.
The Commission seeks comments concerning the most effective
classification scheme for swap products, and concerning the taxonomy
level within each swap asset class at which UPIs should be assigned. In
considering these issues, commenters should take into consideration
what levels of aggregation are desirable for reporting swap activity.
The Commission also seeks comment concerning the benefits or burdens
that required use of UPIs would create, and concerning the optimal
implementation date for effective adoption and use of UPIs.
D. Determination of Which Counterparty Must Report
New Section 4r(3) of the CEA specifies the counterparty obligated
to report a swap transaction to a swap data repository.\65\
Specifically, Section 4r(3) provides that:
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\65\ Dodd-Frank Sec. 729.
With respect to a swap in which only 1 [sic] counterparty is a
swap dealer or major swap participant, the swap dealer or major swap
participant shall report the swap * * * With respect to a swap in
which 1 [sic] counterparty is a swap dealer and the other a major
swap participant, the swap dealer shall report the swap. * * * With
respect to any other swap * * * the counterparties to the swap shall
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select a counterparty to report the swap * * *.
The effect of this provision is to establish a hierarchy of
counterparty types for reporting obligation purposes, in which SDs
outrank MSPs, who outrank non-SD/MSP counterparties. Where both
counterparties are at the same hierarchical level, the statute calls
for them to select the counterparty obligated to report.
The Commission believes that, regardless of the possible merits of
swap data reporting by both counterparties to a swap, this statutory
provision does not permit the Commission by regulation or other
regulatory action to require swap data reporting by both counterparties
to a swap. New CEA Section 21 does provide, with respect to the duties
of an SDR, that an SDR shall ``confirm with both counterparties to the
swap the accuracy of the data that was submitted.'' \66\ However, the
obligation to report swap data to an SDR is distinct from the duty of
the SDR to confirm the accuracy of the reported data. Congress could
have provided for reporting by both counterparties, but chose instead
to establish which counterparty bears the obligation to report.\67\ The
proposed
[[Page 76593]]
regulations require reporting of confirmation data for all swaps as a
means of verification of the accuracy of the data submitted in
connection with each swap.
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\66\ CEA Sec. 21(c)(2).
\67\ The Commission does not believe that Dodd-Frank precludes
an SDR from accepting and maintaining swap data from both
counterparties to a swap. For example, an SDR or its affiliate
performing the ancillary service of maintaining the single binding
legal record of a swap, such as the ``gold'' record maintained by
the Depository Trust & Clearing Corporation (``DTCC'') for credit
swaps, would not be barred from receiving dual reporting in that
connection.
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While Section 4r(a) of the CEA applies explicitly to swaps not
accepted for clearing by any DCO, the Commission believes,
preliminarily, that for the sake of uniformity and ease of
applicability, the duty to report should be borne by the same
counterparty regardless of whether the swap is cleared or uncleared.
The Commission also believes it is appropriate for SDs and MSPs to have
the responsibility of reporting with respect to the majority of swaps,
because they are more likely than other counterparties to have
automated systems in place that can facilitate reporting.
The proposed regulations establish a mechanism for counterparties
to follow in choosing the counterparty to report in situations where
both counterparties have the same hierarchical status, in order to
prevent confusion or delay concerning this choice. Where both
counterparties are SDs, or both are MSPs, or both are non-SD/MSP
counterparties, the proposed regulations require the counterparties to
agree as one term of their swap transaction which counterparty will
fulfill reporting obligations with respect to that swap.
The proposed regulations also provide that, where only one
counterparty to a swap is a U.S. person, the U.S. person should be the
reporting counterparty. The Commission believes this approach is
necessary in order to ensure compliance with reporting requirements in
such situations.
The Commission requests comment concerning the possible utility of
some type of swap data reporting by both counterparties, and how such
dual reporting could be achieved other than by regulations requiring
such reporting (which regulations appear barred by Dodd-Frank);
regarding whether reporting of confirmation data is a sufficient means
of verifying with both parties the accuracy of swap data reported to an
SDR, and if not, what other means should be employed; on whether
selection of the reporting counterparty should be the same for cleared
swaps as for non-cleared swaps, and if not on how the reporting
counterparty should be selected for cleared swaps; and on the
mechanisms provided in the proposed regulation for counterparties to
follow in choosing the counterparty to report in situations where both
counterparties have the same hierarchical status, and on possible
alternative mechanisms for this purpose.
E. Third Party Facilitation of Swap Data Reporting
While the various reporting obligations established in the proposed
regulations fall explicitly on registered entities and swap
counterparties, the Commission recognizes that practicality,
efficiencies, and decreased cost could in some circumstances be gained
by engaging third parties to facilitate the actual reporting of
information. The use of such third-party facilitators, however, should
not allow the counterparty with the obligation to report to avoid its
responsibility to report swap data in a timely and accurate manner.
Therefore, the proposed regulations explicitly recognize that
registered entities and counterparties required to report under
provisions in Part 45 may contract with third-party service providers
to facilitate reporting, but, nonetheless, remain fully responsible for
reporting as required by the regulations.
The Commission requests comment on the merits of allowing third
party facilitation of swap data reporting; on appropriate types of
third party facilitators and functions to be used for this purpose; and
on the automated system and connectivity technology that may be
required or should be used in this connection.
F. Reporting to a Single SDR
The Commission believes that important regulatory purposes of Dodd-
Frank would be frustrated, and that regulators' ability to see
necessary information concerning swaps could be impeded, if data
concerning a given swap was spread over multiple SDRs. Accordingly, the
proposed regulations would require that all swap data for a given swap
must be reported to a single SDR, which shall be the SDR to which
required primary economic terms data for that swap is first reported.
The proposed regulations would also provide that the SDR receiving this
initial report must transmit its own identity, together with the USI
for the swap (created as provided in Sec. 45.4) to each counterparty
to the swap, to the SEF or DCM, if any, on which the swap was executed,
and to the DCO, if any, to which the swap is submitted for clearing.
Thereafter, the proposed regulations would require that all data
reported for the swap by any registered entity or any counterparty to
the swap, and all corrections of errors and omissions in previously
reported data, must be reported to that same SDR (or to its successor
in the event that it ceases to operate).
Where the initial report of required primary economic terms data is
made by the SEF or DCM on which a swap is executed, or by an SD or MSP
counterparty in the case of a swap not executed on a SEF or DCM, the
proposed regulations would provide that the choice of the SDR to
receive the initial report shall be made in a manner to be determined
by the Commission prior to adoption of its final swap data reporting
regulations. Where the initial report of required primary economic
terms data is made by a non-SD/MSP counterparty, the proposed
regulations would provide that the non-SD/MSP counterparty making that
report shall choose the SDR to which the report is made.
The Commission requests comment concerning the benefits or
drawbacks of requiring that all swap data for a given swap should be
reported to the same SDR; concerning how the choice of the SDR to which
swap data is to be reported for a swap should be made, and concerning
what registered entity or swap counterparty should make this choice.
G. Data Reporting for Swaps in Asset Classes Not Accepted by Any Swap
Data Repository
Section 4r(a)(1)(B) of the CEA recognizes that in some
circumstances there may be no SDR that will accept swap data for
certain swap transactions. This category of swaps should be limited,
since proposed regulations for SDRs set forth in the Commission's
separate advance notice of proposed rulemaking regarding SDRs will
require an SDR that accepts swap data for any swap in an asset class to
accept data for all swaps in that asset class. However, situations
could arise where a novel product does not fit into any existing asset
class, or where no SDR yet accepts swap data for any swap in an
existing asset class. In such situations, the CEA and the proposed
regulations would require the reporting counterparty to report to the
Commission all swap data required by Part 45 to be reported to an SDR
where one is available. This report would be required to be made at a
time and in a form and manner determined by the Commission.
The Commission requests comment on whether SDRs that accept data
for any swap in a swap asset class should be required to accept data
for all swaps
[[Page 76594]]
in that asset class; and on the time and the form and manner of
reporting that the Commission should require with respect to data
reporting for swaps that must be reported to the Commission because no
SDR presently accepts swap data for swaps in the asset class involved.
H. Required Data Standards
Dodd-Frank directs the Commission to ``prescribe data collection
and data maintenance standards for swap data repositories.'' \68\ It
also provides that SDRs shall maintain swap data reported to them ``in
such form, in such manner, and for such period as may be required by
the Commission,'' and directs SDRs to ``provide direct electronic
access to the Commission.'' \69\ These requirements are designed to
effectuate the fundamental purpose for the legislation's swap data
reporting requirements: making swap data available to the Commission
and other financial regulators so as to enable them to better fulfill
their market oversight and other regulatory functions, increase market
transparency, and mitigate systemic risk. Accordingly, the Commission
believes that data standards for SDRs must enable them to provide data
to the Commission in a format that enables its effective and timely use
for such purposes.
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\68\ CEA Sec. 21(b)(2).
\69\ CEA Sec. 21(c)(3) and (4).
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The Commission has considered, and will continue to consider,
whether it would be preferable to require that all swap data reporting
to SDRs be done in a uniform reporting format or via a single data
standard. However, the Commission is aware that such a requirement
would be likely to require changes to the existing automated systems of
some entities and counterparties that will be required to report swap
data pursuant to these regulations, and that in some cases such changes
could impose a substantial burden on such entities and counterparties.
The Commission has been advised by some existing trade repositories
that they are able to accept data in multiple formats or data standards
from different counterparties, and to map the data they receive into a
common data standard within the repository, without undue difficulty,
delay, or cost. The Commission understands that automated systems and
data standards evolve over time, and that it may be desirable for
regulations concerning data standards to avoid locking reporting
entities, reporting counterparties, and SDRs into particular data
standards that could become less appropriate in the future. Dodd-Frank
explicitly permits the Commission to ``take into consideration any
evolving standard of the United States or the international
community.'' \70\
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\70\ CEA Sec. 21(f)(4)(B).
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Finally, the Commission anticipates that the degree of flexibility
offered by SDRs concerning data standards for swap data reporting could
become an element of marketplace competition with respect to SDRs.
Accordingly, the proposed regulations would require an SDR to
maintain all swap data reported to it in a format acceptable to the
Commission, and to transmit all swap data requested by the Commission
to the Commission in an electronic file in a format acceptable to the
Commission. The proposed regulations would require reporting entities
and counterparties to use the facilities, methods, or data standards
provided or required by an SDR to which they report data, but also
would allow an SDR to permit reporting via various facilities, methods,
or data standards, provided that its requirements in this regard enable
it to maintain swap data and transmit it to the Commission as the
Commission requires. The Commission believes that this approach can
provide market participants sufficient flexibility and opportunity to
innovate, while also ensuring that SDRs can meet their legal mandates
to transmit swap data to the Commission in a timely fashion. Finally,
the proposed regulations would delegate to the Director of the Division
of Market Oversight the ability to accommodate the needs of different
communities of users and to provide the flexibility to adapt to
changing circumstances and evolving data standards.
The Commission requests comments concerning the approach to data
standards taken in the proposed regulation; and concerning the relative
merits of leaving SDRs free to permit reporting via various facilities,
methods, or data standards, provided that its requirements in this
regard enable it to maintain swap data and transmit it to the
Commission as the Commission requires; concerning whether the
Commission should require use of a single data standard (e.g., FpML) by
all reporting entities and counterparties and by all SDRs.
I. Reporting of Errors and Omissions in Previously Reported Data
Accurate swap data is essential to effective fulfillment of the
various regulatory functions of financial regulators. To help ensure
data accuracy, the proposed regulations would require registered
entities and swap counterparties that report swap data to an SDR or to
any other registered entity or swap counterparty to report any errors
or omissions in the data they report, as soon as technologically
practicable after discovery of any error or omission. Because daily
snapshot reports of state data by reporting counterparties by their
nature can correct errors or omissions in previous snapshot reports,
the proposed regulations provide that for interest rate swaps,
commodity swaps, and currency swaps, reporting counterparties fulfill
the requirement to report errors or omissions in state data previously
reported by making corrections in their next daily report of state
data. Because Dodd-Frank permits the Commission to require reporting by
only one swap counterparty, and because error and omission correction
from non-reporting counterparties is nevertheless desirable to better
ensure data accuracy, the proposed regulation (a) would require a non-
reporting swap counterparty that discovers any error or omission with
respect to any swap data reported to an SDR for its swaps to notify the
reporting counterparty promptly of each such error or omission, and (b)
would require the reporting counterparty, upon receiving such notice,
to report a correction of each such error or omission to the SDR, as
soon as technologically practicable after receiving notice of it from
the non-reporting counterparty.
To ensure consistency of data within an SDR with respect to error
corrections, the proposed regulations would require an entity or
counterparty correcting an error or omission to do so in the same data
format it used in making the erroneous report. To similarly ensure
consistency of data transmitted to the Commission with respect to error
corrections, the proposed regulations impose the same requirement on
SDRs with respect to transmission of error corrections.
The Commission requests comment concerning the requirement that all
entities and counterparties that report swap data to an SDR or to any
other registered entity or swap counterparty must report any errors or
omissions in the data they report, as soon as technologically
practicable after discovery of any error or omission; concerning the
mechanism provided in the proposed regulation for reporting of errors
or omissions discovered by a non-reporting swap counterparty, and
whether any alternative methods for this purpose would be preferable;
and
[[Page 76595]]
concerning the requirement for use of the same data format to report
errors or omissions that was used to report the erroneous data in
question.
III. Related Matters
A. Regulatory Flexibility Act
The RFA \71\ requires that agencies consider whether the rules they
propose will have a significant economic impact on a substantial number
of small entities and, if so, provide a regulatory flexibility analysis
respecting the impact.\72\ The rules proposed by the Commission would
affect SDRs, DCOs, SEFs, DCMs, SDs, MSPs, and non-SD/MSP counterparties
who are counterparties to one of more swaps and subject to the
Commission's jurisdiction. The Commission has previously established
certain definitions of ``small entities'' to be used by the Commission
in evaluating the impact of its regulations on small entities in
accordance with the RFA.\73\ In its previous determinations, the
Commission has concluded that DCMs and DCOs are not small entities for
the purpose of the RFA.\74\
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\71\ 5 U.S.C. 601 et seq.
\72\ 5 U.S.C. 601 et seq.
\73\ 47 FR 18618 (Apr. 30, 1982).
\74\ 47 FR 18618, 18619 (April 30, 1982) discussing contract
markets; and 66 FR 45604, 45609 (August 29, 2001) discussing
derivatives clearing organizations.
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As SDRs, SDs, MSPs and SEFs are new entities to be regulated by the
Commission pursuant to the Dodd-Frank Act, the Commission has not
previously determined whether they are small entities for the purpose
of the RFA. The Commission is proposing to determine that SDRs, SDs,
MSPs and SEFs covered by these rules, for reasons similar to those
applicable to DCMs and DCOs, are not small entities for purposes of the
RFA.
Specifically, the Commission proposes that SDRs, SDs, MSPs and SEFs
should not be considered small entities based on, among other things,
the central role they will play in the national regulatory scheme
overseeing the trading of swaps. Because they will be required to
accept swaps across asset classes, SDRs will require significant
operational resources. With respect to SDs, the Commission previously
has determined that FCMs should not be considered to be small entities
for purposes of the RFA.\75\ Like FCMs, SDs will be subject to minimum
capital and margin requirements, and are expected to comprise the
largest global financial firms. Additionally, the Commission is
required to exempt from designation entities that engage in a de
minimis level of swaps.\76\ Similarly, with respect to MSPs, the
Commission has also previously determined that large traders are not
``small entities'' for RFA purposes.\77\ Like large traders, MSPs will
maintain substantial positions, creating substantial counterparty
exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial markets.
With respect to SEFs, not only will SEFs play a vital role in the
national economy, but they will be required to operate as self-
regulatory organizations, subject to Commission oversight, with
statutory duties to enforce the rules adopted by their own governing
bodies. Most of these entities will not be small entities for RFA
purposes.
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\75\ 47 FR 18618 (Apr. 30, 1982).
\76\ Id. at 18619.
\77\ 47 FR at 18620.
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The proposed regulations would require reporting by a non-SD/MSP
counterparty only with respect to swaps in which neither counterparty
is an SD or MSP. The considerable majority of swaps involve at least
one SD or MSP. In addition, 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.\78\
Therefore, the Commission does not believe that the reporting
obligations under this rulemaking will create a significant economic
impact on a substantial number of small entities.
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\78\ 29 U.S.C. 1106
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Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not
have a significant impact on a substantial number of small entities.
Nonetheless, the Commission specifically requests comment on the impact
these proposed rules may have on small entities.
B. Paperwork Reduction Act
Introduction. Provisions of proposed Commission Regulations 45.2,
45.3, and 45.4 would result in new collection of information
requirements within the meaning of the Paperwork Reduction Act
(``PRA'').\79\ The Commission therefore is submitting this proposal to
the Office of Management and Budget (OMB) for review in accordance with
44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this collection of
information is ``Regulations 45.2, 45.3, and 45.4--Swap Data
Recordkeeping and Reporting Requirements,'' OMB control number 3038--
NEW). If adopted, responses to this new collection of information would
be 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.
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\79\ 44 U.S.C. 3501 et seq.
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Information Provided by Reporting Entities/Persons. Under proposed
Regulation 45.2, SDRs, SEFs, DCMs, DCOs, SDs, MSPs, and non-SD/MSP
counterparties--which presently would include an estimated 30,384
entities or persons \80\--would be required to keep records of all
activities relating to swaps. Specifically, proposed Regulation 45.2
would require SDRs, SEFs, DCMs, DCOs, SDs, and MSPs to keep complete
records of all activities relating to their business with respect to
swaps. The proposed regulation would require non-SD/MSP counterparties
to keep complete records with respect to each swap in which they are a
counterparty. With respect to SDs and MSPs, the Commission has
determined that proposed Regulation 45.2 will not impose any new
recordkeeping or information collection requirements, or other
collections of information that require approval of the Office of
Management and Budget under the Paperwork Reduction Act. Requirements
for maintaining and recording swap transaction data by SDs and MSPs
will be addressed by related rulemakings associated with business
conduct standards for SDs and MSPs as part of the Commission's overall
[[Page 76596]]
rulemaking initiative implementing the Dodd-Frank Act.\81\ With respect
to SDRs, SEFs, DCMs, DCOs (an estimated 84 entities or persons), which
will have higher levels of swap recording activity \82\ than non-SD/MSP
counterparties, the Commission estimates that there may be
approximately 40 annual burden hours per entity, excluding customary
and usual business practices. With respect to non-SD/MSP reporting
counterparties (an estimated 30,000 entities or persons), who will have
lower levels of swap recording activity, the Commission estimates that
there may be approximately 10 annual burden hours per entity, excluding
customary and usual business practices. Therefore, there are 303,360
estimated aggregate annual burden hours.
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\80\ Because SDRs, MSPs, SDs, DCOs, and SEFs are new entities,
estimates were made by the Commission: 15 SDRs, 50 MSPs, 250 SDs, 12
DCOs, and 40 SEFs. The number of DCMs was estimated to be 17 DCMs
based on the current (as of October 18, 2010) number of designated
DCMs (http://services.cftc.gov/SIRT/
SIRT.aspx?Topic=TradingOrganizations&implicit=true&type=DCM&CustomCol
umnDisplay=TTTTTTTT). Additionally, for purposes of the Paperwork
Reduction Act, the Commission estimates that there would be 30,000
non-SD/MSP counterparties who would annually be subject to the
recordkeeping requirements of proposed Regulation 45.1. Because the
Commission has not regulated the swap market, it has not collected
data relevant to this estimate. Therefore, the Commission requests
comment on this estimate.
\81\ The Commission invites public comment on the accuracy of
its estimate that no additional recordkeeping or information
collection requirements related to SDs and MSP would result from the
rules proposed herein.
\82\ 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. The Commission
requests comment on its estimate.
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Under proposed Regulation 45.3, SEFs, DCMs, DCOs, MSPs, SDs, and
non-SD/MSP counterparties would be required to provide reports to SDRs
regarding swap transactions. SEFs and DCMs are required to report
certain information once at the time of swap execution. DCOs, SDs,
MSPs, and non-SD/MSP counterparties are required to report certain
information once, as well as other information on a daily basis. With
respect to reporting by SDs, MSPs, and non-SD/MSP counterparties, only
one counterparty to a swap is required to report, typically an SD or an
MSP as determined by proposed Regulation 45.4. The Commission
anticipates that the reporting 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 and maintain the reporting functionality.\83\ SEFs, DCMs,
DCOs, MSPs, and SDs (an estimated 369 entities or persons) are
anticipated to have high levels of reporting activity; the Commission
estimates that their average annual burden may be approximately 2,080
hours.\84\ Non-SD/MSP counterparties who would be required to report--
which presently would include an estimated 1,500 entities \85\--are
anticipated to have lower levels of activity with respect to reporting;
the Commission estimates that their annual burden may be approximately
75 hours. Therefore, there are 880,020 estimated aggregate annual
burden hours.
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\83\ Estimated burden hours were obtained in consultation with
the Commission's information technology staff. The Commission
requests comment on these estimates.cvvv
\84\ The Commission estimated 2,080 hours by assuming that a
significant number of SEFs, DCMs, DCOs, MSP, and SDs will dedicate
the equivalent of at least one full-time employee to ensuring
compliance with the reporting obligations of Regulation 45.3 (2,080
hours = 52 weeks x 5 days x 8 hours). The Commission believes that
this is a reasonable assumption due to the volume of swap
transactions that will be processed by these entities, the varied
nature of the information required to be reported by Regulation
45.3, and the frequency (daily) with which some reports must be
made. The Commission requests comment on its estimate.
\85\ This is the estimated number of non-SD/MSP counterparties
who would 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 proposed Regulation 45.4. The Commission
requests comment on this estimate.
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Under proposed Regulation 45.4, SDRs, SEFs, DCMs, SDs, and MSPs
would be required to report a unique swap identifier to other
registered entities and swap participants. SEFs and DCMs are
anticipated to have higher levels of activity than SDRs, SDs, and MSPs
with respect to unique swap identifier reporting. The Commission
anticipates that the reporting of the unique swap identifier will be
automatically completed by electronic computer systems. The following
burden hours are based on the estimated burden hours necessary to
oversee and maintain the electronic functionality of unique swap ID
reporting.\86\ The Commission estimates that SEFs and DCMs (an
estimated 57 entities or persons) may have approximately 22 annual
burden hours per entity. The Commission estimates that SDRs, SDs, and
MSPs (an estimated 315 entities or persons) may have approximately 6
annual burden hours per entity. Therefore, there are 3,144 estimated
aggregated annual burden hours.
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\86\ Estimated burden hours were obtained in consultation with
the Commission's information technology staff. The Commission
requests comment on these estimates.
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Additionally under Proposed Regulation 45.4, SDs, MSPs, and non-SD/
MSP counterparties (an estimated 30,300 entities and persons), would be
required to report into a confidential database their ownership and
affiliations information (as well as changes to ownership and
affiliations). The report would be made once at the time of the first
swap reported to an SDR, and would be made anytime thereafter that the
entity's legal affiliations change. The estimated number of burden
hours per report is approximately two hours per entity, excluding
customary and usual business practices. The number of reports required
to be made per year is estimated to vary between zero and four,
depending on the number of changes an entity has in its legal
affiliations in that year. Thus, the estimated annual burden per entity
varies between zero and eight burden hours. Therefore, there are
between 0 and 242,400 estimated aggregate annual burden hours.
Information Collection Comments. The Commission invites the public
and other Federal agencies to comment on any aspect of the reporting
and recordkeeping burdens discussed above. Pursuant to 44 U.S.C.
3506(c)(2)(B), the Commission solicits comments in order to: (i)
Evaluate whether the proposed collection of information is necessary
for the proper performance of the functions of the Commission,
including whether the information will have practical utility; (ii)
evaluate the accuracy of the Commission's estimate of the burden of the
proposed collection of information; (iii) determine whether there are
ways to enhance the quality, utility, and clarity of the information to
be collected; and (iv) minimize the burden of the collection of
information on those who are to respond, including through the use of
automated collection techniques or other forms of information
technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at
[email protected]. Please provide the Commission with a copy
of submitted comments so that all comments can be summarized and
addressed in the final rule preamble. Refer to the Addresses section of
this notice of proposed rulemaking for comment submission instructions
to the Commission. A copy of the supporting statements for the
collections of information discussed above may be obtained by visiting
RegInfo.gov. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this release. Consequently, a comment to OMB is most assured of being
fully effective if received by OMB (and the Commission) within 30 days
after publication of this notice of proposed rulemaking.
C. Cost-Benefit Analysis
Introduction. Section 15(a) of the Commodity Exchange Act (``CEA'')
requires the Commission to consider the costs and benefits of its
actions before issuing a rulemaking under the Act. By its terms,
section 15(a) does not require
[[Page 76597]]
the Commission to quantify the costs and benefits of the rulemaking or
to determine whether the benefits of the rulemaking outweigh its costs;
rather, it requires that the Commission ``consider'' the costs and
benefits of its actions. Section 15(a) further specifies that the costs
and benefits shall be evaluated in light of five broad areas of market
and public concern: (1) Protection of market participants and the
public; (2) the efficiency, competitiveness and financial integrity of
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations. The Commission may in its
discretion give greater weight to any one of the five enumerated areas
and could in its discretion determine that, notwithstanding its costs,
a particular rule is necessary or appropriate to protect the public
interest or to effectuate any of the provisions to accomplish any of
the purposes of the Act.
Summary of proposed requirements. The proposed Commission
regulations in Part 45 would provide for certain recordkeeping and data
reporting requirements for SDRs, SEFs, DCMs, DCOs, SDs, MSPs, and non-
SD/MSP counterparties. The proposed regulations would require SDRs,
SEFs, DCMs, DCOs, SDs, and MSPs to keep records of all activities
relating to their business with respect to swaps; non-SD/MSP
counterparties would be required to keep records with respect to each
swap in which they are a counterparty. The proposed regulations would
require SEFs, DCMs, DCOs, SDs, MSPs, and non-SD/MSP counterparties to
report to SDRs various types of swap data, as defined and required in
the regulations. Further, in some instances the proposed regulations
would require SDRs, SEFs, DCMs, SDs, and MSPs to create unique swap
identifiers and transmit them to other registered entities and swap
participants. Additionally, the proposed regulations would require SDs,
MSPs, and non-SD/MSP counterparties to report their ownership and
affiliations information (as well as changes to ownership and
affiliations), in a manner to be determined by the Commission prior to
its adoption of final swap data reporting regulations.
Costs. With respect to costs, the Commission believes that the
proposed reporting and recordkeeping requirements could impose
significant compliance costs on some SDRs, SEFs, DCMs, DCOs, SDs, MSPs,
and non-SD/MSP counterparties. The proposed regulations could require
capital expenditures for some such entities that could affect the
ability of some regulated entities to compete in the global marketplace
because of reductions in available resources.
Benefits. Notwithstanding the potential costs that could be
incurred by SDRs, SEFs, DCMs, DCOs, SDs, MSPs, and non-SD/MSP
counterparties, the Commission believes that the benefits of the
proposed regulations are significant and important. Through the
requirement that swap information be reported to SDRs, the proposed
regulations will greatly improve the efficiency and transparency of the
swap market. Through the Commission's access to swap data, market
participants and the public will be better protected, as the result of
increased market surveillance and monitoring.
The Commission believes that the proposed regulations are essential
to the financial protection of swap market participants and the public.
With their support for greater transparency and more effective
oversight, the proposed regulations will help to ensure the efficiency,
competitiveness, and financial integrity of swap markets. By providing
regulators data necessary for effective prudential supervision, the
proposed regulations will enable enhanced protection against systemic
risk. The proposed regulations will also improve the important function
of price discovery. For all these reasons, the proposed regulations
would serve the public interest.
Public Comment. For the reasons set forth above, the Commission
believes that the benefits of the proposed regulations outweigh their
costs, and has decided to issue them. The Commission invites public
comment on its cost-benefit considerations. Commenters are also invited
to submit any data or other information that they may have quantifying
or qualifying the costs and benefits of the Proposal with their comment
letters.
IV. Proposed Effective Date
The Commission understands that, after the date on which the
Commission promulgates its final swap data reporting regulations, the
industry will need a reasonable period of time to implement the
requirements of those regulations. Time may be required for entities to
register as SEFs, DCMs, DCOs, or SDRs (or to update current
registrations as DCMs or DCOs) pursuant to new Commission regulations
concerning such entities. Time may also be needed for registered
entities and potential swap counterparties to adapt or create automated
systems capable of fulfilling the requirements of Commission
regulations concerning swap data reporting. Accordingly, it may be
appropriate for the Commission's final swap data reporting regulations
to establish an effective date for the requirements contained in those
regulations that is later than the date of their promulgation.
The Commission requests comment concerning the need for an
implementation date for its final swap data reporting regulations that
is later than the date of their promulgation; concerning the benefits
or drawbacks of such an approach; concerning the length of time needed
for registered entities and potential swap counterparties to prepare
for implementation in the ways discussed above, or otherwise; and
concerning the implementation date which the Commission should specify
in its final regulations concerning swap data reporting.
V. General Solicitation of Comments
The Commission requests comments concerning all aspects of the
proposed regulations, including, without limitation, all of the aspects
of the proposed regulations on which comments have been requested
specifically herein.
Proposed Rules
List of Subjects in 17 CFR Part 45
Swaps, data recordkeeping requirements and data reporting
requirements.
For the reasons set forth in the preamble, the Commodity Futures
Trading Commission proposes to add a new part 45 to read as follows:
PART 45--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS
Sec.
45.1 Definitions.
45.2 Swap recordkeeping.
45.3 Swap data reporting.
45.4 Unique identifiers.
45.5 Determination of which counterparty must report.
45.6 Third-party facilitation of data reporting.
45.7 Reporting to a single SDR.
45.8 Data reporting for swaps in a swap asset class not accepted by
any SDR.
45.9 Required data standards.
45.10 Reporting of errors and omissions in previously reported data.
Appendix 1 to Part 45--Tables of minimum primary economic terms data
and minimum valuation data
Appendix 2 to Part 45--Master reference generic data fields list
Authority: 7 U.S.C. Sec. Sec. 2(a)(13)(G), 4r, 6s, 7, 7a-1,
7b-3, 12a and 21(b), as amended by Title VII of the Wall Street
Reform and Consumer Protection Act of 2010, Public Law 111-203, 124
Stat. 1376 (2010).
[[Page 76598]]
Sec. 45.1 Definitions.
As used in this part 45, the following terms shall have the
definitions set forth below.
(a) ``Asset class'' means the particular broad category of goods,
services or commodities underlying a swap. The asset classes include
interest rate, currency, credit, equity, other commodity, and such
other asset classes as may be determined by the Commission.
(b) ``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).
(c) ``Confirmation data'' means all of the terms of a swap matched
and agreed upon by the counterparties in confirming the swap.
(d) ``Contract-intrinsic event'' means a scheduled, anticipated
event occurring during the existence of a swap that does not result in
any change to the contractual terms of the swap, including, without
limitation, the scheduled expiration of a swap, or a previously
described and anticipated interest rate adjustment (e.g., a quarterly
interest rate adjustment).
(e) ``Contract-intrinsic event data'' means, with respect to a
credit swap or equity swap, all of the data elements necessary to fully
report any contract-intrinsic event with respect to that swap.
(f) ``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.
(g) ``Currency swap'' means any swap which is primarily based on
rates of exchange between difference currencies, changes in such rates,
or other aspects of such rates. This category includes foreign exchange
swaps as defined in CEA Section 1a(25).
(h) ``Derivatives Clearing Organization'' or ``DCO'' has the
meaning set forth in CEA Section 1a(9), and any Commission regulation
implementing that Section, including, without limitation, Sec. 39.5 of
this chapter.
(i) ``Designated Contract Market'' or ``DCM'' has the meaning set
forth in CEA Section 5, and any Commission regulation implementing that
Section.
(j) ``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.
(k) ``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.
(l) ``Life cycle event'' means, with respect to a credit swap or
equity swap, any event that would result in a change in the data
previously reported to an SDR in connection with the swap, including,
without limitation, a counterparty change resulting from an assignment
or novation; a partial or full termination of the swap; a change in the
cash flows originally reported; for a credit swap or equity swap that
is not cleared, any change to the collateral agreement; or a corporate
action affecting a security or securities on which the swap is based
(e.g., a merger, dividend, stock split, or bankruptcy).
(m) ``Life cycle event data'' means, with respect to a credit swap
or equity swap, all of the data elements necessary to fully report any
life cycle event, or any adjustment due to a life cycle event, that
results in a change to data previously reported with respect to that
swap.
(n) ``Major Swap Participant'' or ``MSP'' has the meaning set forth
in CEA Section 1a(33), and any Commission regulation implementing that
Section.
(o) ``Non-SD/MSP counterparty'' means a swap counterparty that is
neither a Swap Dealer nor a Major Swap Participant.
(p) ``Other commodity swap'' means any swap not included in the
credit swap, currency swap, equity swap, or interest rate swap
categories, 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.
(q) ``Primary economic terms'' for a credit swap or equity swap
means:
(1) The Unique Swap Identifier for the swap, pursuant to Sec.
45.4(a);
(2) The Unique Counterparty Identifier of each counterparty to the
swap, pursuant to Sec. 45.4(b);
(3) The Unique Product Identifier assigned to the swap, pursuant to
Sec. 45.4(c);
(4) An indication of the counterparty purchasing protection and of
the counterparty selling protection;
(5) Information identifying the reference entity for the swap, in a
format determined by the Commission;
(6) An indication of whether or not both counterparties are SDs;
(7) An indication of whether or not both counterparties are MSPs;
(8) An indication of whether or not both counterparties are non-SD/
MSP counterparties;
(9) The date and time of execution, expressed using Coordinated
Universal time (``UTC'');
(10) The venue where the swap was executed;
(11) The effective date;
(12) The scheduled termination date;
(13) The price;
(14) The notional amount, the currency in which the notional amount
is expressed, and the equivalent notional amount in U.S. dollars;
(15) The amount and currency or currencies of any up-front payment;
(16) A description of the payment streams of each counterparty;
(17) The title of any master agreement incorporated by reference
and the date of any such agreement;
(18) If the transaction involved an existing swap, an indication
that the transaction did not involve an opportunity to negotiate a
material term of the contract, other than the counterparty;
(19) The data elements necessary for a person to determine the
market value of the transaction;
(20) Whether or not the swap will be cleared by a designated
clearing organization;
(21) The name of the designated clearing organization that will
clear the swap, if any;
(22) If the swap is not cleared, whether the exception in Sec.
2(h)(7) (``End User exception'') was invoked;
(23) If the swap is not cleared, all of the settlement terms,
including, without limitation, whether the swap is cash-settled or
physically settled, and the method for determining the settlement
value; and
(24) Any other primary economic term(s) of the swap matched by the
counterparties in verifying the swap.
(r) ``Primary economic terms'' means, for an interest rate swap,
other commodity swap, or currency swap, all of the terms of a swap
matched by the counterparties in verifying the swap, including at a
minimum each of the terms included in the most recent Federal Register
release by the Commission listing minimum primary economic terms for
interest rate swaps, other commodity swaps, or currency swaps. The
Commission's current lists of minimum primary economic terms for
interest rate, commodity, and currency swaps are found in Appendix 1 to
part 45.
[[Page 76599]]
(s) ``Primary economic terms data'' means all of the data elements
necessary to fully report all of the primary economic terms of a swap
in the swap asset class of the swap in question.
(t) ``Reporting counterparty'' means the counterparty required to
report swap data pursuant to Sec. 45.5.
(u) ``Required swap creation data'' for a credit swap or equity
swap means:
(1) All primary economic terms data for a credit swap or equity
swap; and
(2) All confirmation data for the swap.
(v) ``Required swap creation data'' for an interest rate swap,
commodity swap, or currency swap means:
(1) All primary economic terms data for an interest rate swap,
commodity swap, or currency swap, as appropriate; and
(2) All confirmation data for the swap.
(w) ``Required swap continuation data'' for a credit swap or equity
swap means:
(1) All life cycle event data for the swap;
(2) All contract-intrinsic event data for the swap; and
(3) All valuation data for the swap, and all changes to valuation
data previously reported concerning the swap, reported at intervals to
be determined by the Commission prior to its adoption of final swap
data reporting regulations.
(x) ``Required swap continuation data'' for an interest rate swap,
other commodity swap, or currency swap means:
(1) All state data for the swap, reported daily throughout the
existence of the swap until its final termination; and
(2) A report at intervals specified by the Commission, throughout
the existence of the swap until its final termination, of all valuation
data and all changes to valuation data concerning the swap.
(y) ``State data'' means all of the data elements necessary to
provide a snapshot view, on a daily basis, of all of the primary
economic terms of a swap in the swap asset class of the swap in
question, including any changes to such terms since the last snapshot.
At a minimum, state data must include all of the economic terms listed
in the most recent Federal Register release by the Commission
concerning minimum primary state data elements for interest rate,
commodity, or currency swaps. The Commission's current lists of minimum
primary economic terms for interest rate, commodity, and currency swaps
are found in Appendix 1 to Part 45.
(z) ``Swap Data Repository'' or ``SDR'' has the meaning set forth
in CEA Section 1a(48), and any Commission regulation implementing that
Section.
(aa) ``Swap Dealer'' or ``SD'' has the meaning set forth in CEA
Section 1a(49), and any Commission regulation implementing that
Section.
(bb) ``Swap Execution Facility'' or ``SEF'' has the meaning set
forth in CEA Section 1a(50), and any Commission regulation implementing
that Section.
(cc) ``Valuation data'' means all of the data elements necessary
for a person to determine the current market value of the swap,
including, without limitation, daily margin, daily mark-to-market, and
other measures of valuation as determined by the Commission.
(dd) ``Verification'' (``verify'' or ``verifying'') means the
matching by the counterparties to a swap of each of the primary
economic terms of a swap, at or shortly after the time the swap is
executed.
Sec. 45.2 Swap recordkeeping.
(a) All DCOs, DCMs, SEFs, SDs, and MSPs who are subject to the
jurisdiction of the Commission shall keep full, complete, and
systematic records, together with all pertinent data and memoranda, of
all activities relating to the business of such entities or persons
with respect to swaps, as prescribed by the Commission. Such records
shall include, without limitation, the following:
(1) For DCOs, all records required by part 39 of this chapter.
(2) For SEFs, all records required by part 37 of this chapter.
(3) For DCMs, all records required by part 38 of this chapter.
(4) For SDs and MSPs, all records required by part 23 of this
chapter.
(b) All non-SD/MSP counterparties subject to the jurisdiction of
the Commission shall keep full, complete, and systematic records,
together with all pertinent data and memoranda, with respect to each
swap in which they are a counterparty, including all required swap
creation data and all required swap continuation data that they are
required to report pursuant to this part 45, and including all records
demonstrating that they are entitled, with respect to any swap, to the
end user exception pursuant to Section 2(h)(7).
(c) All records required to be kept by DCOs, DCMs, SEFs, SDs, MSPs,
and non-SD/MSP counterparties pursuant to this Section shall be kept
with respect to each swap from the date of the creation of the swap
through the life of the swap and for a period of at least five years
from the final termination of the swap, in a form and manner acceptable
to the Commission.
(d) Records required to be kept by DCOs, DCMs, SEFs, SDs, MSPs, or
non-SD/MSP counterparties pursuant to this Section shall be retrievable
as follows:
(1) Each record required by this Section or any other Section of
the Act to be kept by an SDR shall be readily accessible via real time
electronic access by the SDR indefinitely.
(2) Each record required by this Section or any other Section of
the Act to be kept by a DCO, DCM, SEF, SD, or MSP shall be readily
accessible via real time electronic access by the registrant 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.
(3) Each record required by this Section or any other Section of
the Act to be kept by a non-SD/MSP counterparty shall be retrievable by
that counterparty within three business days throughout the period
during which it is required to be kept.
(e) All SDRs registered with the Commission shall keep full,
complete, and systematic records, together with all pertinent data and
memoranda, of all activities relating to the business of the SDR and
all swap data reported to the SDR, as prescribed by the Commission.
Such records shall include, without limitation, all records required by
Sec. 45.10 of the Commission's proposed swap data repositories
regulations.
(f) All records required to be kept by an SDR pursuant to this
Sec. 45.2 must be kept by the SDR both:
(1) Throughout the existence of the swap and for five following
final termination of the swap, during which time the records must be
readily accessible by the SDR and available to the Commission via real
time electronic access; and
(2) Thereafter, for a period to be determined by the Commission
prior to promulgation of its final swap data recordkeeping and
reporting regulations, in archival storage from which they are
retrievable by the SDR within three business days.
(g) All records required to be kept pursuant to this Section by any
registrant or its affiliates or by any non-SD/MSP counterparty 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
[[Page 76600]]
expense of the entity or person required to keep the record, to any
representative of the Commission upon request, either by electronic
means, in hard copy, or both, as requested by the Commission.
Sec. 45.3 Swap data Reporting.
This Section establishes the general swap data reporting
obligations of SDs, MSPs, non-SD/MSP counterparties, SEFs, DCMs, and
DCOs to report swap data to an SDR. In addition to the reporting
obligations set forth in this Section, SDs, MSPs, and non-SD/MSP
counterparties are also subject to the reporting obligations with
respect to corporate affiliations reporting set forth in Sec.
45.4(b)(2); DCMs, SEFs, SDs, MSPs, and non-SD/MSP counterparties are
subject to the reporting obligations with respect to real time
reporting of swap data set forth in part 43; and, where applicable,
SDs, MSPs, and non-SD/MSP counterparties are subject to the reporting
obligations with respect to large traders set forth in parts 17 and 18
of this chapter.
(a) Reporting of required swap creation data. Registered entities
and swap counterparties must report required swap creation data
electronically to an SDR as set forth in this Section.
(1) Swaps for which the reporting counterparty is an SD or MSP. For
all swaps in which the reporting counterparty is an SD or MSP, required
swap creation data must be reported as follows:
(i) Swaps executed on a SEF or DCM and cleared on a DCO. (A) The
SEF or DCM on which the swap is executed must report all primary
economic terms data for the swap asset class of the swap that is in its
possession, as soon as technologically practicable following execution
of the swap.
(B) The DCO on which the swap is cleared must report all
confirmation data, as soon as technologically practicable following
clearing of the swap.
(C) The reporting counterparty, as determined pursuant to Sec.
45.5, must report any primary economic terms data for the swap asset
class of the swap that is not reported by the SEF or DCM. This report
must be made promptly following verification of the primary economic
terms by the counterparties with each other at the time of, or
immediately following, execution of the swap, but in no event later
than: 15 minutes after execution of the swap if both execution and
verification of primary economic terms occur electronically; 30 minutes
after execution of the swap if execution does not occur electronically
but verification of primary economic terms occurs electronically; or 24
hours after execution of the swap if neither execution nor verification
of primary economic terms occurs electronically.
(ii) Swaps Executed on a SEF but Not Cleared on a DCO. (A) The SEF
on which the swap is executed must report all primary economic terms
data for the swap asset class of the swap that is in its possession, as
soon as technologically practicable following execution of the swap.
(B) The reporting counterparty, as determined pursuant to Sec.
45.5, must report any primary economic terms data for the swap that is
not reported by the SEF. This report must be made promptly following
verification of the primary economic terms by the counterparties with
each other at the time of, or immediately following, execution of the
swap, but in no event later than: 15 minutes after execution of the
swap if both execution and verification of primary economic terms occur
electronically; 30 minutes after execution of the swap if execution
does not occur electronically but verification of primary economic
terms occurs electronically; or 24 hours after execution of the swap if
neither execution nor verification of primary economic terms occurs
electronically.
(C) The reporting counterparty must report all confirmation data
for the swap. This report must be made promptly following confirmation
of the swap, but in no event later than: 15 minutes after confirmation
of the swap if confirmation occurs electronically, or 24 hours after
confirmation of the swap if confirmation was done manually rather than
electronically.
(iii) Swaps Not Executed on a SEF or DCM but Cleared on a DCO. (A)
The reporting counterparty, as determined pursuant to Sec. 45.5, must
report all primary economic terms data for the swap asset class of the
swap. This report must be made promptly following verification of the
primary economic terms by the counterparties with each other at or
immediately following execution of the swap, but in no event later
than: 30 minutes after execution of the swap if verification of primary
economic terms occurs electronically; or 24 hours after execution of a
swap if verification of primary economic terms does not occur
electronically.
(B) The DCO on which the swap is cleared must report all
confirmation data, as soon as technologically practicable following
clearing of the swap.
(iv) Swaps Not Executed on a SEF or DCM and Not Cleared on a DCO.
The reporting counterparty, as determined pursuant to Sec. 45.5, must
report all primary economic terms data for the swap, and must report
electronically all confirmation data for the swap. The report of
primary economic terms data must be made promptly following
verification of the primary economic terms by the counterparties with
each other at or immediately following execution of the swap, but in no
event later than: 30 minutes after execution of the swap if
verification of primary economic terms occurs electronically; or 24
hours after execution of a swap if verification of primary economic
terms does not occur electronically. The report of confirmation data
must be made promptly following confirmation of the swap, but in no
event later than: 15 minutes after confirmation of the swap if
confirmation occurs electronically, or 24 hours after confirmation of
the swap if confirmation was done manually rather than electronically.
(2) Swaps for which the reporting counterparty is a non-SD/MSP
counterparty. For all swaps in which the reporting counterparty is a
non-SD/MSP counterparty, required swap creation data must be reported
as set forth in this Section.
(i) Swaps executed on a SEF or DCM and cleared on a DCO. (A) The
SEF or DCM on which the swap is executed must report all primary
economic terms data for the swap asset class of the swap that is in its
possession, as soon as technologically practicable following execution
of the swap.
(B) The DCO on which the swap is cleared must report all
confirmation data, as soon as technologically practicable following
clearing of the swap.
(C) The reporting counterparty, as determined pursuant to Sec.
45.5, must report any primary economic terms data for the swap asset
class of the swap that is not reported by the SEF or DCM. This report
must be made promptly following verification of the primary economic
terms by the counterparties with each other at the time of, or
immediately following, execution of the swap, but in no event later
than: 15 minutes after execution of the swap if both execution and
verification of primary economic terms occur electronically; 30 minutes
after execution of the swap if execution does not occur electronically
but verification of primary economic terms occurs electronically; or 24
hours after execution of the swap if neither execution nor verification
of primary economic terms occurs electronically.
(ii) Swaps Executed on a SEF but Not Cleared on a DCO. (A) The SEF
on which the swap is executed must report all primary economic terms
data for the swap asset class of the swap that is in
[[Page 76601]]
its possession, as soon as technologically practicable following
execution of the swap.
(B) The reporting counterparty, as determined pursuant to Sec.
45.5, must report any primary economic terms data for the swap that is
not reported by the SEF. This report must be made promptly following
verification of the primary economic terms by the counterparties with
each other at the time of, or immediately following, execution of the
swap, but in no event later than: 15 minutes after execution of the
swap if both execution and verification of primary economic terms occur
electronically; 30 minutes after execution of the swap if execution
does not occur electronically but verification of primary economic
terms occurs electronically; or 24 hours after execution of the swap if
neither execution nor verification of primary economic terms occurs
electronically.
(C) The reporting counterparty must report all confirmation data
for the swap. This report must be made within a time to be determined
by the Commission prior to its adoption of final swap data reporting
regulations.
(iii) Swaps Not Executed on a SEF or DCM but Cleared on a DCO. (A)
The reporting counterparty, as determined pursuant to Sec. 45.5, must
report all primary economic terms data for the swap. This report must
be made promptly following verification of the primary economic terms
by the counterparties with each other at the time of, or immediately
following, execution of the swap, but in no event later than: 30
minutes after execution of the swap if verification of primary economic
terms occurs electronically; or 24 hours after execution of the swap if
verification of primary economic terms does not occur electronically.
(B) The DCO on which the swap is cleared must report all
confirmation data, as soon as technologically practicable following
clearing of the swap.
(iv) Swaps Not Executed on a SEF or DCM and Not Cleared on a DCO.
(A) The reporting counterparty, as determined pursuant to Sec. 45.5,
must report all primary economic terms data for the swap asset class of
the swap, and must report all confirmation data. The report of primary
economic terms data must be made promptly following verification of the
primary economic terms by the counterparties with each other at or
immediately following execution of the swap, but in no event later
than: 30 minutes after execution of the swap if verification of primary
economic terms occurs electronically; or 24 hours after execution of a
swap if verification of primary economic terms does not occur
electronically.
(B) The reporting counterparty must report all confirmation data
for the swap. This report must be made within a time to be determined
by the Commission prior to its adoption of final swap data reporting
regulations.
(b) Reporting of required swap continuation data. Registered
entities and swap counterparties must report required swap continuation
data to an SDR as set forth in this Section.
(1) Credit swaps and equity swaps. For all credit swaps and equity
swaps, registered entities and counterparties must report as set forth
below.
(i) Swaps for which the reporting counterparty is an SD or MSP. For
all credit swaps and equity swaps in which the reporting counterparty
is an SD or MSP, required swap continuation data must be reported as
follows:
(A) Swaps cleared on a DCO. (1) The DCO on which the swap is
cleared must report all life cycle event data, on the same day in which
any life cycle event occurs; and must report all valuation data in its
possession, on a daily basis.
(2) The reporting counterparty must report all valuation data in
its possession, on a daily basis; and must report all contract-
intrinsic event data, on the same day in which any contract-intrinsic
event occurs.
(B) Swaps Not Cleared on a DCO. The reporting counterparty must
report:
(1) All life cycle event data, on the same day in which any life
cycle event occurs;
(2) All valuation data, on a daily basis; and
(3) All contract-intrinsic event data, on the same day in which any
contract-intrinsic event occurs.
(ii) Swaps for which the reporting counterparty is a non-SD/MSP
counterparty. For all credit swaps in which the reporting counterparty
is neither an SD nor MSP, required swap continuation data must be
reported as follows:
(A) Swaps cleared on a DCO.
(1) The DCO on which the swap is cleared must report all life cycle
event data, on the same day in which any life cycle event occurs; and
must report all valuation data in its possession, on a daily basis.
(2) The reporting counterparty must report all valuation data in
its possession, at times to be determined by the Commission prior to
its adoption of final swap data reporting regulations; and must report
all contract-intrinsic event data, on the same day in which any
contract-intrinsic event occurs.
(B) Swaps Not Cleared on a DCO. The reporting counterparty must
report all life cycle event data, on the same day in which any life
cycle event occurs; all valuation data, at intervals to be determined
by the Commission prior to its adoption of final swap data reporting
regulations; and all contract-intrinsic event data, on the same day in
which any contract-intrinsic event occurs.
(2) Interest rate swaps, commodity swaps, and currency swaps. For
all interest rate swaps, commodity swaps, and currency swaps,
registered entities and counterparties must report as follows:
(i) Swaps for which the reporting counterparty is an SD or MSP. For
all interest rate swaps, commodity swaps, and currency swaps in which
the reporting counterparty is an SD or MSP, required swap continuation
data must be reported as follows:
(A) Swaps cleared on a DCO. (1) The reporting counterparty must
report all required state data, on a daily basis.
(2) The DCO must report all required valuation data in its
possession, on a daily basis.
(3) The reporting counterparty must report all required valuation
data in its possession, on a daily basis.
(B) Swaps Not Cleared on a DCO. The reporting counterparty must
report:
(1) All required state data, on a daily basis; and
(2) All required valuation data, on a daily basis.
(ii) Swaps for which the reporting counterparty is a non-SD/MSP
counterparty. For all interest rate swaps, commodity swaps, or currency
swaps in which the reporting counterparty is a non-SD/MSP counterparty,
required swap continuation data must be reported as follows:
(A) Swaps cleared on a DCO. (1) The reporting counterparty must
report all state data, on a daily basis.
(2) The DCO must report all valuation data in its possession, on a
daily basis.
(3) The reporting counterparty must report all valuation data in
its possession, at intervals to be determined by the Commission prior
to its adoption of final swap data reporting regulations.
(B) Swaps Not Cleared on a DCO. The reporting counterparty must
report:
(1) All state data, on a daily basis; and
(2) All valuation data, at intervals to be determined by the
Commission prior to its adoption of final swap data reporting
regulations.
Sec. 45.4 Unique identifiers.
Each swap subject to the jurisdiction of the Commission shall be
identified in all recordkeeping and all swap data reporting concerning
that swap by the use of three unique identifiers: A Unique Swap
Identifier (``USI''), a
[[Page 76602]]
Unique Counterparty Identifier (``UCI''), and a Unique Product
Identifier (``UPI'').
(a) Unique Swap Identifiers. (1) Creation and Transmission for
Swaps Executed on a SEF or DCM. For each swap executed on a SEF or DCM,
a Unique Swap Identifier shall be created and transmitted as follows.
(i) Creation. The SEF or DCM shall generate and assign a Unique
Swap Identifier at the time of execution of the swap, in the form
specified by the Commission. The Unique Swap Identifier shall consist
of a single data field that contains two components:
(A) The unique, extensible, alphanumeric code assigned to the SEF
or DCM by the Commission at the time of its registration, for the
purpose of identifying the SEF or DCM; and
(B) an extensible, alphanumeric code generated and assigned to that
swap by the automated systems of the SEF or DCM, which shall be unique
with respect to all such codes generated and assigned by that SEF or
DCM.
(ii) Transmission. The SEF or DCM creating the Unique Swap
Identifier for the swap shall transmit the identifier electronically as
follows:
(A) To each counterparty to the swap, as soon as technologically
practicable after execution of the swap;
(B) to the DCO, if any, to which the swap is submitted for
clearing, simultaneously with the transmission of required swap
creation data to the DCO for clearing purposes; and
(C) to the SDR to which the SEF or DCM reports required swap
creation data for the swap, simultaneously with the transmission by the
SEF or DCM to the SDR of required swap creation.
(2) Creation and Transmission for Swaps Not Executed on a SEF or
DCM. For each swap not executed on a SEF or DCM but rather bilaterally
by the counterparties, a Unique Swap Identifier shall be created and
transmitted as follows.
(i) Creation Where the Reporting Counterparty Is an SD or MSP. If
the reporting counterparty determined in accordance with Sec. 45.5 is
an SD or MSP, that counterparty shall generate and assign a Unique Swap
Identifier at the time of execution of the swap, in the form specified
by the Commission. The Unique Swap Identifier shall consist of a single
data field that contains two components:
(A) The unique, extensible, alphanumeric code assigned to the SD or
MSP by the Commission at the time of its registration as such, for the
purpose of identifying the SD or MSP with respect to USI creation; and
(B) an extensible, alphanumeric code generated and assigned to that
swap by the automated systems of the SD or MSP, which shall be unique
with respect to all such codes generated and assigned by that SD or MSP
for USI purposes.
(ii) Transmission Where the Reporting Counterparty Is an SD or MSP.
The SD or MSP creating the Unique Swap Identifier for the swap shall
transmit the identifier electronically as follows:
(A) To the other counterparty to the swap, as soon as
technologically practicable after execution of the swap;
(B) to the DCO, if any, to which the swap is submitted for
clearing, simultaneously with the transmission of required swap
creation data to the DCO for clearing purposes; and
(C) to the SDR to which the SD or MSP reports required swap
creation data for the swap, as part of the report of that data.
(iii) Creation Where the Reporting Counterparty Is a non-SD-MSP
Counterparty. If the reporting counterparty determined in accordance
with Sec. 45.5 is a non-SD/MSP counterparty, the SDR to which the
reporting counterparty reports required swap creation data shall
generate and assign a Unique Swap Identifier as soon as technologically
practicable following receipt of the first report of required swap
creation data concerning the swap, in the form specified by the
Commission. The Unique Swap Identifier shall consist of a single data
field that contains two components:
(A) The unique, extensible, alphanumeric code assigned to the SDR
by the Commission at the time of its registration as such, for the
purpose of identifying the SDR with respect to USI creation; and
(B) An extensible, alphanumeric code generated and assigned to that
swap by the automated systems of the SDR, which shall be unique with
respect to all such codes generated and assigned by that SDR for USI
purposes.
(iv) Transmission Where the Reporting Counterparty Is a Non-SD/MSP
counterparty. The SDR creating the Unique Swap Identifier for the swap
shall transmit the identifier electronically as follows:
(A) To the counterparties to the swap, as soon as technologically
practicable following creation of the USI; and
(B) To the DCO, if any, to which the swap is submitted for
clearing, as soon as technologically practicable following creation of
the USI.
(3) Use. Each registered entity or swap counterparty subject to the
rules of the Commission shall include the Unique Swap Identifier for a
swap in all of its records and all of its swap data reporting
concerning that swap, from the time it receives the identifier
throughout the existence of the swap and for as long as any records are
required by the rules of the Commission to be kept concerning the swap,
regardless of any changes that may occur from time to time with respect
to the state of the swap or with respect to the counterparties to or
the ownership of the swap. This requirement shall not prohibit the use
by a registered entity or swap counterparty in its own records of any
additional identifier or identifiers internally generated by the
automated systems of the registered entity or swap counterparty, or the
reporting to an SDR or to a regulator of such internally generated
identifiers in addition to the reporting of the Unique Swap Identifier.
(b) Unique Counterparty Identifiers. (1) Each counterparty to any
swap subject to the jurisdiction of the Commission shall be identified
in all recordkeeping with respect to swaps and in all swap data
reporting by means of a single, unique counterparty identifier having
the characteristics specified by the Commission.
(2) Each counterparty to any swap subject to the jurisdiction of
the Commission shall report all of its corporate affiliations into a
confidential, non-public corporate affiliations reference database
maintained and located as determined by the Commission. Data contained
in the corporate affiliations reference database shall be available
only to the Commission, and to other financial regulators via the same
data access procedures applicable to data in SDRs as provided in part
49, for regulatory purposes. For purposes of this rule, ``corporate
affiliations'' means the identity of all legal entities that own the
counterparty, that are under common ownership with the counterparty, or
that are owned by the counterparty. This corporate affiliation
information must be sufficient to disclose parent-subsidiary and
affiliate relationships, such that each legal entity within or
affiliated with the corporate hierarchy or ownership group to which the
counterparty belongs is separately identified. Each counterparty shall
also report to the corporate affiliations reference database all
changes to the information previously reported concerning the
counterparty's corporate affiliations, so as to ensure that the
corporate affiliation information recorded in the corporate
affiliations reference database is current and accurate at all times.
(3) The identification system characteristics required for the
Commission to approve an internationally-developed UCI as the
[[Page 76603]]
means by which registered entities and swap counterparties must fulfill
their obligations under Sec. 45.4(b)(1) shall be as follows:
(i) The identification system must result in a unique identifier
format that is capable of becoming the single international standard
for unique identification of legal entities in the financial sector on
a global basis, if it is adopted world-wide.
(ii) The identification system must be developed via an
international ``voluntary consensus standards body'' as defined in
Office of Management and Budget (``OMB'') Circular No. A-119 Revised,
such as the International Organization for Standardization, and must be
maintained by such a body and an associated Registration Authority. The
standards body and Registration Authority must have a formally
documented governance structure acceptable to the Commission, and must
have proven expertise in designing and implementing standards for the
financial sector. The standards body and Registration Authority must
coordinate with the Commission, the Securities and Exchange Commission,
the Office of Financial Research, and other financial regulators.
(iii) As provided in OMB Circular No. A-119 Revised, the
identification system must be available to all interested parties on a
non-discriminatory, royalty-free or reasonable royalty basis.
(A) Information concerning the issuance process for new identifiers
must be available publicly and free of charge.
(B) While reasonable initial registration fees and reasonable
annual fees would be appropriate for issuance, maintenance, and initial
and ongoing verification of a unique identifier, fees must not be
charged for use of unique identifiers provided via the identification
system, and the identification system must be operated on a non-profit
basis.
(C) A comprehensive and reasonably current directory of the Unique
Counterparty Identifiers issued by the identification system (but not
the entity relationship information reported by the counterparties to
the Office of Financial Research or to an SDR as provided above) must
be made available free of charge over the Internet or by similarly
convenient means.
(iv) The identification system must be supported by a trusted and
auditable method of verifying the identity of each legal entity to whom
a unique identifier is assigned, both initially and at appropriate
intervals thereafter.
(A) The Registration Authority must maintain reference data
sufficient to verify that a user has been correctly identified as an
entity. At a minimum, the reference data (though not the identifier
itself) should include the entity's name and location.
(B) Issuance of identifiers must be speedy and unbiased. It must
not materially hinder the normal course of a firm's business. Any
updates to the reference data must be done with a minimal lag.
(v) The Registration Authority must establish quality assurance
practices. The necessary quality assurance processes must ensure that
duplicate identifiers are not erroneously assigned, and that reference
data for legal entities is accurate. For this purpose, the Registration
Authority should accept request for updates or amendments from any
identification system participant or financial regulator.
(vi) The Registration Authority must maintain system safeguards
comparable to those required for SDRs pursuant to part 49 of this
chapter.
(vii) The identification system must be sufficiently extensible to
cover all existing and potential future legal entities of all types
that are or may become swap counterparties or that are or may become
involved in any aspect of the financial issuance and transactions
process, and to cover entities of all types with respect to which
financial sector entities are required by any financial regulator
world-wide to perform due diligence for reporting or risk management
purposes.
(viii) The identification system must assign only one unique
identifier to any legal entity.
(ix) The unique identifier format must consist of a single data
field, and must contain either no embedded intelligence or as little
embedded intelligence as practicable.
(x) The unique identifier assigned must persist despite all
corporate events. When a corporate event (e.g., a merger or spin-off)
results in a new entity, the new entity must receive a new identifier,
while the previous identifier continues to identify the predecessor
entity.
(xi) The identification system must use data standards and formats
that will enable consistency of standards and formats across platforms,
data repositories, and asset classes, in order to ensure data
comparability and enable data aggregation and cross-sectional analysis.
(4) The Commission shall determine, at least 100 days prior to the
implementation date for its final data reporting regulations, whether
an identification system that satisfies the requirements set forth in
Sec. 45.4(b)(3) is available and can provide UCIs for all registered
entities and swap counterparties required by Sec. 45.4 to use UCIs. If
the Commission determines that such an identification system is
available, then:
(i) The Commission shall publish in the Federal Register and on the
Web site of the Commission, no later than 90 days prior to the
implementation date for the Commission's final swap data reporting, the
name of the identification system approved by the Commission, the name
and contact information of the Registration Authority through which
registered entities and swap counterparties can obtain UCIs provided
through the approved identification system, and information concerning
the procedure and requirements for obtaining such a UCI; and
(ii) All registered entities and swap counterparties subject to
these regulations shall comply with Sec. 45.4(b)(1) by using a UCI
provided by the identification system approved by the Commission for
that purpose.
(5) The Commission may, in its discretion, delegate to the Director
of the Division of Market Oversight (``Director''), until the
Commission orders otherwise, the authority to make the determination
called for by Sec. 45.4(b)(4), to be exercised by the Director or by
such other employee or employees of the Commission as may be designated
from time to time by the Director. The Director 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.
(6) If the Commission, or the Director as provided in Sec.
45.4(b)(5), determines pursuant to Sec. 45.4(b)(4) that an
identification system that satisfies the requirements set forth in
Sec. 45.4(b)(3) is not then available, then until such time as the
Commission determines that such an identification system has become
available, registered entities and swap counterparties shall comply
with Sec. 45.4(b)(1) by using a UCI created and assigned by an SDR as
follows:
(i) When a swap involving one or more counterparties for which no
unique counterparty identifier has yet been created and assigned is
reported to an SDR, the repository shall create and assign a unique
counterparty identifier for each such counterparty, in a format
determined by the Commission, as soon as technologically practicable
after that swap is first reported to the repository.
[[Page 76604]]
(ii) Each such repository-created unique identifier shall consist
of a single data field that contains two components, including:
(A) The unique, extensible, alphanumeric code assigned to the SDR
by the Commission at the time of its registration, for the purpose of
identifying the SDR; and
(B) An extensible, alphanumeric code generated and assigned to that
counterparty by the automated systems of the SDR, which shall be unique
with respect to all such unique counterparty identifier codes generated
and assigned by that SDR.
(iii) The SDR shall transmit each unique counterparty identifier
thus created to each counterparty to the swap, to each other registered
entity associated with the swap, to each registered entity or swap
counterparty who has made any report of any swap data to the SDR, and
to each SDR registered with the Commission, as soon as technologically
practicable after creation and assignment of the identifier.
(iv) Once any SDR has created and assigned such a UCI to a swap
counterparty and has transmitted it as required by Sec.
45.4(b)(6)(iii), all registered entities and swap counterparties shall
use that UCI to identify that counterparty in all swap data
recordkeeping and reporting, until such time as the Commission
determines that an identification system complying with Sec.
45.4(b)(3) has become available, and by regulation requires the use of
a different UCI provided by that identification system.
(c) Unique Product ID. (1) Each swap subject to the jurisdiction of
the Commission shall be identified in all recordkeeping with respect to
swaps and in all swap data reporting by means of a unique product
identifier, having the characteristics specified by the Commission.
(2) The unique product identifier shall identify the swap asset
class to which the swap belongs and the sub-type within that swap asset
class to which the swap belongs, with sufficient distinctiveness and
specificity to enable the Commission and other financial regulators to
fulfill their regulatory responsibilities and to enable real time
reporting of swaps as provided in the Act and the Commission's
regulations. The level of distinctiveness and specificity which the
unique product identifier will provide shall be determined separately
for each swap asset class.
(3) The system of swap product classification used by unique
product identifiers shall be as determined by the Commission.
Sec. 45.5 Determination of which counterparty must report.
(a) If only one counterparty is an SD, the SD shall fulfill all
counterparty reporting obligations.
(b) If neither party is an SD, and only one counterparty is an MSP,
the MSP shall fulfill all counterparty reporting obligations.
(c) If both counterparties are SDs, or both counterparties are
MSPs, or both counterparties are non-SD/MSP counterparties, the
counterparties shall agree as one term of their swap transaction which
counterparty shall fulfill reporting obligations with respect to that
swap; and the counterparty so selected shall fulfill all counterparty
reporting obligations.
(d) Notwithstanding the provisions of Sec. 45.5(a) through (c), if
only one counterparty to a swap is a U.S. person, that counterparty
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(e) Notwithstanding the provisions of Sec. 45.5(a) through (c), if
neither counterparty to a swap is a U.S. person, but the swap is
executed on a SEF or DCM or otherwise executed in the United States, or
is cleared by a DCO, then:
(1) The counterparties to the swap shall select one counterparty to
be the reporting counterparty, making such selection as one term of the
swap; and
(2) The counterparty so selected shall be the reporting
counterparty and shall fulfill all counterparty reporting obligations.
(f) If a reporting counterparty selected pursuant to Sec. 45.5(a)
through (f) ceases to be a counterparty to a swap due to an assignment
or novation, and the new counterparty is a U.S. person, the new
counterparty shall be the reporting counterparty and fulfill all
reporting counterparty obligations following such assignment or
novation. If a new counterparty to a swap due to an assignment or
novation is not a U.S. person, the counterparty that is a U.S. person
shall be the reporting counterparty and fulfill all reporting
counterparty obligations following such assignment or novation.
Sec. 45.6 Third-party facilitation of data reporting.
Registered entities and counterparties required by this part 45 to
report required swap creation data or required swap continuation data,
while remaining fully responsible for reporting as required by this
part 45, may contract with third-party service providers to facilitate
reporting.
Sec. 45.7 Reporting to a single SDR.
(a) A SEF, DCM, SD or MSP that creates the USI for a swap as
provided in Sec. 45.5 shall report all primary economic terms data
required to be reported for that swap to a single SDR. The choice of
the SDR to receive this report shall be made in a manner to be
determined by the Commission.
(b) Where a non-SD/MSP counterparty is the reporting counterparty
pursuant to Section 45.5, that reporting counterparty shall report all
primary economic terms data required to be reported for that swap to a
single SDR of its choosing, which SDR shall create the USI for that
swap as provided in Sec. 45.5.
(c) When the SDR chosen as provided in Sec. 45.8(a) and (b)
receives the initial report of primary economic terms data for a swap,
the SDR shall transmit its own identity, together with the USI for the
swap, to each counterparty to the swap, to the SEF or DCM, if any, on
which the swap was executed, and to the DCO, if any, to which the swap
is submitted for clearing, as soon as technologically practicable
following the SDR's receipt of the initial report of primary economic
terms data for the swap.
(d) Thereafter, all data reported for the swap, and all corrections
of errors and omissions in previously reported data for the swap, by
any registered entity or counterparty, shall be reported to that same
SDR (or to its successor in the event that it ceases to operate, as
provided in part 49 of this chapter).
Sec. 45.8 Data reporting for swaps in a swap asset class not accepted
by any SDR.
Should there be a swap asset class for which no SDR currently
accepts swap data, each registered entity or counterparty required by
Sec. 45.3 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 at a time and in a form and manner determined by
the Commission.
Sec. 45.9 Required data standards.
(a) Data Maintained and Furnished to the Commission by SDRs. An SDR
shall maintain all swap data reported to it in a format acceptable to
the Commission, and shall transmit all swap data requested by the
Commission to the Commission in an electronic file in a format
acceptable to the Commission.
(b) Data Reported To SDRs. In reporting swap data to an SDR as
required by this Part 45, each reporting entity or counterparty shall
use the facilities, methods, or data standards provided or required by
the SDR to
[[Page 76605]]
which the entity or counterparty reports the data. SDRs may permit
reporting entities and counterparties to use various facilities,
methods, or data standards, provided that its requirements in this
regard enable it to meet the requirements of Sec. 45.9(a) with respect
to maintenance and transmission of swap data.
(c) Delegation of Authority to the Director of the Division of
Market Oversight. The Commission hereby delegates to the Director of
the Division of Market Oversight (``Director''), until the Commission
orders otherwise, the authority set forth in this Sec. 45.9(c), to be
exercised by the Director or by such other employee or employees of the
Commission as may be designated from time to time by the Director. The
Director 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
Director by this Sec. 45.9(c) shall include:
(1) The authority to determine the manner, format, coding
structure, and electronic data transmission standards and procedures
acceptable to the Commission for the purposes of Sec. 45.9(a).
(2) The authority to determine whether the Commission may permit or
require use by reporting entities or counterparties, or by SDRs, 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, or to enable SDRs to comply with Sec. 45.9(a).
(d) The Director shall publish from time to time in the Federal
Register and on the Web site of the Commission the format, data schema,
and electronic data transmission methods and procedures acceptable to
the Commission.
Sec. 45.10 Reporting of errors and omissions in previously reported
data.
(a) Each registered entity and swap counterparty required by this
Part 45 to report swap data to an SDR or to any other registered entity
or swap counterparty 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 interest rate swaps, commodity swaps, and currency swaps,
reporting counterparties fulfill the requirement to report errors or
omissions in state data previously reported by making appropriate
corrections in their next daily report of state data as required by
Sec. 45.3(b)(2).
(c) Each counterparty to a swap that is not the reporting
counterparty as determined pursuant to Sec. 45.5, and that discovers
any error or omission with respect to any swap data reported to an SDR
for that swap, shall promptly notify the reporting counterparty of each
such error or omission. Upon receiving such notice, the reporting
counterparty shall report a correction of each such error or omission
to the SDR, as provided in Sec. 45.10(a) and (b).
(d) Unless otherwise approved by the Commission, or by the Director
of Market Oversight pursuant to Sec. 45.9(c), each registered entity
or swap counterparty reporting corrections to errors or omissions in
data previously reported as required by this Section shall report such
corrections in the same format as it reported the erroneous or omitted
data. Unless otherwise approved by the Commission, or by the Director
of Market Oversight pursuant to Sec. 45.9, an SDR shall transmit
corrections to errors or omission in data previously transmitted to the
Commission in the same format as it transmitted the erroneous or
omitted data.
Appendix 1 to Part 45--Tables of Minimum Primary Economic Terms Data
and Minimum Valuation Data
Minimum Primary Economic Terms Data--Credit Swaps and Equity Swaps
------------------------------------------------------------------------
Sample category Comment
------------------------------------------------------------------------
The Unique Swap Identifier for the swap As defined in Sec. 45.4.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the reporting counterparty.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the non-reporting party.
The Unique Product Identifier assigned As defined in Sec. 45.4.
to the swap.
An indication of the counterparty E.g. option buyer and option
purchasing protection and of the seller; buyer and seller.
counterparty selling protection.
Information identifying the reference The entity that is the subject
entity. of the protection being
purchased and sold in the
swap.
An indication of whether or not both ...............................
counterparties are SDs.
An indication of whether or not both ...............................
counterparties are MSPs.
An indication of whether or not either ...............................
counterparty is an SD or an MSP.
The date and time of trade, expressed ...............................
using Coordinated Universal time
(``UTC'').
The venue where the swap was executed. ...............................
The effective date. ...............................
The expiration data. ...............................
The price.............................. E.g. strike, initial price,
spread, etc.
The notional amount, the currency in ...............................
which the notional amount is
expressed, and the equivalent notional
amount in U.S. dollars.
The amount and currency or currencies ...............................
of any up-front payment.
A description of the payment streams of E.g. coupon.
each counterparty.
The title of any master agreement E.g. annex, credit agreement.
incorporated by reference and the date
of any such agreement.
If the transaction involved an existing E.g. assignment.
swap, an indication that the
transaction did not involve an
opportunity to negotiate a material
term of the contract, other than the
counterparty.
The data elements necessary for a ...............................
person to determine the market value
of the transaction.
Whether or not the swap will be cleared ...............................
by a designated clearing organization.
[[Page 76606]]
The name of the designated clearing ...............................
organization that will clear the swap,
if any.
If the swap is not cleared, whether the ...............................
``End User exception'' was invoked.
If the swap is not cleared, all of the ...............................
settlement terms, including, without
limitation, whether the swap is cash-
settled or physically settled, and the
method for determining the settlement
value.
Any other primary economic term(s) of ...............................
the swap matched by the counterparties
in verifying the swap.
------------------------------------------------------------------------
Minimum Primary Economic Terms Data--Currency Swaps
------------------------------------------------------------------------
Sample data fields Comments
------------------------------------------------------------------------
The Unique Swap Identifier for the swap As defined in Sec. 45.4.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the reporting counterparty.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the non-reporting party.
The Unique Product Identifier assigned As defined in Sec. 45.4.
to the swap.
Contract type.......................... E.g. swap, swaption, forwards,
options, basis swap, index
swap, basket swap, other.
Execution timestamp.................... Time and date of execution.
Currency 1............................. ISO Code.
Currency 2............................. ISO Code.
Notional amount 1...................... For currency one.
Notional amount 2...................... For currency two.
Settlement agent of the reporting ID of the settlement agent.
counterparty.
Settlement agent of the non-reporting ID of the settlement agent.
counterparty.
Settlement currency.................... If applicable.
Exchange rate 1........................ At the moment of trade/
agreement.
Exchange rate 2........................ At the moment of trade/
agreement, if applicable.
Swap delivery type..................... Cash or physical.
Expiration date........................ Expiration date of the
contract.
Timestamp for submission to SDR........ Time and date of submission to
the SDR.
Futures contract equivalent............ As defined in part 150.
Futures contract equivalent unit of As defined in part 150.
measure.
Any other primary economic term(s) of ...............................
the swap matched by the counterparties
in verifying the swap.
------------------------------------------------------------------------
Minimum Primary Economic Terms Data--Interest Rate Swaps
------------------------------------------------------------------------
Sample data field Comment
------------------------------------------------------------------------
The Unique Swap Identifier for the swap As defined in Sec. 45.4.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the reporting counterparty.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the non-reporting party.
The Unique Product Identifier assigned As defined in Sec. 45.4.
to the swap.
Contract type.......................... E.g. swap, swaption, option,
basis swap, index swap, etc.
Trade timestamp........................ Time and date of execution.
Swap effective date.................... Effective date of the contract.
Swap end-date.......................... Expiration date of the
contract.
Notional amount one.................... The current active notional in
local currency.
Notional currency one.................. ISO code of the notional
currency.
Notional amount two.................... The second notional amount
(e.g. receiver leg).
Notional currency two.................. ISO code of the notional
currency.
Timestamp for submission to SDR........ Time and date of submission to
the SDR.
Payer (fixed rate)..................... Is the reporting party a fixed
rate payer?
Yes/No/Not applicable.
Fixed leg payment frequency............ How often will the payments on
fixed leg be made.
Direction.............................. For swaps--if the principal is
paying or receiving the fixed
rate. For float-to-float and
fixed-to-fixed swaps, it is
unspecified. For non-swap
instruments and swaptions, the
instrument that was bought or
sold.
Option type............................ E.g. put, call, straddle.
Fixed rate. ...............................
Fixed rate day count fraction. ...............................
Floating rate payment frequency. ...............................
Floating rate reset frequency. ...............................
Floating rate index name/rate period. ...............................
[[Page 76607]]
Leg 1.................................. If two floating legs, report
what is paid.
Leg 2.................................. If two floating legs, repot
what is received.
Futures contract equivalent............ As defined in part 150.
Futures contract equivalent unit of As defined in part 150.
measure.
Any other primary economic term(s) of ...............................
the swap matched by the counterparties
in verifying the swap.
------------------------------------------------------------------------
Minimum Primary Economic Terms Data--Other Commodity Swaps
------------------------------------------------------------------------
Sample data field Comment
------------------------------------------------------------------------
The Unique Swap Identifier for the swap As defined in Sec. 45.4.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the reporting counterparty.
The Unique Counterparty Identifier of As defined in Sec. 45.4.
the non-reporting party.
The Unique Product Identifier assigned As defined in Sec. 45.4.
to the swap.
Contract type.......................... E.g. swap, swaption, option,
etc.
Execution timestamp.................... Time and date of execution.
Quantity............................... The Unit of measure applicable
for the quantity on the swap.
Total quantity......................... The amount of the commodity for
the entire term of the swap.
Settlement method...................... Cash or physical.
Delivery type.......................... For physical delivery.
Start date............................. Predetermined start date from
which payments will be
exchanged.
End-date............................... Predetermined end date from
which payments will be
exchanged.
Submission to SDR timestamp............ Time and date of submission to
the SDR.
Averaging method....................... The type of calendar days used
to calculate price on a
transaction.
Payment calendar.
Buyer pay index........................ The published price as paid by
the buyer.
Seller pay index....................... The published price as paid by
the seller.
Buyer.................................. Party purchasing product, e.g.
payer of the fixed price (for
swaps), or payer of the
floating price (for put
swaption), or payer of the
fixed price (for call
swaption).
Seller................................. Party offering product, e.g.
payer of the floating price
(for swaps), payer of the
fixed price (for put
swaption), or payer of the
floating price (for call
swaption).
Price.................................. E.g. fixed price, the heat rate
value, etc.
Price unit............................. The unit of measure applicable
for the price on the
transaction.
Price currency......................... E.g. ISO code.
Grade.................................. E.g. the grade of oil or
refined product being
delivered.
Futures contract equivalent............ As defined in part 150.
Futures contract equivalent unit of As defined in part 150.
measure.
Any other primary economic term(s) of
the swap matched by the counterparties
in verifying the swap.
------------------------------------------------------------------------
Minimum Valuation Data
------------------------------------------------------------------------
Sample data fields
-------------------------------------------------------------------------
Independent amount.
Independent amount currency.
Independent amount payer.
Independent amount receiver.
Initial margin.
Variation margin.
Mark-to-market.
Non-cash collateral.
Non-cash collateral valuation.
------------------------------------------------------------------------
Appendix 2 to Part 45--Master Reference Generic Data Fields List
This table includes Master Reference Generic Data Fields that
the Commission believes could be relevant for standardized swaps in
some or all swap asset classes. The Commission requests comment on
whether any of the data fields in this Master Reference Generic Data
Fields List should be included in one or more of the Tables of
Required Minimum Primary Economic Terms Data for specific swap asset
classes, or in the Minimum Valuation Data table, that are included
in Appendix 1 to Part 45.
------------------------------------------------------------------------
Data fields Description
------------------------------------------------------------------------
Potential Initial Data
------------------------------------------------------------------------
Client Name............................ Name of the customer (client).
Counterparty Origin.................... Indicator of whether a swap was
done on behalf of a customer
or house account.
Delivery Type.......................... Deliverable or Non-deliverable.
Effective Date or Start Date........... The date a swap becomes
effective or starts.
Entity Reporting to SDR................ The entity making a data
report.
Execution Timestamp.................... The time and date a swap was
executed on a platform.
[[Page 76608]]
Industrial Sector...................... Industrial sector.
Intermediary........................... The entity that brings two
parties together for the swap
transaction.
Master Agreement Type.................. The type of master agreement
that was executed.
Maturity, Termination, or End Date..... The day a swap expires.
Non-Financial Entity................... Y/N. Are one or more
counterparties to the swap
transaction not a financial
entity?
Order Entry Timestamp.................. The time and date when the
order was entered.
Parent Counterparty.................... The parent company of the
counterparty.
Parent Originator...................... The parent company of the
originator.
Platform/Deal Source................... Name of the platform or system
on which the swap was
executed.
Registration with the SEC.............. Y/N. This field indicates
whether the exempted
counterparties are registered
with the SEC.
SDR submission date.................... The time and date the swap
transaction was submitted to
the SDR.
Settlement Method...................... The agreed upon way the swap
will settle.
Submission of order entry timestamp.... The time and date when the
order was sent to the platform
to be executed.
------------------------------------------------------------------------
Potential Confirmation/Clearance Data
------------------------------------------------------------------------
Board of Directors approval............ Y/N. If the exempted
counterparties are registered
with the SEC did their Board
of Directors (or alternative
governance body for non-
corporate end users) approve
the exemption from clearing?
Call, put or cancellation date......... Information needed to determine
when a call, put, or
cancellation may occur with
respect to a transaction.
Cleared................................ An indicator of whether a swap
has been cleared.
Clearing Entity........................ Name of the Clearing
Organization where a swap was
cleared.
Clearing Exemption..................... Y/N. Are one or more
counterparties to the swap
transaction exempted from
clearing?
Clearing Timestamp..................... The time and date a swap was
cleared.
Confirmed.............................. An indicator of whether a swap
has been confirmed by both
parties.
Master Agreement Date.................. Date of the Master Agreement.
Submission Timestamp for clearing...... The time and date when a swap
was submitted to a clearing
organization.
------------------------------------------------------------------------
Potential Position Data
------------------------------------------------------------------------
Exchange Rate/Price Unit............... Spot rate or price unit used.
Futures Contract Equivalent............ Swap amount divided by the
commodity quantity per futures
contract to give you the total
number of futures contracts.
Futures Contract Equivalent unit of The unit of measure that was
measure. used in the future contract
equivalent computation.
Notional (U.S.$ Equiv.)................ U.S.$ equivalent of the
``Notional Amount or Total
Quantity.''
Notional Amount/Total Notional Quantity Total currency amount or total
quantity in the unit of
measure of an underlying
commodity.
Notional Currency/Price Currency....... Notional Currency.
------------------------------------------------------------------------
Potential Option Instrument Applicable Data
------------------------------------------------------------------------
Lockout Period......................... Date of first allowable
exercise.
Option Expiration Date................. Expiration date of the option.
Option Premium......................... Fixed premium paid by the buyer
to the seller.
Option Premium currency................ The currency used to compute
the premium.
Option Style........................... American, European, Bermudan,
Asian.
Option Type............................ Call, Put, Straddle, Strangle,
Collar, Butterfly, etc.
Strike Price (Cap/Floor rate).......... The strike price of the option.
Value for Options...................... This value of the option at the
end of every business day.
------------------------------------------------------------------------
Potential Margin/Collateral Data
------------------------------------------------------------------------
Collateral on Deposit.................. The amount of collateral that
has been agreed upon by the
parties to the swap.
Collateral Type........................ The type of collateral that has
been agreed upon.
Credit Support Indicator............... Y/N. Have the exempt
counterparties given notice to
the CFTC regarding the
exemption and executed a CSA
or other form of credit
support?
Independent Amount..................... Independent amount.
Independent Amount Currency............ Currency of the independent
amount.
Independent Amount Payer............... The counterparty that will pay
the independent amount.
Independent Amount Receiver............ The counterparty that will
receive the independent
amount.
Initial Margin Requirement............. The initial margin requirement
that has been required by the
parties to the swap.
Linked Independent Amount.............. Linked independent amount.
Linked Independent Amount Currency..... Currency of the linked
independent amount.
Long Option Value...................... The long option value contained
in the maintenance margin
requirement.
[[Page 76609]]
Maintenance Margin Requirement......... The maintenance margin
requirement that has been
required by the parties to the
swap.
Non-Cash Collateral.................... Non-Cash collateral that is
allowed for certain end users.
Short Option Value..................... The short option value
contained in the maintenance
margin requirement.
Types of Collateral on Deposit......... List of collateral by asset
type for the collateral on
deposit amount.
Variation Margin....................... U.S. $ amount that is paid
daily in order to mark to
market the swap transaction.
------------------------------------------------------------------------
Issued in Washington, DC, on November 19, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Statement of Chairman Gary Gensler
Swap Data Recordkeeping and Reporting Requirements
I support the proposed rulemaking to establish swap data
recordkeeping and reporting requirements for registered entities and
counterparties involved in swaps. The proposed rule is intended to
ensure that complete, timely and accurate data concerning all swaps
is available to the Commission and other regulators. The proposed
rule requires that data be consistently maintained and reported to
swap data repositories by swap dealers, major swap participants,
designated contract markets, swap execution facilities, derivatives
clearing organizations and futures commission merchants. As swaps
exist over a period of days to sometimes years, the proposal
includes requirement for the reporting of data upon the transaction
and to continue over the lifecycle of the swap. Another important
component of the proposed rulemaking is that there will be required
unique identifiers for swaps, counterparties and products. This will
enhance operational efficiency for market participants and improve
market surveillance for regulators.
[FR Doc. 2010-30476 Filed 12-7-10; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: December 8, 2010