2019-08788
Federal Register, Volume 84 Issue 92 (Monday, May 13, 2019)
[Federal Register Volume 84, Number 92 (Monday, May 13, 2019)]
[Proposed Rules]
[Pages 21044-21124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08788]
[[Page 21043]]
Vol. 84
Monday,
No. 92
May 13, 2019
Part III
Commodity Futures Trading Commission
-----------------------------------------------------------------------
17 CFR Parts 23, 43, 45, and 49
Certain Swap Data Repository and Data Reporting Requirements; Proposed
Rule
Federal Register / Vol. 84, No. 92 / Monday, May 13, 2019 / Proposed
Rules
[[Page 21044]]
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 23, 43, 45, and 49
RIN Number 3038-AE32
Certain Swap Data Repository and Data Reporting Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is proposing amendments to parts 23, 43, 45, and 49 of the
Commission's regulations to improve the accuracy of data reported to,
and maintained by, swap data repositories (``SDRs''). Among other
changes, the proposed amendments would modify existing requirements for
SDRs to establish policies and procedures to confirm the accuracy of
swap data with both counterparties to a swap. The proposed amendments
would further require reporting counterparties to verify the accuracy
of swap data pursuant to those SDR procedures. The Commission is also
proposing certain amendments to parts 23, 43, 45, and 49 to provide
enhanced and streamlined oversight over SDRs and data reporting
generally.
DATES: Comments must be received on or before July 29, 2019.
ADDRESSES: You may submit comments, identified by RIN number 3038-AE32,
by any of the following methods:
The agency's website, at http://comments.cftc.gov. Follow
the instructions for submitting comments through the website.
Mail: 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.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments 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 you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Sec. 145.9 of the Commission's regulations.\1\
---------------------------------------------------------------------------
\1\ 17 CFR 145.9.
---------------------------------------------------------------------------
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: Benjamin DeMaria, Special Counsel,
202-418-5988, [email protected] or Meghan Tente, Lead Attorney-Advisor,
202-418-5785, [email protected], Division of Market Oversight, Data and
Reporting Branch, Commodity Futures Trading Commission, Three Lafayette
Centre, 1151 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Introduction
B. Statutory Authority
C. Regulatory History--Final Rulemakings
II. Proposed Amendments to Part 49
A. Sec. 49.2--Definitions
B. Sec. 49.3--Procedures for Registration
C. Sec. 49.5--Equity Interest Transfers
D. Sec. 49.6--Request for Transfer of Registration
E. Sec. 49.9--Open Swaps Reports Provided to the Commission
F. Sec. 49.10--Acceptance of Data
G. Sec. 49.11--Verification of Swap Data Accuracy
H. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
I. Sec. 49.13--Monitoring, Screening, and Analyzing Data
J. Sec. 49.15--Real-Time Public Reporting by Swap Data
Repositories
K. Sec. 49.16--Privacy and Confidentiality Requirements of Swap
Data Repositories
L. Sec. 49.17--Access to SDR Data
M. Sec. 49.18--Confidentiality Arrangement
N. Sec. 49.20--Governance Arrangements (Core Principle 2)
O. Sec. 49.22--Chief Compliance Officer
P. Sec. 49.24--System Safeguards
Q. Sec. 49.25--Financial Resources
R. Sec. 49.26--Disclosure Requirements of Swap Data
Repositories
S. Sec. 49.28--Operating Hours of Swap Data Repositories
T. Sec. 49.29--Information Relating to Swap Data Repository
Compliance
U. Sec. 49.30--Form and Manner of Reporting and Submitting
Information to the Commission
V. Sec. 49.31--Delegation of Authority to the Director of the
Division of Market Oversight Relating to Certain Part 49 Matters
III. Proposed Amendments to Part 45
A. Sec. 45.2--Swap Recordkeeping
B. Sec. 45.14--Verification of Swap Data Accuracy and
Correcting Errors and Omissions in Swap Data
IV. Proposed Amendments to Part 43
A. Sec. 43.3--Method and Timing for Real-Time Public Reporting
V. Proposed Amendments to Part 23
A. Sec. 23.204--Reports to Swap Data Repositories
B. Sec. 23.205--Real-Time Public Reporting
VI. Request for Comments
VII. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Anti-Trust Considerations
I. Background
A. Introduction
Pursuant to the Dodd-Frank Act,\2\ beginning in 2011, the
Commission adopted parts 45 and 49 of its regulations to implement a
swap data reporting and recordkeeping regime along with registration
requirements and duties for SDRs.\3\ In 2012, the Commission adopted
part 23 of its regulations, which sets forth requirements for swap
dealers (``SDs'') and major swap participants (``MSPs'') related to the
timely and accurate reporting, confirmation, and processing of
swaps.\4\ The regulations the Commission is proposing to amend with
this release concern data reporting and recordkeeping duties generally
and other duties for SDRs.
---------------------------------------------------------------------------
\2\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.
\3\ Swap Data Repositories: Registration Standards, Duties and
Core Principles, 76 FR 54538 (Sept. 1, 2011) (``Part 49 Adopting
Release''); Swap Data Recordkeeping and Reporting Requirements, 77
FR 2136 (Jan. 13, 2012) (``Part 45 Adopting Release'').
\4\ See Swap Dealer and Major Swap Participant Recordkeeping,
Reporting, and Duties Rules; Futures Commission Merchant and
Introducing Broker Conflicts of Interest Rules; and Chief Compliance
Officer Rules for Swap Dealers, Major Swap Participants, and Futures
Commission Merchants, 77 FR 20128 (Apr. 3, 2012) (``Part 23 Adopting
Release'').
---------------------------------------------------------------------------
B. Statutory Authority
Section 727 of the Dodd-Frank Act added section 2(a)(13)(G) to the
Commodity Exchange Act (``CEA'' or ``Act''), which requires all swaps--
whether cleared or uncleared--to be reported to SDRs,\5\ which are
registered
[[Page 21045]]
entities created by section 728 of the Dodd-Frank Act.\6\ Section 728
of the Dodd-Frank Act added section 21 to the CEA,\7\ which governs
registration and regulation of SDRs, and directs the Commission to
promulgate rules concerning those duties and responsibilities.
---------------------------------------------------------------------------
\5\ Section 721 of the Dodd-Frank Act amended section 1a of the
CEA to add the definition of SDR. Pursuant to section 1a(48) of the
CEA, the term SDR ``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.'' 7 U.S.C. 1a(48).
\6\ The Commission notes that there are currently three SDRs
provisionally registered with the Commission: CME Inc., DTCC Data
Repository (U.S.) LLC (``DDR''), and ICE Trade Vault, LLC (``ICE'').
\7\ 7 U.S.C. 24a.
---------------------------------------------------------------------------
To register and maintain registration with the Commission, SDRs are
required to comply with specific duties and core principles enumerated
in CEA section 21 as well as other requirements that the Commission may
prescribe by rule. In particular, CEA section 21(c) mandates that SDRs:
(1) Accept data; (2) confirm with both counterparties the accuracy of
submitted data; (3) maintain data according to standards prescribed by
the Commission; (4) provide direct electronic access to the Commission
or any designee of the Commission (including another registered
entity); (5) provide public reporting of data in the form and frequency
required by the Commission; (6) establish automated systems for
monitoring, screening, and analyzing data (including the use of end-
user clearing exemptions) at the direction of the Commission; (7)
maintain data privacy; (8) make data available to other specified
regulators, on a confidential basis, pursuant to section 8 of the
CEA,\8\ upon request and after notifying the Commission; and (9)
establish and maintain emergency and business continuity-disaster
recovery (``BC-DR'') procedures. CEA section 21(f)(4)(C) further
requires the Commission to establish additional duties for SDRs to
minimize conflicts of interest, protect data, ensure compliance, and
guarantee the safety and security of the SDR.\9\ Section 21(b) of the
CEA also directs the Commission to prescribe standards for data
recordkeeping and reporting that apply to both registered entities and
reporting counterparties.\10\
---------------------------------------------------------------------------
\8\ 7 U.S.C. 12(e).
\9\ Pursuant to this provision, the Commission may develop one
or more additional duties applicable to SDRs. 7 U.S.C. 24a(f)(4).
This provision is referred to as ``Core Principle 4.''
\10\ See 7 U.S.C. 24a(b)(1)(B).
---------------------------------------------------------------------------
Section 4s(f) of the CEA,\11\ added by section 731 of the Dodd-
Frank Act, established recordkeeping and reporting requirements for SDs
and MSPs. CEA section 4s(f)(1)(A) \12\ requires SDs and MSPs, among
other things, to provide transaction and position reports that the
Commission requires by rule or regulation. CEA section 4s(f)(2) \13\
requires the Commission to adopt rules governing, among other things,
recordkeeping and reporting by SDs and MSPs.
---------------------------------------------------------------------------
\11\ 7 U.S.C. 6s(f).
\12\ 7 U.S.C. 6s(f)(1)(A).
\13\ 7 U.S.C. 6s(f)(2).
---------------------------------------------------------------------------
C. Regulatory History--Final Rulemakings
On August 4, 2011, the Commission adopted part 49 of the
Commission's regulations.\14\ Part 49 implements the requirements of
section 21 of the CEA by setting forth the specific duties that SDRs
are required to comply with to be initially registered as an SDR and
maintain such registration as an SDR with the Commission. As part of
the Part 49 Adopting Release, the Commission, among other sections,
adopted Sec. 49.11 regarding the confirmation of data accuracy.
---------------------------------------------------------------------------
\14\ See Part 49 Adopting Release.
---------------------------------------------------------------------------
Pursuant to CEA section 4s(f)(2), the Commission promulgated swap
reporting rules for SDs and MSPs, including Sec. Sec. 23.204-205,
which were both adopted on April 3, 2012.\15\ Section 23.204(a)
requires SDs and MSPs to report all information and swap data in
accordance with part 45. Section 23.204(b) requires SDs and MSPs to
have the procedures and electronic systems necessary to report all
information and swap data required to be reported in accordance with
part 45. Sections 23.205(a) and (b) establish parallel requirements for
SDs and MSPs with respect to the real-time reporting requirements of
part 43.
---------------------------------------------------------------------------
\15\ See Part 23 Adopting Release.
---------------------------------------------------------------------------
Since the Commission adopted part 49 in 2011, Commission staff has
led many efforts to evaluate and improve reporting issues relating to
data accuracy. Commission staff leads or participates in several
international regulatory working groups concentrating on harmonization
of data reporting and is incorporating in this release lessons learned
from these undertakings and best practices from the international
regulatory community. Commission staff's efforts have also included the
formation of an interdivisional staff working group to identify, and
make recommendations to resolve, reporting challenges associated with
certain swap data recordkeeping and reporting provisions.\16\ The
Commission has also requested comments from the public on reporting
issues.\17\
---------------------------------------------------------------------------
\16\ See Press Release, CFTC to Form an Interdivisional Working
Group to Review Regulatory Reporting (Jan. 21, 2014), available at
http://www.cftc.gov/PressRoom/PressReleases/pr6837-14.
\17\ See, e.g., Review of Swap Data Recordkeeping and Reporting
Requirements, Request for Comment, 79 FR 16689 (Mar. 26, 2014).
---------------------------------------------------------------------------
Throughout these ongoing efforts, the Commission has generally
adhered to the view that verification of data accuracy can be achieved
through: (i) SDR processes confirming the accuracy of data submitted;
(ii) data reconciliation exercises by entities that reported data; and
(iii) the prompt reporting of errors and omissions when discovered.\18\
---------------------------------------------------------------------------
\18\ See id. at 16695.
---------------------------------------------------------------------------
Most recently, based in part on information received during the
ongoing efforts described above, Commission staff announced a
comprehensive review of swap reporting regulations and released the
Roadmap to Achieve High Quality Swap Data (``Roadmap'') \19\ to solicit
feedback on improvements to data reporting and how the Commission's
regulatory goals may be achieved without imposing unnecessary burdens
on market participants. Commission staff requested comments in response
to the Roadmap (``Roadmap Request for Comment'') and received a number
of comment letters that addressed data accuracy and confirmation of
data reported to SDRs, among other subjects.\20\
---------------------------------------------------------------------------
\19\ See CFTC Letter 17-33, Division of Market Oversight
Announces Review of Swap Reporting Rules in Parts 43, 45, and 49 of
Commission Regulations (July 10, 2017), available at http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf; Roadmap to Achieve High Quality Swap Data, available at
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
\20\ These comment letters are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.
---------------------------------------------------------------------------
References to ``commenters'' in this release refer to those who
submitted comment letters in response to the Roadmap Request for
Comment. Summaries and a discussion of the relevant comments submitted
by those commenters appear in the appropriate section in this
release.\21\
---------------------------------------------------------------------------
\21\ See section II.G.1.
---------------------------------------------------------------------------
The revisions and additions proposed in this release are intended
to address the SDR Operations Review goals of the Roadmap related to
confirming the accuracy of swap data,\22\ to improve the clarity and
consistency of regulations governing SDRs, and to bolster the
Commission's oversight of SDRs. This proposal is the first of three
anticipated Roadmap rulemakings that, when all of
[[Page 21046]]
the planned rulemakings are complete, should achieve the Roadmap's
overall goals of improving the quality, accuracy, and completeness of
the data reported to the Commission, streamlining data reporting, and
clarifying obligations for market participants.\23\ When the Commission
proposes the next two rulemakings, the Commission anticipates re-
opening the comment period for this proposal to provide market
participants with an opportunity to comment collectively on the three
rulemakings together, because the proposals address interconnected
issues. As the Roadmap rulemakings must all work in tandem to achieve
these goals, the Commission also anticipates that key provisions of
each rulemaking would have the same compliance date, regardless of when
each rulemaking is released in final form. The Commission intends to
provide a sufficient implementation period for these various
rulemakings in order to give SDRs and market participants enough time
to implement and test the changes that would be required.
---------------------------------------------------------------------------
\22\ See Roadmap, p. 6 (stating the Commission's intent to
``Identify the most efficient and effective solution for swap
counterparty(ies) to confirm the accuracy and completeness of data
held in an SDR.'').
\23\ See id. at 3 (describing the Commission's goals for the
review of reporting regulations).
---------------------------------------------------------------------------
Where possible, in creating the proposed regulations set forth in
this release, the Commission has taken into consideration certain
pertinent rules adopted by other regulators, including the European
Securities and Markets Authority (``ESMA'') and the U.S. Securities and
Exchange Commission (``SEC'').\24\ This is particularly the case for
the SEC's regulations relating to the registration, duties, and core
principles of Security-Based Swap Data Repositories (``SBSDRs'') \25\
and reporting requirements for Security-Based Swaps (``SBSs'') set
forth in Regulation SBSR (``Regulation SBSR'').\26\ The Commission
notes that there are similarities between the regulatory framework for
SBSDRs and the SDR regulations that are the subject of this proposal.
---------------------------------------------------------------------------
\24\ The Commission has also reviewed the SEC's recent proposed
rule on risk mitigation techniques for uncleared security-based
swaps, which addresses issues related to reconciling security-based
swap transactions and confirming the transaction data. See generally
Risk Mitigation Techniques for Uncleared Security-Based Swaps, 84 FR
4614 (Feb. 15, 2019).
\25\ See generally Security-Based Swap Data Repository
Registration, Duties and Core Principles, 80 FR 11438 (Mar. 19,
2015) (``SBSDR Adopting Release''). The SEC adopted Rules 13n-1
through 13n-12 (17 CFR 240n-1 through 240n-12) under the Securities
Exchange Act of 1934 (``Exchange Act'') relating to the registration
and operation of SBSDRs.
\26\ See generally Regulation SBSR--Reporting and Dissemination
of Security-Based Swap Information, 80 FR 14740 (Mar. 19, 2015)
(``SBSR Adopting Release''). The SEC adopted Regulation SBSR (Rules
900 through 909, 17 CFR 242.900 through 909) to create a reporting
framework for SBSs. The SEC has also adopted additional regulations
regarding the reporting and dissemination of certain information
related to SBSs. See generally 81 FR 53546 (Aug. 12, 2016).
---------------------------------------------------------------------------
II. Proposed Amendments to Part 49
A. Sec. 49.2--Definitions
1. Formatting Change to Sec. 49.2(a)
The defined terms in Sec. 49.2(a) currently are numbered and
arranged in alphabetical order. The Commission is proposing to remove
the numbering and instead arrange the defined terms in Sec. 49.2(a)
solely in alphabetical order. Arranging the defined terms in Sec.
49.2(a) solely in alphabetical order would require the Commission to
make fewer conforming changes to Sec. 49.2(a) and other regulations
when adding or removing defined terms in the future, as the Commission
currently proposes to do.\27\
---------------------------------------------------------------------------
\27\ The Office of the Federal Register prefers the solely
alphabetical approach to definitions sections. See Office of the
Federal Register, Document Drafting Handbook May 2017 Update,
Revision 5, 2-31 (2017) (``Definitions. In sections or paragraphs
containing only definitions, we recommend that you do not use
paragraph designations if you list the terms in alphabetical
order.'').
---------------------------------------------------------------------------
2. Proposed Changes to Sec. 49.2
i. Conforming and Ministerial Changes to Some Definitions
The Commission proposes non-substantive conforming and ministerial
changes to certain definitions to provide clarity and for consistency
with other Commission regulations.\28\ Specifically, the Commission is
proposing the following changes to definitions in Sec. 49.2(a):
---------------------------------------------------------------------------
\28\ Other than removing subsection numbering and ministerial
corrections as discussed above in section II.A.1, the Commission is
not proposing any substantive changes to the definitions of
``affiliate,'' ``control,'' ``foreign regulator,'' ``independent
perspective,'' ``position,'' or ``section 8 material,'' as those
terms are defined in current Sec. 49.2(a).
---------------------------------------------------------------------------
``Asset class'': Modify the definition to conform the
wording to the definition of ``asset class'' used in part 43.\29\
---------------------------------------------------------------------------
\29\ See 17 CFR 43.2 (Asset class means a broad category of
commodities including, without limitation, any ``excluded
commodity'' as defined in section 1a(19) of the Act, with common
characteristics underlying a swap. The asset classes include
interest rate, foreign exchange, credit, equity, other commodity and
such other asset classes as may be determined by the Commission.).
---------------------------------------------------------------------------
``Commercial use'': Modify the definition to use active
instead of passive voice, and to change use of swap data for regulatory
purposes and/or responsibilities to use of SDR data for regulatory
purposes and/or to perform its regulatory responsibilities.
``Market participant'': Change the term ``swaps execution
facilities'' to ``swap execution facilities,'' to conform to section 5h
of the Act and other Commission regulations, and make the term
counterparty singular.
``Non-affiliated third party'': Clarify paragraph (3) to
identify ``a person jointly employed'' by an SDR and any affiliate.
``Person associated with a swap data repository'': Clarify
that paragraph (3) includes a ``jointly employed person.''
``Swap data'': Modify the definition to more closely match
the related definitions of ``SDR data'' and ``swap transaction and
pricing data'' that are being added to Sec. 49.2(a) and to incorporate
the requirements to provide swap data to the Commission pursuant to
part 49.
Finally, the Commission proposes to remove the term ``capitalized''
from Sec. 49.2(b), to reflect that most defined terms used in part 49
are not capitalized in the text of part 49. The Commission does not
consider any of the above changes to be substantive.
ii. ``As Soon As Technologically Practicable''
The Commission proposes to add the term ``as soon as
technologically practicable'' as a defined term to standardize the
meaning and use of this term across the Commission's swap reporting
regulations. The term as soon as technologically practicable would mean
as soon as possible, taking into consideration the prevalence,
implementation, and use of technology by comparable market
participants. The term is intended to be identical to the use of the
term as it is used in parts 43 and 45 of the Commission's
regulations.\30\
---------------------------------------------------------------------------
\30\ See 17 CFR 43.2 (defining of as soon as technologically
practicable). Part 45 of the Commission's regulations also uses the
term ``as soon as technologically practicable'' in the same way as
part 43 and this proposed definition, but does not define the term.
---------------------------------------------------------------------------
iii. ``Non-Swap Dealer/Major Swap Participant/Derivatives Clearing
Organization Reporting Counterparty''
The Commission proposes to add the term ``non-swap dealer/major
swap participant/derivatives clearing organization reporting
counterparty,'' defined to mean a reporting counterparty that is not a
swap dealer, major swap participant, derivatives clearing organization,
or exempt derivatives clearing organization. The Commission believes
the defined term would provide clarity in part 49.
[[Page 21047]]
iv. ``Open Swap''
The Commission proposes to add the term ``open swap'' as a defined
term and to define the term as an executed swap transaction that has
not reached maturity or the final contractual settlement date, and has
not been exercised, closed out, or terminated. The Commission considers
an ``open swap'' to mean a swap that is still in force or ``alive.''
This definition is intended to function the same as the definitions of
``open swap'' \31\ and ``closed swap'' \32\ in part 20, but provides
more clarity as to the Commission's meaning of the term.
---------------------------------------------------------------------------
\31\ See 17 CFR 20.1 (Open swap or swaption means a swap or
swaption that has not been closed.).
\32\ See 17 CFR 20.1 (Closed swap or closed swaption means a
swap or swaption that has been settled, exercised, closed out, or
terminated.).
---------------------------------------------------------------------------
v. ``Reporting Counterparty''
The Commission proposes to add the term ``reporting counterparty''
as a defined term to standardize its meaning and use across the
Commission's swap reporting regulations. Reporting counterparty would
mean the counterparty responsible for reporting SDR data to an SDR
pursuant to parts 43, 45, or 46 of the Commission's regulations. The
term is intended to be functionally equivalent to the term ``reporting
party,'' as defined in part 43,\33\ the term ``reporting
counterparty,'' as defined in part 45,\34\ and the term ``reporting
counterparty,'' as defined in part 46.\35\ The Commission notes that
the reporting counterparty may not always be the entity reporting SDR
data to the SDR, particularly for transactions executed on swap
execution facilities (``SEFs'') or designated contract markets
(``DCMs''), but it is the counterparty responsible for the initial and
subsequent SDR data reporting, as determined by parts 43, 45, or 46 of
the Commission's regulations, as applicable to a particular swap.
---------------------------------------------------------------------------
\33\ See 17 CFR 43.2 (Reporting party means the party to a swap
with the duty to report a publicly reportable swap transaction in
accordance with part 43 and section 2(a)(13)(F) of the CEA.).
\34\ See 17 CFR 45.1 (Reporting counterparty means the
counterparty required to report swap data pursuant to part 45,
selected as provided in Sec. 45.8.).
\35\ See 17 CFR 46.1 (Reporting counterparty means the
counterparty required to report swap data pursuant to part 46,
selected as provided in Sec. 46.5.).
---------------------------------------------------------------------------
vi. ``SDR Data''
The Commission proposes to add the term ``SDR data'' as a defined
term. SDR data would mean the specific data elements and information
required to be reported to an SDR or disseminated by an SDR, pursuant
to two or more of parts 43, 45, 46, and/or 49, as applicable. The
Commission notes that in this context, ``disseminated'' would include
SDRs making swap data available to the Commission as required by part
49.
The term SDR data would refer to multiple sources of data reported
to the SDR or disseminated by the SDR. For example, SDR data could
refer to all data reported or disseminated pursuant to parts 43, 45,
and 46, or may refer to data reported or disseminated pursuant to parts
45 and 46, depending on the context in which the term is used. This is
in contrast with the proposed term ``swap transaction and pricing
data,'' discussed below, which would only refer to data reported to the
SDR or publicly disseminated by the SDR pursuant to part 43 and the
term ``swap data,'' which would only refer to data reported to the SDR
or made available to the Commission pursuant to part 45. The Commission
believes that consolidating references to the different types of data
that must be reported to an SDR and data the SDR must make available to
the public or to the Commission into a single term would provide
clarity throughout part 49.
vii. ``SDR Information''
The Commission proposes to amend the existing definition of ``SDR
information'' to add ``related to the business of the swap data
repository that is not SDR data'' to the end of the current definition.
The Commission believes this change would make clear that the scope of
SDR information is limited to information that the SDR receives or
maintains related to its business that is not the SDR data reported to
or disseminated by the SDR. SDR information would include, for example,
SDR policies and procedures created pursuant to part 49.\36\
---------------------------------------------------------------------------
\36\ This clarification is particularly relevant for the SDR
recordkeeping obligations in the proposed amendments to Sec. 49.12,
discussed below in section II.H.
---------------------------------------------------------------------------
viii. ``Swap Transaction and Pricing Data'' and ``As Soon as
Technologically Practicable''
The Commission proposes to add the terms ``swap transaction and
pricing data'' and ``as soon as technologically practicable'' as
defined terms from part 43. Swap transaction and pricing data would
mean the data elements and information required to be reported to an
SDR or publicly disseminated by an SDR, as applicable, pursuant to part
43. Though this phrase is not currently defined in part 43, it is used
throughout that part to refer to the data that must be reported to an
SDR and publicly disseminated by an SDR pursuant to part 43, and the
meaning of the term added here is identical. The Commission is
proposing to adopt the same definition of as soon as technologically
practicable defined in part 43, which means as soon as possible, taking
into consideration the prevalence, implementation, and use of
technology by comparable market participants. The Commission is
proposing to add both phrases as defined terms in part 49 to increase
consistency in terminology used in the Commission's swap reporting
regulations.
ix. Removal of ``Reporting Entity''
The Commission proposes to remove the term ``reporting entity''
from part 49. The Commission believes that ``reporting entity'' is no
longer necessary with the proposed addition of the defined term for
``reporting counterparty,'' because reporting counterparties are also
reporting entities under the current definition.\37\ SEFs and DCMs are
the only entities that may have the responsibility to report data that
are not included in the proposed definition of ``reporting
counterparty.'' The Commission notes that this proposed rule would
retain most requirements related to reporting entities, but would
update the terminology used to describe the requirements. As a result,
most obligations for reporting entities would still exist under the
proposed amendments.
---------------------------------------------------------------------------
\37\ See 17 CFR 49.2(a)(12) (defining ``reporting entity'' as
those entities that are required to report swap data to a registered
swap data repository which includes derivatives clearing
organizations, swap dealers, major swap participants and certain
non-swap dealer/non-major swap participant counterparties.).
---------------------------------------------------------------------------
x. Removal of ``Registered Swap Data Repository''
The Commission proposes to remove the term ``registered swap data
repository'' from part 49. The Commission believes the term
``registered swap data repository'' is not needed in part 49 because
the defined term ``swap data repository'' already exists in Sec.
1.3.\38\ The definition of ``swap data repository'' in Sec. 1.3 is
identical to the definition contained in section 1a(48) of the CEA.\39\
This definition of
[[Page 21048]]
``swap data repository'' therefore already applies, and would continue
to apply, to part 49 and all other Commission regulations and, when
combined with Sec. 49.1,\40\ removes the need for a separate defined
term for ``registered swap data repository.'' The inclusion of the word
``registered'' in ``registered swap data repository'' and the
definition of the term \41\ also creates unnecessary confusion as to
when the requirements of part 49 apply to entities that are in the
process of registering as SDRs or are provisionally registered as SDRs
under the requirements of Sec. 49.3(b).\42\ Finally, the removal of
the term ``registered swap data repository'' would decrease
inconsistency in terms within part 49 and would also increase
consistency between part 49 and other Commission regulations, which
overwhelmingly use the term ``swap data repository.'' The Commission
emphasizes that removing the defined term ``registered swap data
repository'' is a non-substantive amendment that would not in any way
modify the requirements applicable to current or future SDRs.
---------------------------------------------------------------------------
\38\ See 17 CFR 1.3 (defining ``swap data repository'' as ``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.'').
\39\ See 7 U.S.C. 1a(48) (``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.'').
\40\ See 17 CFR 49.1 (``The provisions of this part apply to any
swap data repository as defined under Section 1a(48) of the [CEA]
which is registered or is required to register as such with the
Commission pursuant to Section 21(a) of the [CEA].'').
\41\ See 17 CFR 49.2(a)(11) (``The term `registered swap data
repository' means a swap data repository that is registered under
Section 21 of the [CEA].'').
\42\ See 17 CFR 49.3(b) (creating standards for granting
provisional registration to an SDR).
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all aspects
of the proposed changes to Sec. 49.2. The Commission also invites
specific comment on the following:
(1) Are there any proposed amendments to definitions in existing
regulations in part 49 that are unclear or inaccurate?
B. Sec. 49.3--Procedures for Registration
Section 49.3 of the Commission's regulations establishes procedural
and substantive requirements for SDR registration. In relevant part,
Sec. 49.3 requires persons seeking SDR registration to file an
application for registration on Form SDR \43\ and to amend it
periodically.\44\ Specifically, current Sec. 49.3(a)(5) requires that
if any information in Form SDR or any amendment becomes inaccurate for
any reason, whether before or after the registration application has
been granted, the SDR shall promptly file an amendment on Form SDR
updating such information. In addition, Sec. 49.3(a)(5) requires the
SDR to submit an annual amendment to Form SDR within sixty days after
the end of the SDR's fiscal year.
---------------------------------------------------------------------------
\43\ See 17 CFR 49.3(a)(1).
\44\ See 17 CFR 49.3(a)(5).
---------------------------------------------------------------------------
The Commission is proposing to amend Sec. 49.3(a)(5) to remove the
requirement for SDRs to: (i) File an annual amendment to Form SDR; and
(ii) amend Form SDR after the registration application has been granted
pursuant to Sec. 49.3(a). Accordingly, as proposed, Sec. 49.3(a)(5)
would simply require an SDR to amend Form SDR to correct inaccuracies
until its application for registration has been granted.
The Commission no longer believes that the requirement to amend
Form SDR after registration is needed because the SDRs registered under
Sec. 49.3(a) will have demonstrated the ability to meet initial
registration and compliance requirements in order to receive
registration and the registered SDRs will still submit changes to many
of the items in Form SDR as rule filings under part 40.\45\ The
Commission is also proposing new Sec. 49.29, which would permit the
Commission to request that SDRs produce information demonstrating
compliance with the Commission's regulations, as discussed further in
section II.T. The Commission does, however, believe that updates to
Form SDR are still necessary prior to the granting of registration
under Sec. 49.3(a), because the application would still be active and
the applicant would still need to demonstrate the ability to meet
initial registration and compliance requirements.
---------------------------------------------------------------------------
\45\ See 17 CFR 40.1, 40.5, and 40.6 (containing the filing and
review provisions applicable to rules under the Commission's
regulations).
---------------------------------------------------------------------------
Consistent with the above proposed amendments, the Commission is
also proposing to amend Form SDR to remove the references to annual
amendments and amendments after SDR registration.\46\
---------------------------------------------------------------------------
\46\ The Commission is proposing various non-substantive
amendments to Form SDR. These amendments include making terminology
consistent throughout Form SDR, fixing incorrect references and
misspellings, and fixing grammatical and style errors.
---------------------------------------------------------------------------
As discussed below in section II.O, current Sec. 49.22(f)(2)
requires that the annual compliance report be provided to the
Commission concurrently with the filing of the annual amendment to Form
SDR that must be submitted to the Commission pursuant to Sec.
49.3(a)(5) of this part. The Commission is proposing removing the
reference to Sec. 49.3(a)(5) from Sec. 49.22(f)(2), to reflect the
removal of the annual amendment requirement from Sec. 49.3(a)(5).
Request for Comment. The Commission requests comment on all aspects
of the proposed changes to Sec. 49.3(a)(5).
C. Sec. 49.5--Equity Interest Transfers
The Commission is proposing to amend Sec. 49.5 to streamline the
requirements for equity interest transfers for SDRs. The Commission
believes that the amendments to Sec. 49.5 simplify the notification
and timing requirements associated with transfers of equity interest
for SDRs.
1. Notification of Intended Equity Interest Transfer--Proposed Sec.
49.5(a)
Current Sec. 49.5(a) establishes the requirement for SDRs to
provide the Commission an equity transfer notification. Specifically,
current Sec. 49.5(a) requires that: (i) Upon entering into any
agreement that could result in an equity interest transfer of ten
percent or more in the SDR, the SDR shall file a notification with the
Secretary of the Commission in the manner specified by the Secretary,
no later than the business day following the date on which the SDR
enters into a firm obligation to transfer the equity interest; and (ii)
that the SDR amend any information that is no longer accurate on Form
SDR consistent with the procedures set forth in Sec. 49.3.
Proposed Sec. 49.5 would revise current Sec. 49.5(a) in several
respects. First, proposed Sec. 49.5 would make clear that the proposed
rule would apply to both the direct and indirect transfers of ten
percent or more of the equity interest in the SDR. The Commission
believes that including both direct and indirect transfers of equity
ownership in proposed Sec. 49.5 is necessary for the Commission to
properly oversee SDRs and to address any compliance concerns that may
arise from the indirect transfer of equity interest in an SDR through
transactions involving an SDR's direct or indirect parent company, but
not the SDR itself.
Second, proposed Sec. 49.5 would require that the SDR file the
equity transfer notification at the earliest possible time but no later
than the open of business ten business days following the date upon
which a firm obligation is made to transfer, directly or indirectly,
ten percent or more of the equity interest in the SDR. The Commission
believes SDRs may need additional time to file the necessary documents,
and ten business days would provide greater flexibility to SDRs without
sacrificing the
[[Page 21049]]
information the Commission needs to conduct effective oversight of
SDRs.
Third, proposed Sec. 49.5 would specify that the equity transfer
notification be filed electronically with the Secretary of the
Commission and the Director of the Division of Market Oversight
(``DMO'') via email. The Commission is also proposing to remove the
requirement to amend information that is no longer accurate on Form SDR
due to the equity interest transfer because the requirement is
duplicative in light of the requirements of both current and proposed
Sec. 49.3(a)(5).\47\
---------------------------------------------------------------------------
\47\ Proposed Sec. 49.5(a) would continue to apply the
requirement to update information in Form SDR that is no longer
accurate due to an equity interest transfer to an SDR whose
application for registration has not been granted under Sec.
49.3(a).
---------------------------------------------------------------------------
2. Documentation Requirements--Proposed Sec. 49.5(b)
Current Sec. 49.5(b) sets forth the documentation requirements for
the equity transfer notice. Current Sec. 49.5(b) requires that: (i)
The notification include any relevant agreements, corporate documents,
charts outlining new ownership or corporate or organizational
structure, a brief description of the purpose and any impact of the
transfer, and a representation from the SDR that it meets all of the
requirements of section 21 of the Act and Commission regulations; (ii)
the SDR keep the Commission apprised of the projected date that the
transaction will be consummated, and provide the Commission any new
agreements or modifications to the original agreements filed pursuant
to Sec. 49.5; and (iii) the SDR notify the Commission of the
consummation of the transaction on the day it occurs.
The Commission is proposing to simplify current Sec. 49.5(b) and
instead simply provide that the Commission may, upon receiving an
equity transfer notification from an SDR, request that the SDR provide
supporting documentation for the transaction. The Commission believes
that reserving the authority to request supporting documentation rather
than compelling specific production would satisfy the Commission's need
for information without placing unnecessary burdens on SDRs.
3. Notification of Completed Equity Interest Transfer--Proposed Sec.
49.5(c)
Current Sec. 49.5(c) requires that, upon the transfer, the SDR
file with the Secretary of the Commission a certification that the
registered SDR meets all of the requirements of section 21 of the Act
and Commission regulations, and state whether changes to any aspects of
the SDR's operations were made as a result of such change in ownership,
with a description of any such change. The certification may rely on
and be supported by reference to an SDR registration application or
prior filings made pursuant to a rule submission requirement, along
with any necessary new filings, including material updates of prior
submissions. The certification must be filed within two business days
of the date on which the equity interest was acquired.
Proposed Sec. 49.5(c) would instead require that upon the transfer
of the equity interest, whether directly or indirectly, the SDR shall
file electronically with the Secretary of the Commission and DMO a
certification that the SDR meets all of the requirements of section 21
of the Act and Commission regulations, no later than two business days
following the date on which the equity interest of ten percent or more
was acquired. The Commission believes proposed Sec. 49.5(a) and (c)
would provide the Commission with the pertinent information it needs to
assess the impact of an equity interest transfer on the SDR's
operations.
Request for Comment. The Commission requests comment on all aspects
of the proposed changes to Sec. 49.5.
D. Sec. 49.6--Request for Transfer of Registration
The Commission is proposing amendments to streamline the
requirements for the transferring of SDR registration to a successor
entity in Sec. 49.6. As part of these amendments, the Commission is
proposing to retitle the section ``Request for transfer of
registration,'' to more accurately reflect the subject of the
regulation.
Proposed Sec. 49.6(a) would require that an SDR seeking to
transfer its registration from its legal entity as a result of a
corporate change that creates a new legal entity file a request for
approval to transfer such registration with the Secretary of the
Commission in the form and manner specified by the Commission. Examples
of such corporate changes could include, but are not limited to, re-
organizations, mergers, acquisitions, bankruptcy, or other similar
events that result in the creation of a new legal entity for the SDR.
Proposed Sec. 49.6(b) would specify that an SDR file a request for
transfer of registration as soon as practicable prior to the
anticipated corporate change.
Proposed Sec. 49.6(c) would set forth the information that must be
included in the request for transfer of registration, including the
underlying documentation that governs the corporate change, governance
documents, and representations by the transferee entity, among other
information. Proposed Sec. 49.6(d) would specify that upon review of a
request for transfer of registration, the Commission, as soon as
practicable, shall issue an order either approving or denying the
request for transfer of registration.
Current Sec. 49.6(a) requires that in the event of a corporate
transaction that creates a new entity, an SDR must request a transfer
of its registration, rules, and other matters no later than 30 days
after the succession. Current Sec. 49.6(a) also specifies that the
registration shall be deemed to remain effective as the registration of
the successor if the successor, within 30 days after such succession,
files a Form SDR application for registration, and the predecessor
files a Form SDR request for vacation, provided, however, that the
registration of the predecessor SDR shall cease to be effective 90 days
after the Form SDR registration application is filed by the successor
SDR.
Current Sec. 49.6(b) requires that if the succession is based
solely on a change in the predecessor's date or state of incorporation,
form of organization, or composition of a partnership, the successor
may, within 30 days after the succession, amend the registration of the
predecessor SDR on Form SDR to reflect these changes. The amendment
shall be an application for registration filed by the predecessor and
adopted by the successor.
The Commission believes that the amendments to Sec. 49.6 would
simplify the process for requesting a transfer of SDR registration. The
Commission believes the requirement, timing, content of requests, and
format of a Commission determination in proposed Sec. 49.6(a), (b),
(c), and (d) respectively, would achieve the Commission's information
needs when an SDR seeks to transfer registration. These requirements
would streamline the requirements for SDRs by setting forth a clear
process for transfer that focuses on informing the Commission of
changes relevant to the Commission in carrying out its oversight
responsibilities, as opposed to requiring SDRs to file new Forms SDR,
which would likely duplicate most of the transferor's current Form SDR.
Request for Comment. The Commission requests comment on all aspects
of the proposed changes to Sec. 49.6.
[[Page 21050]]
E. Sec. 49.9--Open Swaps Reports Provided to the Commission
The Commission is proposing to replace current Sec. 49.9 with
requirements for SDRs to provide open swaps reports to the
Commission.\48\ The Commission proposes renaming Sec. 49.9 ``Open
swaps reports provided to the Commission'' to reflect this change.
---------------------------------------------------------------------------
\48\ As discussed above in section II.A, the Commission is
proposing to define an open swap as an executed swap transaction
that has not reached maturity or the final contractual settlement
date, and has not been exercised, closed out, or terminated.
---------------------------------------------------------------------------
Proposed Sec. 49.9(a) would require SDRs to provide the Commission
with open swaps reports that contain an accurate reflection of the swap
data for every swap data field required to be reported under part 45
for every open swap maintained by the SDR, organized by the unique
identifier created pursuant to Sec. 45.5 of the Commission's
regulations associated with each open swap,\49\ as of the time the SDR
compiles the open swaps report.
---------------------------------------------------------------------------
\49\ Proposed Sec. 49.11 would also require SDRs to distribute
open swaps reports to reporting counterparties. While a distinct
report and separate requirement from proposed Sec. 49.9, the
Commission expects that the swap data contained in the open swaps
reports provided to the Commission under proposed Sec. 49.9 and the
swap data provided to reporting counterparties under proposed Sec.
49.11 would be identical, except for any data that is required to be
kept confidential, if both reports reflect data as of the same
moment. See section II.G below.
---------------------------------------------------------------------------
Proposed Sec. 49.9(b) would require SDRs to transmit all open
swaps reports to the Commission as instructed by the Commission, and
notes that such instructions may include, but would not be limited to,
the method, timing, and frequency of transmission, as well as the
format of the swap data to be transmitted.\50\
---------------------------------------------------------------------------
\50\ As discussed below in section II.V, proposed Sec. 49.31
would delegate the Commission's authority in proposed Sec. 49.9,
including the authority to create instructions for transmitting open
swaps reports to the Commission, to the Director of DMO.
---------------------------------------------------------------------------
Current Sec. 49.9 lists and briefly summarizes the duties of SDRs.
Current Sec. 49.9 does not contain any unique regulatory requirements,
but instead references where the duties are found in other sections of
part 49.\51\ The Commission believes that current Sec. 49.9 is
superfluous because all of the SDR duties listed in Sec. 49.9 are also
contained, in much greater detail, in the other sections of part 49.
The Commission notes that removing current Sec. 49.9 would be a non-
substantive change that would not affect the requirements for SDRs
found in the other sections of part 49, including the sections
currently referenced in Sec. 49.9.
---------------------------------------------------------------------------
\51\ As discussed below in section II.Q, the Commission is
proposing conforming amendments to Sec. 49.25 to remove references
to amended Sec. 49.9.
---------------------------------------------------------------------------
The Commission believes that regularly receiving accurate and up-
to-date information on the open swaps maintained by each SDR is
necessary for the Commission to perform its regulatory functions. While
the specific requirements in proposed Sec. 49.9 are new to part 49,
SDRs currently send open swaps reports to the Commission on a regular
basis. The Commission currently uses open swaps reports to produce a
weekly swaps report that is made available to the public \52\ and for
entity-netted notional calculations.\53\ The Commission also uses open
swaps to perform market risk and position calculations, and for
additional market research projects.
---------------------------------------------------------------------------
\52\ The Commission's various public reports, including the
weekly swaps reports, are available at http://www.cftc.gov/MarketReports/index.htm.
\53\ See ``Introducing ENNs: A Measure of the Size of Interest
Rate Swaps Markets,'' Jan. 2018, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_enns0118.pdf.
---------------------------------------------------------------------------
SDRs currently provide open swaps reports that use different
calculation approaches and different formats. These variations among
SDRs reduce the Commission's ability to effectively use the swap data.
The Commission notes that the proposed regulations would standardize a
type of report the SDRs already create for the Commission. The
Commission believes that providing standards for how the swap data in
open swaps reports should be provided to the Commission would help
remedy issues the Commission faces in trying to reconcile open swaps
reports across the SDRs.
The Commission notes that it would have the ability to instruct
SDRs as to all aspects of transmitting the open swaps reports to the
Commission under proposed Sec. 49.9. These instructions may include
the method of transmission (e.g., file types and methods used for
transmission), the timing of transmission, the frequency of
transmission, and the formatting of the swap data included in the
reports. The Commission believes that retaining the flexibility to
determine how SDRs would provide open swaps reports to the Commission
and the ability to modify the requirements over time as needed would
allow the Commission to use the information in the reports to fulfill
its regulatory responsibilities while not requiring unnecessary effort
on the part of the SDRs.
The Commission intends to work with the SDRs before creating or
modifying any instructions pursuant to proposed Sec. 49.9 and would
provide a reasonable amount of time for SDRs to adjust their systems
before any instructions take effect. The Commission notes that it
currently works with SDRs to implement changes to open swaps reports,
with SDRs being given time to update their systems as needed. The
Commission anticipates using a similar process when working with the
SDRs on the new requirements for open swaps reports.
Request for Comment. The Commission requests comment on all aspects
of the proposed changes to Sec. 49.9.
F. Sec. 49.10--Acceptance of Data
The Commission proposes amending Sec. 49.10 to add a new paragraph
(e) to address correction of errors and omissions in SDR data. SDRs are
currently required to publicly disseminate cancellations and
corrections to swap transaction and pricing data as soon as
technologically practicable after receipt of any cancellation or
correction,\54\ and transmit corrections to errors and omissions in
swap data previously transmitted to the Commission in the same format
as the erroneous or omitted swap data was originally transmitted.\55\
---------------------------------------------------------------------------
\54\ See 17 CFR 43.3(e)(1), (3), and (4) (requiring an SDR to
publicly disseminate corrections and cancellations to data and
containing requirements for cancellation and correction).
\55\ See 17 CFR 45.14(c) (requiring corrections to be
transmitted to the Commission in the same format as the data was
originally transmitted, unless otherwise approved).
---------------------------------------------------------------------------
Swap counterparties, SEFs, and DCMs currently have obligations to
report errors and omissions to the reporting counterparty, SEF, DCM, or
SDR, depending on whether they are reporting swap transaction and
pricing data or swap data.\56\ The Commission is proposing to move the
obligations for SDRs in correcting errors and omissions to Sec.
49.10(e), to place all obligations for SDRs in part 49.\57\ The
Commission believes proposed Sec. 49.10(e) is consistent with the
SDRs' duty to correct errors and omissions that already exists in the
CEA and current Commission regulations.
---------------------------------------------------------------------------
\56\ See Sec. 43.3(e) for swap transaction and pricing data,
discussed below in section IV.A, and Sec. 45.14 for swap data,
discussed below in section III.B. The obligations for swap
counterparties, SEFs, and DCMs to report errors and omissions in
swap transaction and pricing data and swap data would remain in
their current sections.
\57\ Parts 43 and 45, while containing provisions related to SDR
acceptance and dissemination of data, concentrate on the reporting
and dissemination of data by all market participants, while part 49
contains provisions that govern the registration and operations of
SDRs more generally.
---------------------------------------------------------------------------
Proposed Sec. 49.10(e) would set forth the general requirement
that an SDR correct errors and omissions in SDR
[[Page 21051]]
data that was previously reported to the SDR or was not previously
reported to the SDR as required,\58\ regardless of the state of the
swap that is the subject of the SDR data.
---------------------------------------------------------------------------
\58\ The Commission notes that the failure to perform the
initial data reporting as required under parts 43, 45, or 46 is an
``omission'' for the purposes of those parts and proposed Sec.
49.10. The SDR would be required to correct the omission pursuant to
proposed Sec. 49.10, just as it would be required to correct any
other error or omission, regardless of the state of the swap, and
disseminate the corrected data as required in proposed Sec. 49.10.
---------------------------------------------------------------------------
Proposed Sec. 49.10(e)(1)-(4) would set forth the specific
requirements SDRs would need to meet to fulfill the general requirement
in Sec. 49.10(e). Proposed Sec. 49.10(e)(1) would require an SDR to
accept corrections for errors and omissions reported to the SDR
pursuant to parts 43, 45, and 46.
Proposed Sec. 49.10(e)(2) would require each SDR to correct the
reported errors and omissions as soon as technologically practicable
after the SDR receives a report of errors or omissions.
Proposed Sec. 49.10(e)(3) would require an SDR to disseminate
corrected SDR data to the public and the Commission, as applicable, as
soon as technologically practicable after the SDR corrects the SDR
data. Proposed Sec. 49.10(e)(4) would require SDRs to establish,
maintain, and enforce policies and procedures designed for the SDR to
fulfill its responsibilities under Sec. 49.10(e)(1)-(3).\59\
---------------------------------------------------------------------------
\59\ The Commission notes that the policies and procedures for
reporting corrections to the SDR created pursuant to Sec. 49.10(e)
would be subject to disclosure to SEFs, DCMs, and reporting
counterparties under proposed Sec. 49.26(j). See section II.R
below. The Commission is aware of previous instances where market
participants were not provided with SDR policies and procedures
related to the reporting or correction of data and were unaware of
the SDR's requirements, which unnecessarily interfered with the
reporting and correction processes. The requirements of proposed
Sec. 49.10(e)(4) and proposed Sec. 49.26(j) are intended to
prevent a similar situation from occurring in the context of data
corrections.
---------------------------------------------------------------------------
As noted above, new Sec. 49.10(e) is designed to complement the
correction provisions of other parts of the Commission's swap reporting
regulations that apply to the entities reporting errors and omissions
to SDRs, including proposed Sec. 45.14(b), to ensure that errors and
omissions in SDR data are corrected and disseminated as soon as
possible.\60\ The Commission also notes that SDRs currently have the
duty to correct all SDR data previously reported, and all SDR data that
was erroneously not reported as required, and to properly disseminate
the corrections as required, including making the corrected SDR data
available to the Commission as instructed,\61\ which will continue
pursuant to proposed Sec. 49.17.\62\
---------------------------------------------------------------------------
\60\ See section III.B below.
\61\ See 17 CFR 43.3(e) (correction and dissemination
requirements for swap transaction and pricing data); 17 CFR 45.14
(correction and dissemination requirements for swap data); see also
17 CFR 49.13(a) (requiring SDRs to transmit all swap data requested
by the Commission to the Commission in an electronic file in a
format acceptable to the Commission.).
\62\ See section II.L below. As discussed in that section, SDRs
are currently required to provide the Commission with direct
electronic access to SDR data, including scheduled data transfers to
the Commission.
---------------------------------------------------------------------------
Finally, the Commission notes that, as specified in Sec. 49.10(e),
the requirements of new Sec. 49.10(e) would apply regardless of the
state of the swap, meaning SDRs would have to correct and disseminate
SDR data for swaps that have matured or were otherwise terminated and
are no longer open swaps. The Commission believes this requirement is
necessary for SDRs to continue to maintain and disseminate SDR data
that accurately reflects market activity to the public \63\ and
regulators. Further, SDRs currently do regularly make and disseminate
corrections to previously-reported SDR data and SDR data that was not
initially reported as required, including SDR data for previously
matured or terminated swaps.
---------------------------------------------------------------------------
\63\ The Commission understands that market participants use the
real-time swap transaction and pricing data disseminated by SDRs
pursuant to part 43 for a variety of purposes, including modeling of
the swaps markets that impacts their decisions related to
transacting in swaps.
---------------------------------------------------------------------------
In general, the Commission believes that specifying SDRs'
responsibilities to receive corrections to SDR data from market
participants, make the corrections to the SDR data, and to provide the
corrected SDR data to the public and the Commission, as applicable,
would further the Commission's goal of having accurate and complete SDR
data available to both the Commission and the public by clearly
delineating the SDRs' responsibilities in the process.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.10(e).
G. Sec. 49.11--Verification of Swap Data Accuracy
The Commission proposes to revise the current requirements of Sec.
49.11 that set forth SDRs' responsibilities to confirm the accuracy and
completeness of swap data reported to SDRs. At the same time, the
Commission is proposing to revise the requirements of Sec. 45.14 for
reporting counterparties, SEFs, and DCMs to verify swap data and
correct errors in swap data.\64\ The Commission believes that revised
Sec. 49.11 and Sec. 45.14 would provide SDRs, reporting
counterparties, SEFs, and DCMs with a clear understanding of their
respective responsibilities for verifying swap data.
---------------------------------------------------------------------------
\64\ See section III.B below.
---------------------------------------------------------------------------
The Commission is proposing to change the name of Sec. 49.11 to
``Verification of swap data accuracy'' from ``Confirmation of data
accuracy'' in order to reduce the number of differing uses of the word
``confirmation'' within the Commission's regulations. The Commission
uses different tenses of the word ``verify'' \65\ for the proposed
requirement for the same reason.
---------------------------------------------------------------------------
\65\ The Commission recognizes that CEA section 21(c)(2) uses
the term ``confirm,'' but for the reasons stated above believes
``verification'' and ``verify'' are necessary to avoid confusion.
---------------------------------------------------------------------------
1. General Requirement To Verify Swap Data Accuracy--Proposed Sec.
49.11(a)
The Commission proposes to amend Sec. 49.11(a) to include a
general requirement that SDRs verify the accuracy and completeness of
swap data that the SDRs receive from SEFs, DCMs, and reporting
counterparties, or third-party service providers acting on their
behalf.\66\ Revised Sec. 49.11(a) would also require each SDR to
establish, maintain, and enforce policies and procedures reasonably
designed to verify the accuracy and completeness of swap data that it
receives from SEFs, DCMs, reporting counterparties, or third-party
service providers.\67\
---------------------------------------------------------------------------
\66\ The Commission notes that an SDR may receive swap data from
any SEF, DCM, or reporting counterparty, as defined in proposed
Sec. 49.2, but that the SDR would, under the proposed regulations,
verify the accuracy and completeness of swap data with the reporting
counterparty for a given swap, as discussed in this section.
Likewise, under proposed Sec. 45.14(a), the reporting counterparty
would be required to verify the accuracy and completeness of swap
data as required by that section.
\67\ SDRs would be required make their policies and procedures
created pursuant to proposed Sec. 49.11(a) available to their users
and potential users under the requirements of proposed Sec.
49.26(j).
---------------------------------------------------------------------------
As noted above, proposed Sec. 45.14(a) contains companion
requirements to proposed Sec. 49.11(a) that would require reporting
counterparties to verify swap data with SDRs and to conform to the
relevant SDR's verification policies and procedures in fulfilling their
verification responsibilities.\68\
---------------------------------------------------------------------------
\68\ See section III.B below.
---------------------------------------------------------------------------
Section 21(c)(2) of the CEA requires SDRs to confirm with both
counterparties to the swap the accuracy of the data that was
submitted.\69\ The Commission implemented section 21(c)(2) through
adopting current Sec. 49.11. Current Sec. 49.11(a) requires that SDRs
establish and adopt policies and procedures to ensure the accuracy of
[[Page 21052]]
swap data and other regulatory information that is reported to an SDR.
Current Sec. 49.11(b) generally requires an SDR to confirm the
accuracy and completeness of all swap data submitted pursuant to part
45. The Commission provided an exception to the requirement that SDRs
confirm with both counterparties to the swap the accuracy of the data
that was submitted in Sec. 49.11(b)(1)(ii) for swap creation data and
Sec. 49.11(b)(2)(ii) for swap continuation data when swap data is
received from a SEF, DCM, derivatives clearing organization (``DCO''),
or from a third-party service provider acting on behalf of the swap
counterparty, under certain conditions.\70\
---------------------------------------------------------------------------
\69\ 7 U.S.C. 24a(c)(2).
\70\ In these cases, Sec. Sec. 49.11(b)(1)(ii) and
49.11(b)(2)(ii) relax the general requirement that the SDR
affirmatively notify both counterparties directly if: (1) The SDR
has formed a reasonable belief that the swap data is accurate; (2)
the swap data or accompanying information reflect that both
counterparties agreed to the swap data; and (3) the counterparties
were provided with a 48-hour correction period.
---------------------------------------------------------------------------
SDRs are required under current Sec. 49.11(b)(1)(i) and Sec.
49.11(b)(2)(i) to notify both counterparties to a swap when swap data
is submitted directly via a swap counterparty, such as an SD, MSP, or
non-SD/MSP counterparty, and not by a SEF, DCM, DCO, or a third-party
service provider.\71\ However, because counterparties do not currently
have a corollary obligation to respond to the SDRs' notifications, SDRs
have adopted rules based on the concept of negative affirmation:
Reported swap data is presumed accurate and confirmed if a counterparty
does not inform the SDR of errors or omissions or otherwise make
modifications to a trade record for a certain period of time.\72\
---------------------------------------------------------------------------
\71\ See 17 CFR 49.11(b).
\72\ See, e.g., CME Rules 604.A and 604.B; DTCC Data Repository
(U.S.) LLC Rule 3.3.3.3; and ICE Trade Vault Rules 4.6 and 4.7.
---------------------------------------------------------------------------
When the Commission adopted current Sec. 49.11, it did not believe
that requiring an SDR to affirmatively communicate with both
counterparties to a swap was necessary when the swap data was submitted
to the SDR by a SEF, DCM, DCO, or third-party service provider.\73\
However, based on the Commission's experience with swap data submitted
by SEFs, DCMs, DCOs, and third-party service providers since the rule
was adopted, the Commission believes that such swap data has not been
consistently complete and accurate in some instances, and the swap data
accuracy is not sufficient to justify the exception to the requirement
that SDRs confirm the reported swap data's accuracy with swap
counterparties. The current requirements have had a negative effect on
swap data accuracy and consistency, which has hampered the Commission's
ability to carry out its regulatory responsibilities.
---------------------------------------------------------------------------
\73\ See Part 49 Adopting Release at 54547 (describing the
requirements of Sec. 49.11).
---------------------------------------------------------------------------
Commission staff received many comments on confirmation
requirements for swap data reported to SDRs in response to the Roadmap
Request for Comment.\74\ In general, the SDRs commented that they
cannot meet their obligation to confirm data with both counterparties
because non-reporting counterparties are not required to confirm data
reported to the SDR under current regulations.\75\ The SDRs also stated
that they often have no way to contact non-reporting counterparties
because non-reporting counterparties are not obligated to connect to
the SDRs' services.\76\ SDRs also commented that the obligation to
confirm data accuracy should generally reside with the entities that
are in the best position to know whether the reported data is accurate
and complete (i.e., the parties to the swap, not the SDRs).\77\
---------------------------------------------------------------------------
\74\ The following organizations submitted comments related to
confirmation and reconciliation for data reported to SDRs: American
Counsel of Life Insurers (``ACLI''); Commercial Energy Working Group
(``CEWG''); Chatham Financial (``Chatham''); CME Group (``CME'');
Coalition for Derivatives End-Users (``Coalition''); Depository
Trust & Clearing Corporation (``DTCC''); Eurex Clearing AG
(``Eurex''); a joint comment letter from BSDR LLC, Chicago
Mercantile Exchange Inc., and ICE Trade Vault (``Joint SDR'');
Global Financial Markets Association (``GFMA''); ICE Trade Vault
(``ICE''); International Energy Credit Association (``IECA''); a
joint letter comment letter from International Swaps and Derivatives
Association, Inc. and the Securities Industry and Financial Markets
Association (``ISDA/SIFMA''); Japanese Bankers Association
(``JBA''); Natural Gas Supply Association (``NGSA''); a joint
comment letter from National Rural Electric Cooperative Association
and American Public Power Association (``NRECA/APPA''); and
Securities Industry and Financial Markets Association Asset
Management Group (``SIFMA AMG'').
\75\ Joint SDR Letter at 5; ICE Letter at 2.
\76\ Joint SDR Letter at 5; DTCC Letter at 3; ICE Letter at 2.
\77\ Joint SDR Letter at 5 (listing CME and ICE as supporting
this belief); CME Letter at 2; DTCC Letter at 3.
---------------------------------------------------------------------------
As a result, many SDRs advocated for removing some or all SDR
obligations from Sec. 49.11 of the Commission's regulations.\78\ The
Joint SDR letter commented that the Commission should clearly define
the obligations of counterparties to confirm the accuracy and
completeness of reported data, including requiring non-reporting
counterparties to on-board with every SDR and to follow the SDRs'
processes and procedures, if the non-reporting counterparties have
confirmation obligations.\79\
---------------------------------------------------------------------------
\78\ Joint SDR Letter at 5; CME Letter at 2; ICE Letter at 2.
\79\ Joint SDR Letter at 5 (listing CME and ICE as providing
this recommendation).
---------------------------------------------------------------------------
Other commenters, including end-user groups, opposed confirmation
requirements for non-reporting counterparties.\80\ Chatham stated that
non-reporting parties are rarely the cause of errors in the swap data
and that reconciliation by reporting counterparties in conjunction with
more robust validation of swap data would render reconciliation by non-
reporting counterparties unnecessary.\81\ CEWG advocated against any
periodic reconciliation, and suggested that if reconciliation is
required, it only be required for position data.\82\
---------------------------------------------------------------------------
\80\ Coalition Letter at 4 (noting that end-users do not have
the dedicated systems, personnel, or resources to confirm swap
details with SDRs); IECA Letter at 2; NRECA/APPA Letter at 3;
Chatham Letter at 3-4; JBA Letter at 1-2; NGSA Letter at 3; ISDA/
SIFMA Letter at 6; ACLI Letter at 2-3; SIFMA AMG Letter at 1-2.
\81\ Chatham Letter at 3-4.
\82\ CEWG Letter at 3.
---------------------------------------------------------------------------
The Commission's proposed revisions to Sec. 49.11 and Sec.
45.14(a) \83\ should provide more detail on the responsibilities of
SDRs, working in conjunction with reporting counterparties, to verify
the accuracy and completeness of swap data. As described in the
discussions of proposed Sec. 49.11(b)-(d) below, the Commission is
proposing that SDRs only verify swap data with reporting counterparties
because the Commission believes this would be the most practical
approach to verification. The Commission understands that SDRs are not
parties to swaps and are therefore unable to verify the accuracy and
completeness of swap data without the assistance of a swap
counterparty.
---------------------------------------------------------------------------
\83\ See section III.B.
---------------------------------------------------------------------------
The Commission believes reporting counterparties are in the best
position to verify swap data with SDRs. The CEA's swap reporting
framework is based on reporting counterparties reporting swap data on
behalf of non-reporting counterparties.\84\ Because of the data
reporting requirements for reporting counterparties, reporting
counterparties are connected to SDRs for reporting, while non-reporting
counterparties, especially those that are not SDs/MSPs, often lack such
connections.\85\ For
[[Page 21053]]
entities that never serve as reporting counterparties, such a
requirement would mean the expense of building, maintaining, and
operating systems to connect to SDRs purely for the purposes of
verifying swap data. The Commission believes this outcome would be
inconsistent with the CEA's goal of placing swap data reporting
responsibilities on reporting counterparties.
---------------------------------------------------------------------------
\84\ As discussed in the Part 45 Adopting Release, in
designating reporting counterparties to report on behalf of non-
reporting counterparties, Congress made a policy choice to place
lesser burdens on non-reporting counterparties. See 77 FR 2136, 2166
(discussing the reporting counterparty hierarchy in CEA section
4r(a)(3)).
\85\ The Commission notes that under current and proposed Sec.
45.14(b), a non-reporting counterparty's correction responsibilities
are limited to notifying the reporting counterparty of the errors
and omissions, as opposed to notifying the SDR. See 17 CFR 45.14(b);
section III.B below. Requiring non-reporting counterparties to
verify swap data would be the only instance where a non-reporting
counterparty has swap data responsibilities with SDRs outside of
corrections.
---------------------------------------------------------------------------
2. Distribution of Open Swaps Reports--Proposed Sec. 49.11(b)
To meet the requirement to verify swap data accuracy in proposed
Sec. 49.11(a), proposed Sec. 49.11(b) would require an SDR to
distribute to each reporting counterparty on a regular basis an open
swaps report detailing the swap data maintained by the SDR for all open
swaps.\86\
---------------------------------------------------------------------------
\86\ Under proposed Sec. 45.14(a), a reporting counterparty
would then compare its books and records related to each swap for
which it is the reporting counterparty against the report to
determine if the swap data the SDR maintains is complete and
accurate. See section III.B below.
---------------------------------------------------------------------------
The Commission notes that the open swaps report would contain the
same type of information that would be provided to the Commission in an
open swaps report under proposed Sec. 49.9, as of the time the SDR
compiles the open swaps report, but limited to the open swaps for which
the recipient of the open swaps report is the reporting
counterparty.\87\ The Commission notes that an SDR would not be
required to provide an open swaps report to an entity that does not
have any open swaps at the time the SDR compiles a particular open
swaps report, even if the entity has been the reporting counterparty
for swaps previously maintained by the SDR. For example, if all of the
swaps for which an entity was the reporting counterparty were
terminated before the SDR begins compiling an open swaps report, the
SDR need not provide an open swaps report to that reporting
counterparty. The SDR would need to provide subsequent open swaps
reports to the entity if the entity becomes the reporting counterparty
for any swaps that are open as of the time of a subsequent regular
compiling of open swaps reports.
---------------------------------------------------------------------------
\87\ The Commission anticipates that, because the SDR would be
required to regularly distribute the open swaps report on the same
day during the verification period for each individual reporting
counterparty under proposed Sec. 49.11(b)(1)-(2), the SDR would
begin to compile the open swaps report at the same time before each
distribution.
---------------------------------------------------------------------------
The Commission also notes that it is not proposing to prescribe how
an SDR must distribute the open swaps reports to reporting
counterparties. Commission staff understands some SDRs ``push'' or
actively send information to reporting counterparties, while other SDRs
typically have customers ``pull'' information by having those customers
connect to SDR systems to retrieve the information. The Commission
would not have a preference between these two approaches, provided that
the SDR has instructed its customers on when and how the SDR would
distribute the open swaps reports in the SDR's swap data verification
policies and procedures that it makes available to market participants
pursuant to proposed Sec. 49.26(j), such that the SDR's customers are
able to effectively access and utilize the open swaps reports.
The Commission also notes that it does not have a preference as to
the communication methods, such as file types and data languages, that
the SDRs and reporting counterparties use when distributing the open
swaps reports, as long as the communication methods are made clear in
the SDR's swap data verification policies and procedures and the
entities can effectively communicate regarding the contents of each
open swaps report, including accounting for all necessary automated
systems, mapping of data fields, and potential data translation between
data languages. The Commission would expect SDRs and reporting
counterparties to work together to devise efficient and effective
methods for successfully distributing the open swaps reports, with
particular attention paid to creating a distribution system that
minimizes the burden of distribution for non-SD/MSP/DCO reporting
counterparties. Reporting counterparties are already connected to SDRs
to fulfill their reporting responsibilities under part 45 and therefore
the Commission anticipates that SDRs and reporting counterparties would
be able to communicate easily, potentially through existing
infrastructure for reporting swap data.
3. Content of Open Swaps Reports--Proposed Sec. 49.11(b)(1)
Proposed Sec. 49.11(b)(1) would require an SDR to distribute an
open swaps report that contains an accurate reflection of the swap data
for every swap data field required to be reported for swaps pursuant to
part 45 for every open swap maintained by the SDR for which the
recipient of the report is the reporting counterparty, organized by the
unique identifier created pursuant to Sec. 45.5 of the Commission's
regulations associated with every open swap, as of the time the SDR
compiles the open swaps report.
The Commission notes that the swap data to be included in the open
swaps report would need to include every data field required to be
reported for swaps under part 45, unless access to a particular data
field is prohibited by other Commission regulations.\88\
---------------------------------------------------------------------------
\88\ The Commission notes that the confidentiality requirements,
particularly Sec. 49.17(f), would apply to the open swaps reports.
Under Sec. 49.17(f), for example, an SDR may not include the
identity or legal entity identifier of the non-reporting
counterparty to the swap (or the non-reporting counterparty's
clearing member for the swap) if the swap was executed anonymously
on a SEF or DCM and cleared in accordance with the Commission
regulations referenced in Sec. 49.17(f)(2). See 17 CFR 49.17(f)(2)
(providing the exception to the general prohibition on market
participant access to swap data maintained by SDRs).
---------------------------------------------------------------------------
The Commission believes that having every reporting counterparty
review the swap data and respond to the SDR as required in proposed
Sec. 45.14 would improve the quality of swap data by facilitating the
discovery and correction of errors and omissions. Proposed Sec.
49.11(b)(1) would facilitate this review by requiring the SDRs to
provide the swap data for all of a reporting counterparty's open swaps
on a regular basis. The Commission anticipates this process would be
largely automated and would become more efficient over time as
reporting counterparties and SDRs gain experience with verification.
The Commission is not proposing specific requirements for the
formatting of the open swaps report provided pursuant to proposed Sec.
49.11(b)(1), but the Commission expects that the swap data included in
the open swaps report would be identical to the swap data provided to
the Commission pursuant to proposed Sec. 49.9 in all instances where
the two reports reflect swap data as of the same time, except for any
data that is required to be kept confidential.\89\ The Commission
believes it is important that the reporting counterparty would be able
to review the same swap data that is provided to the Commission as of
the moment the SDR compiled the open swaps report, to help ensure data
consistency.
---------------------------------------------------------------------------
\89\ See section II.E above (discussing the proposed
requirements for providing open swaps reports to the Commission).
---------------------------------------------------------------------------
4. Frequency of Open Swaps Reports for SD, MSP, and DCO Reporting
Counterparties--Proposed Sec. 49.11(b)(2)
Proposed Sec. 49.11(b)(2) would require SDRs to distribute the
open swaps reports to all SD/MSP/DCO reporting counterparties on a
weekly basis, no
[[Page 21054]]
later than 11:59 p.m. Eastern Time \90\ on the day of the week that the
SDR chooses to regularly distribute the open swaps reports. The
Commission notes that it is not prescribing the day that the SDR
chooses to distribute the open swaps report, but would require that the
SDR use the same day of the week for each distribution. The Commission
would also require that the SDR distribute all of the open swaps
reports to the relevant reporting counterparties on the same day.
Distributing the open swaps reports irregularly may create the
unnecessary risk of confusion and/or missed reports, and may lead to
swap data not being properly verified. Regular distribution would also
allow reporting counterparties to prepare for when they would be
required to fulfill their verification responsibilities.
---------------------------------------------------------------------------
\90\ The Commission is specifying a time under proposed Sec.
49.11 for consistency purposes. SDRs would need to account for the
adjustments to Eastern Time that occur during the year in their
verification policies and procedures and reporting counterparties
would need to accommodate these adjustments in their verification
practices.
---------------------------------------------------------------------------
The Commission believes that SDs, MSPs, and DCOs, as large,
sophisticated Commission-registered entities that are accustomed to
swap data regulatory compliance, and as the most likely entities to
serve as reporting counterparties,\91\ can efficiently verify swap data
on a weekly basis. Further, as SDs, MSPs, and DCOs are the reporting
counterparty for the overwhelming majority of swaps,\92\ requiring
these entities to review the swap data maintained for their open swaps
on a weekly basis would ensure that the large majority of open swaps
would be verified within a week of execution, which would also
facilitate the prompt correction of any errors or omissions in the swap
data for these swaps.
---------------------------------------------------------------------------
\91\ Any swap involving at least one SD, MSP, or DCO as a
counterparty will have a reporting counterparty that is a SD, MSP,
or DCO. See 17 CFR 45.8 (providing the requirements for determining
which counterparty to a swap is the reporting counterparty).
\92\ See De Minimis Exception to the Swap Dealer Definition, 83
FR 56666, 56674 (Nov. 13, 2018) (stating that, in 2017,
approximately 98 percent of swap transactions involved at least one
registered SD).
---------------------------------------------------------------------------
5. Frequency of Open Swaps Reports for Non-SD/MSP/DCO Reporting
Counterparties--Proposed Sec. 49.11(b)(3)
Proposed Sec. 49.11(b)(3) would require SDRs to distribute the
open swaps reports to non-SD/MSP/DCO reporting counterparties on a
monthly basis, no later than 11:59 p.m. Eastern Time on the day of the
month that the SDR chooses to regularly distribute the open swaps
reports. For the reasons discussed above with respect to proposed Sec.
49.11(b)(2), the Commission is not prescribing the day of the month
that the SDR chooses to distribute the open swaps reports, but does
require that the SDR use the same day of the month for each
distribution. The Commission is also proposing to require that the SDR
distribute all of the open swaps reports to the relevant reporting
counterparties on the same day.
The Commission believes that monthly distribution would satisfy the
Commission's need for accurate swap data. The Commission is aware that
non-SD/MSP/DCO counterparties tend to be less active in the swaps
markets with fewer resources to devote to regulatory compliance. The
Commission understands that this is particularly true of swaps end-
users that use swaps infrequently and are more likely to engage in
swaps for hedging purposes. Non-SD/MSP/DCO counterparties are also the
reporting counterparties for relatively few swaps; \93\ therefore, the
Commission believes that there would not be a significant risk of
errors associated with less frequent verification for these reporting
counterparties.
---------------------------------------------------------------------------
\93\ See id. (finding that, during the examination period, 98
percent of swap transactions involved at least one SD/MSP
counterparty).
---------------------------------------------------------------------------
6. Receipt of Verification of Data Accuracy or Notice of Discrepancy--
Proposed Sec. 49.11(c)
Proposed Sec. 49.11(c) would require SDRs to receive from each
reporting counterparty to which it sends an open swaps report, in
response to the open swaps report, either a verification of data
accuracy indicating that the swap data contained in the open swaps
report distributed pursuant to Sec. 49.11(b) is accurate and complete
or a notice of discrepancy indicating that the data contained in an
open swaps report contains one or more discrepancies.\94\ Proposed
Sec. 49.11(c) would also require SDRs to establish, maintain, and
enforce policies and procedures reasonably designed for the SDR to
successfully receive the verification of data accuracy or the notice of
discrepancy.
---------------------------------------------------------------------------
\94\ The Commission notes that an SDR receiving a notice of
discrepancy should expect to--and be prepared to--receive
corrections for the errors and omissions in the swap data close in
time to when it receives the notice of discrepancy, due to the
requirements of proposed Sec. 45.14(b).
---------------------------------------------------------------------------
The Commission notes that an SDR would not fully satisfy the
requirements of proposed Sec. 49.11 until it receives the verification
of data accuracy or notice of discrepancy. The Commission believes that
proposed Sec. 49.11(c) would help ensure that the reporting
counterparty has received and reviewed the open swaps report, which
would aid the data correction process and improve the quality of swap
data. The Commission also believes that proof of compliance would
assist the SDRs and the Commission with any necessary compliance
reviews.
The requirement to establish, maintain, and enforce policies and
procedures regarding this stage of verification would help ensure that
the SDR is fully prepared to perform its verification duties and,
because the policies and procedures would be made available to
reporting counterparties pursuant to proposed Sec. 49.26(j), would
help ensure that the verification process is clear and efficient for
reporting counterparties and SDRs. The Commission notes that it is not
prescribing the methods for how SDRs fulfill their responsibilities
under proposed Sec. 49.11(c), but does expect that the SDRs would be
reasonable in the requirements of their policies and would utilize
methods that are as low-cost and efficient as possible. The Commission
particularly encourages SDRs to be accommodating for non-SD/MSP/DCO
reporting counterparties.
The Commission notes that proposed Sec. 45.14 includes
corresponding requirements for reporting counterparties to verify the
accuracy and completeness of swap data in response to the open swaps
reports and for reporting counterparties to follow an SDR's
verification policies and procedures in fulfilling their verification
responsibilities, including analyzing and responding to open swaps
reports. These corresponding requirements would help ensure that
reporting counterparties respond to the open swaps reports in a timely
and efficient manner, such that SDRs can fulfill their responsibilities
under proposed Sec. 49.11(c).
The Commission also clarifies that, given the separate proposed
companion requirements for reporting counterparties, an SDR would not
be responsible for failing to satisfy the requirements of Sec. 49.11
in the instance where an SDR made a full, good-faith effort to comply
with proposed Sec. 49.11, and followed its policies and procedures
created pursuant to proposed Sec. 49.11 in doing so, but was prevented
from fulfilling the requirements because of a reporting counterparty
failing to meet its responsibilities to respond to the open swaps
report as required under proposed Sec. 45.14(a). In such a situation,
the reporting counterparty would be held responsible for its failure to
satisfy the requirements of proposed Sec. 45.14.
[[Page 21055]]
7. Amending Verification Policies and Procedures--Proposed Sec.
49.11(d)
Proposed Sec. 49.11(d) would require SDRs to comply with the
requirements under part 40 of the Commission's regulations when
adopting or amending their verification policies and procedures.\95\
---------------------------------------------------------------------------
\95\ Verification policies and procedures would be considered
``rules'' for the purposes of part 40 requirements. See 17 CFR 40.1,
40.5, and 40.6 (containing the filing and review provisions
applicable to rules under the Commission's regulations).
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.11. The Commission also invites specific comment
on the following:
(2) Is the Commission's proposed approach, which does not involve
non-reporting counterparties in the verification process, an effective
approach to verification? Why or why not? Are there additional benefits
or costs to involving non-reporting counterparties in the verification
process that have not been considered? Please be specific.
(3) Should the Commission be more prescriptive in how the SDRs must
distribute the open swaps reports to reporting counterparties pursuant
to proposed Sec. 49.11(b)? If so, what should be the requirements
included in the prescribed approach? Please be specific.
(4) Should the Commission be more prescriptive for the distribution
timing and formatting for the open swaps reports the SDRs would provide
to the reporting counterparties pursuant to proposed Sec. 49.11(b)(2)
and (3)? If so, what should be the requirements in the prescribed
approach? Please be specific.
(5) Should the Commission prescribe any aspect of how SDRs must
receive verifications of accuracy or notices of discrepancy pursuant to
proposed Sec. 49.11(c)? If so, what should be the requirements in the
prescribed approach? Please be specific.
(6) Should the Commission require the verification of all swap data
messages, as opposed to open swaps reports? Please explain why or why
not. If so, what would be the costs and benefits associated with
requiring the verification of all swap data messages? Please be
specific.
(7) Should the Commission require verification of open swaps
reports more or less frequently than weekly for reporting
counterparties that are SDs, MSPs, or DCOs? If so, please explain why
and suggest a more appropriate verification frequency.
(8) Should the Commission require verification of open swaps
reports more or less frequently than monthly for reporting
counterparties that are not SDs, MSPs, or DCOs? If so, please explain
why and suggest a more appropriate verification frequency.
(9) Should reporting counterparties also be required to verify the
completeness and accuracy of swap transaction and pricing data
submitted pursuant to part 43? Please explain why or why not.
H. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
Current recordkeeping requirements for SDRs are found in Sec. Sec.
49.12, 45.2(f), and 45.2(g) of the Commission's regulations. Current
Sec. 49.12 contains recordkeeping requirements for SDRs, which include
both specific provisions and references to the recordkeeping
requirements for SDRs included in parts 43 and 45.\96\ The Commission
is proposing amendments to the SDR recordkeeping rules to clarify
ambiguities, resolve inconsistencies, and move requirements for SDRs
currently in part 45 to part 49.
---------------------------------------------------------------------------
\96\ See generally 17 CFR 43.3(h)(4), 17 CFR 45.2.
---------------------------------------------------------------------------
Proposed Sec. 49.12(a) would require that SDRs keep full,
complete, and systematic records, together with all pertinent data and
memoranda, of all activities relating to the business of the SDR,
including, but not limited to, all SDR information and all SDR data
that is reported to the SDR.
Proposed Sec. 49.12(b) would specify separate recordkeeping
requirements for SDR information in proposed Sec. 49.12(b)(1) and SDR
data reported to the SDR in proposed Sec. 49.12(b)(2). Proposed Sec.
49.12(b)(1) would require that an SDR maintain all SDR information,
including, but not limited to, all documents, policies, and procedures
required to be kept by the Act and the Commission's regulations,
correspondence, memoranda, papers, books, notices, accounts, and other
such records made or received by the SDR in the course of its business.
All SDR information would be maintained in accordance with Sec. 1.31
of this chapter.
Proposed Sec. 49.12(b)(2) would require an SDR to maintain all SDR
data and timestamps reported to or created by the SDR, and all messages
related to such reporting, throughout the existence of the swap that is
the subject of the SDR data and for five years following final
termination of the swap, during which time the records would be readily
accessible by the SDR and available to the Commission via real-time
electronic access, and for a period of at least ten additional years in
archival storage from which such records are retrievable by the SDR
within three business days.\97\
---------------------------------------------------------------------------
\97\ The propose retention period is the current requirement for
SDR records retention. See 17 CFR 45.2(g) (requiring that all
records required to be kept by an SDR be kept readily accessible and
electronically available to the Commission throughout the existence
of the swap and for five years after final termination of the swap
and then kept in archival storage for an additional period of at
least ten years).
---------------------------------------------------------------------------
Proposed Sec. 49.12(c) would require SDRs to create and maintain
records of SDR validation errors and SDR data reporting errors and
omissions. Proposed Sec. 49.12(c)(1) would require an SDR to create
and maintain an accurate record of all reported SDR data that fails to
satisfy the SDR's data validation procedures. The records would
include, but would not be limited to, records of all of the SDR data
reported to the SDR that failed to satisfy the SDR data validation
procedures, all SDR validation errors, and all related messages and
timestamps.
Proposed Sec. 49.12(c)(2) would require an SDR to create and
maintain an accurate record of all SDR data errors and omissions
reported to the SDR and all corrections disseminated by the SDR
pursuant to parts 43, 45, and 46. SDRs would be required to make the
records available to the Commission on request.
The Commission is proposing to amend Sec. 49.12(d) by replacing it
with a revised version of current Sec. 49.12(c) that would require
that: (i) All records required to be kept pursuant to part 49 must be
open to inspection upon request by any representative of the Commission
or any representative of the U.S. Department of Justice; and (ii) an
SDR must produce any record required to be kept, created, or maintained
by the SDR in accordance with Sec. 1.31.
Finally, the Commission is proposing a technical change to move the
current requirements of Sec. 49.12(e) to the proposed revised
requirements of SDRs to monitor, screen, and analyze SDR data in Sec.
49.13, as discussed further below in section II.I.
Current Sec. 49.12 \98\ contains recordkeeping requirements for
SDRs, which include both specific provisions and references to the
recordkeeping requirements for SDRs included in parts 43 and 45.\99\
Current Sec. 49.12(a) requires an SDR to maintain its books and
records in accordance with the recordkeeping requirements of part
45.\100\
---------------------------------------------------------------------------
\98\ See 17 CFR 49.12.
\99\ See generally 17 CFR 49.12, 17 CFR 45.2.
\100\ The recordkeeping requirements of part 45 for SDRs are
found in Sec. 45.2(f) and (g). See 17 CFR 45.2(f) and (g).
---------------------------------------------------------------------------
Current Sec. 49.12(b) requires the SDR to maintain swap data
(including historical
[[Page 21056]]
positions) throughout the existence of the swap and for five years
following the final termination of the swap, during which time the
records must be readily accessible by the SDR, available to the
Commission via real-time electronic access, and in archival storage
from which the data is retrievable by the SDR within three business
days.\101\ Current Sec. 49.12(b) however does not fully account for
the requirements of Sec. 45.2(g)(2).\102\ Additionally, the sections
of part 45 applicable to SDRs apply to all records, as opposed to
current Sec. 49.12(b), which only applies to swap data.
---------------------------------------------------------------------------
\101\ See 17 CFR 49.12(b).
\102\ Section 45.2(g)(2) requires that all records required to
be kept by an SDR must be kept in archival storage for ten years
after the initial Sec. 45.2(g)(1) retention period. Current Sec.
49.12(b) only includes the initial retention period.
---------------------------------------------------------------------------
Current Sec. 49.12(c) requires all records that are required to be
kept pursuant to part 49 be open to inspection upon request by any
representative of the Commission and the U.S. Department of Justice.
Current Sec. 49.12(c) also requires that copies of all SDR records
will be provided, at the expense of the SDR or person required to keep
such records, to any representative of the Commission upon request,
either by electronic means or in hard copy, or both, as requested by
the Commission.
Current Sec. 49.12(d) requires an SDR to comply with the real time
public reporting and recordkeeping requirements of Sec. 49.15 and part
43. Current Sec. 49.12(e) requires an SDR to establish policies and
procedures to calculate positions for position limits and for any other
purpose as required by the Commission.
The Commission's proposed amendments to Sec. 49.12(a) incorporate
the provisions of current Sec. 45.2(f). Current Sec. 49.12(a) implies
that the recordkeeping requirements only apply to swap data \103\ while
Sec. 45.2(f) clearly states that its requirements apply to records,
not only data reported to the SDR.\104\ As discussed in section III.A,
coupled with the deletion of Sec. 45.2(f) and (g), this amendment
would reduce confusion that may arise from having separate SDR
recordkeeping requirements in two different rules. This amendment would
also clearly state that an SDR is required to keep records beyond just
the swap data that is reported to the SDR, which is consistent with the
requirements of current Sec. 45.2(f). The Commission notes that,
despite the amendment to Sec. 49.12(a), the actual requirements for an
SDR would remain the same, because the amendments to Sec. 49.12(a) are
merely reproducing the Sec. 45.2(f) requirements, which have applied
to SDRs since the effective date for part 45 in 2012.
---------------------------------------------------------------------------
\103\ See 17 CFR 49.12(a) (regarding the swap data required to
be reported to the swap data repository).
\104\ See 17 CFR 45.2(f) (Each swap data repository 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 swap data repository and
all swap data reported to the swap data repository, as prescribed by
the Commission.).
---------------------------------------------------------------------------
The Commission is proposing to amend current Sec. 49.12(b)
because: (i) Current Sec. 49.12(b) only applies to swap data,\105\ as
opposed to all records required to be kept by an SDR; \106\ (ii)
current Sec. 49.12(b) only fully includes the record retention and
retrieval requirements of Sec. 45.2(g)(1),\107\ though the
requirements of Sec. 45.2(g)(2) \108\ also apply to all SDR records;
and (iii) neither current Sec. 49.12(b) nor Sec. 45.2 distinguish
between records of data related to swaps and other records required to
be kept by SDRs in regards to the retention periods. Current Sec.
49.12(b) and Sec. 45.2 use the existence of the swap as the basis for
the record retention timeframes, but this offers no guidance on how
long to keep a record of SDR information, such as SDR policies and
procedures. The Commission proposes to remove these inconsistencies and
to clarify the scope of SDR recordkeeping, while also consolidating SDR
recordkeeping obligations in one regulation.
---------------------------------------------------------------------------
\105\ See 17 CFR 49.12(b) (A registered swap data repository
shall maintain swap data).
\106\ See 17 CFR 45.2(f) (Stating that SDRs are required to keep
full, complete, and systematic records, together with all pertinent
data and memoranda, of all activities relating to the business of
the swap data repository and all swap data reported to the swap data
repository).
\107\ See 17 CFR 45.2(g)(1) (Throughout the existence of the
swap and for five years following the final termination of the swap,
during which time the records must be readily accessible by the swap
data repository and available to the Commission via real time
electronic access.).
\108\ See 17 CFR 45.2(g)(2) (Thereafter, for a period of at
least ten additional years in archival storage from which they are
retrievable by the swap data repository within three business
days.).
---------------------------------------------------------------------------
Proposed Sec. 49.12(b)(1) also requires that the SDR information
be maintained in accordance with Sec. 1.31.\109\ The proposed changes
to Sec. 49.12(b) would also help harmonize the Commission's
regulations with the SEC's regulations.\110\ The SDR information listed
in the proposed changes to Sec. 49.12(b)(1) largely matches the SEC's
requirement for SBSDR recordkeeping \111\ and the retention provisions
of Sec. 1.31 of this chapter largely match the requirement for
SBSDRs.\112\ Further, any SDR that also registers with the SEC as an
SBSDR would have to comply with Sec. 49.12 and Sec. 240.13n-7, and
therefore consistency between the recordkeeping provisions would be
particularly beneficial to these SDRs. The SDR information records
requirement is also similar to recordkeeping obligations for DCMs,\113\
SEFs,\114\ and DCOs.\115\
---------------------------------------------------------------------------
\109\ Section 1.31 of the Commission's regulations is the
Commission's general recordkeeping provision, which requires, among
other requirements, that all regulatory records that do not pertain
to specific transactions and are not retained oral communications be
kept for no less than five years from the creation date of the
record. See 17 CFR 1.31(b)(3).
\110\ The concept of separate recordkeeping requirements for
information similar to SDR information and for SDR data reported to
an SDR has already been adopted by the SEC in its regulations
governing SBSDRs. See 17 CFR 240.13n-7(b) (listing recordkeeping
requirements for SBSDRs); 17 CFR 240.13n-7(d) (excluding
``transaction data and positions'' from the recordkeeping
requirements and instead referring to 17 CFR 240.13n-5 for this
recordkeeping).
\111\ See 17 CFR 240.13n-7(b)(1) (Every security-based swap data
repository shall keep and preserve at least one copy of all
documents, including all documents and policies and procedures
required by the Securities Exchange Act and the rules and
regulations thereunder, correspondence, memoranda, papers, books,
notices, accounts, and other such records as shall be made or
received by it in the course of its business as such.).
\112\ Compare 17 CFR 1.31(b)(3) (A records entity shall keep
each regulatory record for a period of not less than five years from
the date on which the record was created.) and 17 CFR 1.31(b)(4) (A
records entity shall keep regulatory records exclusively created and
maintained on paper readily accessible for no less than two years. A
records entity shall keep electronic regulatory records readily
accessible for the duration of the required record keeping period.)
with 17 CFR 240.13n-7(b)(2) (Every SBSDR shall keep all such
documents for a period of not less than five years, the first two
years in a place that is immediately available to representative of
the Securities and Exchange Commission for inspection and
examination.).
\113\ See 17 CFR 38.951.
\114\ See 17 CFR 37.1001.
\115\ See 17 CFR 39.20.
---------------------------------------------------------------------------
By specifically requiring records to be kept for all SDR data
reported to the SDR, including all timestamps and messages to or from
the SDR related to the reported SDR data, as opposed to only swap
data,\116\ and requiring that the records be kept for ten years in
archival storage,\117\ proposed Sec. 49.12(b)(2) would reorganize
current Sec. 49.12(b). These ``new'' requirements are however already
applicable to SDR recordkeeping by virtue of their inclusion in Sec.
45.2(f) and (g).\118\
[[Page 21057]]
Proposed Sec. 49.12(b)(2) would reproduce the requirements of Sec.
45.2(f) and (g) in part 49 to minimize the number of regulatory
sections that contain recordkeeping and retention requirements for
SDRs.
---------------------------------------------------------------------------
\116\ See 17 CFR 49.12(b) (A registered swap data repository
shall maintain swap data throughout the existence of the swap and
for five years following final termination of the swap).
\117\ Current Sec. 49.12(b) does not specifically include the
ten-year requirement, though current Sec. 49.12(a) does state that
books and records must be kept in accordance with the requirements
of part 45, which does include the ten-year requirement. See 17 CFR
49.12(a) and (b); 17 CFR 45.2(g)(2).
\118\ See 17 CFR 45.2(f) and (g). Though the term ``swap data''
is defined in Sec. 49.2(a) to mean the specific data elements and
information set forth in part 45 of this chapter, the Commission
notes that the term ``swap data'' is not currently defined in part
45. Section 45.2(f) requires the SDR to keep full, complete, and
systematic records, together with all pertinent data and memoranda,
of all activities related to the business of the swap data
repository and all swap data reported to the swap data repository,
as prescribed by the Commission. This expansive requirement for
``all pertinent data and memoranda'' for all activities related to
the business of the swap data repository and all swap data reported
to the swap data repository shows that Sec. 45.2(g) requires the
SDRs to keep records of data from activities beyond reporting
pursuant to part 45 of this chapter, including, for example, all of
the required swap transaction and pricing data reporting pursuant to
part 43 of this chapter. The ``full, complete, and systematic
records'' that must be kept for ``all activities related to the
business'' of the SDR also include all messages related to the
reported data, including all messages sent from the SDR and to the
SDR. This recordkeeping obligation on SDRs is analogous to
recordkeeping obligations on DCMs, SEFs, and DCOs. See 17 CFR
38.950, 37.1001, and 39.20(a).
---------------------------------------------------------------------------
The Commission notes that though the Commission is specifically
proposing recordkeeping requirements for SDR data validation errors and
SDR data reporting errors in this proposed Sec. 49.12(c), this would
not in any way limit the scope of recordkeeping requirements in
proposed Sec. 49.12 to these records. The recordkeeping discussed in
proposed Sec. 49.12(c) would also be required under the more general
recordkeeping provisions of proposed Sec. 49.12.
The Commission notes that it believes SDRs already receive the data
validations information that would be required in proposed Sec.
49.12(c) via regular interaction with SEFs, DCMs, and reporting
counterparties, but emphasizes that it must be maintained in order to
allow for assessments of reporting compliance, including the initial
reporting and the correction of the SDR data. The Commission also notes
that because the records addressed by proposed Sec. 49.12(c) are all
comprised of or relate to SDR data reported to SDRs, all records
created and maintained by the SDR pursuant to proposed Sec. 49.12(c)
would be subject to the requirements of proposed Sec. 49.12(b)(2).
The Commission notes that current Sec. 49.12(d) \119\ is redundant
because its requirements that an SDR comply with the real time public
reporting and recordkeeping requirements prescribed in Sec. 49.15 and
part 43 are also required by revised Sec. Sec. 49.12(b)(2) and 49.15,
as well as part 43. The Commission further notes that though current
Sec. 49.12(d) is proposed to be removed, SDRs would still be subject
to the real time public reporting and recordkeeping requirements of
Sec. 49.15 and part 43.
---------------------------------------------------------------------------
\119\ See 17 CFR 49.12(d) (A registered swap data repository
shall comply with the real time public reporting and recordkeeping
requirements prescribed in Sec. 49.15 and part 43 of this
chapter.).
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.12. The Commission also invites specific comment
on the following:
(10) Would SDRs be substantially impacted by changing the archival
storage requirements of current Sec. 45.2(g)(2) and proposed Sec.
49.12(b)(2) from ten years to a different period of time? If so, what
would be the correct length of time, and how would this change impact
the SDRs? Please include specific facts and figures when providing
comments.
I. Sec. 49.13--Monitoring, Screening, and Analyzing Data
Section 21(c)(5) of the CEA specifically requires SDRs to, at the
direction of the Commission, establish automated systems for
monitoring, screening, and analyzing swap data, including compliance
and frequency of end-user clearing exemption claims by individuals and
affiliated entities.\120\ The Commission believes, based on the text of
section 21(c)(5) of the CEA, that SDRs function not only as
repositories for swap data, but also as providers of data support for
the Commission's oversight of swaps markets and swap market
participants. To implement section 21(c)(5), the Commission adopted
current Sec. 49.13 and Sec. 49.14.
---------------------------------------------------------------------------
\120\ 7 U.S.C. 24a(c)(5).
---------------------------------------------------------------------------
Current Sec. 49.13 requires SDRs to: (i) Monitor, screen, and
analyze all swap data in their possession as the Commission may
require, including for the purpose of any standing swap surveillance
objectives that the Commission may establish as well as ad hoc
requests; and (ii) develop systems and maintain sufficient resources as
necessary to execute any monitoring, screening, or analyzing functions
assigned by the Commission.
In the Part 49 Adopting Release, the Commission received comments
relating to Sec. Sec. 49.13(a) and 49.14 indicating concerns that the
then-proposed regulations did not sufficiently describe the specific
tasks SDRs are expected to perform.\121\ In response, the Commission
specifically stated that its intention in adopting Sec. Sec. 49.13(a)
and 49.14 was to codify the statutory requirements in CEA section
21(c)(5) and later establish specific monitoring, screening, and
analyzing duties when its knowledge of the swaps markets was more
fully-developed.\122\
---------------------------------------------------------------------------
\121\ See letters from: (1) Americans for Financial Reform on
February 22, 2011; (2) Chris Barnard on May 25, 2011; (3) Better
Markets on February 22, 2011; (4) CME Group on February 22, 2011;
(5) Depository Trust & Clearing Corporation on February 22, 2011;
(6) Reval on February 18, 2011; (7) SunGard Energy & Commodities on
February 22, 2011; and (8) TriOptima on February 22, 2011 available
at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=939.
\122\ See Part 49 Adopting Release at 54548.
---------------------------------------------------------------------------
The Commission has worked with SDRs to implement the Commission's
swap reporting regulations since 2011. In that time, SDRs have worked
with Commission staff to produce reports that enable the Commission to
perform oversight and monitoring of the swaps market. For instance,
Commission staff uses the open swaps reports to monitor risk. In
addition, reports on clearing exception elections provide the
Commission with information on which entities are claiming exemptions
from the Commission's mandatory clearing requirement for swaps.
As noted in the Part 49 Adopting Release, the Commission intended
to establish specific monitoring, screening, and analyzing duties for
SDRs separately. The Commission believes that, based on its experience
working with SDRs to monitor, screen, and analyze swap data as directed
by CEA section 21(c)(5) thus far, it is prepared to identify the
specific duties. The Commission expects specifying these topic areas
would not impose substantial new fixed costs on SDRs because SDRs have
already established the technology and related infrastructure designed
to monitor, screen, and analyze data at the request of the Commission
as required under current Sec. 49.13(a).
Finally, the Commission notes that the requested tasks would only
be performed by SDRs to provide the Commission with data and reports
related to the listed topic areas that would assist the Commission in
performing its regulatory functions. The Commission would not expect
SDRs to perform any of the Commission's regulatory functions or to
provide recommendations to the Commission.
The Commission proposes to amend Sec. 49.13 to provide more detail
on the monitoring, screening, and analyzing tasks that SDRs may be
required to perform as directed by the Commission. The Commission is
also proposing to amend Sec. 49.13 to make clear that the requirements
of proposed Sec. 49.13 would apply to SDR data reported to the SDR
pursuant to parts 43, 45, and 46. CEA section 21(c)(5) requires SDRs to
[[Page 21058]]
establish automated systems for monitoring, screening, and analyzing
swap data, but the term ``swap data'' is not defined in the CEA. The
Commission believes that monitoring, screening, and analyzing tasks
could be incomplete if limited to only swap data, as defined in Sec.
49.2.\123\
---------------------------------------------------------------------------
\123\ Current and proposed Sec. 49.2 limit ``swap data'' to
data reported to an SDR pursuant to part 45. See 17 CFR 49.2(a)(15).
The proposed amendments to Sec. 49.2(a) do not substantively change
the definition of ``swap data'' for the purposes of part 49.
---------------------------------------------------------------------------
Proposed Sec. 49.13(a) would generally require that an SDR: (i)
Establish automated systems for monitoring, screening, and analyzing
all relevant SDR data in its possession in the form and manner as
directed by the Commission, and (ii) routinely monitor, screen, and
analyze relevant SDR data at the request of the Commission.\124\
---------------------------------------------------------------------------
\124\ As discussed further below, proposed Sec. 49.13(a) would
more closely track the language of CEA section 21(c)(5) that
requires SDRs to at the direction of the Commission, establish
automated systems for monitoring, screening, and analyzing swap
data, including compliance and frequency of end-user clearing
exemption claims by individual and affiliated entities.
---------------------------------------------------------------------------
Proposed Sec. 49.13(a)(1) would require SDRs to utilize relevant
SDR data maintained by the SDR to provide information to the Commission
concerning such relevant SDR data. Proposed Sec. 49.13(a)(1) would
state that monitoring, screening, and analyzing requests may require
the SDRs to compile and/or calculate the requested information within
discrete categories, including comparing information among categories,
and lists potential topics areas for which the Commission could request
related data and reports: (i) The accuracy, timeliness, and quality of
SDR data; (ii) updates and corrections to, and verification of the
accuracy of, SDR data; (iii) currently open swaps and the consistency
of SDR data related to individual swaps; (iv) the calculation of market
participants' swap positions, including for purposes of position limit
compliance, risk assessment, and compliance with other regulatory
requirements; \125\ (v) swap counterparty exposure to other
counterparties and standard market risk metrics; (vi) swap valuations
and margining activities; (vii) audit trails for individual swaps,
including post-transaction events such as allocation, novation, and
compression, and all related messages; (viii) compliance with
Commission regulations; (ix) market surveillance; (x) the use of
clearing exemptions and exceptions; and/or (xi) statistics on swaps
market activity.
---------------------------------------------------------------------------
\125\ The Commission notes that the Commission regulations
currently require SDRs to establish policies and procedures to
calculate swap positions in Sec. 49.12(e). The Commission is
proposing to incorporate the current Sec. 49.12(e) into proposed
Sec. 49.13(a), without substantively modifying the requirements for
SDRs to calculate swap positions.
---------------------------------------------------------------------------
Proposed Sec. 49.13(a)(2) would state that all monitoring,
screening, and analyzing requests shall be at the discretion of the
Commission, which includes, but is not limited to, the content, scope,
and frequency of each required response, and require that all
information provided pursuant to a request conform to the form and
manner requirements established for the request pursuant to proposed
Sec. 49.30.\126\
---------------------------------------------------------------------------
\126\ The Commission, as discussed below in section II.U, is
proposing to adopt Sec. 49.30 to establish a ``form and manner''
regulation applicable to how information reported to, and maintained
by, SDRs would be formatted and delivered to the Commission. The
term ``formatted'' refers to how the information would be presented
and could include, but is not limited to, attributes such as data
messaging standards, allowable values, and levels of precision, as
well as instructions on how the information would be transmitted,
including, but not limited to, direct electronic access by
Commission staff or by the SDR sending the information to the
Commission, and the frequency and timing of delivery.
---------------------------------------------------------------------------
Proposed Sec. 49.13(a)(3) would require that all monitoring,
screening, and analyzing requests be fulfilled within the time
specified by the Commission for the particular request.\127\ Proposed
Sec. 49.13(b) would require that SDRs establish, and at all times
maintain, sufficient information technology, staff, and other resources
to fulfill the requirements in Sec. 49.13 in the manner prescribed by
the Commission.
---------------------------------------------------------------------------
\127\ The Commission anticipates working with the SDRs and
providing a reasonable time to fulfill each request based on the
specific circumstances, including the volume of information
requested and the complexity of the request.
---------------------------------------------------------------------------
The Commission is also proposing to create a new Sec. 49.13(c)
that would incorporate current Sec. 49.15(c) \128\ but also expand it
to require SDRs to promptly notify the Commission of any swap
transaction for which the SDR is aware that it did not receive swap
data according to part 45, or data according to part 46, in addition to
the current requirement to notify the Commission of any swap
transaction and pricing data not received according to part 43.
---------------------------------------------------------------------------
\128\ See 17 CFR 49.15(c) (Duty to Notify the Commission of
Untimely Data. A registered swap data repository must notify the
Commission of any swap transaction for which the real-time swap data
was not received by the swap data repository in accordance with part
43 of this chapter.). As discussed further below, the Commission
believes moving Sec. 49.15(c) to Sec. 49.13 would help consolidate
the information SDRs need to send to the Commission into one part.
---------------------------------------------------------------------------
The Commission is providing the following list of examples of
monitoring, screening, and analyzing tasks that the Commission could
request in the future pursuant to proposed Sec. 49.13(a)(1). All of
the examples would fall under at least one of the topic areas included
in proposed Sec. 49.13(a)(1). The Commission emphasizes that the
following list is merely examples, is not exhaustive, and does not
limit the Commission's ability to request that SDRs perform other
monitoring, screening, and analyzing tasks that would fall under the
topics listed in proposed Sec. 49.13(a).
Examples of potential future monitoring, screening, and analyzing
activities include reports or information concerning: (i) The reporting
(or corrected non-reporting) of swap transactions and any subsequent
changes related to the swap, such as life cycle events, as defined in
part 45; (ii) the timeliness of reporting through the tracking of
execution and reporting timestamps; (iii) the altering or amending of
swap terms after the initial public reporting of the swap transaction
and pricing data; (iv) the application of the SDR's data validation
procedures and information regarding data validation errors; (v) the
identification and treatment of duplicate records; (vi) net and gross
positions relating to unique product identifiers; (vii) positions of
swap counterparties on an aggregate basis, including futures-equivalent
positions identified with the legal entity to which a legal entity
identifier is assigned; (viii) swap cancellations; (ix) accuracy and
quality of reported SDR data; and (x) the positions of swap
counterparties.
The Commission notes that an information request under Sec.
49.13(a)(1) could require an SDR to review a market participant's open
swap positions for swaps where that market participant elected a
clearing exemption. Such a request would combine categories in Sec.
49.13(a)(1)(iii) and (x). Proposed Sec. 49.13(a)(1) also states that
such monitoring, screening, and analyzing requests could require SDRs
to provide information comparing certain metrics over a period of time.
For instance, an information request could require SDRs to compare the
accuracy, timeliness, and quality of SDR data submitted by one or more
SEFs, DCMs, or reporting counterparties over a defined period of time.
Finally, information requests could require SDRs to compare two or more
categories of information across a defined period of time.
The Commission understands that SDRs can only be expected to
perform monitoring, screening, and analyzing tasks based on the SDR
data available to each SDR and that the results of any task would be
limited to the SDR data for swaps reported to each SDR. The Commission
also expects that SDRs and Commission staff would work together
[[Page 21059]]
to design each task before a task is prescribed, as is current
practice.
Finally, the Commission believes that expanding the notice
requirements of current Sec. 49.15(c) under new proposed Sec.
49.13(c) would improve the Commission's ability to monitor compliance
with its regulations and increase the Commission's ability to
efficiently respond to compliance issues by helping the Commission
learn of compliance issues as soon as possible so that the issues can
be remedied. SDRs are often in the best position to know of non-
compliance with the data reporting requirements because of the
information they receive from market participants. For example, SDRs
would quickly know if a reporting counterparty has reported swap data
pursuant to part 45 in an untimely manner because the SDR receives the
swap data, including the execution timestamp, and can quickly compare
when the swap was executed and when the swap data was received. The
Commission acknowledges that SDRs can only identify and notify the
Commission of SDR data reporting non-compliance based on the SDR data
they receive and does not expect SDRs to inform the Commission of
reporting issues of which they are not aware. Expanding the notice
requirement to noncompliance with parts 45 and 46 would help the
Commission to learn of a wider range of compliance issues when they
first arise, which in turn would help the Commission to work with
market participants and SDRs to fix issues as quickly as possible.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.13. The Commission also invites specific comment
on the following:
(11) Should the Commission require SDRs to calculate positions for
market participants? Are there technological and/or regulatory
limitations that would make such tasks difficult to perform and
unlikely to achieve the desired results? Please be specific.
(12) Should the SDRs create a process whereby the counterparties
whose positions have been calculated based on data contained in the SDR
have the opportunity to review and subsequently challenge and/or
correct the results? Please explain why or why not.
(13) Are there specific reports or sets of data that the Commission
should consider obtaining from SDRs to monitor risk exposures of
individual counterparties to swap transactions, to monitor
concentrations of risk exposures, or for other purposes? Please be
specific.
(14) Are there specific reports or sets of data that the Commission
should consider obtaining from SDRs to evaluate systemic risk or that
could be used for prudential supervision? Are there any other reports
or sets of data that the Commission should consider obtaining from SDRs
that would not be included in the categories listed in proposed Sec.
49.13(a)(1)? Please be specific.
(15) Are there any other tasks or functions that SDRs could perform
related to swap data that could help the Commission better assess
individual market participant risks and market risks generally? Please
be specific.
(16) Would any of the specific monitoring, screening, or analyzing
topic areas enumerated under proposed Sec. 49.13(a)(1) impose new or
substantial costs on SDRs that are not present under the requirements
of current Sec. 49.13 and section 21(c)(5) of the CEA? If so, please
describe and quantify these costs.
(17) Is it sufficiently clear in this proposal that the Commission
intends for SDRs to provide data and information under proposed Sec.
49.13 solely to assist the Commission in performing its regulatory
functions, rather than expecting SDRs to perform any direct oversight
of market participants? If not, how should the Commission clarify that
proposed Sec. 49.13 would require SDRs to provide data and information
solely to assist the Commission in performing its regulatory functions?
J. Sec. 49.15--Real-Time Public Reporting by Swap Data Repositories
The Commission proposes to amend Sec. 49.15 to conform to the
proposed amended definitions in Sec. 49.2 as described in section
II.A. As discussed above in section II.I, the Commission is also
proposing to move current Sec. 49.15(c) to Sec. 49.13(c). The
Commission also proposes to amend current Sec. 49.15(a) and Sec.
49.15(b) to remove the term ``swap data,'' which is defined as part 45
data, and replace it with language clarifying that Sec. 49.15 pertains
to swap transaction and pricing data submitted to a registered SDR
pursuant to part 43. These non-substantive changes do not affect the
existing requirements of Sec. 49.15.
K. Sec. 49.16--Privacy and Confidentiality Requirements of Swap Data
Repositories
In connection with the proposed amendments to multiple definitions
in Sec. 49.2,\129\ the Commission proposes to make conforming
amendments to Sec. 49.16. The Commission proposes to amend Sec.
49.16(a)(1) to clarify that the policy and procedure requirements of
Sec. 49.16 apply to SDR information and to any SDR data that is not
swap transaction and pricing data disseminated under part 43. Such
policies and procedures must include, but are not limited to, policies
and procedures to protect the privacy and confidentiality of any and
all SDR information and all SDR data (except for swap transaction and
pricing data disseminated under part 43) that the SDR shares with
affiliates and non-affiliated third parties.
---------------------------------------------------------------------------
\129\ See section II.A above.
---------------------------------------------------------------------------
The Commission is also making conforming amendments related to the
proposed removal of the term ``reporting entity'' and the proposed
definitions of ``SDR data'' and ``swap data.''
The Commission notes that these proposed amendments are non-
substantive and would not affect the existing requirements or
applicability of Sec. 49.16.
L. Sec. 49.17--Access to SDR Data
The Commission is proposing to amend Sec. 49.17 to clarify some of
the regulation's requirements with respect to the Commission's access
to SDR data. Current Sec. 49.17 sets forth the procedures by which the
CFTC and other regulators may access SDR data.
1. Direct Electronic Access Definition--Sec. 49.17(b)
The Commission proposes to amend the Sec. 49.17(b)(3) definition
of ``direct electronic access'' to mean an electronic system, platform,
framework, or other technology that provides internet-based or other
form of access to real-time SDR data that is acceptable to the
Commission and also provides scheduled data transfers to Commission
electronic systems.
Current Sec. 49.17(b)(3) defines direct electronic access as an
electronic system, platform or framework that provides internet or Web-
based access to real-time swap transaction data and also provides
scheduled data transfers to Commission electronic systems. Currently,
Sec. 49.17(b)(3) does not include the possibility of other types of
technology and does not leave the Commission any discretion over access
to the data. The Commission believes its proposed changes to the
definition would allow more flexibility in regards to the potential
methods and forms of direct electronic access that may be provided to
the Commission, and would remove any confusion over the type of data to
which the term ``direct electronic access'' applies.
The Commission believes that adding ``other technology'' to the
existing list of methods would make clear that the Commission may
decide to accept other
[[Page 21060]]
methods of access, as long as the method is able to efficiently provide
real-time access to SDR data and scheduled SDR data transfers to the
Commission. The Commission believes flexibility in terms of the
technology SDRs use to provide direct electronic access could
accommodate rapid advances in technology and would not inadvertently
prevent the use of future technological innovations that may provide
more efficient direct electronic access to SDR data.
In addition, the Commission proposes to change the current Sec.
49.17(b)(3) text that provides internet or Web-based access to real-
time swap transaction data to that provides internet-based or other
forms of access to real-time SDR data. The Commission considers the
removal of ``Web-based'' to be a non-substantive change, as the term is
redundant with ``internet-based.'' The addition of ``or other form of
access'' is, as with the addition of ``other technology,'' intended to
provide more flexibility for providing direct electronic access to the
Commission by making clear that the Commission may decide to accept
other forms of access that are not internet-based, as long as the
access to SDR data is real-time and provides for scheduled SDR data
transfers to the Commission.
The Commission believes that requiring that the method(s) and
form(s) of direct electronic access be ``acceptable to the Commission''
would make it clear that the Commission anticipates working with SDRs
to decide the acceptable methods and forms of direct electronic access.
This amendment would codify the Commission's current practice of
working with SDRs to implement changes, as discussed above in section
II.E. The Commission and SDRs routinely work together to provide both
real-time internet-based access to SDR data and scheduled transfers of
SDR data to the Commission. The Commission believes that the most
important consideration in whether a form of access may be acceptable
to the Commission would be whether the Commission can successfully
utilize the method or form of access. The Commission believes this is
necessary to help ensure that the direct electronic access provided is
useful to the Commission and to help ensure that an SDR cannot
unilaterally change the method or form of direct electronic access in a
way that may prevent the Commission from performing its regulatory
functions. Though the Commission intends to be flexible in regards to
the methods and forms of direct electronic access, especially in the
context of technological advancement, the Commission believes it is
important to retain the ability to decide the acceptable methods and
forms for direct electronic access at its sole discretion.
Nothing in the proposed revisions to Sec. 49.17(b)(3) would
prevent the SDRs from incorporating new technology into their systems
for collecting SDR data or maintaining the SDR data within their own
systems, as long as the SDR data is collected by the SDRs and provided
to the Commission as required. The Commission would however expect SDRs
to provide reporting counterparties with commonly-used methods for
reporting SDR data to the SDR and not to force reporting counterparties
to unnecessarily expend resources on the latest technology by
unreasonably limiting available reporting methods. The Commission would
also expect SDRs to be particularly accommodating of non-SD/MSP/DCO
reporting counterparties that may not have the resources to spend on
technology.
Finally, the current definition of ``direct electronic access''
includes an SDR providing access to ``real-time swap transaction
data.'' \130\ The correct defined term for the data being referenced is
``SDR data.'' In order to remove any confusion and increase the
consistent use of terms, the Commission proposes to remove the word
``transaction'' and replace ``swap'' with ``SDR'' so that the phrase is
instead ``real-time SDR data.'' \131\ This non-substantive change does
not change the current requirements or current SDR practice for
providing the Commission with direct electronic access to SDR data.
---------------------------------------------------------------------------
\130\ 17 CFR 49.17(b)(3).
\131\ The Commission notes that the phrase ``real-time'' is
often used to reference swap transaction and pricing data that is
publicly reported pursuant to part 43. In this instance, the term
refers to direct electronic access requiring that SDR data be
available in real time to the entity granted direct electronic
access (i.e., the Commission or its designee).
---------------------------------------------------------------------------
2. Commission Access--Sec. 49.17(c)
The Commission proposes to amend Sec. 49.17(c) by incorporating
the requirements of current Sec. 45.13(a),\132\ along with additional
clarifications to consolidate the requirements for Commission access to
SDR data and to describe the SDRs' responsibilities to provide SDR data
to the Commission. The Commission is also proposing non-substantive
edits to Sec. 49.17 to conform terms used in the section with the rest
of the Commission's regulations (e.g., replacing ``swap data and SDR
Information'' with ``SDR data and SDR Information'').
---------------------------------------------------------------------------
\132\ The Commission is not proposing to modify current Sec.
45.13(a) in this rulemaking. The Commission expects that subsequent
rulemakings based on the Roadmap would modify the requirements of
Sec. 45.13 in ways that are not inconsistent with proposed Sec.
49.17.
---------------------------------------------------------------------------
Proposed Sec. 49.17(c) would require SDRs to provide access to the
Commission for all SDR data maintained by the SDR.\133\ Proposed Sec.
49.17(c) would also incorporate all of the current requirements of
Sec. 49.17(c)(1). Current Sec. 49.17(c)(1) requires SDRs to provide
direct electronic access to the Commission or the Commission's
designee, including another registered entity, in order for the
Commission to carry out its legal and statutory responsibilities under
the Act and related regulations. The proposal would retain current
Sec. 49.17(c)(1) as Sec. 49.17(c) and incorporate a modified version
of current Sec. 45.13(a).
---------------------------------------------------------------------------
\133\ See 17 CFR 49.17(c)(1) (Direct Electronic Access. A
registered swap data repository shall provide direct electronic
access to the Commission or the Commission's designee, including
another registered entity, in order for the Commission to carry out
its legal and statutory responsibilities under the Act and related
regulations.).
---------------------------------------------------------------------------
Specifically, proposed Sec. 49.17(c)(1) would also require SDRs to
maintain all SDR data reported to the SDR in a format acceptable to the
Commission, and to transmit all SDR data requested by the Commission to
the Commission as instructed by the Commission. Proposed Sec.
49.17(c)(1) would also provide that the instructions may include, but
are not limited to, the method, timing, and frequency of transmission,
as well as the format and scope of the SDR data to be transmitted.
Proposed Sec. 49.17(c)(1) would change the requirements of current
Sec. 45.13(a) from maintaining and transmitting ``swap data'' to
maintaining and transmitting ``SDR data,'' to make clear that the SDRs
must maintain all SDR data reported to the SDRs in a format acceptable
to the Commission and transmit all SDR data requested by the
Commission, not just swap data.\134\
---------------------------------------------------------------------------
\134\ The Commission does not believe this revision is a change
from current SDR practice.
---------------------------------------------------------------------------
Proposed Sec. 49.17(c)(1) would also broaden the requirements of
current Sec. 45.13(a) from transmit all swap data requested by the
Commission to the Commission in an electronic file in a format
acceptable to the Commission \135\ to transmit all SDR data requested
by the Commission to the Commission as instructed by the Commission,
and
[[Page 21061]]
explains what these instructions may include.
---------------------------------------------------------------------------
\135\ 17 CFR 45.13(a).
---------------------------------------------------------------------------
The Commission believes that these revisions would make clear that
the Commission's ability to set the parameters of SDR data transmission
is not limited to requiring electronic transfers in a particular
format, as could be inferred from current Sec. 45.13(a).\136\ The
Commission believes it needs the ability to instruct SDRs as to all
aspects of SDR data transfers to the Commission. These instructions
could include, but are not necessarily limited to, method of
transmission (e.g., electronic or non-electronic transmission and file
types used for transmission), the timing of data transmission, the
frequency of data transmission, the formatting of the data to be
transmitted (e.g., data feeds or batch transmission), and the actual
SDR data to be transmitted.
---------------------------------------------------------------------------
\136\ See id. (stating that SDRs shall transmit all swap data
requested by the Commission to the Commission in an electronic file
in a format acceptable to the Commission.).
---------------------------------------------------------------------------
While these revisions may appear to broaden the scope of the
Commission's ability to define the terms of data transfer to the
Commission, current Sec. 45.13(a) gives the Commission broad
discretion in instructing SDRs on how to send data to the Commission to
enable the Commission to perform its regulatory functions, increase
market transparency, and mitigate systemic risk.\137\ Current SDR
practice also reflects the Commission's wide discretion in instructing
SDRs in how to send data to the Commission, as the SDRs currently send
large amounts of data to the Commission on a regular basis in various
formats, based on instructions provided by the Commission. The
Commission also believes incorporating the current Sec. 45.13(a)
requirements in Sec. 49.17(c) would help SDRs by locating more of
their SDR responsibilities located in part 49.
---------------------------------------------------------------------------
\137\ See Part 45 Adopting Release at 2169 (requiring 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); see also Part 49 Adopting Release at
54552 (stating that the Commission does not believe that SDRs should
have the discretion or ability to determine the appropriate data
sets that should be provided to the Commission).
---------------------------------------------------------------------------
Though SDRs may need to update their systems in response to
changing Commission instructions over time, the Commission expects to
work with the SDRs to ensure that any changes are practical and
reasonable, and provide time for the SDRs to adjust their systems.
3. Technical Correction--Sec. 49.17(f)(2)
The Commission proposes to amend Sec. 49.17 to replace an
incorrect reference to ``37.12(b)(7)'' at the end of paragraph (f)(2)
with the correct reference to ``39.12(b)(7)'' of the Commission's
regulations, as there is no Sec. 37.12(b)(7) in the Commission's
regulations.\138\ The Commission also proposes non-substantive
amendments to Sec. 49.17(f)(2) to incorporate proposed changes in
terminology used in Sec. 49.17(f)(2) in order for the terms used to be
consistent with the terms listed in proposed Sec. 49.2(a).
---------------------------------------------------------------------------
\138\ See 17 CFR 37.12(b).
---------------------------------------------------------------------------
4. Delegation of Authority--Sec. 49.17(i)
The Commission proposes to move the delegation of authority in
current Sec. 49.17(i) to Sec. 49.31(a)(7). Current Sec. 49.17(i)
delegates to the Director of DMO the authority reserved to the
Commission in current Sec. 49.17. This includes the authority to
instruct SDRs on how to transmit SDR data to the Commission. As
discussed further below in section II.V, the Commission is proposing to
include as many delegations of authority as possible for part 49 in
proposed Sec. 49.31, including the delegation of authorities reserved
to the Commission in Sec. 49.17, to improve consistency within the
part and remove confusion that may arise from listing delegations of
authority in multiple sections. The Commission emphasizes that this
change would not affect the current delegation of authority, as all
functions reserved to the Commission in Sec. 49.17 would still be
delegated to the Director of DMO in proposed Sec. 49.31.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.17. The Commission also invites specific comment
on the following:
(18) Is there a need to further clarify any of the requirements of
the revised paragraphs of proposed Sec. 49.17? If so, which
requirements and what information need to be clarified? Please be
specific.
(19) Are there any aspects of current or proposed Sec. 49.17 that
would inhibit or in any way prevent experimentation with or development
of new technological approaches to SDR operations or providing SDR data
to the Commission? If so, what are these inhibitors and how can they be
mitigated?
M. Sec. 49.18--Confidentiality Arrangement
The Commission is proposing to move the delegation of authority in
current Sec. 49.18(e) to Sec. 49.31(a)(8). Current Sec. 49.18(e)
delegates to the Director of DMO all functions reserved to the
Commission in Sec. 49.18, including the authority to specify the form
of confidentiality arrangements required prior to disclosure of swap
data by an SDR to an appropriate domestic or foreign regulator, and the
authority to limit, suspend, or revoke such appropriate domestic or
foreign regulators' access to swap data held by an SDR.
As discussed further below in section II.V, the Commission believes
market participants would benefit by being able to locate most
delegations of authority in proposed Sec. 49.31. All functions
reserved to the Commission in current Sec. 49.18 would continue to be
delegated to the Director of DMO under this proposed amendment.
N. Sec. 49.20--Governance Arrangements (Core Principle 2)
The Commission proposes to amend citations to Sec. 49.2 within
Sec. 49.20 to conform to proposed changes in the numbering of the
definitions contained in proposed Sec. 49.2, as discussed above in
section II.A. The Commission also proposes to make conforming changes
to reflect the proposed changes to definitions in Sec. 49.2. The
Commission is proposing to amend current citations to Sec. 49.2(a)(14)
in Sec. 49.20(b)(2)(v) and to Sec. 49.2(a)(1) in Sec.
49.20(c)(1)(ii)(B) to citations to Sec. 49.2(a). The Commission also
proposes to update these paragraphs and Sec. 49.20(b)(2)(vii) to
reflect proposed changes related to the definitions of ``SDR data,''
``SDR information,'' ``registered swap data repository,'' and
``reporting entity.'' These non-substantive changes do not affect the
existing requirements of Sec. 49.20.
O. Sec. 49.22--Chief Compliance Officer
The Commission is proposing to amend Sec. 49.22 to clarify
obligations, make technical corrections and non-substantive changes,
and remove unnecessary requirements.
The Commission is proposing to define senior officer in Sec.
49.22(a) as the chief executive officer or other equivalent officer of
the SDR.\139\
---------------------------------------------------------------------------
\139\ The Commission notes that this amendment would define a
term that is currently used throughout Sec. 49.22.
---------------------------------------------------------------------------
Proposed Sec. 49.22(b)(1)(i) would specify that the chief
compliance officer (``CCO'') of an SDR shall have the authority and
resources to develop, in consultation with the board of directors or
senior officer, the policies and procedures of the SDR and enforce such
policies and procedures to fulfill the
[[Page 21062]]
duties set forth for CCOs in the CEA and Commission regulations.
Proposed Sec. 49.22(c)(1) would clarify that only the SDR's board
of directors or senior officer may appoint the CCO, and require that
SDRs notify the Commission within two business days of the appointment,
whether interim or permanent. Proposed Sec. 49.22(c)(2) would require
that the CCO report directly to the board of directors or the senior
officer of the SDR. Proposed Sec. 49.22(c)(3) would specify that only
the board of directors or the senior officer may remove the CCO, and
that the SDR shall notify the Commission within two business days of
the removal, whether interim or permanent.
Proposed Sec. 49.22(c)(4) would contain the requirement currently
found in Sec. 49.22(c)(1) for the CCO to meet with the board of
directors or senior officer of the SDR at least annually.
Proposed Sec. 49.22(d)(2) would provide more detail on conflicts
of interest obligations by making clear that CCOs must take
``reasonable steps,'' in consultation with the board of directors or
the senior officer of the SDR, to resolve any ``material'' conflicts of
interest that may arise, and would no longer list specific types of
conflicts. Proposed Sec. 49.22(d)(4) would remove an unnecessary
reference to Sec. 49.18. Proposed Sec. 49.22(d)(5)-(6) would specify
that SDRs must establish procedures reasonably designed to handle,
respond, remediate, retest, and resolve noncompliance issues identified
by the CCO through any means, including any compliance office review,
look-back, internal or external audit finding, self-reported error, or
validated compliant, and establish and administer a compliance manual
designed to promote compliance with the applicable laws, rules, and
regulations and a written code of ethics for the SDR designed to
prevent ethical violations and to promote honesty and ethical conduct
by SDR personnel.
Proposed Sec. 49.22(e) would streamline, clarify, and rearrange
the requirements of the SDR annual compliance report. The Commission is
proposing to streamline and combine current Sec. 49.22(e)(1) and (2)
into proposed Sec. 49.22(e)(1). The Commission is also proposing to
remove many of the examples of how material compliance issues can be
identified from current Sec. 49.22(e)(5) so as not to imply any limits
on the material compliance matters that must be described. Finally, the
Commission proposes to add ``in all material aspects'' to the end of
current Sec. 49.22(e)(6) in proposed Sec. 49.22(e)(5), in order to
reduce CCOs' concerns with certifying the annual compliance report's
accuracy.
Proposed Sec. 49.22(f)(1) would remove the requirement for any
discussion of the annual compliance report after submission to the
board of directors or senior officer to be recorded in the board
minutes or other similar record as evidence of compliance with the
submission requirement.\140\
---------------------------------------------------------------------------
\140\ The Commission notes that, even with the removal of this
requirement, the Commission may still require an SDR to provide a
demonstration of compliance with the requirements of proposed Sec.
49.22(f) under proposed Sec. 49.29. See section II.T below.
---------------------------------------------------------------------------
Proposed Sec. 49.22(f)(2) would increase the amount of time that
SDRs have to submit the annual compliance report to the Commission from
60 days to 90 calendar days after the end of the SDR's fiscal year. As
discussed above in section II.B, the Commission is also proposing to
remove the annual amendment requirement in Sec. 49.3(a)(5). The
Commission is therefore also proposing to remove the reference to Sec.
49.3(a)(5) from Sec. 49.22(f)(2).
Proposed Sec. 49.22(f)(3) would include a requirement that, where
an amendment to the annual compliance report must be submitted to the
Commission, the CCO also submit the amended annual compliance report to
the SDR's board of directors or the senior officer.\141\
---------------------------------------------------------------------------
\141\ The Commission is also proposing a change to Sec.
49.22(f)(3) to correct the inaccurate reference to Sec.
49.22(e)(67). There is no Sec. 49.22(e)(67) and the proposed
amendment would instead reference the correct Sec. 49.22(e)(5).
This technical amendment does not affect the existing requirements
of Sec. 49.22(f)(3).
---------------------------------------------------------------------------
Proposed Sec. 49.22(f)(4) would allow the Commission to more
easily grant requests for an extension of time to file the annual
compliance report by removing the requirement that SDRs must show
``substantial, undue'' hardship.
Proposed Sec. 49.22(g) would simplify the language and
organization of the recordkeeping requirements for records related to
the SDRs' policies and records created related to the annual compliance
report, and would no longer contain specific examples of records, but
would still require the same records be maintained in accordance with
proposed Sec. 49.12.
Current Sec. 49.22 sets forth the requirements for SDR CCOs,
including: Their designation and qualifications; their appointment,
supervision, and removal; their duties; and their responsibilities with
respect to the annual compliance report and recordkeeping.
The Commission believes that the amendments discussed above would
clarify and streamline the requirements for, and responsibilities of,
CCOs in a manner that balances the Commission's interest in providing
CCOs discretion in fulfilling their duties against clearly specifying
their responsibilities. The large majority of proposed amendments are
non-substantive changes that would clarify the requirements, simplify
the wording of the requirements, reorganize the requirements into a
more logical order, or remove unnecessary text.
Proposed Sec. 49.22(d)(2) would change the duties for CCOs related
to conflicts of interest to a more practical requirement. Current Sec.
49.22(d)(2) implies that a CCO should resolve all conflicts of
interest, regardless of their potential effect on the operations of the
SDR.\142\ The Commission does not believe a CCO should be required to
expend resources to resolve every conceivable conflict of interest that
may affect an SDR and instead proposes to require CCOs to take
reasonable steps to resolve any material conflicts of interest that may
arise. This proposed requirement for taking reasonable steps to resolve
material conflicts of interest reflects the CCO's practical ability to
detect and resolve conflicts. Moreover, the proposed amendment reflects
the Commission's belief that a CCO is well positioned to assess whether
a potential conflict of interest is material to his or her SDR's
ability to comply with the Act and the Commission's regulations. The
Commission believes that proposed Sec. 49.22(d)(2) would allow SDRs to
address conflicts of interest while mitigating the burdens associated
with addressing the conflicts.
---------------------------------------------------------------------------
\142\ See 17 CFR 49.22(d)(2) (requiring the CCO to, in
consultation with the board of directors or senior officer, resolve
any conflicts of interest that may arise).
---------------------------------------------------------------------------
The Commission notes that, while proposed Sec. 49.22(d)(2) removes
the three examples of potential conflicts of interest from current
Sec. 49.22(d)(2)(i)-(iii),\143\ these three examples would still need
to be addressed if they rise to the level of a material conflict of
interest.
---------------------------------------------------------------------------
\143\ See id. (including conflicts between (i) business
considerations and compliance requirements, (ii) business
considerations and the requirement that the SDR provide fair and
open access, and (iii) SDR management and members of the SDR's board
of directors as examples of conflicts of interest to be addressed by
the SDR's CCO).
---------------------------------------------------------------------------
The Commission also proposes to streamline the requirements on SDRs
in preparing the annual compliance report in proposed Sec.
49.22(e)(1). Proposed Sec. 49.22(e)(1) would remove the current Sec.
49.22(e)(2) \144\ required comparison of all applicable Commission
regulations and CEA requirements with each SDR
[[Page 21063]]
policy designed to satisfy each requirement and assessment of the
effectiveness of each policy and areas for improvement. Proposed Sec.
49.22(e)(1) would replace this requirement with a more targeted
requirement to describe and assess the effectiveness of SDR policies
and procedures designed to reasonably ensure compliance with the Act
and applicable Commission regulations. Based on its experience in
reviewing annual compliance reports, the Commission believes this more
targeted requirement would focus on the most important and useful
information in the annual compliance report and reduce the burden on
SDRs in creating the assessment for the annual compliance report
without any detrimental effects on SDR compliance or the Commission's
ability to perform its oversight functions.
---------------------------------------------------------------------------
\144\ See 17 CFR 49.22(e)(2).
---------------------------------------------------------------------------
The Commission notes that it would also have the ability to request
copies of any SDR policies and procedures and to request a
demonstration of compliance with any SDR obligations under the Act or
Commission regulations under proposed Sec. 49.29.
The Commission also believes that multiple proposed changes to
Sec. 49.22(f) would simplify requirements and reduce compliance
burdens on SDRs related to submitting the annual compliance reports.
The proposed amendments would remove the requirement to record the
submission of the annual compliance report and any subsequent
discussion of the report in the board minutes (proposed Sec.
49.22(f)(1)) as this requirement would be incorporated into the general
recordkeeping requirement in proposed Sec. 49.22(g); extend the time
to submit the annual compliance report to the Commission from 60 to 90
days (proposed Sec. 49.22(f)(2)) in recognition that the CCO has to
prepare other year-end reports, such as the fourth quarter financial
report; and allow reasonable requests for additional time to file an
annual compliance report to be granted (proposed Sec. 49.22(f)(4)) to
provide more flexibility. Each of these amendments would simplify
requirements or reduce compliance burdens on SDRs, without any
substantial effect on the Commission's ability to oversee SDRs.
Finally, the Commission notes that the proposed changes to Sec.
49.22(g) would simplify the wording of the recordkeeping requirement by
removing the lengthy examples of records to be kept.\145\ This proposed
change does not, however, in any way limit the records that must be
preserved under proposed Sec. 49.22(g). All of the records listed in
current Sec. 49.22(g) would still be required to be kept pursuant to
proposed Sec. 49.22(g) and proposed Sec. 49.12(b)(1), along with any
other qualifying records that are not listed.
---------------------------------------------------------------------------
\145\ See 17 CFR 49.22(g).
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all aspects
of the proposed amendments to Sec. 49.22. The Commission also invites
specific comment on the following:
(20) Has the Sec. 49.22(b)(2)(ii) prohibition on a CCO also
serving as an SDR's general counsel or as a member of the SDR's legal
department presented SDRs with any challenges or raised concerns that
could be fixed by a change to the prohibition?
(21) Does proposed Sec. 49.22(d)(2) provide CCOs with sufficient
clarity as to the conflicts of interest that are within the scope of
their responsibilities under the proposed rule?
(22) Does proposed Sec. 49.22(d)(2) provide CCOs with sufficient
authority to resolve any conflicts of interest that may arise as
required by section 21(e)(2)(C) of the Act?
P. Sec. 49.24--System Safeguards
The Commission proposes to make non-substantive amendments to Sec.
49.24. Current Sec. 49.24(d) governs SDR BC-DR plans, resources, and
procedures. The proposed amendments to Sec. 49.24 provide more detail
as to the duties and obligations that SDRs must fulfill by expanding
the non-exhaustive list of duties and obligations to include specific
reference to Sec. Sec. 49.10 to 49.21, Sec. 49.23, and Sec. Sec.
49.25 to 49.27. The Commission emphasizes that this list is provided
merely for clarity purposes and would not in any way excuse any SDR
from any of the duties and obligations included in other sections of
the Commission's regulations. As the duties and obligations of these
sections currently apply to SDRs and would continue to apply to SDRs,
this non-substantive change would not affect the requirements
applicable to SDRs.
The Commission also proposes to make technical amendments to Sec.
49.24(i), to remove a reference to Sec. 45.2. As described above in
section II.H, the Commission is moving the SDR recordkeeping
requirements contained in current Sec. 45.2(f) and (g) to Sec. 49.12
for consistence and clarity purposes. This proposed technical change
would conform Sec. 49.24(i) to the proposed changes to Sec. 45.2 and
Sec. 49.12, but would not change any of the requirements applicable to
SDRs.
Q. Sec. 49.25--Financial Resources
As discussed above in section II.E, the Commission proposes
conforming changes to Sec. 49.25 to remove the reference to Sec. 49.9
and to core principle obligations identified in Sec. 49.19. Proposed
Sec. 49.25(a) would instead refer to SDR obligations under ``this
chapter,'' to be broadly interpreted as any regulatory or statutory
obligation specified in part 49. These technical changes do not impact
existing obligations on SDRs.
The Commission is proposing one specific change to Sec.
49.25(f)(3). Current Sec. 49.25(f)(3) requires SDRs to submit their
financial resources reports no later than 17 business days after the
end of the SDR's fiscal quarter, or a later time that the Commission
permits upon request. The Commission is proposing to amend Sec.
49.25(f)(3) to extend the time SDRs have to submit their quarterly
financial resources reports to not later than 40 calendar days after
the end of the SDR's first three fiscal quarters, and not later than 90
calendar days after the end of the SDR's fourth fiscal quarter, or such
later time as the Commission may permit in its discretion.
The Commission believes aligning the 90 calendar day deadline with
the amended timeframe for SDRs submitting CCO reports in Sec.
49.22(f)(2) \146\ would help SDRs in planning their yearly compliance
obligations.
---------------------------------------------------------------------------
\146\ Discussed above in section II.O.
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all aspects
of the proposed amendments to Sec. 49.25.
R. Sec. 49.26--Disclosure Requirements of Swap Data Repositories
The Commission proposes to amend Sec. 49.26 to conform defined
terms with the proposed amendments to Sec. 49.2 discussed above in
section II.A. The Commission also proposes to make updates to the
introductory paragraph of Sec. 49.26 to reflect updates to the terms
``SDR data,'' ``registered swap data repository,'' and ``reporting
entity.'' Current Sec. 49.26 requires SDRs to furnish SEFs, DCMs, and
reporting counterparties with an SDR disclosure document that sets
forth the risks and costs associated with using the services of the
SDR, and contains the information enumerated in Sec. 49.26(a) through
(i). These non-substantive amendments would not change the current
requirements of Sec. 49.26.
The Commission also proposes to add new Sec. 49.26(j), which would
require that the SDR disclosure document set forth the SDR's policies
and procedures regarding the reporting of SDR data to the SDR,
including the SDR data validation procedures, swap data verification
procedures, and procedures
[[Page 21064]]
for correcting SDR data errors and omissions.
The Commission believes that Sec. 49.26(j) would assist market
participants with acquiring information regarding SDR operations that
would help inform their decision-making in regards to choosing which
SDRs to use for swaps reporting. Disclosing the SDR data reporting
policies and procedures, the SDR data validation procedures, the swap
data verification procedures, and the SDR data correction procedures
would also increase data quality by helping reduce the number of data
errors and omissions by providing the SEFs, DCMs, and reporting
counterparties with the information needed to properly design their
reporting systems before any reporting occurs. The Commission notes
that the requirements to provide the policies and procedures for
reporting, validations, verification, and corrections would apply for
all SDR data to be reported, as applicable.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.26. The Commission also invites specific comment
on the following:
(23) Should the Commission require any other specific information
be disclosed by SDRs to facilitate market participants' informed
decision making? If so, please describe what other information should
be disclosed and why. Please be specific.
S. Sec. 49.28--Operating Hours of Swap Data Repositories
The Commission is proposing to add new Sec. 49.28 to provide more
detail on SDRs' responsibilities with respect to hours of operation.
The proposed amendments reflect the Commission's belief that SDRs
should operate as continuously as possible while still being afforded
the opportunity to perform necessary testing, maintenance, and upgrades
of their systems.
1. General Requirements--Sec. 49.28(a)
Proposed Sec. 49.28(a) would require an SDR to have systems in
place to continuously accept and promptly record all SDR data reported
to the SDR, and, as applicable, publicly disseminate all swap
transaction and pricing data reported to the SDR as required under part
43.
Proposed Sec. 49.28(a)(1) would allow an SDR to establish normal
closing hours to perform system maintenance during periods when, in the
SDR's reasonable estimation, the SDR typically receives the least
amount of SDR data.\147\ Under proposed Sec. 49.28(a)(1), an SDR would
also have to provide reasonable advance notice of its normal closing
hours to market participants and to the public.
---------------------------------------------------------------------------
\147\ The Commission notes that this would be a minor change
from the existing requirements of Sec. 43.3(f)(2), which prescribes
that SDRs avoiding scheduling closing hours during the time when the
SDR reasonably estimates that the swaps markets are most active. The
Commission believes times when SDRs receive less SDR data would be a
better measure of when to schedule normal closing hours for SDRs.
---------------------------------------------------------------------------
Proposed Sec. 49.28(a)(2) would allow an SDR to declare, on an ad
hoc basis, special closing hours to perform system maintenance that
cannot wait until normal closing hours. Similar to proposed Sec.
49.28(a)(1), proposed Sec. 49.28(a)(2) instructs SDRs to schedule
special closing hours during periods when, in the SDR's reasonable
estimation, the special closing hours would, to the extent possible
given the circumstances prompting the special closing hours, be least
disruptive to the SDR's SDR data reporting responsibilities. Proposed
Sec. 49.28(a)(2) would also require the SDRs to provide reasonable
advance notice of the special closing hours to market participants and
the public whenever possible, and, if advance notice is not reasonably
possible, to give notice to the public as soon as is reasonably
possible after declaring special closing hours.
Current Sec. 43.3(f) regulates the hours during which SDRs that
accept and publicly disseminate swap transaction and pricing data must
operate. Current Sec. 43.3(f) reflects the Commission's beliefs that
the global nature of the swaps market requires that SDRs be able to
publicly disseminate swap transaction and pricing data at all times and
that SDRs that publicly disseminate swap transaction and pricing data
should generally be fully operational 24 hours a day, 7 days a
week.\148\ While the Commission strongly encourages SDRs to adopt
redundant systems to allow public reporting during closing hours,
current Sec. 43.3(f) allows SDRs to schedule downtime to perform
system maintenance. Current Sec. 43.3(g) addresses SDRs' obligations
regarding swap transaction and pricing data sent to an SDR for publicly
reportable swap transactions during closing hours.
---------------------------------------------------------------------------
\148\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1204 (Jan. 9, 2012) (The Commission agrees that the
global nature of the swaps market requires that an SDR be able to
publicly disseminate swap transaction and pricing data at all times
and believes that SDRs that publicly disseminate swap transaction
and pricing data should be fully operational 24 hours a day, 7 days
a week.).
---------------------------------------------------------------------------
The Commission proposes to include the requirements of current
Sec. 43.3(f) and Sec. 43.3(g) in proposed Sec. 49.28 and to expand
the operating hours requirement beyond public reporting of swap
transaction and pricing data to also explicitly include fulfilling an
SDR's responsibilities under parts 45, 46, and 49. This proposed change
is intended to make clear that the obligations of SDRs to operate near
continuously is not limited to the receipt and dissemination of swap
transaction and pricing data pursuant to part 43, but instead SDRs must
be able to continuously perform all of their data-related
responsibilities required under the Commission's regulations.
The Commission also believes that it would help SDRs and market
participants to move all SDR operating hours requirements to part 49.
The proposed requirements discussed above would also include many of
the requirements of the SEC's operating hours regulations governing
SBSDRs to increase consistency between the regulations for SDRs and
SBSDRs.\149\
---------------------------------------------------------------------------
\149\ The SEC's operating hours regulations are contained in 17
CFR 242.904. While current Sec. 43.3(f) allows SDRs to schedule
closing hours while avoiding the times that, in an SDR's estimation,
U.S. markets and major foreign markets are most active, and requires
the SDRs to provide advance notice of closing hours to market
participants and the public, current Sec. 43.3(f) does not make a
distinction between regular closing hours and special closing hours.
The distinction is present, however, in operating hours requirements
for SBSDRs, and proposed Sec. 49.28(a)(1)-(2) would largely adopt
the SBSDR requirement. These requirements would make clear that an
SDR may establish both normal and special closing hours and would
allow an SDR that also registers with the SEC as an SBSDR to
effectively follow the same operating hours requirements.
---------------------------------------------------------------------------
2. Part 40 Requirement for Closing Hours--Sec. 49.28(b)
Proposed Sec. 49.28(b) would require SDRs to comply with the
requirements under part 40 of the Commission's regulations when
adopting or amending normal closing hours and special closing
hours.\150\ The Commission anticipates that, due to the unexpected and
emergency nature of special closing hours, rule filings related to
special closing hours would typically qualify for the emergency rule
certification provisions of Sec. 40.6(a)(6).\151\ This requirement is
already applicable to SDRs pursuant to current Sec. 43.3(f)(3).\152\
---------------------------------------------------------------------------
\150\ Closing hours would be considered ``rules'' for the
purposes of part 40 requirements. See 17 CFR 40.1, et. seq.
\151\ See 17 CFR 40.6(a)(6) (containing the requirements for
establishing standards for responding to an emergency and for
emergency rule filings); see also 17 CFR 40.1(h) (defining
``emergency'' for the purposes of part 40).
\152\ See 17 CFR 43.3(f)(3) (A registered swap data repository
shall comply with the requirements under part 40 of this chapter in
setting closing hours and shall provide advance notice of its
closing hours to market participants and the public.).
---------------------------------------------------------------------------
[[Page 21065]]
3. Acceptance of SDR Data During Closing Hours--Sec. 49.28(c)
Proposed Sec. 49.28(c) would require an SDR to have the capability
to accept and hold in queue any and all SDR data reported to the SDR
during normal closing hours and special closing hours. The Commission
believes this requirement would help to avoid the loss of any SDR data
that is reported to an SDR during closing hours and to facilitate the
SDR's prompt fulfillment of its data reporting responsibilities,
including public dissemination of swap transaction and pricing data, as
applicable, once the SDR reopens from closing hours. Proposed Sec.
49.28(c) would expand the similar existing requirements for swap
transaction and pricing data in Sec. 43.3(g)\153\ to all SDR data and
would largely follow the SBSDR requirements to receive and hold in
queue information regarding security-based swaps.\154\
---------------------------------------------------------------------------
\153\ See 17 CFR 43.3(g) (During closing hours, a registered
swap data repository shall have the capability to receive and hold
in queue any data regarding publicly reportable swap transactions
pursuant to this part.).
\154\ See 17 CFR 242.904(c) (During normal closing hours, and to
the extent reasonably practicable during special closing hours, a
registered security-based swap data repository shall have the
capability to receive and hold in queue information regarding
security-based swaps that has been reported pursuant to Sec. Sec.
242.900 through 242.909.).
---------------------------------------------------------------------------
Proposed Sec. 49.28(c)(1) would require an SDR, on reopening from
normal or special closing hours, to promptly process all SDR data
received during the closing hours and, pursuant to part 43, to publicly
disseminate swap transaction and pricing data reported to the SDR that
was held in queue during the closing hours. Proposed Sec. 49.28(c)(1)
would expand the similar existing requirements for the SDRs to
disseminate swap transaction and pricing data pursuant to Sec.
43.3(g)(1) \155\ to also include the prompt processing of all other SDR
data received and held in queue during closing hours. The proposed
requirements would also largely follow the SBSDR requirements for
disseminating transaction reports after reopening following closing
hours.\156\
---------------------------------------------------------------------------
\155\ See 17 CFR 43.3(g)(1) (Upon reopening after closing hours,
a registered swap data repository shall promptly and publicly
disseminate the swap transaction and pricing data of swaps held in
queue, in accordance with the requirements of this part.).
\156\ See 17 CFR 242.904(d) (When a registered security-based
swap data repository re-opens following normal closing hours or
special closing hours, it shall disseminate transaction reports of
security-based swaps held in queue, in accordance with the
requirements of Sec. 242.902.).
---------------------------------------------------------------------------
The Commission believes SDR closing hours should disrupt the data
reporting process as little as possible, and therefore believes that
the SDRs should be responsible for receiving, holding, and then
disseminating SDR data as required, as opposed to disrupting the
reporting systems of SEFs, DCMs, and reporting counterparties.
Proposed Sec. 49.28(c)(2) would require SDRs to immediately issue
notice to all SEFs, DCMs, reporting counterparties, and the public in
the event that an SDR is unable to receive and hold in queue any SDR
data reported during normal closing hours or special closing hours.
Proposed Sec. 49.28(c)(2) would also require SDRs to issue notice to
all SEFs, DCMs, reporting counterparties, and the public that the SDR
has resumed normal operations immediately on reopening.\157\ Proposed
Sec. 49.28(c)(2) would then require a SEF, DCM, or reporting
counterparty that was not able to report SDR data to an SDR because of
the SDR's inability to receive and hold in queue any SDR data to
immediately report the SDR data to the SDR.
---------------------------------------------------------------------------
\157\ Consistent with the current requirements under part 43, an
SDR may issue such notices to its participants and the public by
publicizing the notices that the SDR is unable to receive and hold
in queue any SDR data and that the SDR has resumed normal operations
in a conspicuous place on the SDR's website. See 77 FR at 1205, n.
208 (allowing SDRs to provide reasonable advance notice of its
closing hours to participants and the public by providing notices
directly to its participants or publicizing its closing hours in a
conspicuous place on its website).
---------------------------------------------------------------------------
Proposed Sec. 49.28(c)(2) would expand the similar existing
requirements for swap transaction and pricing data in Sec. 43.3(g)(2)
\158\ to all SDR data and would largely follow the SBSDR requirements
to receive and hold in queue information regarding security-based
swaps.\159\ The Commission emphasizes that it would expect SDRs to be
able to accept and hold in queue SDR data that is reported during
closing hours. The inability to accept and hold in queue SDR data would
need to be a rare occurrence that results from unanticipated emergency
situations. The provisions in Sec. 49.28(c)(2) would only be included
as a last resort to prevent data loss.
---------------------------------------------------------------------------
\158\ See 17 CFR 43.3(g)(2) (If at any time during closing hours
a registered swap data repository is unable to receive and hold in
queue swap transaction and pricing data pursuant to this part, then
the registered swap data repository shall immediately upon reopening
issue notice that it has resumed normal operations. Any registered
swap execution facility, designated contract market or reporting
party that is obligated under this section to report data to the
registered swap data repository shall report the data to the
registered swap data repository immediately after receiving such
notice.).
\159\ See 17 CFR 242.904(e) (If a registered security-based swap
data repository could not receive and hold in queue transaction
information that was required to be reported pursuant to Sec. Sec.
242.900 through 242.909, it must immediately upon re-opening send a
message to all participants that it has resumed normal operations.
Thereafter, any participant that had an obligation to report
information to the registered security-based swap data repository
pursuant to Sec. Sec. 242.900 through 242.909, but could not do so
because of the registered security-based swap data repository's
inability to receive and hold in queue data, must promptly report
the information to the registered security-based swap data
repository.).
---------------------------------------------------------------------------
Though proposed Sec. 49.28 would apply to all SDR data, as opposed
to only swap transaction and pricing data reported pursuant to part 43,
the Commission believes that proposed Sec. 49.28 would have little
impact on the operations of SDRs. Proposed Sec. 49.28 largely
encompasses the requirements of current Sec. 43.3(f) and (g), which
already apply to SDRs, and the sections that largely conform to SEC
regulations governing SBSDRs would allow an SDR that also registers
with the SEC as an SBSDR to effectively comply with one set of
regulations. The Commission also understands that SDRs currently
routinely receive and hold in queue all SDR data submitted during
declared SDR closing hours, regardless of whether that data is being
submitted pursuant to part 43 or another Commission regulation. As a
result, the Commission believes that expanding the operating hours
requirements to all SDR data would have little practical impact on
current SDR operations.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.28. The Commission also invites specific comment
on the following:
(24) Does proposed Sec. 49.28 provide SDRs sufficient flexibility
to conduct necessary maintenance on their electronic systems while
still facilitating the availability of SDR data for the Commission and
the public? Please be specific.
T. Sec. 49.29--Information Relating to Swap Data Repository Compliance
The Commission is proposing to add new Sec. 49.29 to provide for
information requests from the Commission to SDRs regarding information
the Commission needs to perform its duties and regarding SDR compliance
with regulatory duties and core principles.
Proposed Sec. 49.29(a) would require SDRs, upon request by the
Commission, to file certain information related to its business as an
SDR or other such information as the Commission determines to be
necessary or appropriate for the Commission to perform its regulatory
duties. The SDRs would be required to provide the requested information
in the form and
[[Page 21066]]
manner and within the time specified by the Commission in its request.
Proposed Sec. 49.29(b) would require SDRs, upon request by the
Commission, to demonstrate compliance with their obligations under the
CEA and Commission regulations, as specified in the request. The
Commission notes that the requests may include, but are not limited to,
demonstrating compliance with the core principles applicable to SDRs
under section 21(f) of the CEA and part 49. SDRs would be required to
provide the requested information in the form and manner and within the
time specified by the Commission in its request.
The Commission notes that these requests may be made for any
Commission oversight purpose. For example, the Commission may request
SDRs to provide information relating to their operations or their
practices in connection with their compliance with particular
regulatory duties and core principles, other conditions of their
registration, or in connection with the Commission's general oversight
responsibilities under the CEA. Proposed Sec. 49.29 is based on
existing Commission requirements applicable to SEFs and DCMs.\160\
---------------------------------------------------------------------------
\160\ See, e.g., 17 CFR 37.5 and 38.5.
---------------------------------------------------------------------------
The Commission notes that proposed Sec. 49.29 facilitates the
removal of the requirement for annual Form SDR updates from Sec.
49.3(a)(5), as the Commission would be able to request the same
information that would be contained in Form SDR and its exhibits as
needed without the need for a regular full Form SDR update.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.29.
U. Sec. 49.30--Form and Manner of Reporting and Submitting Information
to the Commission
The Commission is proposing to add new Sec. 49.30 to place the
various requirements for form and manner requests to SDRs from the
Commission in one section. The proposed changes to part 49 of the
Commission's regulations set forth in this proposal contain various
regulatory provisions that would require SDRs to provide reports and
other information to the Commission in ``the form and manner''
requested or directed by the Commission. In particular, proposed
Sec. Sec. 49.13(a) and 49.29 would require SDRs to provide reports and
certain other information to the Commission in the ``form and manner''
requested or directed by the Commission.
Proposed Sec. 49.30 would establish the broad parameters of the
``form and manner'' requirement. Unless otherwise instructed by the
Commission, an SDR would have to submit SDR data reports and any other
information required under part 49 to the Commission, within the time
specified, using the format, coding structure, and electronic data
transmission procedures approved in writing by the Commission. The
``form and manner'' requirement proposed in Sec. 49.30 would not
supplement or expand upon existing substantive provisions of part 49,
but instead, would only allow the Commission to specify how existing
information reported to, and maintained by, SDRs should be formatted
and delivered to the Commission.
Proposed Sec. 49.30 provides that the Commission would specify, in
writing, the format, coding structure, and electronic data transmission
procedures for various reports and submissions that are required to be
provided to the Commission under part 49. The Commission notes that
these written instructions would include the most recent, and any
future, ``guidebooks'' or other technical specifications published on
the Commission's website, as applicable.\161\
---------------------------------------------------------------------------
\161\ The Commission's current published ``guidebooks'' include
those published for reporting required by parts 15, 16, 17, 18, and
20 of the Commission's regulations relating to ownership and control
reports, large traders reports, and data reporting. These guidebooks
are available on the Commission's website at http://www.cftc.gov/Forms/index.htm.
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 49.30. The Commission also invites specific comment
on the following:
(25) Should the Commission provide a single format or coding
structure for each SDR to deliver reports and other information in a
consistent manner? Are existing standards and formats sufficient for
providing the Commission with requested information? Please explain why
or why not.
(26) Should the Commission require specific electronic data
transmission methods and/or protocols for SDRs to disseminate reports
and other information to the Commission? Please explain why or why not.
V. Sec. 49.31--Delegation of Authority to the Director of the Division
of Market Oversight Relating to Certain Part 49 Matters
The Commission is proposing to add new Sec. 49.31 to consolidate
delegations of authority for part 49. Current part 49 and many
amendments to part 49 proposed in this release include provisions that
require SDRs to perform various functions at the request of the
Commission or to provide information as prescribed by the Commission or
as instructed by the Commission. The Commission proposes to delegate
the authority to exercise most of the listed part 49 functions to the
Director of DMO to facilitate the Commission's ability to respond to
changes in the swaps market and technological developments, and to
ensure the Commission's ability to quickly and efficiently access
information and data from the SDRs in order to efficiently fulfill its
market surveillance responsibilities and other regulatory obligations.
The Commission is proposing to delegate the functions in the below
current and proposed regulations to the Director of DMO, and to such
members of the Commission's staff acting under his or her direction as
he or she may see fit from time to time.
Proposed Sec. 49.31(a)(1) would delegate to the Director of DMO
the authority to request documentation related to an SDR equity
interest transfer pursuant to Sec. 49.5.\162\
---------------------------------------------------------------------------
\162\ See section II.C above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(2) would delegate to the Director of DMO
the authority to instruct SDRs on how to transmit open swaps reports to
the Commission pursuant to Sec. 49.9.\163\
---------------------------------------------------------------------------
\163\ See section II.E above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(3) would delegate to the Director of DMO
the authority to modify the requirement for an SDR to accept all data
from all swaps in an asset class once the SDR includes the asset class
in its application for registration pursuant to Sec. 49.10.\164\
---------------------------------------------------------------------------
\164\ See section II.F above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(4) would delegate to the Director of DMO
the authority to request records pursuant to Sec. 49.12.\165\
---------------------------------------------------------------------------
\165\ See section II.H above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(5) would delegate to the Director of DMO
the authority to request SDRs monitor, screen, and analyze SDR data
pursuant to Sec. 49.13.\166\
---------------------------------------------------------------------------
\166\ See section II.I above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(6) would delegate to the Director of DMO
the authority to request SDRs disclose aggregated SDR data in the form
and manner prescribed by the Commission pursuant to Sec. 49.16.\167\
---------------------------------------------------------------------------
\167\ See section II.K above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(7) would delegate to the Director of DMO
the authority to prescribe the form of direct electronic access that
SDRs make available to the Commission, prescribe the format by which
SDRs maintain SDR data, to request SDRs transmit SDR data to the
[[Page 21067]]
Commission, and to instruct SDRs on transmitting SDR data to the
Commission pursuant to Sec. 49.17.\168\
---------------------------------------------------------------------------
\168\ See section II.L above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(8) would delegate to the Director of DMO
the authority to permit SDRs to accept alternative forms of
confidentiality arrangements and the ability to direct SDRs to limit,
suspend, or revoke access to swap data pursuant to Sec. 49.18.\169\
---------------------------------------------------------------------------
\169\ See section II.M above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(9) would delegate to the Director of DMO
the authority to grant extensions to the annual compliance report
deadline pursuant to Sec. 49.22.\170\
---------------------------------------------------------------------------
\170\ See section II.O above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(10) would delegate to the Director of DMO
the authority to require SDRs to exercise emergency authority or
provide the documentation underlying an SDR's decision to exercise its
emergency authority pursuant to Sec. 49.23.\171\
---------------------------------------------------------------------------
\171\ See 17 CFR 49.23.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(11) would delegate to the Director of DMO
the authority to determine an SDR to be a ``critical SDR'' and to
request copies of BC-DR books and records, assessments, test results,
plans, and reports pursuant to Sec. 49.24.\172\
---------------------------------------------------------------------------
\172\ See 17 CFR 49.24.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(12) would delegate to the Director of DMO
the authority to determine the amount, value, and types of financial
resources SDRs must maintain to perform their statutory duties set
forth in part 49 and request reports of financial resources pursuant to
Sec. 49.25.\173\
---------------------------------------------------------------------------
\173\ See 17 CFR 49.25.
---------------------------------------------------------------------------
Similar to provisions relating to demonstrations of compliance by
SEFs,\174\ proposed Sec. 49.31(a)(13) would delegate to the Director
of DMO the authority to request information from SDRs related to their
business as SDRs or information the Commission determines is necessary
or appropriate to perform its statutory and regulatory responsibilities
in the form and manner specified by the Commission, as well as written
demonstrations of compliance by in the form and manner specified by the
Commission pursuant to Sec. 49.29.\175\
---------------------------------------------------------------------------
\174\ See 17 CFR 37.5 (containing requirements for
demonstrations of compliance by SEFs and delegating the authority
contained in the section to the Director of DMO).
\175\ See section II.T above.
---------------------------------------------------------------------------
Proposed Sec. 49.31(a)(14) would delegate to the Director of DMO
the authority to establish such format, coding structure, and
electronic data transmission procedures for SDR data reports and any
other information required by the Commission under part 49 pursuant to
Sec. 49.30.\176\
---------------------------------------------------------------------------
\176\ See section II.U above.
---------------------------------------------------------------------------
III. Proposed Amendments to Part 45
A. Sec. 45.2--Swap Recordkeeping
The Commission is proposing a non-substantive change to remove
current Sec. 45.2(f) and (g). Current Sec. 45.2 lists the general
recordkeeping requirements of part 45, with Sec. 45.2(f) and (g)
applying specifically to SDRs.\177\ Current Sec. 45.2(f) contains the
SDR recordkeeping requirements and current Sec. 45.2(g) includes the
SDR record retention requirements.
---------------------------------------------------------------------------
\177\ See generally 17 CFR 45.2.
---------------------------------------------------------------------------
Part 45 generally focuses on duties to report swap data to SDRs,
while part 49 addresses obligation of SDRs. Part 49 is therefore the
more logical location for SDR recordkeeping requirements. As described
above, the Commission is proposing to expand on the SDR recordkeeping
requirements in Sec. 49.12, which includes incorporating the
requirements of current Sec. 45.2(f) and (g), among other
amendments.\178\ Current Sec. 45.2(f) and (g) would be redundant, as
their provisions are subsumed in proposed Sec. 49.12, and keeping the
paragraphs in part 45 could cause confusion as to the recordkeeping
requirements that apply to SDRs. The Commission notes that all of the
actual requirements contained in current Sec. 45.2(f) and (g) would
continue to apply to SDRs, because the requirements are included in
proposed Sec. 49.12.
---------------------------------------------------------------------------
\178\ See section II.H above.
---------------------------------------------------------------------------
B. Sec. 45.14--Verification of Swap Data Accuracy and Correcting
Errors and Omissions in Swap Data
The Commission is proposing to amend Sec. 45.14 to facilitate the
verification of swap data by reporting counterparties and to simplify
and improve the requirements for correcting errors and omissions in
swap data previously reported or erroneously not reported as required
by Commission regulations. As discussed above in section II.G, the
Commission is also amending the SDRs' responsibilities to verify the
accuracy and completeness of swap data reported to SDRs. The Commission
believes that revised Sec. 49.11 and proposed Sec. 45.14(b) would
provide SDRs, swap counterparties, SEFs, and DCMs with a clear
understanding of their respective responsibilities in having errors or
omissions in swap data corrected.
1. Verification of Swap Data Accuracy to a Swap Data Repository--Sec.
45.14(a)
The Commission is proposing to move the requirements in current
Sec. 45.14(a) to Sec. 45.14(b). In its place, the Commission is
proposing the new requirements for reporting counterparties to verify
swap data.
Proposed Sec. 45.14(a) would generally require that reporting
counterparties verify the accuracy and completeness of swap data for
swaps for which they are the reporting counterparty.\179\ Proposed
Sec. 45.14(a)(1) would require that a reporting counterparty reconcile
its internal books and records for each open swap for which it is the
reporting counterparty with every open swaps report provided to the
reporting counterparty by an SDR pursuant to proposed Sec. 49.11.
Proposed Sec. 45.14(a)(1) would further require that reporting
counterparties conform to the swap data verification policies and
procedures created by an SDR pursuant to proposed Sec. 49.11.
---------------------------------------------------------------------------
\179\ This paragraph is the counterpart to the verification
requirements for SDRs contained in proposed Sec. 49.11. See section
II.G above. The SDRs would provide their verification policies and
procedures to their users and potential users pursuant to proposed
Sec. 49.26(j).
---------------------------------------------------------------------------
Proposed Sec. 45.14(a)(2) would require that reporting
counterparties submit either a verification of data accuracy or a
notice of discrepancy in response to every open swaps report received
from an SDR within the following timeframes: (i) 48 hours of the SDR
providing the open swaps report if the reporting counterparty is an SD,
MSP, or DCO; or (ii) 96 hours of the SDR providing the open swaps
report for non-SD/MSP/DCO reporting counterparties.\180\
---------------------------------------------------------------------------
\180\ As explained above in section II.G, non-SD/MSP/DCO
reporting counterparties tend to be entities that are less active in
the swaps markets and tend to have fewer resources that can be
devoted to regulatory compliance, including verification systems,
than would be expected for a larger registered entity such as an SD,
MSP, or DCO. The Commission believes that requiring non-SD/MSP/DCO
reporting counterparties to respond to an open swaps report within
96 hours would fulfill the Commission's needs to have swap data
verified (and corrected, as needed) while also minimizing the burden
on these reporting counterparties in a way that does not compromise
swap data or the Commission's ability to perform its regulatory
functions.
---------------------------------------------------------------------------
Proposed Sec. 45.14(a)(3) would require that, if a reporting
counterparty finds no discrepancies between the accurate and current
swap data for a swap according to the reporting counterparty's internal
books and records and the swap data for the swap contained in the open
swaps report provided by the SDR, the reporting counterparty submit a
verification of data accuracy indicating
[[Page 21068]]
that the swap data is complete and accurate to the SDR in the form and
manner required by the SDR's swap data verification policies and
procedures created pursuant to Sec. 49.11.
Finally, proposed Sec. 45.14(a)(4) would require that, if a
reporting counterparty finds any discrepancy between the accurate and
current swap data for a swap according to the reporting counterparty's
internal books and records and the swap data for the swap contained in
the open swaps report provided by the SDR, including, but not limited
to, any over-reporting or under-reporting of swap data for any swap,
the reporting counterparty submit a notice of discrepancy to the SDR in
the form and manner required by the SDR's swap data verification
policies and procedures created pursuant to Sec. 49.11.
The Commission is proposing the new verification rules in Sec.
45.14(a) to help improve swap data quality by facilitating the
resolution of any discrepancies between the reporting counterparties'
records of their open swaps and the swap data maintained by an SDR. The
Commission believes the most effective way to accomplish verification
is by having reporting counterparties compare their own records for
each open swap as of the moment captured in the open swaps report with
the swap data included for each swap in an open swaps report. The
Commission believes that these requirements would help ensure that
reporting counterparties perform the reconciliation promptly and
provide a response to the SDR, which would ensure that swap data is
reviewed in a timely manner and that SDRs can fulfill their
verification responsibilities under proposed Sec. 49.11.
The Commission notes that a reporting counterparty would be
required to perform this reconciliation for every open swap included in
each open swaps report provided to the reporting counterparty by any
SDR.\181\ The Commission also notes that not receiving an expected open
swaps report from an SDR that the reporting counterparty believes
maintains swap data for open swaps for which it is the reporting
counterparty would constitute an error or omission that the reporting
counterparty must correct with the SDR pursuant to proposed Sec.
45.14(b). Likewise, receiving an open swaps report for swaps that are
no longer open would also constitute an error that would require
correction under proposed Sec. 45.14(b).
---------------------------------------------------------------------------
\181\ The SDRs would provide open swaps reports to the
individual reporting counterparties in accordance with the frequency
and timing requirements included in proposed Sec. 49.11. An entity
would only be required to verify the accuracy and completeness of
swap data for open swaps to which it is the reporting counterparty,
such that if a reporting counterparty did not have any open swaps
with an SDR, it would not receive an open swaps report from that SDR
and would not be required to verify swap data with that SDR.
---------------------------------------------------------------------------
The Commission also notes that for all reporting counterparties the
timing requirement of proposed Sec. 45.14(a) is based on when the SDR
makes the open swaps report available to the reporting counterparty,
not when the reporting counterparty receives or accesses the open swaps
report. A reporting counterparty's failure to receive or access, and
analyze, an open swaps report that was properly provided by an SDR
would not excuse the reporting counterparty from the requirements of
proposed Sec. 45.14(a). This standard would help ensure that reporting
counterparties maintain properly functioning systems for the timely
receipt and review of open swaps reports that conform to SDR
verification policies and procedures.
The Commission is not proposing a form or manner for the
verification of data accuracy in proposed Sec. 45.14(a)(3) or the
notice of discrepancy in proposed Sec. 45.14(a)(4), but is instead
proposing that the reporting counterparty provide a verification or
notice that meets the requirements of the SDR's verification policies
and procedures created pursuant to Sec. 49.11. This requirement would
help ensure that reporting counterparties provide verifications of data
accuracy or notices of discrepancy to the SDRs that the SDRs can use to
complete the verification process. As reporting counterparties already
report information to SDRs under other Commission regulations, the
Commission expects that SDRs and reporting counterparties would work
together to design the method for submitting verifications and
notifications that is the most efficient and convenient for both
parties, with particular attention to creating a system that is not
unnecessarily burdensome for non-SD/MSP/DCO reporting counterparties.
The Commission notes that the notice of discrepancy is not the
means by which the reporting counterparty would correct errors or
omissions in swap data. The process of error correction would be
governed by proposed Sec. 45.14(b), as discussed below. The notice of
discrepancy would merely be a notice that the reporting counterparty
does not believe that one or more elements of swap data contained, or
missing, in the open swaps report are correct. Finding any discrepancy
in the swap data would however prompt a reporting counterparty's
responsibility to correct all discrepancies in the swap data pursuant
to proposed Sec. 45.14(b).
The Commission emphasizes the importance of robust and thorough
verification processes under proposed Sec. 45.14(a). For clarity,
examples of unsatisfactory verification would include, but are not
limited to: (i) Failure to perform the verification in a timely manner
as required by proposed Sec. 45.14(a); and (ii) providing a
verification of data accuracy indicating that the swap data was
complete and accurate for swap data that was not correct when verified.
The Commission would consider any error or omission that reasonably
could have been discovered during the verification process to have been
discovered by the reporting counterparty, and therefore providing a
verification of data accuracy in response to an open swaps report that
contains an error or omission would not comply with the proposed
requirements. The Commission also notes that each incorrect
verification, including the failure to recognize the same error or
omission in swap data over time and allowing the error or omission to
persist over multiple open swaps reports and verifications, would also
not comply with the proposed requirements.
Finally, the Commission expects that a reporting counterparty
repeatedly discovering errors or omissions in the open swaps reports,
especially if there is a discernable pattern in the errors or
omissions, would prompt the reporting counterparty to evaluate its
reporting systems to discover any potential systemic errors or
omissions, including working with the SDR to improve its data
reporting, as needed. The Commission notes that a pattern of failures
may implicate other requirements for further action and disclosure of
non-compliance by registered entities, such as SDs, MSPs, SEFs, DCMs,
or DCOs.
2. Corrections of Errors and Omissions in Swap Data--Sec. 45.14(b)
The Commission is proposing amendments to the Sec. 45.14(b)
requirements for correcting errors and omissions in swap data that was
previously reported to an SDR or that was not reported as
required.\182\ These
[[Page 21069]]
error and omission correction requirements are effectively the same as
the correction requirement in current Sec. 45.14, but the Commission
is proposing to clarify which entities have the correction reporting
responsibilities.
---------------------------------------------------------------------------
\182\ The Commission notes that the failure to perform the
initial reporting of swap data as required under Sec. 45.3 is an
``omission'' for the purposes of current and proposed Sec. 45.14.
The omission must be corrected pursuant to the same requirements as
any other error or omission, regardless of the state of the swap, by
reporting the swap data as soon as technologically practicable after
discovery of the failure to report. This includes reporting the
omitted swap data to the SDR as required by the SDR for an initial
report of swap data.
---------------------------------------------------------------------------
Proposed Sec. 45.14(b)(1) would require any SEF, DCM, or reporting
counterparty that by any means becomes aware of any error or omission
in swap data previously reported to an SDR by the SEF, DCM, or
reporting counterparty to submit corrected swap data to the SDR.\183\
Proposed Sec. 45.14(b)(1) would also require any SEF, DCM, or
reporting counterparty that by any means becomes aware of any swap data
not reported to an SDR by the SEF, DCM, or reporting counterparty as
required to submit corrected swap data to the SDR.\184\ Awareness of
errors and omissions to be corrected would include, but would not be
limited to, errors or omissions present in the swap data in the open
swaps reports provided as part of the verification process specified in
proposed Sec. 45.14(a).\185\ The error and omission correction
requirements would apply regardless of the state of the swap, and
include the correction of swaps that are no longer open or ``alive.''
---------------------------------------------------------------------------
\183\ See 17 CFR 45.14(a) (Each registered entity and swap
counterparty required by this part to report swap data to a swap
data repository, to any other registered entity or swap
counterparty, or to the Commission shall report any errors and
omissions in the data so reported.).
\184\ The Commission notes that successful reporting of swap
data that was not previously reported as required would entail the
relevant SEF, DCM, or reporting counterparty completing the
reporting process for the omitted swap data as instructed in the
relevant SDR's policies and procedures for reporting omitted swap
data created pursuant to proposed Sec. 49.10(e).
\185\ This would include any open swaps that should be in the
open swaps report but were omitted or swaps that are no longer open
but still remain listed in the report, in addition to any errors or
omissions in the swap data contained in the report. The requirement
would also include, for example, a SEF, DCM, or reporting
counterparty being informed of errors or omissions by an outside
source, such as a non-reporting counterparty, a SEF or DCM, or the
Commission; errors or omissions discovered by a SEF, DCM, or
reporting counterparty during a review of its own records or
voluntary review of swap data maintained by the SDR, including the
discovery of any over- or under-reporting of swap data; and the
discovery of errors or omissions during the investigation of a
separate issue.
---------------------------------------------------------------------------
Proposed Sec. 45.14(b)(1)(i) would retain the current Sec.
45.14(a)(2) requirement that SEFs, DCMs, and reporting counterparties
correct swap data ``as soon as technologically practicable following
discovery of the errors or omissions,'' but would backstop ``as soon as
technologically practicable'' for corrections at three business days
after discovery of the error or omission.
Proposed Sec. 45.14(b)(1)(ii) would require that if a SEF, DCM, or
reporting counterparty is unable to correct errors or omissions within
three business days of discovery, the SEF, DCM, or reporting
counterparty must immediately inform the Director of DMO, or such other
Commission employees whom the Director of DMO may designate, in
writing, of the errors or omissions and provide an initial assessment
of the scope of the errors or omissions \186\ and an initial
remediation plan for correcting the errors or omissions.
---------------------------------------------------------------------------
\186\ The Commission anticipates that this would include the
causes of the errors or omissions, the number of swaps affected, the
USIs for the affected swaps, and the date range for the affected
swaps, among other information.
---------------------------------------------------------------------------
Proposed Sec. 45.14(b)(1)(iii) would require that a SEF, DCM, or
reporting counterparty conform to the SDR's policies and procedures for
corrections of errors and omissions that the SDRs would be required to
create under proposed Sec. 49.10.\187\ By following the relevant SDR's
policies and procedures for swap data correction, provided to users by
the SDRs pursuant to proposed Sec. 49.26(j), SEFs, DCMs, and reporting
counterparties would be able to correct swap data with as little effort
as necessary.
---------------------------------------------------------------------------
\187\ See section II.F above. The Commission expects that SEFs,
DCMs, reporting counterparties, and SDRs would work together to
devise effective correction policies, with particular attention paid
to minimizing the effort needed to correct swap data for non-SD/MSP/
DCO reporting counterparties.
---------------------------------------------------------------------------
Proposed Sec. 45.14(b)(2) would require a non-reporting
counterparty that by any means becomes aware of any error or omission
in swap data previously reported to an SDR, or the omission of swap
data for a swap that was not previously reported to an SDR as required,
to notify the reporting counterparty for the swap of the errors or
omissions as soon as technologically practicable following discovery of
the errors or omissions, but no later than three business days
following the discovery of the errors or omissions.
Proposed Sec. 45.14(b)(2) would also specify that a non-reporting
counterparty that does not know the identity of the reporting
counterparty for a swap must notify the SEF or DCM where the swap was
executed of the errors or omissions as soon as technologically
practicable following discovery of the errors or omissions, but no
later than three business days after the discovery. Proposed Sec.
45.14(b)(2) would also require that if the reporting counterparty, SEF,
or DCM, as applicable, and the non-reporting counterparty agree that
the swap data for a swap is incorrect or incomplete, the reporting
counterparty, SEF, or DCM, as applicable, must correct the swap data in
accordance with proposed Sec. 45.14(b)(1).\188\
---------------------------------------------------------------------------
\188\ This requirement is largely the same as the requirements
of current Sec. 45.14(b). See 17 CFR 45.14(b) (Upon receiving such
notice, the reporting counterparty shall report a correction of each
such error or omission to the swap data repository as provided in
paragraph (a) of this section.).
---------------------------------------------------------------------------
Current Sec. 45.14(a) generally requires that each registered
entity and swap counterparty required to report swap data must also
report any errors and omissions discovered in the swap data as soon as
technologically practicable after the errors or omissions are
discovered and contains specific instructions for reporting errors or
omissions in continuation data reported using the snapshot method.
Current Sec. 45.14(b) requires the non-reporting counterparty to
promptly notify the reporting counterparty of any errors or omissions
and requires the reporting counterparty to correct the errors or
omissions under the terms of current Sec. 45.14(a).
Current Sec. 45.14(c) requires: (i) Registered entities or swap
counterparties to report corrections in the same format as the original
reporting of the swap data, unless otherwise approved by the
Commission's Chief Information Officer (``CIO''); and (ii) the SDR to
transmit the corrections for errors and omissions in swap data in the
same format used to originally disseminate the swap data, unless
otherwise approved by the Commission's CIO.
The Commission is proposing to clarify that swap data must be
corrected ``regardless of the state of the swap that is the subject of
the swap data'' so market participants are aware that all incorrect or
omitted swap data must be corrected, even if the swap that the swap
data described has been terminated, matured, or otherwise ceased to be
an open swap. The Commission does not believe this is a new
requirement, as the current correction requirements of Sec. 45.14 do
not have time restrictions. Many of the Commission's regulatory
responsibilities involve using swap data for swaps that were executed
months or years earlier, including terminated, matured, or otherwise
no-longer-open swaps. Incorrect swap data for these swaps, or a lack of
any required reporting, would interfere with the Commission's ability
to generate holistic, accurate, data-driven policies, analyses, and
reports.
The requirement to correct all swap data, regardless of status,
also helps
[[Page 21070]]
ensure that SEFs, DCMs, and reporting counterparties would establish
and maintain properly functioning reporting systems to prevent
reporting errors or omissions, as correcting swap data for swaps,
including terminated swaps, would require effort that can be avoided by
initially reporting correct swap data. Proper and thorough system
design and testing during the implementation process for these proposed
rules would benefit market participants in the form of less time and
resources spent on later error and omission corrections. The Commission
expects that, as swap data reporting improves over time, the resources
needed to correct swap data would decrease.
As with the verification requirements discussed above, the
Commission also expects that a SEF, DCM, or reporting counterparty that
repeatedly discovers errors or omissions, especially repeated errors or
omissions that follow a pattern, such as the reporting for a certain
type of swap regularly resulting in errors, would evaluate its
reporting systems to discover and correct any issues. This would
include working with the relevant SDR to address any reporting issues.
A SEF, DCM, or reporting counterparty that fails to perform such an
evaluation and improvement in light of repeated errors may not be in
compliance with the Commission's regulations.
The Commission is aware that some errors or omissions may not be
able to be corrected within three business days of discovery, depending
on the gravity and complexity of the reporting problems. The Commission
believes having the SEF, DCM, or reporting counterparty notify the
Commission of such errors and omissions pursuant to proposed Sec.
45.14(b)(1)(ii), formulate a plan to correct the errors or omissions,
and perform the corrections as soon as possible would help alert the
Commission to swap data that is unreliable, particularly if it may be
unreliable for an extended period of time, and facilitates the fastest
correction of the swap data. The Commission also believes that the
requirements of proposed Sec. 45.14(b)(1)(ii) would incentivize SEFs,
DCMs, and reporting counterparties to fix reporting errors and
omissions as quickly as possible, and to invest the resources to
prevent reporting errors and omissions from occurring in the first
place. The Commission notes that these proposed requirements are
similar to current industry practice, as SEFs, DCMs, and reporting
counterparties regularly inform Commission staff of reporting errors or
omissions and work with Commission staff as they correct the errors and
omissions, which typically includes detailed remediation plans and
specific timelines for completion.
The Commission is retaining the requirement from current Sec.
45.14(b) that the non-reporting counterparty inform the reporting
counterparty of the errors or omissions, instead of the non-reporting
counterparty reporting the errors or omissions itself.\189\ The
Commission believes that it is not necessary for a non-reporting
counterparty to undertake reporting corrections to an SDR because the
non-reporting counterparty is often not a user of the SDR or any SDR,
and may never serve as a reporting counterparty for swaps. In contrast,
the reporting counterparties would already be users of the relevant
SDR, and would have continuation data reporting responsibilities for
the swap. The reporting counterparty is therefore the logical
counterparty to perform the error and omission corrections without the
need for the non-reporting counterparty to expend resources on error
and omission reporting.
---------------------------------------------------------------------------
\189\ See 17 CFR 45.14(b) (Each counterparty to a swap that is
not the reporting counterparty . . . and that discovers any error or
omission with respect to any swap data reported to a swap data
repository for that swap, shall promptly notify the reporting
counterparty of such error or omission.).
---------------------------------------------------------------------------
The Commission notes that the proposed requirement for the
reporting counterparty and non-reporting counterparty to agree that the
swap data is incorrect or incomplete before the reporting counterparty
must correct errors discovered by the non-reporting counterparty is
included in Sec. 45.14(b)(2) to reduce the likelihood of the reporting
of corrections when there is a legitimate dispute over whether swap
data contains an error or omission. Neither party may arbitrarily or
falsely withhold agreement that an error or omission exists,
particularly if a reporting counterparty is withholding agreement in
order to avoid its responsibility to correct errors or omissions. The
parties would be expected to resolve any dispute before the error or
omission is corrected.
Similarly, when the non-reporting counterparty does not know the
identity of the reporting counterparty and instead reports the errors
or omissions to the SEF or DCM, if the SEF or DCM and the non-reporting
counterparty agree that the relevant swap data is incorrect or
incomplete, then the SEF or DCM would correct the errors or omissions
in accordance with proposed Sec. 45.14(b)(2). Also, no SEF, DCM, or
non-reporting counterparty may arbitrarily or falsely withhold
agreement that an error or omission exists, particularly if the SEF or
DCM is withholding agreement to avoid its responsibility to correct
errors or omissions. The entities would be expected to resolve any
dispute with each other before the error or omission is corrected. The
Commission expects that a SEF of DCM, when necessary, would be capable
of contacting a reporting counterparty to confirm whether the error or
omission reported by the non-reporting counterparty exists without
revealing the identity of the non-reporting counterparty to the
reporting counterparty.
The Commission is also proposing to remove the Commission's ability
under current Sec. 45.14(c) to approve the use of different data
formats for corrections because the Commission does not believe that
the use of different data formats for corrections is necessary and
believes that the possibility adds uncertainty and potential delays to
the correction process. SEFs, DCMs, reporting counterparties, and SDRs
are all capable of reporting corrections using the same format as
initial swap data reporting and would all know the correct format in
advance of reporting under the requirements of proposed Sec. Sec.
49.17 \190\ and 49.26(j).\191\ Additionally, proposed Sec.
45.14(b)(1)(iii) would require SEFs, DCMs, and reporting counterparties
to report corrections of errors or omissions in conformity with the
SDR's policies and procedures for correcting errors and omissions
created pursuant to proposed Sec. 49.10, which would include how to
properly format swap data in order for the SDR to successfully complete
the correction process. The Commission believes that this approach
would be more flexible than the current requirements, as the SDRs would
be able to require a different format for reporting errors and
omissions without requiring approval from the Commission.
---------------------------------------------------------------------------
\190\ See section II.L above.
\191\ See section II.R above.
---------------------------------------------------------------------------
Finally, the current Sec. 45.14(c) requirement for an SDR to
transmit corrections to errors or omissions in swap data in the same
format as the SDR typically transmits swap data to the Commission would
be redundant, because the requirement does still effectively apply to
all SDRs under proposed Sec. 49.17, which requires SDRs to transmit
all SDR data requested by the Commission to the Commission as
instructed by the Commission.\192\
---------------------------------------------------------------------------
\192\ See section II.L above (describing the proposed
requirements for SDRs to transmit data to the Commission).
---------------------------------------------------------------------------
[[Page 21071]]
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 45.14. The Commission also invites specific comment
on the following:
(27) Should the Commission be more prescriptive in how reporting
counterparties must complete the verification process? If so, please
describe in detail.
IV. Proposed Amendments to Part 43
A. Sec. 43.3--Method and Timing for Real-Time Public Reporting
1. Correction of Errors and Omissions in Swap Transaction and Pricing
Data--Sec. 43.3(e)
The Commission is proposing to amend the error and omission
correction requirements for swap transaction and pricing data under
Sec. 43.3(e) to conform with the proposed amendments to Sec. 45.14(b)
for swap data discussed above in section III.B.
Proposed Sec. 43.3(e)(1) would require any SEF, DCM, or reporting
counterparty that by any means becomes aware of any errors or omissions
in swap transaction and pricing data previously reported to an SDR by
the SEF, DCM, or reporting counterparty to submit corrected swap
transaction and pricing data to the SDR. Proposed Sec. 43.3(e)(1)
would also require any SEF, DCM, or reporting counterparty that by any
means becomes aware of the omission \193\ of swap transaction and
pricing data previously not reported to an SDR by the SEF, DCM, or
reporting counterparty as required, to submit corrected swap
transaction and pricing data to the SDR.\194\ As with proposed Sec.
45.14(b), the error and omission correction requirements would apply
regardless of the state of the swap, and include the correction of
swaps that are no longer open or ``alive.'' \195\
---------------------------------------------------------------------------
\193\ The Commission notes that the failure to perform the
initial reporting of swap transaction and pricing data as required
under current and proposed Sec. 43.3 is an ``omission'' for the
purposes of both current and proposed Sec. 43.3(e). The omission
must be corrected pursuant to the same requirements as any other
error or omission, regardless of the state of the swap, by reporting
the swap transaction and pricing data as soon as technologically
practicable after discovery of the failure to report. This includes
reporting the omitted swap transaction and pricing data to the SDR
as required by the SDR for an initial report of swap transaction and
pricing data.
\194\ The Commission notes that successful reporting of swap
transaction and pricing data that was erroneously not previously
reported as required would entail the relevant SEF, DCM, or
reporting counterparty completing the reporting process for the
omitted swap data as instructed in the relevant SDR's policies and
procedures created pursuant to proposed Sec. 49.10(e).
\195\ This requirement is effectively the same as current Sec.
43.3(e)(1).
---------------------------------------------------------------------------
Proposed Sec. 43.3(e)(1)(i) would adopt the same timing
requirements as proposed Sec. 45.14(b)(1)(i) for SEFs, DCMs, and
reporting counterparties to correct swap transaction and pricing data
``as soon as technologically practicable following discovery of the
errors or omissions,'' with a three business day backstop following the
discovery of the errors or omissions.
Similar to proposed Sec. 45.14(b)(1)(ii), proposed Sec.
43.3(e)(1)(ii) would provide that if a SEF, DCM, or reporting
counterparty is unable to correct the errors or omissions within three
business days following discovery of the errors or omissions, the SEF,
DCM, or reporting counterparty must immediately inform the Director of
DMO, or such other employees of the Commission that the Director of DMO
may designate, in writing, of such errors or omissions and provide an
initial assessment of the scope of the errors or omissions \196\ and an
initial remediation plan for correcting the errors or omissions.\197\
---------------------------------------------------------------------------
\196\ The Commission anticipates that this would include the
causes of the errors or omissions, the number of swaps affected, the
USIs for the affected swaps, the date range for the affected swaps,
among other information.
\197\ The Commission needs to know as soon as possible if swap
transaction and pricing data is unreliable, particularly if for an
extended period of time, so that the Commission may alert the public
as needed.
---------------------------------------------------------------------------
Proposed Sec. 43.3(e)(1)(iii) would require that a SEF, DCM, or
reporting counterparty conform to an SDR's policies and procedures for
corrections of errors and omissions in previously reported swap
transaction and pricing data and reporting of omitted swap transaction
and pricing data that the SDRs would be required to create under
proposed Sec. 49.10.\198\ By following the relevant SDR's policies and
procedures for swap data correction, which would be provided to users
by the SDRs pursuant to proposed Sec. 49.26(j), the Commission expects
that SEFs, DCMs, or reporting counterparties would know how to correct
swap data before correction is required and would be able to properly
correct swap data with as little effort as necessary.\199\
---------------------------------------------------------------------------
\198\ See section II.F above.
\199\ The Commission expects that SEFs, DCMs, reporting
counterparties, and SDRs would work together to devise effective
correction policies, with particular attention paid to minimizing
the effort needed to correct swap data for non-SD/MSP/DCO reporting
counterparties.
---------------------------------------------------------------------------
Proposed Sec. 43.3(e)(2) would require a non-reporting
counterparty that by any means becomes aware of any error or omission
in swap transaction and pricing data previously reported to an SDR, or
the omission of swap transaction and pricing data for a swap that was
not previously reported to an SDR as required, to notify the reporting
counterparty for the swap of the errors and omissions as soon as
technologically practicable following discovery of the errors or
omissions, but no later than three business days following the
discovery of the errors or omissions.
Proposed Sec. 43.3(e)(2) would also specify that a non-reporting
counterparty that does not know the identity of the reporting
counterparty for a swap must notify the SEF or DCM where the swap was
executed of the errors and omissions as soon as technologically
practicable after discovery of the errors or omissions, but no later
than three business days after the discovery. Proposed Sec. 43.3(e)(2)
would also require that, if the reporting counterparty, SEF, or DCM, as
applicable, and the non-reporting counterparty agree that the swap
transaction and pricing data for a swap is incorrect or incomplete, the
reporting counterparty, SEF, or DCM, as applicable, must correct the
swap transaction and pricing data in accordance with proposed Sec.
43.3(e)(1).
The Commission believes that the amendments to Sec. 43.3(e) would
help ensure that errors or omissions in swap transaction and pricing
data are corrected as soon as possible. The proposed rule would also
clarify that swap transaction and pricing data must be corrected
regardless of the state of the swap that is the subject of the swap
transaction and pricing data to ensure that all incorrect or omitted
swap transaction and pricing data is corrected, even if the swap that
the swap transaction and pricing data relates to has been terminated,
matured, or otherwise ceased to be an open swap. This is not a new
requirement, as the current correction requirements in Sec. 43.3(e) do
not have time restrictions. The Commission also believes that proposed
Sec. 43.3(e) would help ensure that the public has access to the most
accurate and complete swap transaction and pricing data possible.
Incorrect swap transaction and pricing data harms market integrity and
price discovery, long after the swap has been executed.
The requirement to correct all swap transaction and pricing data,
regardless of status, also helps ensure that SEFs, DCMs, and reporting
counterparties would maintain properly functioning reporting systems to
prevent reporting errors or omissions, as correcting swap transaction
and pricing data for swaps, including terminated swaps, would require
effort that can be avoided by initially reporting correct swap
transaction and pricing data. Proper and
[[Page 21072]]
thorough system design and testing during the implementation process
for these proposed regulations would benefit market participants in the
form of less time and resources spent on error corrections in the
future. The Commission expects that, as data reporting improves over
time, the resources needed to correct swaps, including swaps that are
no longer open, would diminish.
The Commission also notes that the discovery of errors under
proposed Sec. 43.3(e)(1) includes any errors or omissions revealed
when reporting counterparties are reconciling swap data during the
verification process required under proposed Sec. 45.14(a) that would
also be errors or omissions in swap transaction and pricing data. The
means of discovery are unlimited, however, and would also include, for
example, a SEF, DCM, or reporting counterparty being informed of errors
or omissions by an outside source, such as a non-reporting
counterparty, an exchange, or the Commission; errors or omissions
discovered by a SEF, DCM, or reporting counterparty during a review of
its own records or voluntary review of swap transaction and pricing
data maintained by the SDR, including the discovery of any over- or
under-reporting of swap transaction and pricing data; and the of
discovery of errors or omissions during the investigation of a separate
issue.
The Commission expects that a SEF, DCM, or reporting counterparty
that repeatedly discovers errors or omissions, especially repeated
errors or omissions that follow a pattern, such as the reporting for a
certain type of swap regularly resulting in errors, would evaluate its
reporting systems to attempt to find and promptly correct any issues
discovered. This would include working with the relevant SDR to address
any reporting issues. A SEF, DCM, or reporting counterparty that fails
to perform such an evaluation and improvement in light of repeated
errors may not be in compliance with the Commission's regulations.
The Commission is aware that some errors and omissions may not be
able to be corrected within three business days of discovery. The
Commission believes having the SEF, DCM, or reporting counterparty
notify the Commission of such errors and omissions pursuant to proposed
Sec. 43.3(e)(1)(ii), formulate a plan to correct the errors and
omissions, and to perform the corrections as soon as possible would
help alert the Commission to swap transaction and pricing data that is
unreliable, particularly if it may be unreliable for an extended period
of time, and facilitates the fastest correction of swap transaction and
pricing data. The Commission also believes that proposed Sec.
43.3(e)(1)(ii) would incentivize SEFs, DCMs, and reporting
counterparties to fix reporting errors and omissions as quickly as
possible. The Commission notes that these proposed requirements are
consistent with industry practice, as SEFs, DCMs, and reporting
counterparties regularly inform Commission staff of reporting errors or
omissions and work with Commission staff as they correct the errors and
omissions, which typically includes remediation plans and timelines for
completion.
The Commission is proposing to require, as with proposed Sec.
45.14(b)(2), that the non-reporting counterparty inform the reporting
counterparty of the errors or omissions. The Commission believes that
it is not necessary for a non-reporting counterparty to undertake the
burden of reporting corrections to an SDR because the non-reporting
counterparty is often not a user of the SDR, and may never serve as a
reporting counterparty for any swaps. In contrast, reporting
counterparties would already by definition be users of the relevant
SDR, and would have continuation data reporting responsibilities for
the swap. The reporting counterparty is therefore the logical
counterparty to perform the error and omission corrections without the
need for the non-reporting counterparty to use additional resources on
error and omission reporting.
The Commission notes that the proposed requirement for the
reporting counterparty and non-reporting counterparty to agree that the
swap transaction and pricing data is incorrect or incomplete before the
reporting counterparty must correct errors discovered by the non-
reporting counterparty is included to avoid the reporting of
corrections when there is a legitimate dispute over whether the swap
transaction and pricing data contains an error or omission. Neither
party may arbitrarily or falsely withhold agreement that an error or
omission exists, particularly if a reporting counterparty is
withholding agreement in order to avoid its responsibility to correct
errors or omissions. The parties would be expected to resolve any
dispute with each other before the error or omission is corrected.
Similarly, in the instance where the non-reporting counterparty
does not know the identity of the reporting counterparty and instead
reports the errors or omissions to the SEF or DCM, if the SEF or DCM
and the non-reporting counterparty agree that the relevant swap
transaction and pricing data is incorrect or incomplete, then the SEF
or DCM must correct the errors or omissions in accordance with proposed
Sec. 43.3(e)(1). No SEF, DCM, or non-reporting counterparty may
arbitrarily or falsely withhold agreement that an error or omission
exists, particularly if the SEF or DCM is withholding agreement to
avoid its responsibility to correct errors or omissions. The entities
would be expected to resolve any dispute with each other before the
error or omissions is corrected. The Commission expects that a SEF or
DCM, when necessary, would be capable of contacting a reporting
counterparty to confirm whether the error or omission reported by the
non-reporting counterparty exists without revealing the identity of the
non-reporting counterparty to the reporting counterparty.
2. Proposed Deletions--Sec. 43.3(f) and (g)
The Commission is proposing to delete current Sec. 43.3(f) and
(g). The Commission is proposing to include the operating hours
requirements for SDRs in new Sec. 49.28,\200\ which includes
incorporating the requirements of current Sec. 43.3(f) and (g).
Current Sec. 43.3(f) contains the hours of operations requirements
\201\ and current Sec. 43.3(g) contains the requirements for SDRs to
accept swap transaction and pricing data during closing hours.\202\
---------------------------------------------------------------------------
\200\ See section II.S above.
\201\ See 17 CFR 43.3(f).
\202\ See 17 CFR 43.3(g).
---------------------------------------------------------------------------
Keeping the paragraphs in part 43 could also cause confusion as to
the requirements that apply to SDRs, because proposed Sec. 49.28 would
apply to all SDR data and also incorporates provisions from SBSDR
operating hours requirements. The Commission notes that most of the
requirements contained in current Sec. 43.3(f) and (g) would continue
to apply to SDRs, because the requirements are included in proposed
Sec. 49.28.
Request for Comment. The Commission requests comment on all aspects
of proposed Sec. 43.3.
V. Proposed Amendments to Part 23
A. Sec. 23.204--Reports to Swap Data Repositories
Proposed Sec. 23.204(c) would require each SD and MSP to
establish, maintain, and enforce written policies and procedures that
are reasonably designed to ensure that the SD or MSP complies with all
obligations to report swap data to an SDR consistent with part 45.
Proposed Sec. 23.204(c) also would require an SD or MSP to review its
policies and procedures on an annual basis and to update its policies
and procedures as
[[Page 21073]]
needed to reflect the requirements in part 45.
As part of the SD/MSP requirements set forth in part 23 of the
Commission's regulations, the Commission currently requires SDs/MSPs to
report all information and swap data required for swap transactions as
set forth in part 45.\203\ The Commission also currently requires that
SDs/MSPs have in place the electronic systems and procedures necessary
to transmit electronically all information and swap data required to be
reported in accordance with part 45.\204\
---------------------------------------------------------------------------
\203\ See 17 CFR 23.204(a).
\204\ See 17 CFR 23.204(b).
---------------------------------------------------------------------------
The Commission notes that, pursuant to other Commission
regulations, SDs and MSPs are already expected to establish policies
and procedures related to their swap market activities, including but
not limited to, swaps reporting obligations.\205\ The proposed
amendments would make that expectation explicit with respect to swap
data reporting obligations.
---------------------------------------------------------------------------
\205\ See, e.g., 17 CFR 3.3(d)(1)(requiring a chief compliance
officer to administer each of the registrant's policies and
procedures relating to its business as an SD/MSP that are required
to be establish pursuant to the Act and the Commission's
regulations); 17 CFR 3.2(c)(3)(ii) (requiring the National Futures
Association to assess whether an entity's SD/MSP documentation
demonstrates compliance with the Section 4s Implementing Regulation
to which it pertains which includes Sec. 23.204 and Sec. 23.205).
---------------------------------------------------------------------------
The Commission believes that the annual review requirement in
proposed Sec. 23.204(c) would help ensure that SD/MSP policies and
procedures remain current and effective over time. The proposal is also
substantially similar to the requirements that the SEC has enacted for
SBSDs and SBS MSPs.\206\
---------------------------------------------------------------------------
\206\ See SBSDR Adopting Release at 14647-14648; see also 17 CFR
242.906(c).
---------------------------------------------------------------------------
As part of the goal to increase the reliability, accuracy, and
completeness of SDR data reported to and maintained by SDRs, the
Commission believes that it is important to make clear the
responsibilities of SDs and MSPs to ensure proper reporting of swaps
for which they act as reporting counterparties. Accordingly, the
Commission proposes that SDs/MSPs that report to an SDR should be
explicitly required to adopt policies and procedures reasonably
designed to ensure compliance with their reporting obligations under
parts 43 and 45.\207\
---------------------------------------------------------------------------
\207\ The amendments for part 43 reporting are discussed below
in section IV.A.
---------------------------------------------------------------------------
The policies and procedures required by proposed Sec. 23.204(c)
should address how the SD or MSP would comply with the requirements of
part 45, including, but not necessarily limited to: (i) The reporting
process and designation of responsibility for reporting swap data; (ii)
reporting system outages or malfunctions, and when and how back-up
systems are to be used in connection with required reporting; (iii)
verification of all swap data reported to an SDR pursuant to proposed
Sec. 45.14(a) and in accordance with the policies and procedures of
such SDR established under proposed Sec. 49.11; (iv) a training
program for employees responsible for swap data reporting; (v) control
procedures relating to swap data reporting and designation of personnel
responsible for testing and verifying such policies and procedures; and
(vi) reviewing and assessing the performance and operational capability
of any third party that carries out any duty required by part 45 on
behalf of the SD or MSP.
These issues are also generally the issues that the SEC
contemplated being addressed by SBSDs and SBS MSPs in their policies
and procedures adopted pursuant to the SBSR Adopting Release.\208\ In
conjunction with ``know your counterparty'' obligations under current
Sec. 23.402(b), such policies should also ensure that the SD/MSP would
have all necessary counterparty information, including, but not limited
to, legal entity identifier (``LEI'') or acceptable counterparty
identifier, U.S. Person status, and SD/MSP status, to accurately report
all swap data required by part 45 for swaps for which the SD/MSP has
reporting obligations.
---------------------------------------------------------------------------
\208\ See SBSDR Adopting Release at 14648; see also 17 CFR
242.906(c).
---------------------------------------------------------------------------
B. Sec. 23.205--Real-Time Public Reporting
Similar to the requirements of proposed Sec. 23.204(c) discussed
above in section V.A, the Commission is proposing Sec. 23.205(c),
which would require SDs and MSPs to establish, maintain, and enforce
written policies and procedures that are reasonably designed to ensure
that the SD or MSP complies with any obligations to report swap
transaction and pricing data to an SDR consistent with part 43 of the
Commission's regulations. As with swap data under Sec. 23.204(c),
proposed Sec. 23.205(c) is intended to promote complete and accurate
reporting of swap transaction and pricing data by SDs and MSPs,
consistent with their obligations under part 43 and the CEA.\209\ The
Commission believes that the addition of this proposed requirement
would help to improve the extent and quality of overall compliance with
the reporting requirements of part 43. Similar to proposed Sec.
23.204(c), proposed Sec. 23.205(c) would require an SD or MSP to
review its policies and procedures on an annual basis and to update its
policies and procedures as needed to reflect the requirements of part
43. The periodic review requirement would help ensure that these
policies and procedures remain current and effective over time. The
proposal is also substantially similar to the requirements that the SEC
has enacted for SBSDs and SBS MSPs.\210\
---------------------------------------------------------------------------
\209\ Section 2(a)(13) of the CEA directs the Commission to
adopt regulations for the public availability of swap transaction
and pricing data. See 7 U.S.C. 2(a)(13).
\210\ See SBSDR Adopting Release at 14647-14648.
---------------------------------------------------------------------------
The SD/MSP recordkeeping and reporting requirements in part 23 also
currently require SDs/MSPs to report all information and swap
transaction and pricing data required in accordance with the real-time
public reporting requirements as set forth in part 43.\211\ The
Commission also requires that SDs/MSPs have in place the electronic
systems and procedures necessary to transmit electronically all
information and swap transaction and pricing data required to be
reported in accordance with part 43.\212\
---------------------------------------------------------------------------
\211\ See 17 CFR 23.205(a).
\212\ See 17 CFR 23.205(b).
---------------------------------------------------------------------------
The policies and procedures required by proposed Sec. 23.205(c)
should address how the SD or MSP will comply with the requirements of
part 43, including, but not necessarily limited to: (i) The reporting
process and designation of responsibility for reporting swap
transaction and pricing data; (ii) reporting system outages or
malfunctions, and when and how back-up systems are to be used in
connection with required reporting; (iii) a training program for
employees responsible for real-time reporting; (iv) control procedures
relating to real-time reporting and designation of personnel
responsible for testing and verifying such policies and procedures; (v)
reviewing and assessing the performance and operational capability of
any third party that carries out any duty required by part 43 of the
Commission's regulations on behalf of the SD or MSP; and (vi) the
determination of whether a new swap transaction or amendment,
cancelation, novation, termination, or other lifecycle event of an
existing swap, is subject to the real time reporting requirements of
part 43. These issues are a subset of the general issues that the SEC
contemplated being addressed by SBSDs and SBS MSPs in their policies
and procedures adopted pursuant to the SBSR Adopting Release.\213\
---------------------------------------------------------------------------
\213\ See SBSDR Adopting Release at 14648.
---------------------------------------------------------------------------
Request for Comment. The Commission requests comment on all
[[Page 21074]]
aspects of proposed Sec. Sec. 23.204(c) and 23.205(c). The Commission
also invites specific comment on the following:
(28) Should proposed Sec. 23.204(c) and Sec. 23.205(c) specify
the elements to be included in the required policies and procedures? If
so, what specific elements should be included in the proposed
regulation, and why? Please be specific.
VI. Request for 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. The Commission also invites comments on the
following:
(29) Please describe the nature of any changes necessary, i.e.,
operational, technological, administrative, etc., for SDRs, other
registered entities, and swap counterparties to comply with the
regulations proposed in this release, including the length of time
needed to implement each type of change, whether a phase-in period is
needed, and how any phase in of any final rules should be structured.
Please describe how any changes to systems made by one type of entity,
such as the SDRs, would require changes to systems by other entities
within the swaps reporting environment, and what sequencing of changes
would need to occur.
(30) Would the proposed amendments and additions to parts 23, 43,
45, and 49 adequately improve the data quality and accuracy of reported
SDR data maintained by SDRs? If not, please explain.
(31) Are additional changes necessary to parts 23, 43, 45, and 49
(or other parts of the regulations) to ensure the quality of reported
SDR data held and maintained by SDRs? If so, please explain.
VII. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires federal agencies,
in promulgating rules, to consider the impact of those rules on small
entities.\214\ The Commission has previously established certain
definitions of ``small entities'' to be used by the Commission in
evaluating the impact of its rules on small entities in accordance with
the RFA.\215\ The amendments to part 49 proposed herein would have a
direct effect on the operations of SDRs. The Commission has previously
certified that SDRs are not small entities for purpose of the RFA.\216\
Proposed Sec. Sec. 23.204(c) and 23.205(c), which require SDs and MSPs
to have policies and procedures to ensure compliance with requirements
of parts 45 and 43, respectively, would have a direct impact on the
operation of SDs and MSPs. The Commission has previously certified that
SDs and MSPs are also not small entities for purpose of the RFA.\217\
---------------------------------------------------------------------------
\214\ See 5 U.S.C. 601 et seq.
\215\ See Policy Statement and Establishment of ``Small
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR
18618, 18618-21 (Apr. 30, 1982).
\216\ See Swap Data Repositories, Proposed Rule, 75 FR 80898,
80926 (Dec. 23, 2010) (basing determination in part on the central
role of SDRs in swaps reporting regime, and on the financial
resource obligations imposed on SDRs).
\217\ See Swap Dealer and Major Swap Participant Recordkeeping,
Reporting, and Duties Rules, Final Rule, 77 FR 20128, 20194 (Apr. 3,
2012) (basing determination in part on minimum capital
requirements).
---------------------------------------------------------------------------
Proposed Sec. 45.14(a), which requires all reporting
counterparties to verify the accuracy of swap data with the SDR, would
have a direct impact on all reporting counterparties. These reporting
counterparties may include SDs, MSPs, DCOs,\218\ and non-SD/MSP/DCO
counterparties. Regarding whether non-SD/MSP/DCO reporting
counterparties are small entities for RFA purposes, the Commission
notes that section 2(e) of the Act prohibits entities from entering
into swaps unless the entity qualifies as an eligible contract
participant (``ECP''), except for swaps executed on or pursuant to the
rules of a DCM.\219\ The Commission has previously certified that ECPs
are not small entities for purposes of the RFA.\220\ The vast majority
of swap are not conducted on DCMs, and therefore must involve ECPs. A
recent Commission staff review of swap data, including swaps executed
on or pursuant to the rules of a DCM, identified nearly 1,600 non-SD/
MSP/DCO reporting counterparties. Based on its review of publicly
available data, the Commission believes that the overwhelming majority
of these non-SD/MSP/DCO reporting counterparties are either ECPs or do
not meet the definition of ``small entity'' established in the RFA.
Accordingly, the Commission does not believe the proposed rule would
affect a substantial number of small entities.
---------------------------------------------------------------------------
\218\ The Commission has previously certified that DCOs are not
small entities for purposes of the RFA. See Derivatives Clearing
Organization General Provisions and Core Principles, Final Rule, 76
FR 69334, 69428 (Nov. 8, 2011).
\219\ See 7 U.S.C. 2(e).
\220\ See Opting Out of Segregation, Final Rule, 66 FR 20740,
20743 (Apr. 25, 2001). The Commission also notes that this
determination was based on the definition of ECP as provided in the
Commodity Futures Modernization Act of 2000. The Dodd-Frank Act
amended the definition of ECP as to the threshold for individuals to
qualify as ECPs, changing an individual who has total assets in an
amount in excess of to an individual who has amounts invested on a
discretionary basis, the aggregate of which is in excess of.
Therefore, the threshold for ECP status is currently higher than was
in place when the Commission certified that ECPs are not small
entities for RFA purposes, meaning that there are likely fewer
entities that could qualify as ECPs than when the Commission first
made the determination.
---------------------------------------------------------------------------
Therefore, the Chairman, on behalf of the Commission, pursuant to 5
U.S.C. 605(b), hereby certifies that the proposed rules will not have a
significant economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \221\ imposes certain
requirements on federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. This proposed rulemaking would
result in the collection of information within the meaning of the PRA,
as discussed below. The proposed rulemaking contains collections of
information for which the Commission has previously received three
control numbers from OMB: (1) OMB Control Number 3038-0096 (relating to
swap data recordkeeping and reporting by market participants); (2) OMB
Control Number 3038-0070 (relating to real-time swap transaction and
pricing data); and (3) OMB Control Number 3038-0086 (relating to
obligations of SDRs).
---------------------------------------------------------------------------
\221\ See 44 U.S.C. 3501.
---------------------------------------------------------------------------
The Commission is proposing to amend information collections 3038-
0096, 3038-0070, and 3038-0086 to accommodate new information
collection requirements for swap market participants and SDRs that
require approval from OMB under the PRA. The following amendments to
the obligations of market participants and SDRs are expected to modify
the existing annual burden for complying with the requirements of parts
43, 45, and 49.
The proposed amendments to Sec. 45.2 would move the requirements
of paragraphs (f) and (g) to proposed Sec. 49.12, in order to better
organize regulations related to SDRs. The proposed amendments to Sec.
45.14 would require reporting counterparties to verify swap data
reported to an SDR pursuant to the policies and procedures established
by that SDR and would require SEFs, DCMs, and reporting counterparties
to provide additional information to the Commission regarding
correction of errors and
[[Page 21075]]
omissions in swap data in certain circumstances. The proposed
amendments to Sec. 43.3 would require SEFs, DCMs, and reporting
counterparties to provide additional information to the Commission
regarding correction of errors and omissions in swap transaction and
pricing data in certain circumstances and would move the requirements
of paragraphs (f) and (g) to proposed Sec. 49.28. The proposed
amendments to part 49 would require SDRs to: (i) Continue to amend Form
SDR as required, but remove the annual amendment requirement and limit
the amendment requirement to before an application for registration is
granted, as set forth in proposed Sec. 49.3(a)(5); (ii) provide
notifications and certifications to the Commission related to equity
interest transfers, as set forth in proposed Sec. 49.5; (iii) request
transfer of registration, as set forth in proposed Sec. 49.6; (iv)
provide open swaps reports to the Commission, as set forth in proposed
Sec. 49.9; (v) correct errors and omissions in SDR data and create
policies and procedures to accomplish the corrections, as set forth in
proposed Sec. 49.10(e); (vi) compile and distribute to each applicable
reporting counterparty an open swaps report and to receive a response
to each open swaps report, as set forth in proposed Sec. 49.11; (vii)
establish automated systems for monitoring, screening, and analyzing
all SDR data in their possession in the form and manner as may be
directed by the Commission under proposed Sec. 49.13(a); (viii)
provide SDR users and potential users with SDR policies and procedures
related to reporting SDR data, as provided in proposed Sec. 49.26(j);
(ix) operate continuously, except for normal closing hours and special
closing hours, as provided in proposed Sec. 49.28; and (x) provide the
Commission with information related to their business as an SDR and
such information as the Commission determines to be necessary to
perform its duties under the CEA and Commission regulations and provide
the Commission with information and/or SDR data as requested to
demonstrate SDR compliance with the CEA and Commission regulations, as
set forth in proposed Sec. 49.29.
The Commission therefore is submitting this proposal to the Office
of Management and Budget (``OMB'') for its review in accordance with 44
U.S.C. 3507(d) and 5 CFR 1320.11. Responses to this collection of
information would be mandatory. The Commission will protect proprietary
information according to the Freedom of Information Act (``FOIA'') and
17 CFR 145, ``Commission Records and Information.'' In addition,
section 8(a)(1) of the CEA 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.\222\ The Commission is also required to protect certain
information contained in a government system of records according to
the Privacy Act of 1974.\223\
---------------------------------------------------------------------------
\222\ 7 U.S.C. 12.
\223\ 5 U.S.C. 552a.
---------------------------------------------------------------------------
1. Revisions to Collection 3038-0096 (Swap Data Reporting)
i. Amended Sec. 45.2
The Commission is proposing to remove paragraphs (f) and (g) from
Sec. 45.2 in order to move the requirements of these paragraphs to
proposed Sec. 49.12. Paragraphs (f) and (g) contain recordkeeping
requirements specific to SDRs. Current Sec. 49.12 already incorporates
the requirements of current Sec. 45.2(f) and (g), and proposed Sec.
49.12 would include the same requirements, but this proposed deletion
and move is intended to better organize regulations for SDRs by
locating as many SDR requirements as possible in part 49 of the
Commission's regulations. Moving the requirements would however modify
collection 3038-0096 because it would remove these recordkeeping
requirements from part 45 of the Commission's regulations. As a result,
the Commission estimates that moving these requirements would result in
a reduction of 50 annual burden hours for each SDR in collection 3038-
0096, for a total reduction of 150 annual burden hours across all three
SDRs.
ii. Amended Sec. 45.14
Proposed Sec. 45.14(a) would require all reporting counterparties
to verify the accuracy and completeness of all swap data for all open
swaps to which they are the reporting counterparty. Reporting
counterparties would comply with this provision by conforming to the
verification policies and procedures of the relevant SDR(s) established
pursuant to proposed Sec. 49.11(a), including receiving and responding
to the open swaps reports provided by the SDR(s). Section 21(c)(2)
\224\ of the Act requires SDRs to confirm the accuracy of reported swap
data with the counterparties to the swap. Compliance with proposed
Sec. 45.14(a) would constitute a collection of information not
currently included in collection 3038-0096, and therefore would require
a revision of that collection.
---------------------------------------------------------------------------
\224\ 7 U.S.C. 24a(c)(2).
---------------------------------------------------------------------------
Compliance with proposed Sec. 45.14(a) would be based on
compliance with SDR verification policies and procedures, but would
require reporting counterparties to receive and respond to open swaps
reports on a weekly or monthly basis, depending on the registration
status of the reporting counterparty. The Commission expects that
compliance with this section would include: (1) A one-time hours burden
to establish internal systems needed to perform their verification
responsibilities, and (2) an ongoing hours burden to complete the
verification process for each report provided by an SDR.
In order to comply with the relevant SDR verification policies and
procedures as required to complete the verification process, the
Commission believes that reporting counterparties would be required to
create their own verification systems or modify their existing
connections to the SDRs. The Commission estimates that each reporting
counterparty would incur an initial, one-time burden of 100 hours to
build, test, and implement their verification systems based on SDR
instructions. This burden may be reduced, if complying with SDR
verification requirements only requires reporting counterparties to
make small modifications to their existing SDR reporting systems, but
the Commission is estimating the burden based on the creation of a new
system. The Commission also estimates an ongoing annual burden of 10
hours per reporting counterparty to maintain their verification systems
and to make any needed updates to verification systems to conform to
any changes to SDR verification policies and procedures. As there are
approximately 1,702 reporting counterparties based on data available to
the Commission, the Commission estimates a one-time overall hours
burden of 170,200 hours to build reporting counterparty verification
systems and an ongoing annual overall hours burden of 17,020 hours to
maintain the reporting counterparty verification systems.
Proposed Sec. 45.14(a) would also require reporting counterparties
to reconcile the swap data in their internal books and records with the
swap data in each open swaps report provided by an SDR and to respond
to each open swaps report with a verification of data accuracy or a
notice of discrepancy, as instructed by the relevant SDR verification
policies and procedures. For SD, MSP, or DCO reporting counterparties,
data verification would
[[Page 21076]]
be at most a weekly occurrence for each SDR where the reporting
counterparty maintains any open swaps. For non-SD/MSP/DCO reporting
counterparties, data verification would be at most a monthly occurrence
for each SDR where the reporting counterparty maintains any opens
swaps. The Commission also expects, based on discussions with SDRs and
reporting counterparties, that the verification process will be largely
automated for all parties involved. The Commission is therefore
estimating an ongoing average burden of two hours per open swaps report
per reporting counterparty.
As there are 117 SDs, MSPs, or DCOs that clear swaps registered
with the Commission, the Commission estimates\225\ that these 117
reporting counterparties would, at maximum, be required to verify data
52 times per year, for an overall additional annual hours burden of
12,168 ongoing burden hours related to the verification process for
these reporting counterparties. The Commission also estimates, based on
data available to the Commission, that there are 1,585 non-SD/MSP/DCO
reporting counterparties.\226\ The Commission estimates that these
1,585 reporting counterparties would be required to, at maximum, verify
data 12 times per year, for an overall additional annual hours burden
of 38,040 burden hours related to verification process for these
reporting counterparties.
---------------------------------------------------------------------------
\225\ Though there are 117 SDs, MSPs, or DCOs that clear swaps
registered with the Commission that could be a reporting
counterparty, not all potential reporting counterparties would be
performing data verification for any given verification cycle. Only
those reporting counterparties with open swaps as of the moment the
SDRs create the open swaps reports would perform data verification
for that verification cycle.
\226\ Though there are 1,585 non-SD/MSP/DCOs that could be a
reporting counterparty, not all potential reporting counterparties
would be performing data verification for any given verification
cycle. Only those reporting counterparties with open swaps as of the
moment the SDRs create the open swaps reports would perform data
verification for that verification cycle.
---------------------------------------------------------------------------
Proposed Sec. 45.14(b) would, similar to current Sec. 45.14,
require SEFs, DCMs, and reporting counterparties to correct errors and
omissions in swap data previously reported to an SDR, or erroneously
not reported to an SDR as required, as soon as technologically
practicable after discovery of the errors or omissions. Proposed Sec.
45.14(b) would also require a non-reporting counterparty to report a
discovered error or omission to the relevant SEF, DCM, or reporting
counterparty as soon as technologically practicable after discovery of
the error or omission.\227\ These proposed requirements, being
effectively the same as the requirements in current Sec. 45.14, do not
require amendments to the collection.
---------------------------------------------------------------------------
\227\ The Commission notes that proposed Sec. 45.14(b)(2) does
add provisions that are not present in current Sec. 45.14(b) to
address the situation where a non-reporting counterparty does not
know the identity of the reporting counterparty. The Commission does
not believe that these additions have PRA implications, as the
amount of information the non-reporting counterparty must provide
and the frequency with which it must be provided remain the same and
are de minimis. The only change is the requirement that non-
reporting counterparties inform the SEF or DCM of errors, instead of
the reporting counterparty. SEFs and DCMs have correction
responsibilities under current Sec. 45.14(b) and proposed Sec.
45.14(b)(2) does not change these responsibilities.
---------------------------------------------------------------------------
Proposed Sec. 45.14(b)(1)(ii) does, however, include the new
requirement for SEFs, DCMs, and reporting counterparties to notify the
Director of DMO when errors or omissions cannot be corrected within
three business days and, in such case, to provide the Director of DMO
with an initial assessment of the errors and omissions and an initial
remediation plan. This requirement would constitute a new collection of
information. The Commission estimates that each SEF, DCM, and reporting
counterparty would, on average need to provide notice and initial
assessments to the Commission under proposed Sec. 45.14(b)(1)(ii) once
per year and that each instance would require 30 burden hours.\228\ As
there are approximately 1,729 SEFs, DCMs, and reporting counterparties
that handle swaps, the Commission estimates an overall additional
annual hours burden of 51,870 hours related to this requirement. This
estimate is based on the Commission's experience with the current
practices of SEFs, DCMs, and reporting counterparties regarding the
reporting of errors and omissions, including the initial assessments
and remediation plans that SEFs, DCMs, and reporting counterparties
provide to the Commission under current practice. The Commission does
not anticipate any one-time, initial burdens related to proposed Sec.
45.14(b)(1)(ii).
---------------------------------------------------------------------------
\228\ The Commission notes that, currently, it receives
significantly less than one notice and initial assessment of
reporting errors and omissions per SEF, DCM, or reporting
counterparty per year, but is estimating one notice and initial
assessment here, as the proposed requirements of Sec. 45.14(a) may
reveal more reporting errors to reporting counterparties that would
then prompt corrections pursuant to proposed Sec. 45.14(b).
---------------------------------------------------------------------------
The Commission therefore estimates that the overall burden for
updated Information Collection 3038-0096 will be as follows:
Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs,
SDRs, and reporting counterparties.
Estimated annual number of responses per respondent: 257,595.
Estimated total annual responses: 446,154,518.
Estimated burden hours per response: 0.005.
Estimated total annual burden hours per respondent: 1,316.
Estimated aggregate total burden hours for all respondents:
2,279,202.
2. Revisions to Collection 3038-0070 (Real-Time Transaction
Reporting)--Amended Sec. 43.3
Proposed Sec. 43.3(e) would, as with swap data under proposed
Sec. 45.14(b), require SEFs, DCMs, and reporting counterparties to
correct errors and omissions in swap transaction and pricing data
previous reported to an SDR or erroneously not reported to an SDR as
soon as technologically practicable after discovery of the errors or
omissions. Proposed Sec. 43.3(e) would also require a non-reporting
counterparty to report a discovered error or omission to the relevant
SEF, DCM, or reporting counterparty as soon as technologically
practicable after discovery of the error or omission. These proposed
requirements are intend to match the requirements in proposed Sec.
45.14(b), but are also effectively the same as the requirements of
current Sec. 43.3(e).\229\ These proposed requirements therefore do
not require amendments to the collection.
---------------------------------------------------------------------------
\229\ The Commission notes that proposed Sec. 43.3(e)(2) does
add provisions that are not present in current Sec. 43.3(e)(1) to
address the situation where a non-reporting counterparty does not
know the identity of the reporting counterparty. The Commission does
not believe that these additions have PRA implications, as the
amount of information the non-reporting counterparty must provide
and the frequency with which it must be provided remain the same as
the current requirement and are de minimis. The only change is the
requirement that non-reporting counterparties inform the SEF or DCM
of errors, instead of the reporting counterparty. SEFs and DCMs have
correction responsibilities under current Sec. 43.3(e)(1) and
proposed Sec. 43.3(e)(2) does not change these responsibilities.
---------------------------------------------------------------------------
Proposed Sec. 43.3(e)(1)(ii) does, however, include the new
requirement for SEFs, DCMs, and reporting counterparties to notify the
Director of DMO when errors or omissions cannot be corrected within
three business days and, in such case, to provide the Director of DMO
with an initial assessment of the errors and omissions and an initial
remediation plan. This requirement would constitute a new collection of
information. The Commission estimates that each SEF, DCM, and reporting
counterparty would, on average need to provide notice and initial
assessments to the Commission under proposed
[[Page 21077]]
Sec. 43.3(e)(1)(ii) once per year and that each instance would require
30 burden hours.\230\ As there are approximately 1,729 SEFs, DCMs, and
reporting counterparties that handle swaps, the Commission estimates an
overall additional annual hours burden of 51,870 hours related to this
requirement. This estimate is based on the Commission's experience with
SEFs, DCMs, and reporting counterparties current practices regarding
the reporting of errors and omissions, including the initial
assessments and remediation plans that SEFs, DCMs, and reporting
counterparties provide to the Commission under current practice. The
Commission does not anticipate any one-time, initial burdens related to
proposed Sec. 43.3(e)(1)(ii).
---------------------------------------------------------------------------
\230\ The Commission notes that, currently, it receives
significantly less than one notice and initial assessment of
reporting errors and omissions per SEF, DCM, or reporting
counterparty per year, but is conservatively estimating one notice
and initial assessment annually here, as the proposed requirements
of Sec. 45.14(a) may reveal more reporting errors to reporting
counterparties that would then prompt corrections pursuant to
proposed Sec. 43.3(e).
---------------------------------------------------------------------------
The Commission is also proposing to remove paragraphs (f) and (g)
from Sec. 43.3 in order to move the requirements of these paragraphs
to proposed Sec. 49.28. Paragraphs (f) and (g) contain requirements
for SDRs related to their operating hours. Proposed Sec. 49.28 would
include all of the current Sec. 43.3(f) and (g) requirements, because
this proposed deletion and move is intended to better organize
regulations for SDRs by locating as many SDR requirements as possible
in part 49 of the Commission's regulations. Moving the requirements
would modify collections 3038-0070 and 3038-0086 because it will remove
these recordkeeping requirements from part 43 of the Commission's
regulations and add them to part 49 of the Commission's regulations.
The Commission estimates that the public notice requirements of Sec.
43.3(f) and (g) require SDRs to issue three notices per year and spend
five hours creating and disseminating each notice, for a total of 15
hours annually for each SDR, for a total of 45 annual burden hours
being moved across all three SDRs. As a result, the Commission
estimates that moving these requirements would result in a total
reduction of 45 annual burden hours for SDRs in collection 3038-0070.
The Commission therefore estimates that the total overall burdens
for updated Information Collection 3038-0070 will be as follows:
Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs,
SDRs, and reporting counterparties.
Estimated annual number of responses per respondent: 21,247.
Estimated total annual responses: 36,799,804.
Estimated burden hours per response: 0.033.
Estimated total annual burden hours per respondent: 701.
Estimated aggregate total burden hours for all respondents:
1,214,392.
3. Revisions to Collection 3038-0086 (SDR Registration and Regulatory
Requirements) \231\
---------------------------------------------------------------------------
\231\ The Commission is also proposing to reduce the number of
SDRs used in collection 3038-0086 to calculate burdens and costs
from 4 to 3. There are currently three SDRs provisionally registered
with the Commission. The Commission has not received any
applications for SDR registration since 2012.
---------------------------------------------------------------------------
The Commission proposes to revise collection 3038-0086 to account
for changes in certain SDR responsibilities under proposed amendments
to Sec. Sec. 49.3, 49.5, 49.6, 49.9, 49.10, 49.11, 49.13, and 49.26,
and to the proposed addition of Sec. Sec. 49.28, 49.29, and 49.30. The
estimated hours burdens and costs provided below would be in addition
to or subtracted from the existing hours burdens and costs in
collection 3038-0086. The Commission also describes a number of
proposed changes to sections that do not have PRA implications below,
for clarity purposes.
The Commission will also reduce the estimated number of SDRs from
four to three, as there are currently three SDRs provisionally
registered with the Commission that would be subject to the proposed
collection requirements.
i. Amended Sec. 49.3
The proposed amendments to Sec. 49.3(a)(5) would remove the
requirement for each SDR to file an annual amendment to its Form SDR
and, once an SDR's application for registration is granted, the
requirement for SDRs to amend the Form SDR whenever any of the
information in the Form SDR becomes inaccurate. The proposed amendments
would reduce the PRA burden for SDRs by lowering the number of filings
required for each SDR. The Commission estimates that the PRA burden for
each SDR would remain at 15 hours per filing, but that the number of
filings per year would be reduced from three to two, meaning that the
proposed amendments to Sec. 49.3(a)(5) would reduce the burden on SDRs
by 15 hours per year, for a total reduction of 45 annual burden hours
across all three SDRs. This estimate is based on the Commission's
experience with current SDR practices and the original supporting
statement for collection 3038-0086.\232\ The Commission does not
anticipate any one-time, initial burden changes related to proposed
Sec. 49.3(a)(5).
---------------------------------------------------------------------------
\232\ The original supporting statement for collection 3038-0086
estimated that the requirements of current Sec. 49.3(a)(5) would
necessitate three filings per year and 15 hours per filing.
---------------------------------------------------------------------------
ii. Amended Sec. 49.5
The proposed amendments to Sec. 49.5 would require SDRs to file a
notification with the Commission for each transaction involving the
direct or indirect transfer of ten percent or more of the equity
interest in the SDR within ten business days of the firm obligation to
transfer the equity interest, to provide the Commission with supporting
documentation for the transaction on request, and to file a
certification with the Commission that the SDR will meet all of its
obligations under the Act and the Commission's regulations within two
business days of the completion of the equity interest transfer. The
Commission estimates that the requirements of proposed Sec. 49.5 would
create a burden of 15 hours per SDR for each qualifying equity interest
transfer. Equity interest transfers for SDR are rare, so the Commission
conservatively estimates that each SDR would provide information
pursuant to proposed Sec. 49.5 no more often than once every three
years. As a result, the estimated average annual PRA burden related to
proposed Sec. 49.5 would be 5 hours per SDR, or 15 hours total for all
three SDRs. The Commission does not anticipate any one-time, initial
burdens related to proposed Sec. 49.5.
iii. Amended Sec. 49.6
The proposed amendments to Sec. 49.6 would require an SDR seeking
to transfer its registration to another legal entity due to a corporate
change to file a request for approval with the Commission before the
anticipated corporate change, including the specific documents and
information listed in proposed Sec. 49.6(c). The Commission estimates
that the requirements of proposed Sec. 49.6 would create a burden of
15 hours per SDR for each transfer of registration. Transfers of
registration for SDR are rare, so the Commission conservatively
estimates that each SDR would provide information pursuant to proposed
Sec. 49.6 no more often than once every three years. As a result, the
estimated average annual PRA burden related to proposed Sec. 49.6
would be 5 hours per SDR, or 15 hours total for all three SDRs. The
Commission does not anticipate any one-time, initial burdens related to
proposed Sec. 49.6.
[[Page 21078]]
iv. Amended Sec. 49.9
The proposed amendments to Sec. 49.9 would remove the current text
of the section and replace it with requirements related to SDRs
providing open swaps reports to the Commission. The new Sec. 49.9
would require SDRs to provide reports to the Commission with swap data
for every open swap an SDR maintains, as instructed by the Commission.
The instructions may include the method, timing, frequency, and format
of the open swaps reports.
The Commission estimates that SDRs would incur a one-time initial
burden of 250 hours per SDR for SDRs to create or modify their systems
to provide the open swaps reports to the Commission as instructed, for
a total estimated hours burden of 750 hours. This burden may be
mitigated by the fact that SDRs currently have systems in place to
provide similar information to the Commission, which would reduce the
effort needed to create or modify SDR systems. The Commission
additionally estimates 30 hours per SDR annually to perform any needed
maintenance or adjustments to SDR reporting systems.
The Commission expects that the process for providing the open
swaps reports to the Commission would be largely automated and
therefore estimates a burden on the SDRs of 2 hours per report. Though
the Commission is not prescribing the frequency of the open swaps
reports at this time, the Commission estimates, only for the purposes
of this burden calculation, that the SDRs would provide the Commission
with 365 open swaps reports per year, meaning that the estimated
ongoing annual additional hours burden for generating the open swaps
reports and providing the reports to the Commission is 730 hours per
SDR.
The Commission therefore estimates a total ongoing additional
annual hours burden related to proposed Sec. 49.9 of 760 hours per
SDR, for a total estimated ongoing annual burden of 2,280 hours.
v. Amended Sec. 49.10
Proposed Sec. 49.10(e) would require SDRs to accept, process, and
disseminate corrections to SDR data errors and omissions. Proposed
Sec. 49.10(e) would also require SDRs to have policies and procedures
in place to accomplish the corrections.
The Commission estimates that SDRs would incur a one-time initial
burden of 100 hours per SDR to update and implement the systems,
policies, and procedures necessary to complete the corrections process,
for a total increased initial hours burden of 300 hours across all
three SDRs. This burden may be mitigated by the fact that SDRs already
have systems, policies, and procedures in place to accomplish
corrections to SDR data and that the SDRs currently make such
corrections on a regular basis. The Commission additionally estimates
30 hours per SDR annually to perform any needed maintenance on
correction systems and to update corrections policies and procedures as
needed.
The Commission anticipates that the process for SDRs to perform
corrections would be largely automated, as this is the case with
current SDR corrections. Based on swap data available to the Commission
and discussions with the SDRs, the Commission estimates that an SDR
would perform an average of approximately 2,652,000 data corrections
per year. Based on the same information, the Commission estimates that
performing each correction would require 2 seconds from an SDR. As a
result, the Commission estimates that the ongoing burden of performing
the actual corrections to SDR data would be approximately 1,473 hours
per SDR annually, on average.
The Commission therefore estimates a total additional ongoing hours
burden related to proposed Sec. 49.10(e) of 1,503 hours per SDR
annually, for a total estimated ongoing burden of 4,509 hours.
vi. Amended Sec. 49.11
The proposed amendments to Sec. 49.11 modify the existing
obligations on SDRs to confirm the accuracy and completeness of swap
data. Proposed Sec. 49.11(b) would require SDRs to distribute open
swaps reports to reporting counterparties on a weekly or monthly basis,
depending on the registration status of a reporting counterparty.
Proposed Sec. 49.11(c) would require SDRs to receive a verification of
data accuracy or a notice of discrepancy from the reporting
counterparties in order to complete the verification process. Proposed
Sec. 49.11(a) and Sec. 49.11(d) \233\ do not have PRA implications
beyond the burdens discussed for paragraphs (b) and (c) below.
---------------------------------------------------------------------------
\233\ The Commission notes that requirements of part 40 of the
Commission's regulations would apply to SDRs amending their
verification policies and procedures regardless of proposed Sec.
49.11(d), because verification policies and procedures would fall
under the part 40 definition of a ``rule.'' See 17 CFR 40.1(i)
(definition of rule for the purposes of part 40). PRA implications
for proposed Sec. 49.11(d) would be included under the existing
approved PRA collection for part 40 of the Commission's regulations.
---------------------------------------------------------------------------
While SDRs are already required to confirm the accuracy and
completeness of swap data under current Sec. 49.11, the Commission
anticipates that the requirements in proposed Sec. 49.11 would impose
different burdens on the SDRs than the current regulation. The
Commission estimates that each SDR would incur an initial, one-time
burden of 500 hours to build, test, and implement updated verification
systems that would generate and disseminate the open swaps reports and
receive the verifications of data accuracy or notices of discrepancy,
for a total of 1,500 initial burden hours across all SDRs. The
Commission also estimates 50 hours per SDR annually for SDRs to
maintain their verification systems and make any needed updates to
verification policies and procedures required under proposed Sec.
49.11(a) and (c).
Currently, SDRs are required to confirm swap data by contacting
both counterparties for swaps that are not submitted by a SEF, DCM,
DCO, or third-party service provider every time the SDR receives swap
data related to the swap. For swaps reported by a SEF, DCM, DCO, or
third-party service provider, the SDRs must currently assess the swap
data to form a reasonable belief that the swap data is accurate every
time swap data is submitted for a swap. Under proposed Sec. 49.11(b)
and (c), SDRs would only generate the open swaps reports at most once a
week for any reporting counterparty, regardless of how often swap data
is submitted for an open swap, and would only be required to provide
the open swaps reports to the reporting counterparties, without needing
to contact the non-reporting counterparty or evaluate the swap data.
The Commission also anticipates, based on discussions with SDRs and
other market participants, that the verification process would be
largely automated once the processes are in place.
At maximum, the SDRs would be required to create open swaps reports
for the 117 SD/MSP/DCO reporting counterparties every week (6,084
reports per year) and open swaps reports for the 1,585 non-SD/MSP/DCO
reporting counterparties every month (19,020 reports per year) for a
total of 25,104 reports per year overall. The Commission estimates that
creating each report would require 2 hours, for a total of 50,208 hours
per SDR per year or 150,624 hours overall across all SDRs.
vii. Amended Sec. 49.12
Proposed amendments to Sec. 49.12(a) and (b) would incorporate
existing SDR recordkeeping obligations from Sec. 45.2(f) and (g)
respectively, which are already applicable to SDRs under current Sec.
49.12(a). As the recordkeeping
[[Page 21079]]
requirements being moved from Sec. 45.2 already apply to SDRs under
current Sec. 49.12, the Commission does not believe that amended Sec.
49.12(a) or (b) would require any revision to hours burden related to
Sec. 49.12 already included in collection 3038-0086. Proposed
amendments to Sec. 49.12(c) would require SDRs to maintain records of
data validation errors and of data reporting errors, which would
include records of data subsequently corrected by a SEF, DCM, or
reporting counterparty pursuant to parts 43, 45, and 46. Proposed Sec.
49.12(c) does not however add any new requirement to part 49, as all of
the records to be kept would already be required to be kept by existing
recordkeeping obligations as data submitted under parts 43, 45, or 46.
As a result, the Commission does not believe that amended Sec.
49.12(c) would require an additional PRA burden beyond that already
included in collection 3038-0086.
viii. Amended Sec. 49.13
Proposed Sec. 49.13(a) would require SDRs to monitor, screen, and
analyze SDR data in the form and manner determined by the Commission.
This would involve generating reports and other information at the
request of the Commission by calculating or compiling information and
SDR data maintained by the SDR. Proposed Sec. 49.13(b) would require
SDRs to have sufficient resources to perform such obligations. The
Commission proposes to amend existing collection 3038-0086 to account
for any burdens associated with responding to Commission requests to
monitor, screen, and analyze SDR data. While SDRs are currently
required to perform monitoring, screening, and analyzing tasks as
required by the Commission, the proposed amendments would facilitate
more frequent requests from the Commission, which may increase the
burden on SDRs. The Commission anticipates that requests would be both
one-time requests and requests to establish periodic reports. The
Commission estimates that it would make 10 new requests per SDR per
year, and that each request would require an average of 40 hours to
respond, for a total burden of 400 hours per SDR per year, or 1,200
hours per year overall. The Commission anticipates that the number of
new requests would decrease over time as the Commission's resources for
utilizing SDR data improve. The Commission does not anticipate any one-
time, initial burdens related to proposed Sec. 49.13(a).
Proposed Sec. 49.13(c) would require SDRs to notify the Commission
of any SDR data that the SDR receives that is not reported in
accordance with parts 43, 45, or 46, as applicable. Currently, under
Sec. 49.15(c), SDRs are only required to notify the Commission when
swap transaction and pricing data is not reported in compliance with
the obligations under part 43. Proposed Sec. 49.13(c) would expand
this obligation to also include SDRs notifying the Commission when a
transaction is reported that is not in accordance with part 45 or part
46. The Commission anticipates that the notification provisions in
proposed Sec. 49.13(c) would create little or no PRA burden on SDRs
beyond those existing under current Sec. 49.15(c), as the SDRs would
already have the necessary systems and procedures in place due to the
existing requirements in current Sec. 49.15(c).
ix. Amended Sec. 49.26
Proposed new Sec. 49.26(j) would require SDRs to provide their
users and potential users with the SDR's policies and procedures on
reporting SDR data, including SDR data validation procedures, swap data
verification procedures, and SDR data correction procedures. The
Commission anticipates that SDRs would incur a one-time burden of 20
burden hours to draft written documents that they would provide to
their users and potential users, for a total increase of 60 one-time
burden hours across SDRs. The Commission also anticipates that SDRs
would update their policies once per year and incur a recurring burden
of 10 hours annually from providing any updated reporting policies and
procedures to their users and potential users, as needed, for a total
increase of 30 ongoing burden hours across SDRs.
x. New Sec. 49.28
Proposed new Sec. 49.28 incorporates existing provisions of Sec.
43.3(f) and (g) with respect to hours of operation with minor changes
and clarifications. Proposed Sec. 49.28 extends the provisions of
current Sec. 43.3(f) and (g) to include all SDR data and clarifies the
different treatment of regular closing hours and special closing hours.
SDRs currently have closing hours systems, policies, and procedures
that apply to all SDR functions and all SDR data under the current
requirements. The proposed requirements related to declaring regular
closing hours and special closing hours would also effectively follow
current requirements, without necessitating changes to current SDR
systems or practices. The Commission does however anticipate that the
SDRs would need to issue notices to the public related to closing hours
under proposed Sec. 49.28(a) and (c). The Commission estimates that
each SDR would issue three notices per year and spend five hours
creating and disseminating each notice, for a total of 15 hours per
year preparing and providing public notices per SDR, and a total of 45
hours per year across all SDRs.
xi. New Sec. 49.29
Proposed new Sec. 49.29 would require each SDR to provide, upon
request by the Commission, information relating to its business as an
SDR, and such other information that the Commission needs to perform
its regulatory duties. This provision also requires each SDR, upon
request by the Commission, to provide a written demonstration of
compliance with the SDR core principles and other regulatory
obligations. The PRA burden associated with such responses is dependent
on the number of requests made and the complexity of such requests.
Based on its experience with requests to DCMs, the Commission would
estimate that each SDR would likely receive on average between three
and five requests per year, considering that an SDR is a newer type of
registered entity than a DCM. The Commission anticipates that the
number of requests would decrease over time. The Commission also
anticipates that each such request would require the SDR to spend 20
hours to gather information and formulate a response, and bases its
estimate of burden hours assuming five such requests per year, for a
total additional hours burden of 100 hours per SDR per year, or 300
hours per year across all SDRs. The Commission does not anticipate that
SDRs would incur any one-time hours burden or costs in complying with
this regulation.
The Commission therefore estimates that the total overall burdens
for updated Information Collection 3038-0086 will be as follows:
Estimated number of respondents affected: 3 SDRs.
Estimated annual number of responses per respondent: 154,327,169.
Estimated total annual responses: 462,981,508.
Estimated burden hours per response: 0.0006.
Estimated total annual burden hours per respondent: 99,197.
Estimated aggregate total burden hours for all respondents:
297,526.
4. Request for Comment
The Commission invites the public and other Federal agencies to
comment on any aspect of the proposed information collection
requirements discussed above. The Commission will
[[Page 21080]]
consider public comments on this proposed collection of information in:
(1) Evaluating whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
(2) evaluating the accuracy of the estimated burden of the proposed
collection of information, including the degree to which the
methodology and the assumptions that the Commission employed were
valid;
(3) enhancing the quality, utility, and clarity of the information
proposed to be collected; and
(4) minimizing the burden of the proposed information collection
requirements on registered entities, including through the use of
appropriate automated, electronic, mechanical, or other technological
information collection techniques, e.g., permitting electronic
submission of responses.
Copies of the submission from the Commission to OMB are available
from the CFTC Clearance Officer, 1155 21st Street NW, Washington, DC
20581, (202) 418-5160 or from http://RegInfo.gov. Organizations and
individuals desiring to submit comments on the proposed information
collection requirements should send those comments to:
The Office of Information and Regulatory Affairs, Office
of Management and Budget, Room 10235, New Executive Office Building,
Washington, DC 20503, Attn: Desk Officer of the Commodity Futures
Trading Commission;
(202) 395-6566 (fax); or
[email protected] (email).
Please provide the Commission with a copy of submitted comments so
that all comments can be summarized and addressed in the final
rulemaking, and please refer to the ADDRESSES section of this
rulemaking for instructions on submitting comments to the Commission.
OMB is required to make a decision concerning the proposed information
collection requirements between 30 and 60 days after publication of
this Release in the Federal Register. Therefore, a comment to OMB is
best assured of receiving full consideration if OMB receives it within
30 calendar days of publication of this Release. Nothing in the
foregoing affects the deadline enumerated above for public comment to
the Commission on the proposed rules.
C. Cost-Benefit Considerations
1. Introduction
Section 15(a) \234\ of the CEA requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. 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) efficiency, competitiveness, and
financial integrity of markets; (3) price discovery; (4) sound risk
management practices; and (5) other public interest considerations. The
Commission considers the costs and benefits resulting from its
discretionary determinations with respect to the section 15(a) factors.
---------------------------------------------------------------------------
\234\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
In this release, the Commission is proposing revisions to existing
regulations in parts 23, 43, 45, and 49. The Commission also is
proposing new regulations in part 49. Together, these proposed
revisions and additions are intended to address swap data verification
and to improve the quality of data reporting generally. Some of the
proposed amendments are substantive. A number of amendments, however,
are non-substantive or technical, and therefore would not have
associated cost-benefits implications.\235\
---------------------------------------------------------------------------
\235\ The Commission believes there are no cost-benefit
implications for proposed Sec. Sec. 49.2, 49.15, 49.16, 49.18,
49.20, 49.24, and 49.31.
---------------------------------------------------------------------------
To the extent costs are quantifiable, they have been discussed in
two places: The PRA section in this release and in the PRA-related
information collection requests filed with OMB. In general, however,
given the small number of existing SDRs and their differences in size
and operations, many of the costs associated with this proposed
rulemaking were not readily quantifiable without relying on and
potentially divulging confidential information. The Commission
therefore specifically requests comments to help quantify the costs of
this rulemaking.
2. Background
In 2011, the Commission issued the Part 49 Adopting Release. The
duties and requirements included in the Part 49 Adopting Release
require SDRs to, among other requirements, accept and confirm data
reported to the SDRs. The Commission also believed that the Commission
would be better able to monitor the overall swaps market and individual
market participants through SDR collection and maintenance of swap data
as required in parts 45 and 49. Before the adoption of the Dodd-Frank
Act and its implementing regulations, the swaps market generally, and
transactions and positions of individual market participants in
particular, were not transparent to regulators or to the public.
Due to these requirements for SDRs to collect and maintain SDR
data, the Commission has now had the opportunity to work directly with
SDR data reported to, and held by, SDRs. Based on its experience
working with SDR data, along with extensive feedback received from
market participants, the Commission believes that improving data
quality would help enhance the data's usefulness. In this release, the
Commission has focused on the operation and implementation of CEA
section 21,\236\ which contains requirements related to SDRs, including
the requirement to confirm data.\237\ The Commission is also proposing
to modify a number of other regulations for clarity and consistency and
to enhance the Commission's ability to monitor and supervise the swaps
market.
---------------------------------------------------------------------------
\236\ See 7 U.S.C. 24a.
\237\ See 7 U.S.C. 24a(c)(2).
---------------------------------------------------------------------------
Prior to discussing the proposed rule changes, the Commission
describes below the current environment that would be impacted by these
changes. Three SDRs are currently provisionally registered with the
Commission: CME, DDR, and ICE.
Each SDR has unique characteristics and structures that determine
how the proposed rule changes would impact its operations. For example,
SDRs affiliated with DCOs tend to receive a large proportion of their
SDR data from swaps cleared through those affiliated DCOs, while
independent SDRs tend to receive SDR data from a wider range of market
participants.
The current reporting environment also involves third-party service
providers. These entities assist market participants with fulfilling
the applicable data reporting requirements, though the reporting
requirements do not apply to third-party service providers directly.
Given that data quality depends on the underlying data reporting
requirements, the proposed changes should be considered in context with
other planned improvements to parts 43 and 45. As discussed in the
Roadmap, the Commission is in the process of improving data reporting
requirements, including modifying the requirements to be more clear and
consistent with other regulators' requirements. The amendments proposed
in this
[[Page 21081]]
rulemaking are one part of this larger effort to ensure that better-
quality data is available to market participants and the Commission.
Current regulations have not created results that meet the
Commission's expectations for data quality. For example, current
regulations do not include a specific affirmative obligation for swap
counterparties to review reported swap data for errors, but instead
require swap counterparties to correct errors and omissions only after
the discovery of inaccurate data.\238\ The result has been that market
participants too often have not acted to review and correct reported
swap data. It is not uncommon for Commission staff to find
discrepancies between open swaps information available to the
Commission and reported data for the same swaps. In the processing of
swap data to generate the CFTC's Weekly Swaps Report,\239\ for example,
there are instances when the notional amount differs between the
Commission's open swaps information and the swap data reported for the
same swap. Other common examples of discrepancies include incorrect
references to an underlying currency, such as a notional value
incorrectly linked to U.S. dollars instead of Japanese Yen. These
examples, among others, strongly suggest a need for better verification
of reported swap data. Improved verification could lead to these errors
being discovered and corrected in a timely manner.
---------------------------------------------------------------------------
\238\ See 17 CFR 43.3(e); 17 CFR 45.14.
\239\ See CFTC's Weekly Swaps Report, https://www.cftc.gov/MarketReports/SwapsReports/index.htm.
---------------------------------------------------------------------------
SDR policies and procedures have also created additional challenges
for swap data accuracy. As discussed above, certain SDR policies and
procedures for swap data have been based on negative affirmation, i.e.,
predicated on the concept that reported swap data is accurate and
confirmed if a reporting counterparty does not inform the SDR of errors
or omissions, or otherwise make subsequent modifications to data
reported for a swap within a certain period of time.\240\ As reporting
counterparties are typically not reviewing their reported swap data
maintained by the SDRs, the data is effectively assumed to be accurate
and errors and omissions are not sufficiently discovered and corrected.
As described in more detail in the section VII.C.8.iii discussion of
price discovery below, the volume of inaccurate swap data that is
discovered by market participants or the Commission shows that current
regulations are insufficient to produce the quality of swap data the
Commission expects and needs to fulfill its regulatory
responsibilities.
---------------------------------------------------------------------------
\240\ See 17 CFR 49.11(b)(1)(ii) and (b)(2)(ii).
---------------------------------------------------------------------------
Based on its experience with data reporting, the Commission
believes that certain regulations, particularly in parts 43, 45, and
49, should be amended to improve swap data accuracy and completeness.
The regulatory changes being proposed to meet this objective include
requiring SDRs and reporting counterparties to verify the accuracy and
completeness of reported swap data. Many of the proposed regulations
have costs and benefits that must be considered. These will be
discussed individually below.
This release also includes amendments to part 49 to improve and
streamline the Commission's oversight of SDRs. These proposed
regulations include allowing the Commission to request demonstrations
of compliance and other reports from SDRs.
For each proposed amendment discussed below, the Commission
summarizes the changes,\241\ and identifies and discusses the costs and
benefits attributable to the proposed changes. The Commission then
considers alternatives to the rules proposed in this release. Finally,
the Commission considers the costs and benefits of all of the proposed
rules jointly in light of the five public interest considerations in
CEA section 15(a).
---------------------------------------------------------------------------
\241\ As described throughout this release, the Commission is
also proposing a number of non-substantive, conforming rule
amendments in this release, such as renumbering certain provisions
and modifying the wording of existing provisions. Non-substantive
amendments of this nature may be described in the cost-benefit
portion of this release, but the Commission will note that there are
no costs or benefits to consider.
---------------------------------------------------------------------------
The Commission notes that this consideration of costs and benefits
is based on the understanding that the swaps market functions
internationally. Many swaps transactions involving U.S. firms occur
across international borders and some Commission registrants are
organized outside of the United States, with leading industry members
often conducting operations both within and outside the United States,
and with market participants commonly following substantially similar
business practices wherever located. Where the Commission does not
specifically refer to matters of location, the discussion of costs and
benefits refers to the proposed rules' effects on all swaps activity,
whether by virtue of the activity's physical location in the United
States or by virtue of the activity's connection with or effect on U.S.
commerce under CEA section 2(i).\242\ The Commission contemplated this
cross-border perspective in 2011 when it adopted Sec. 49.7, which
applies to trade repositories located in foreign jurisdictions.\243\
---------------------------------------------------------------------------
\242\ See 7 U.S.C. 2(i). CEA section 2(i) limits the
applicability of the CEA provisions enacted by the Dodd-Frank Act,
and Commission regulations promulgated under those provisions, to
activities within the U.S., unless the activities have a direct and
significant connection with activities in, or effect on, commerce of
the U.S.; or contravene such rules or regulations as the Commission
may prescribe or promulgate as are necessary or appropriate to
prevent the evasion of any provision of the CEA enacted by Dodd-
Frank Act. Application of section 2(i)(1) to the existing
regulations under part 45 with respect to SDs/MSPs and non-SD/MSP
counterparties is discussed in the Commission's Interpretive
Guidance and Policy Statement Regarding Compliance With Certain Swap
Regulations, 78 FR 45292 (July 26, 2013).
\243\ See 17 CFR 49.7.
---------------------------------------------------------------------------
3. Baseline
There are separate baselines for the costs and benefits that might
arise from the proposed regulations in this release. The Commission
believes that for proposed paragraphs (c) added to Sec. Sec. 23.204
and 23.205, the baseline is the current practice. The baseline for
proposed Sec. 45.14 is current Sec. 45.14. The baseline for proposed
amendments to current part 49 regulations is the existing part 49 and
current practices. For proposed Sec. 49.12, the baseline is current
Sec. 49.12, as well as Sec. 45.2(f) and (g), which would be replaced
by proposed Sec. 49.12. For proposed Sec. 49.17, the baseline is
current Sec. Sec. 49.17 and 45.13.
In this release, the Commission is proposing to adopt four new
regulations: Sec. Sec. 49.28, 49.29, 49.30, and 49.31. For proposed
new Sec. 49.28 the baseline is current Sec. 43.3(f) and (g), because
the requirements in Sec. 43.3(f) and (g) are being moved to proposed
Sec. 49.28. For proposed new Sec. Sec. 49.29 and 49.30, the baselines
are current practices. Proposed new Sec. 49.31 concerns internal
Commission practices and is not subject to consideration of costs and
benefits.
4. Costs and Benefits of Proposed Amendments to Part 49
i. Sec. 49.3--Procedures for Registration
The Commission is proposing to amend Sec. 49.3 to remove the
requirements for SDRs to: (i) file an annual amendment to Form SDR; and
(ii) amend Form SDR after the Commission grants the application for
registration under Sec. 49.3(a), as required in current Sec.
49.3(a)(5). The Commission believes the annual filing requirement and
the requirement to continuously update Form SDR once the application
[[Page 21082]]
for registration has been granted currently in Sec. 49.3(a)(5) are
unnecessary for the Commission to successfully perform its regulatory
functions.
(A) Costs and Benefits
The proposed amendments to Sec. 49.3(a)(5) would benefit SDRs by
reducing the amount of information that SDRs must provide to the
Commission and the frequency with which the SDRs must provide the
information. By removing the annual Form SDR amendment requirement and
the requirement to update Form SDR after registration is granted, SDRs
would be required to expend fewer resources to provide this information
to the Commission. The Commission believes that current Sec.
49.3(a)(5) is unnecessary as SDRs already submit much of the
information in Form SDR in rule filings under part 40 or as required
per other SDR regulations. The Commission also believes that this
requirement would be unnecessary with new proposed Sec. 49.29, which
would provide the Commission with the ability to request the same
information on an as-needed basis.
The costs of proposed Sec. 49.3(a)(5) would not be significant and
would largely be associated with any needed adjustments to SDRs
policies and procedures related to reducing the number of updates to
Form SDR.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.3(a)(5). Are there
additional costs or benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.3(a)(5). Are there any other
alternatives that may provide preferable costs or benefits than the
costs and benefits related to the proposed amendments?
ii. Sec. 49.5--Equity Interest Transfers
Proposed Sec. 49.5(a) would require that SDRs: (i) Notify the
Commission of each transaction involving the direct or indirect
transfer of ten percent or more of the equity interest in the SDR; and
(ii) provide the Commission with supporting documentation upon request.
Proposed Sec. 49.5(b) would require that the notice in Sec.
49.5(a) be filed electronically with the Secretary of the Commission
and DMO at the earliest possible time but in no event later than the
open of business ten business days following the date upon which a firm
obligation is made for the equity interest transfer.
Proposed Sec. 49.5(c) would require that upon the transfer,
whether directly or indirectly, the SDR shall file electronically with
the Secretary of the Commission and DMO a certification that the SDR
meets all of the requirements of section 21 of the CEA and the
Commission regulations, no later than two business days following the
date on which the equity interest was acquired.
(A) Costs and Benefits
The Commission believes that the proposed amendments would benefit
SDRs by lowering the burdens related to notifying the Commission of
equity interest transfers and by extending the time SDRs have to file
transfer-related materials with the Commission. The proposed changes
lower the burdens by removing the obligations in current Sec. 49.5(a)
to update Form SDR for an SDR that has been granted registration under
Sec. 49.3(a) and in current Sec. 49.5(b) to provide specific
information to the Commission with the equity interest transfer
notification and replacing them with the ability for the Commission to
request supporting documentation for the transfer as needed under
proposed Sec. 49.5(a). This would likely result in SDRs only providing
the information the Commission deems necessary for any particular
equity interest transfer, which may not include all of the documents or
information required by current Sec. 49.5. The proposed amendments
also lower the burdens on SDRs by extending the notification timing
requirement under current Sec. 49.5(a) from one business day to ten
business days. More time would allow SDRs more flexibility in time and
resources needed to file the required notice.
The costs of proposed Sec. 49.5 would be lower than the current
requirements and would largely be associated with any needed
adjustments to SDRs policies and procedures related to notification of
equity interest transfer and the resources needed to provide the
Commission with requested documentation. The costs would also include
any additional costs stemming from the inclusion of ``indirect
transfers'' of equity ownership in proposed Sec. 49.5. This could
increase the costs to SDRs, if the inclusion of indirect transfers
results in more frequent equity interest transfers and the associated
need to provide information to the Commission, but the inclusion of
indirect transfers would benefit the Commission by providing more
insight into equity interest transfers that could affect the business
of an SDR, even though the equity interest transfer does not involve
the SDR directly. As equity interest transfers are rare occurrences and
the Commission does not anticipate that including indirect transfers
would result in substantially more equity interest transfers, the
Commission expects these potential additional costs to be small.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.5. Are there
additional costs or benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these benefits.
The Commission requests comment on its consideration of
alternatives to proposed Sec. 49.5. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
iii. Sec. 49.6--Request for Transfer of Registration
Proposed Sec. 49.6(a) would require an SDR seeking to transfer its
SDR registration following a corporate change to file a request for
approval to transfer the registration with the Secretary of the
Commission in the form and manner specified by the Commission.
Proposed Sec. 49.6(b) would specify that an SDR file a request for
transfer of registration as soon as practicable before the anticipated
corporate change. Proposed Sec. 49.6(c) would set forth the
information that must be included in the request for transfer of
registration, including the documentation underlying the corporate
change, the impact of the change on the SDR, governance documents,
updated rulebooks, and representations by the transferee entity, among
other things.
Proposed Sec. 49.6(d) would specify that upon review of a request
for transfer of registration, the Commission, as soon as practicable,
shall issue an order either approving or denying the request for
transfer of registration.
(A) Costs and Benefits
The Commission believes that proposed Sec. 49.6 would benefit SDRs
by reducing the burdens on SDRs for successfully transferring an SDR
registration to a successor entity. Proposed Sec. 49.6 would require a
more limited scope of information and representations from the
transferor and
[[Page 21083]]
transferee entities than current Sec. 49.6, which requires a full
application for registration on Form SDR, including all Form SDR
exhibits. This limited scope of information and representations would
require less time and resources to prepare and submit than the current
requirements.
The Commission does not believe that proposed Sec. 49.6 would
impose any additional costs on SDRs compared to the current
requirement.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.6. Are there
additional costs or benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.6. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
iv. Sec. 49.9--Open Swaps Reports Provided to the Commission
Proposed Sec. 49.9(a) would require SDRs to provide the Commission
with open swaps reports that contain an accurate reflection of the swap
data for every swap data field required to be reported under part 45
for every open swap maintained by the SDR. Proposed Sec. 49.9(b) would
require SDRs to transmit all open swaps reports to the Commission as
instructed by the Commission.
(A) Costs and Benefits
The costs imposed by this proposed requirement would include the
resources SDRs must use to develop the infrastructure to create and
deliver the open swaps reports as instructed by the Commission. In
practice, the costs are expected to be mitigated by the fact that SDRs
currently send open swaps reports to the Commission on a regular basis,
which would help limit the costs. The SDRs may incur some costs from
needing to provide open swaps reports in the standardized format
required by the Commission, but the Commission does not expect the
format of these reports to change frequently.
The Commission believes the proposed amendments would standardize
the reports SDRs already provide, which would ensure that the reports
will be delivered in a usable format, which will assist the
Commission's regulatory oversight efforts. The Commission believes the
largest cost imposed by these amendments would be the upfront costs to
implement open swaps reporting systems, with incremental costs to
maintain or modify SDR systems on an ongoing basis. The underlying
information contained in the reports would also be similar to
information SDRs would be required to send to reporting counterparties
for verification purposes under proposed Sec. 49.11(b).
The Commission currently uses open swaps reports to create and
publish Commission papers and reports, including the weekly swaps
report. These reports benefit market participants by analyzing SDR data
sourced directly from the SDRs. This information on open swaps is
unique because it is not available to the public until the Commission
publishes its reports. The Commission also believes that market
participants would indirectly benefit from the improved data quality of
open swaps that would result from proposed Sec. 49.9, as the
information in the reports would help the Commission to better perform
its regulatory functions.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.9. Are there
additional costs or benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.9. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
v. Sec. 49.10--Acceptance of Data
New Sec. 49.10(e) would require SDRs to correct errors and
omissions in SDR data that was previously reported, or erroneously not
reported, to SDRs. Proposed Sec. 49.10(e)(1)-(4) would set forth the
specific requirements SDRs would need to meet to fulfill the general
requirement in Sec. 49.10(e): (i) Accept corrections for errors and
omissions reported to, or erroneously not reported to, the SDR; (ii)
correct errors and omissions as soon as technologically practicable
after receiving a report of the errors or omissions; (iii) disseminate
corrected SDR data to the public and the Commission, as applicable, as
soon as technologically practicable after correcting the SDR data; and
(iv) establish, maintain, and enforce policies and procedures designed
to fulfill its correction responsibilities under Sec. 49.10(e)(1)-(3).
(A) Costs and Benefits
Proposed Sec. 49.10(e) could impose some costs on SDRs, but the
Commission believes that the costs would not be significant and largely
related to any needed updates to their error and omission correction
systems. SDRs are currently required to identify cancellations,
corrections, and omissions under parts 43 and 45.\244\ Proposed Sec.
49.10(e) is largely clarifying the SDRs' existing duties, and, for
organizational purposes, placing the obligations in part 49, which is
the Commission's main regulations governing SDRs. The costs of the
proposed paragraph would be mitigated by the fact that SDRs currently
routinely correct data errors and omissions and disseminate the
corrections as required.
---------------------------------------------------------------------------
\244\ See 17 CFR 43.3(e)(1), (3), (4); 17 CFR 45.14(c).
---------------------------------------------------------------------------
The Commission also expects there would be costs associated with
establishing, maintaining, and enforcing the policies and procedures
required by the proposed paragraph, but believes that these costs would
not be significant and would be limited to initial creation costs and
update costs for the policies and procedures as needed.
The Commission believes that one of the benefits from proposed
Sec. 49.10(e) is improved data quality resulting from collecting and
disseminating accurate swap data. Proposed Sec. 49.10(e) is intended
to work in concert with proposed Sec. 45.14 and proposed Sec. 49.11,
along with the data correction requirements of Sec. 43.3(e). The
Commission believes that market participants and the public would
benefit from more complete and accurate swap transaction and pricing
data that enhances price discovery. In addition, the Commission uses
swap transaction and pricing data to produce public information on the
swaps markets, such as the weekly swaps reports. The Commission also
believes that market participants would benefit from the Commission
using more accurate data to inform swaps markets policy and perform its
other regulatory functions. SDRs would also benefit from greater
clarity in their requirements to correct errors and omissions in SDR
data.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.10. Are there
additional costs and benefits that the Commission should
[[Page 21084]]
consider? Commenters are encouraged to include both qualitative and
quantitative assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.10. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
vi. Sec. 49.11--Verification of Swap Data Accuracy
Proposed Sec. 49.11(a) would generally require that SDRs: (i)
Verify the accuracy and completeness of swap data that the SDRs receive
from SEFs, DCMs, and reporting counterparties, or third-party service
providers acting on their behalf; and (ii) establish, maintain, and
enforce policies and procedures reasonably designed to verify the
accuracy and completeness of that swap data.
Proposed Sec. 49.11(b) would require SDRs to regularly distribute
to each reporting counterparty an open swaps report detailing the swap
data maintained by the SDR that contains the same information provided
to the Commission in an open swaps report under proposed Sec. 49.9.
Proposed Sec. 49.11(b)(1) would require SDRs to distribute open swaps
reports that accurately reflect the swap data the SDR maintains for
each of a particular reporting counterparty's open swaps, unless other
Commission regulations prohibit the disclosure of certain swap data.
Proposed Sec. 49.11(b)(2) would require SDRs to distribute the
open swaps reports to SD/MSP/DCO reporting counterparties on a weekly
basis, no later than 11:59 p.m. Eastern Time on the day of the week
that the SDR chooses to regularly distribute the open swaps reports.
Proposed Sec. 49.11(b)(3) would require SDRs to distribute the open
swaps reports to non-SD/MSP/DCO reporting counterparties on a monthly
basis, no later than 11:59 p.m. Eastern Time on the day of the month
that the SDR chooses to regularly distribute the open swaps reports.
Proposed Sec. 49.11(c) would require SDRs to receive from each
reporting counterparty to which it sends an open swaps report, in
response to the open swaps report, either a verification of data
accuracy signifying that the swap data contained in the distributed
open swaps report is accurate and complete or a notice of discrepancy
signifying that the swap data in the open swaps report contains one or
more errors or omissions. Proposed Sec. 49.11(c) would also require
SDRs to establish, maintain, and enforce policies and procedures
reasonably designed for the SDR to receive the notices.
Proposed Sec. 49.11(d) would require SDRs to comply with the
requirements under part 40 of the Commission's regulations when
creating and amending their verification policies and procedures.
(A) Costs and Benefits
The costs associated with the proposed amendments to Sec. 49.11
would largely be borne by the three existing SDRs. The Commission
expects that SDRs would incur initial costs from establishing systems
to generate open swaps reports and to successfully distribute these
reports to all reporting counterparties. The Commission also expects
SDR to incur recurring costs related to any needed adjustments to their
systems over time and to accommodate the arrival or departure of
reporting counterparties. SDRs would also incur the cost of generating
and distributing the particular open swaps reports, and receiving the
responses from the reporting counterparties, but does not believe these
changes would be significant because, based on discussions with the
SDRs and other market participants, the Commission believes SDRs would
largely automate the verification process.
The Commission believes that the benefits of the proposed
amendments to Sec. 49.11 would result from verification improving data
accuracy and completeness. When paired with the proposed requirements
of Sec. 45.14 and the correction requirements of Sec. 43.3(e),
verification would alert reporting counterparties to errors and
omission in SDR data for their open swaps. Reporting counterparties
would be required to correct any errors or omissions discoverable in
the open swaps reports the SDRs provide, including errors in trade-
specific details, such as notional amounts and price. The Commission
believes that SDRs and reporting counterparties would benefit from
having clearer regulations.
The Commission also believes that the proposed verification
requirements would improve the Commission's ability to monitor,
measure, and regulate the swaps market, such as using more accurate
data to improve monitoring for potential systemic risks and
surveillance for potential threats to market integrity.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.11. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.11. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
vii. Sec. 49.12--Swap Data Repository Recordkeeping Requirements
Proposed Sec. 49.12(a) would require that SDRs keep full,
complete, and systematic records, together with all pertinent data and
memoranda, of all activities relating to the business of the SDR,
including, but not limited to, all SDR information and all SDR data
reported to the SDR.
Proposed Sec. 49.12(b)(1) would require that an SDR maintain all
SDR information received by the SDR in the course of its business.
Proposed Sec. 49.12(b)(2) would require an SDR to maintain all SDR
data and timestamps, and all messages to and from an SDR related to SDR
data reported to the SDR throughout the existence of the swap to which
the SDR data relates and for five years 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 then for an additional period of at least ten years in
archival storage from which such records are retrievable by the SDR
within three business days.
Proposed Sec. 49.12(c) would require SDRs to create and maintain
records of errors related to SDR data validations and errors related to
SDR data reporting. Proposed Sec. 49.12(c)(1) would require an SDR to
create and maintain an accurate record of all SDR data that fails to
satisfy the SDR's data validation procedures. Proposed Sec.
49.12(c)(2) would require an SDR to create and maintain an accurate
record of all SDR data errors and omissions reported to the SDR and all
corrections disseminated by the SDR pursuant to parts 43, 45, and 46.
SDRs must make the records available to the Commission on request.
Proposed Sec. 49.12(d) would contain the requirements of current
Sec. 49.12(c) and would require that: (i) All records required to be
kept pursuant to part 49 must be open to inspection upon request by any
representative of the Commission or any representative of the U.S.
Department of Justice; and (ii) an SDR must produce any record required
[[Page 21085]]
to be kept, created, or maintained by the SDR in accordance with Sec.
1.31.
Finally, the Commission is proposing a non-substantive change to
incorporate the current requirements of Sec. 49.12(e) into the revised
requirements of SDRs to monitor, screen, and analyze SDR data under
Sec. 49.13. This non-substantive change does not have any cost or
benefit implications.
(A) Costs and Benefits
The costs of proposed amendments to Sec. 49.12 would primarily be
incurred by the three existing SDRs as they make any needed adjustments
to create and maintain all required records. The Commission does not
believe these costs would be significant, as the recordkeeping
requirements in proposed Sec. 49.12 are largely similar to the
requirements in current Sec. 49.12 and current Sec. 45.2(f) and (g).
The proposed Sec. 49.12(c) requirements are intended to serve as
specific examples of records required to be created and maintained
pursuant to current requirements and proposed Sec. 49.12, in order to
emphasize the importance of retaining records related to reporting
errors, and would include such information as all reported SDR data and
reports of errors and omissions. Proposed Sec. 49.12(d) further
specifies that SDRs must make all records included in proposed Sec.
49.12 available to the Commission on request, which is the current
requirement applicable to SDR in current Sec. 45.2(h) and current
Sec. 49.12(c).
Finally, the proposed amendments to Sec. 49.12 related to SDR
information would be substantially similar to the SEC's requirements
for its SBSDRs.\245\ The Commission expects that there would be
substantial overlap in these requirements for SDRs that are also SBSDRs
and these entities would be able to leverage resources to reduce any
duplicative costs.
---------------------------------------------------------------------------
\245\ See 17 CFR 240.13n-7 (detailing the SBSDR recordkeeping
requirements).
---------------------------------------------------------------------------
The Commission believes that the proposed amendments to Sec. 49.12
would provide greater clarity to SDRs in regards to their recordkeeping
responsibilities and would allow for improvements in tracking errors in
data reporting and the collecting of records related to SDR
information. Better recordkeeping related to SDR data should lead to
increased awareness for the SDRs and the Commission of any reporting
issues experienced by reporting counterparties. Data recordkeeping
should lead to better quality data by allowing the SDRs and the
Commission to look for patterns in records that may lead to adjustments
to SDR systems or future data reporting requirements. The availability
of quality records is also crucial for the Commission to effectively
perform its market surveillance and enforcement functions, which
benefit the public by protecting market integrity and identifying risks
within the swaps markets.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.12. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.12. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
viii. Sec. 49.13--Monitoring, Screening, and Analyzing Data
Proposed Sec. 49.13(a) would generally require: (i) SDRs to
establish automated systems for monitoring, screening, and analyzing
all relevant SDR data in their possession in the form and manner as
directed by the Commission; and (ii) SDRs to routinely monitor, screen,
and analyze relevant SDR data at the request of the Commission.
Proposed Sec. 49.13(a)(1) would: (i) Specify that the requirements
for monitoring, screening, and analyzing SDR data require SDRs to
utilize relevant SDR data maintained by the SDR to provide information
to the Commission concerning the SDR data; and (ii) state that
monitoring, screening, and analyzing requests may require the SDRs to
compile or calculate information within certain categories, or to
compare information among categories, and lists the potential topic
areas for requests. Proposed Sec. 49.13(a)(1) also provides a list of
topic areas for monitoring, screening, and analyzing tasks that the
Commission may require.
Proposed Sec. 49.13(a)(2) would specify that all monitoring,
screening, and analyzing requests are at the discretion of the
Commission and require that all information provided pursuant to a
request conform to the form and manner requirements established for the
request pursuant to proposed Sec. 49.30. Proposed Sec. 49.13(a)(3)
would require that all monitoring, screening, and analyzing requests be
fulfilled within a time specified by the Commission for the particular
request.
Proposed Sec. 49.13(b) would require SDRs to establish and at all
times maintain sufficient technology, staff, and resources to fulfill
the requirements in Sec. 49.13 in the manner prescribed by the
Commission.
Proposed Sec. 49.13(c) would incorporate current Sec. 49.15(c)
but also expand it to require SDRs to promptly notify the Commission of
any swap transaction for which the SDR is aware that it did not receive
SDR data in accordance with the requirements of parts 43, 45, and 46.
(A) Costs and Benefits
The costs imposed by the proposed amendments to Sec. 49.13 would
largely be borne by the three SDRs. The Commission expects these SDRs
to incur costs as they may need to develop or modify and maintain the
requisite automated systems to monitor, screen, and analyze the
reported SDR data to respond to requests from the Commission. Each
requested task would need to be evaluated independently to determine
the SDRs' ability to perform the task and then to determine the exact
content of the report and the delivery requirements. The Commission is
not prescribing any specific tasks with this proposal.
Section 21(c)(5) of the CEA currently requires SDRs to ``at the
direction of the Commission, establish automated systems for
monitoring, screening, and analyzing'' the data maintained by the
SDRs,\246\ and current Sec. 49.13(a) codifies this requirement by
requiring the SDRs to monitor, screen, and analyze all data in their
possession as the Commission may require for ongoing data surveillance
activities or ad hoc requests.\247\ Proposed Sec. 49.13(a) retains
this general requirement, but also provides broad topic areas for tasks
that the Commission may request in order to provide SDRs with more
information for the monitoring, screening, and analyzing requirement.
The Commission expects that the costs for SDRs would vary depending on
the scope and frequency of the data requested. The Commission also
expects that the costs would be mitigated by the fact that SDRs
currently perform monitoring, screening, and analyzing tasks at the
request of Commission staff and therefore have systems and resources in
place that may be leveraged for any new requests.
---------------------------------------------------------------------------
\246\ 7 U.S.C. 24a(c)(5).
\247\ See 17 CFR 49.13(a).
---------------------------------------------------------------------------
Current Sec. 49.13(b) also requires SDRs to maintain sufficient
information technology to carry out their duties to monitor, screen,
and analyze the data
[[Page 21086]]
they collect. SDRs also currently routinely perform monitoring,
screening, and analyzing tasks at the request of Commission staff.
While the Commission expects that the SDRs may incur costs to modify
and maintain their systems to comply with the requirements of proposed
Sec. 49.13 and to respond to requests from the Commission, the
Commission believes that the incremental costs would not be significant
compared to the applicable baseline of the current requirements to
perform monitoring, screening, and analyzing tasks. These costs would
also be mitigated by the fact that SDRs are currently performing a
variety of monitoring, screening, and analyzing tasks at the request of
Commission staff, and therefore already have resources devoted to
monitoring, screening, and analyzing SDR data that could be leveraged
for any additional requests.
The Commission acknowledges that the cost burdens of the proposed
changes for any specific SDR would depend on the current systems
established and maintained by the SDR. While current Sec. 49.13
includes requirements to monitor, screen, and analyze data and
establish and maintain sufficient information technology, staff, and
other resources, the resources expended by an SDR necessarily depends
on the parameters of the specific requests. The Commission does not
expect SDRs to expend resources without a pending request from the
Commission. SDRs currently perform tasks, such as tracking the
timeliness of swaps reporting, but costs from other tasks facilitated
by the proposed rule may require new or modified systems to perform
requested tasks.
The Commission further acknowledges that costs related to each task
would likely vary with the complexity of the requested task. The costs
associated with responding to each task would depend on the information
requested and the frequency of the reports. The Commission expects the
requests would be reasonable based on available SDR resources and would
take into account an understanding of what is possible given the data
maintained by the SDRs. The Commission understands that SDRs can only
be expected to perform monitoring, screening, and analyzing tasks based
on the SDR data available to each SDR and that the results of any task
would be limited to the SDR data for swaps reported to each SDR. The
Commission also expects that SDRs and Commission staff would work
together to design each task before a task is prescribed, as is current
practice.
This may also be a source of costs for SDRs, as each pending
request may require multiple conversations between SDRs and the
Commission to design each task based on the Commission's needs and what
is feasible given the SDRs' abilities and the available SDR data.
After the costs have been incurred for any initial development or
updates to SDR automated systems related to any specific task, the
Commission expects recurring costs as SDRs' systems would need to be
monitored and adjusted as needed. Given that the Commission expects
most requested tasks would be largely automated, the per-report
production costs would not be substantial.
In addition, because the information submitted to the Commission
must reflect and adhere to established form and manner specifications
pursuant to proposed Sec. 49.30, the Commission anticipates many of
the reports resulting from the tasks would share a common form and
manner, which would result in reduced incremental costs for additional
reports.
Proposed Sec. 49.13(c) would not create any costs other than those
associated with the requirement to promptly notify the Commission. The
Commission believes those costs would not be significant, because SDRs
have already established systems to send electronic information to the
Commission and the Commission is not requiring SDRs to actively search
for reporting noncompliance as part of this proposed section.
The Commission expects amended Sec. 49.13 would improve data
quality and enhance the Commission's surveillance and other regulatory
capabilities. Market participants and the public would benefit from
these improvements. As SDRs analyze the SDR data to complete requested
tasks, for example, inconsistencies and anomalies within the data would
become more apparent, which may lead to improvements in market
practices, data quality, and Commission regulations. The reports may
also assist the Commission with timely analyses that would help the
Commission perform its regulatory functions. To the extent that the
tasks enable the Commission to act more quickly, or with greater
accuracy, to identify abusive market practices, compliance issues, or
systemic risks, and address these concerns more quickly and with
greater precision, market participants and the public would benefit.
These monitoring, screening, and analyzing tasks should lead to more
robust, improved analyses performed by or available to the Commission
staff, and the findings from such analyses should help the Commission
better perform its regulatory functions, improve its policy decisions,
and allow the Commission to better inform the public about the swaps
markets.
The Commission recognizes that not detailing specific tasks in the
rule text may create certain costs for SDRs, as the tasks the
Commission requests them to perform may change over time and therefore
may not be perfectly predictable. At the same time, the Commission
believes that not assigning tasks in the rule text itself would
encourage the SDRs and the Commission to work together to devise the
best approaches for any needed tasks. Adding specific tasks to the rule
text would also curtail the Commission's ability to remove or modify
the task in the future, as the Commission's needs and the SDRs'
capabilities change. Allowing more flexibility by not including tasks
in the proposed rulemaking would benefit both the SDRs and the
Commission, and is the Commission's preferred approach. Additionally,
the examples of the types of tasks the Commission envisions asking of
SDRs provide above should help reduce any costs associated with
uncertainty.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.13. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.13. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
Please describe the qualitative and quantitative costs (including,
but not limited to, personnel costs, technological costs, and costs
related to on-going discussions with Commission staff) that SDRs may
incur in needing to make any updates to current systems related to the
proposed changes to Sec. 49.13.
Please describe (both qualitatively and quantitatively) how costs
or benefits (including, but not limited to, personnel costs,
technological costs, and costs related to on-going discussions with
Commission staff) may change depending on whether more or fewer
categories are included in Sec. 49.13(a)(1). Are there additional
categories that the Commission should include or are there
[[Page 21087]]
categories that the Commission should remove? If so, please explain in
detail.
Please describe (both qualitatively and quantitatively) how costs
and benefits (including, but not limited to, personnel costs,
technological costs, and costs related to on-going discussions with
Commission staff) may change depending on the length of time period to
be analyzed for a task or the frequency of repetition for a task.
ix. Sec. 49.17--Access to SDR Data
The Commission proposes to amend the Sec. 49.17(b)(3) definition
of ``direct electronic access'' to mean an electronic system, platform,
framework, or other technology that provides internet-based or other
form of access to real-time SDR data that is acceptable to the
Commission and also provides scheduled data transfers to Commission
electronic systems.
Proposed Sec. 49.17(c) would require SDRs to provide access to the
Commission for all SDR data maintained by the SDR pursuant to the
Commission's regulations. Proposed Sec. 49.17(c)(1) would require that
SDRs provide direct electronic access to the Commission or its designee
in order for the Commission to carry out its legal and statutory
responsibilities under the CEA and Commission regulations. Proposed
Sec. 49.17(c)(1) would also require that SDRs maintain all SDR data
reported to the SDR in a format acceptable to the Commission, and
transmit all SDR data requested by the Commission to the Commission as
instructed by the Commission.
Proposed Sec. 49.17(c)(1) would amend the requirements of current
Sec. 45.13(a) from maintaining and transmitting ``swap data'' to
maintaining and transmitting ``SDR data,'' to make clear that the SDRs
must maintain all SDR data reported to the SDRs in a format acceptable
to the Commission and transmit all SDR data requested by the
Commission, not just swap data.
Proposed Sec. 49.17(c)(1) would also broaden the requirements of
current Sec. 45.13(a) from ``transmit all swap data requested by the
Commission to the Commission in an electronic file in a format
acceptable to the Commission'' to ``transmit all SDR data requested by
the Commission to the Commission as instructed by the Commission,'' and
explains what these instructions may include.
The Commission proposes to amend Sec. 49.17(f) to correct the
incorrect reference to ``37.12(b)(7)'' at the end of paragraph (f)(2)
with a correct reference to ``39.12(b)(7)'' of the Commission's
regulations, as there is no Sec. 37.12(b)(7) in the Commission's
regulations.
The Commission proposes to move the delegation of authority in
current Sec. 49.17(i) to proposed Sec. 49.31(a)(7).
(A) Costs and Benefits
The costs imposed by the proposed changes to Sec. 49.17(c) would
fall mainly on SDRs, because the SDRs would incur costs to provide the
Commission with direct electronic access to all SDR data and to provide
access to SDR data as instructed. The costs associated with the use of
the term ``direct electronic access'' in proposed Sec. 49.17(c) are
negligible, as the definition is being modified to allow the SDR's more
flexibility in providing the Commission with direct electronic access
to SDR data, subject to the Commission's approval. The other proposed
amendments to Sec. 49.17(c) grant the Commission greater flexibility
to instruct SDRs on how to transfer SDR data to the Commission at the
Commission's request. The SDRs may experience some costs based on the
need to update systems to be able to transfer SDR data to the
Commission as instructed. These incremental costs would not be
significant because SDRs are already required to provide scheduled data
transfers to the Commission under current Sec. 49.17(b)(3) and (c)(1)
and are required to transmit all swap data requested by the Commission
to the Commission in an electronic file in a format acceptable to the
Commission under current Sec. 45.13(a). It is also current market
practice for SDRs to regularly provide SDR data to the Commission as
instructed by Commission staff. The Commission expects that the SDRs
would continue to work with Commission staff to devise the most
efficient and effective ways to meet the Commission's data needs.\248\
---------------------------------------------------------------------------
\248\ The proposed changes to Sec. 49.17(f)(2) and (i) are non-
substantive and do not have cost-benefit implications.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments to Sec. 49.17
would provide clarity and certainty to SDRs regarding their
responsibilities to the Commission, by including the data access
requirements in one section and by more clearly stating the
Commission's ability to instruct SDRs on all aspects of providing SDR
data to the Commission. This clarity would help the SDRs work with
Commission staff to devise the most efficient and effective ways for
the SDRs to transfer data to the Commission, ensuring that the
Commission would have the SDR data that it needs to perform its
regulatory functions without undue burden on SDRs.
The proposed changes to Sec. 49.17(b)(3) that modify the
definition of ``direct electronic access'' to allow for more
technological flexibility would reduce future costs for SDRs because
the amendment allows the Commission to consider any technology that may
provide direct electronic access more efficiently than the current
requirement. This would allow the Commission to adapt to changing
technology more quickly and may allow the SDRs to save costs by having
more efficient technology and processes approved in the future.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.17. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of the costs and benefits, as well as other information to
support such assessments.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.17. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
x. Sec. 49.22--Chief Compliance Officer
The Commission proposes to amend Sec. 49.22 to reduce regulatory
compliance burdens on SDRs and to make a number of non-substantive
organizational and conforming changes.
The Commission is proposing a non-substantive change to define
``senior officer'' in proposed Sec. 49.22(a). Both current Sec. 49.22
and the CEA \249\ use the term ``senior officer'' in the context of CCO
requirements. Proposed Sec. 49.22(a) also makes non-substantive
organizational changes to the paragraph.
---------------------------------------------------------------------------
\249\ See 7 U.S.C. 24a(e).
---------------------------------------------------------------------------
Proposed Sec. 49.22(b) removes an unnecessary reference
establishing the position of CCO from Sec. 49.22(b)(1) and adds in
consultation with the board of directors or senior officer to Sec.
49.22(b)(1)(i), along with other conforming changes to terminology.
Proposed Sec. 49.22(c) rearranges some parts of the section and
simplifies the wording of current Sec. 49.22(c) in order to clarify
the requirements related to the appointment, supervision, and removal
of the CCO, but makes few substantive changes to the current
requirements. Proposed Sec. 49.22(c)(3)(i) clarifies that the senior
officer can also remove a CCO, in addition to the board of
[[Page 21088]]
directors, in order to provide more flexibility to the SDRs.
Proposed Sec. 49.22(d) rearranges some parts of the section and
simplifies the wording of current Sec. 49.22(d), while also making a
few substantive changes related to CCO duties. Proposed Sec.
49.22(d)(2) changes ``any conflicts of interest that may arise'' to
``any material conflicts of interest'' to contain a more practical
requirement on SDRs than having CCOs resolve every potential conflict
of interest, which would also reduce burdens. The proposed changes also
remove the three examples of conflicts of interest from current Sec.
49.22(d)(2) \250\ in order to not imply a limit as to the types of
material conflicts of interest that may arise. The Commission notes
that material conflict of interest may still arise in the three areas
listed in current Sec. 49.22(d)(2), and the CCO would have to address
such material conflicts, even with the examples removed from proposed
Sec. 49.22(d).
---------------------------------------------------------------------------
\250\ See 17 CFR 49.22(d)(2)(i)-(iii).
---------------------------------------------------------------------------
Proposed Sec. 49.22(e) rearranges some parts of the section and
simplifies the wording of current Sec. 49.22(e), while making a few
substantive changes related to the preparation of the annual compliance
report. The Commission is proposing to curtail the line-by-line review
of Commission regulations and the CEA requirements with SDR policies,
as required by current Sec. 49.22(e)(2), in order to streamline the
SDRs' preparation of the annual compliance report. The Commission
notes, however, that proposed Sec. 49.22(e)(1) and (e)(2) would focus
on the most important and useful information in the annual compliance
report based on the Commission's experience. The Commission is also
proposing to remove many of the examples of how material compliance
issues can be identified from current Sec. 49.22(e)(5) so as not to
imply any limits on the material compliance matters that must be
described. The Commission notes that removing the examples from current
Sec. 49.22(e)(5) in proposed Sec. 49.22(e)(4) does not in any way
limit the material compliance matters that must be described,
regardless of how the matter are identified. Finally, the Commission
proposes to add ``in all material aspects'' to the end of current Sec.
49.22(e)(6) in proposed Sec. 49.22(e)(5), in order to reduce CCOs'
concerns with certifying the annual compliance report's accuracy.
The Commission is proposing to remove the requirement in current
Sec. 49.22(f)(1) that requires the submission of the annual compliance
report to the SDR's board of directors or the senior officer and any
subsequent discussion of the report to be recorded in the board minutes
or other similar record as evidence of compliance with the submission
requirement, as this requirement would be incorporated into the general
recordkeeping requirement in proposed Sec. 49.22(g).
The Commission is proposing to amend Sec. 49.22(f)(2) by
increasing the amount of time that SDRs have to submit the annual
compliance report to the Commission from 60 days to 90 calendar days
after the end of the SDR's fiscal year. The Commission is also
proposing to remove the annual Form SDR amendment requirement in Sec.
49.3(a)(5) and is therefore proposing to remove the reference to Sec.
49.3(a)(5) from Sec. 49.22(f)(2).
The Commission proposes to amend Sec. 49.22(f)(3) to include a
requirement that, in the instance where an amendment to the annual
compliance report must be submitted to the Commission, the CCO must
also submit the amended annual compliance report to the SDR's board of
directors or the senior officer.
The Commission is proposing to amend Sec. 49.22(f)(4) to allow the
Commission to more easily grant requests for an extension of time to
file the annual compliance report by removing the requirement that SDRs
must show ``substantial, undue'' hardship. The Commission believes this
current requirement is too strict and is instead proposing to allow the
Commission to grant extensions based on ``reasonable and valid
requests.''
The Commission is proposing to amend Sec. 49.22(g) to simplify the
recordkeeping requirements for records related to the SDRs' policies
and records created related to the annual compliance report. The
Commission is removing the specific examples of records listed in
current Sec. 49.22(g) from proposed Sec. 49.22(g), but proposed Sec.
49.22(g) still requires all of the same records to be maintained in
accordance with proposed Sec. 49.12. As a result, the proposed
amendments to Sec. 49.22(g) are non-substantive.
(A) Costs and Benefits
The proposed amendments to Sec. 49.22(a), (b), and (g) are non-
substantive and therefore do not have cost-benefit implications.
Similarly, the conforming amendments related to the terms proposed in
Sec. 49.2, the rearranging of paragraphs within proposed Sec. 49.22,
and other changes to text that do not substantively change the
requirements of Sec. 49.22 do not have cost-benefit implications.
The only substantive change in proposed Sec. 49.22(c) is the
addition of the senior officer's ability to remove the CCO. The
Commission believes that adding the senior officer to this provision
would benefit SDRs by allowing more flexibility in how the SDRs manage
their personnel and their compliance activities. The Commission
believes that any costs associated with proposed Sec. 49.22(c) would
not be significant and consist of any resources needed to update SDR
policies and procedures, if the SDRs choose to enable the senior
officer to remove the CCO.
The Commission believes that the proposed change to the conflicts
of interest provision in proposed Sec. 49.22(d)(2) would benefit SDRs
by including a more practical requirement while still requiring
important conflicts of interest to be addressed. By changing the
requirement from ``resolving any conflicts of interest that may arise''
to ``taking reasonable steps . . . to resolve any material conflicts of
interest that may arise,'' an SDR's CCO would not need to spend
resources to address every conceivable conflict of interest and can
instead concentrate resources on resolving conflicts of interest that
have a material effect on an SDR's operations. The Commission does not
expect the SDRs to incur any significant costs as a result of these
proposed changes.
The Commission believes that the changes to the requirements for
the information to be included in the annual compliance report in
proposed Sec. 49.22(e)(1) would benefit SDRs by allowing SDRs to focus
on the most important and useful information in the annual compliance
report, which would also reduce their burdens. The Commission believes
that the proposed removal of the assessment of all applicable
Commission regulations and CEA requirements with SDR policies and
replacement with a more general requirement to describe and assess the
SDR's policies and procedures would save SDRs effort without
detrimental effects on the Commission's ability to perform its
oversight functions. The Commission does not believe there are any
incremental costs associated with this proposed amendment. The
remaining changes to Sec. 49.22(e) are not substantive and do not have
cost-benefit implications.
The Commission believes that the proposed amendments to Sec.
49.22(f) would benefit SDRs by simplifying requirements or reducing the
costs on SDRs to submit annual compliance reports to the Commission. By
providing
[[Page 21089]]
more time to submit the annual compliance report and by reducing the
burden to request a further extension in time to file an annual
compliance report, the amendments to Sec. 49.22(f)(2) and (4) would
reduce the cost of complying and submitting the report for SDRs.
Requirements are also simplified by removing the board or meeting
minutes requirement in proposed Sec. 49.22(f)(1), as this requirement
would be incorporated into the general recordkeeping requirement in
proposed Sec. 49.22(g). The requirement to submit an amended annual
compliance report to the board of directors or senior officer may
slightly increase costs for SDRs, but only in the sense of the time
burden required to submit the amended report. This cost is further
mitigated by the fact that CCOs are already capable of submitting the
annual compliance reports to their board of directors or senior officer
because of existing requirements.
The benefits of the proposed amendments for SDRs would result from
the lower burdens related to annual compliance reports. The SDRs would
have more time to complete the annual compliance reports and the
Commission would be more able to grant requests for extensions of
filing time, which should make complying and submitting annual
compliance reports easier for SDRs. Removing the requirement to record
the submission and discussions of the annual compliance reports from
board of directors meeting minutes and similar documents would
streamline the requirements as this requirement would be incorporated
into the general recordkeeping requirement in proposed Sec. 49.22(g).
Overall, the amendments would make the submission process for annual
compliance reports under Sec. 49.22(f) easier for SDRs.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.22. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of the costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.22. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
xi. Sec. 49.25--Financial Resources
The Commission proposes conforming changes to Sec. 49.25 to remove
the reference to Sec. 49.9 and to core principle obligations
identified in Sec. 49.19. Proposed Sec. 49.25(a) would instead refer
to SDR obligations under ``this chapter,'' to be broadly interpreted as
any regulatory or statutory obligation specified in part 49. The
Commission considers these to be non-substantive changes that do not
impact existing obligations on SDRs, and therefore have no cost-benefit
implications.
The Commission is also proposing to amend Sec. 49.25(f)(3) to
extend the time SDRs have to submit their quarterly financial resources
reports to 40 calendar days after the end of the SDR's first three
fiscal quarters, and 90 days after the end of the SDR's fourth fiscal
quarter, or a later time that the Commission permits upon request.
(A) Costs and Benefits
The Commission believes that giving SDRs more time to file their
quarterly financial resources reports would benefit SDRs with little
impact on the Commission's oversight of SDRs. In addition, the
Commission notes that the 90 calendar day deadline for fourth quarter
financial reports would align with the amended timeframe for SDRs
submitting annual compliance reports in proposed Sec. 49.22(f)(2). The
Commission believes that SDRs would benefit from extended, harmonized
deadlines.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.25. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of the costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.25. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
xii. Sec. 49.26--Disclosure Requirements of Swap Data Repositories
The Commission proposes to amend Sec. 49.26 to make updates to the
introductory paragraph of Sec. 49.26 to reflect updates to the terms
``SDR data,'' ``registered swap data repository,'' and ``reporting
entity'' in proposed Sec. 49.2. The Commission also proposes to update
other defined terms used in the section to conform to the proposed
amendments to Sec. 49.2. These non-substantive amendments do not
change the requirements of Sec. 49.26 and do not have cost-benefit
implications.
The Commission also proposes to add Sec. 49.26(j) that would
require that the SDR disclosure document set forth the SDR's policies
and procedures regarding the reporting of SDR data to the SDR,
including the SDR data validation and swap data verification procedures
implemented by the SDR and the SDR's procedures for correcting SDR data
errors and omissions (including the failure to report SDR data as
required pursuant to the Commission's regulations).
(A) Costs and Benefits
The Commission believes that costs of proposed Sec. 49.26 would
not be significant. The costs would entail the costs of adding the
information required under proposed Sec. 49.26(j) to the required SDR
disclosure document and updating the document as needed.
The Commission expects that the proposed addition of Sec. 49.26(j)
would benefit market participants by providing clearer information
regarding data reporting to SDR users, which should improve data
reporting by providing SDR users with information that would allow them
to align their data reporting systems with the SDRs' data reporting
systems before using the SDRs' services, thereby reducing reporting
errors and potential confusion.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.26. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of the costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.26. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
xiii. Sec. 49.28--Operating Hours of Swap Data Repositories
The Commission is proposing to add new Sec. 49.28 to provide more
detail on the SDRs' responsibilities with respect to hours of
operation. Proposed Sec. 49.28(a) would require an SDR to have systems
in place to continuously accept, promptly record, and, as applicable
pursuant to part 43, publicly disseminate all SDR data reported to the
SDR. Proposed Sec. 49.28(a)(1) would
[[Page 21090]]
allow an SDR to establish normal closing hours to perform system
maintenance when, in the SDRs' reasonable estimation, the SDR typically
receives the least amount of SDR data, as long as the SDR provides
reasonable advance notice of its normal closing hours to market
participants and the public.
Proposed Sec. 49.28(a)(2) would allow an SDR to declare, on an ad
hoc basis, special closing hours to perform system maintenance that
cannot wait until normal closing hours. Proposed Sec. 49.28(a)(2)
instructs SDRs to schedule special closing hours during periods when,
in an SDR's reasonable estimation, the special closing hours would, to
the extent possible, be least disruptive to the SDR's SDR data
reporting responsibilities. Proposed Sec. 49.28(a)(2) would also
require the SDRs to provide reasonable advance notice of the special
closing hours to market participants and the public whenever possible,
and, if advance notice is not reasonably possible, to give notice to
the public as soon as is reasonably possible after declaring special
closing hours.
Proposed Sec. 49.28(b) would require SDRs to comply with the
requirements under part 40 of the Commission's regulations when
adopting or amending normal closing hours or special closing
hours.\251\
---------------------------------------------------------------------------
\251\ This requirement already applies to SDRs pursuant to
current Sec. 43.3(f)(3). See 17 CFR 43.3(f)(3).
---------------------------------------------------------------------------
Proposed Sec. 49.28(c) would require an SDR to have the capability
to accept and hold in queue any and all SDR data reported to the SDR
during normal closing hours and special closing hours \252\ Proposed
Sec. 49.28(c)(1) would require an SDR, on reopening from normal or
special closing hours, to promptly process all SDR data received during
the closing hours and, pursuant to part 43, publicly disseminate swap
transaction and pricing data reported to the SDR that was held in queue
during the closing hours.\253\ Proposed Sec. 49.28(c)(2) would require
SDRs to immediately issue notice to all SEFs, DCMs, reporting
counterparties, and the public in the event that an SDR is unable to
receive and hold in queue any SDR data reported during normal closing
hours or special closing hours. Proposed Sec. 49.28(c)(2) would also
require SDRs to issue notice to all SEFs, DCMs, reporting
counterparties, and the public that the SDR has resumed normal
operations immediately on reopening. Proposed Sec. 49.28(c)(2) would
then require a SEF, DCM, or reporting counterparty that was not able to
report SDR data to an SDR because of the SDR's inability to receive and
hold in queue SDR data to immediately report the SDR data to the
SDR.\254\
---------------------------------------------------------------------------
\252\ Proposed Sec. 49.28(c) would expand the similar existing
requirements for swap transaction and pricing data in current Sec.
43.3(g) to all SDR data and would largely follow the SBSDR
requirements to receive and hold in queue information regarding
security-based swaps.
\253\ Proposed Sec. 49.28(c)(1) would expand the similar
existing requirements for the SDRs to disseminate swap transaction
and pricing data pursuant to current Sec. 43.3(g)(1) to also
include the prompt processing of all other SDR data received and
held in queue during closing hours. The proposed requirements would
also largely follow the SBSDR requirements for disseminating
transaction reports after reopening following closing hours.
\254\ Proposed Sec. 49.28(c)(2) would expand the similar
existing requirements for swap transaction and pricing data in
current Sec. 43.3(g)(2) to all SDR data and would largely follow
the SBSDR requirements to receive and hold in queue information
regarding security-based swaps.
---------------------------------------------------------------------------
(A) Costs and Benefits
The Commission believes that the above requirements, which are
largely based on existing rule text found in current Sec. 43.3(f) and
(g), would not have significant cost implications for SDRs. The costs
would be those associated with any needed modification to SDR systems
to accommodate all SDR data during closing hours, as opposed to only
swap transaction and pricing data. These costs would not be significant
because all SDRs currently have policies, procedures, and systems in
place to accommodate all SDR data during closing hours because of the
current requirements.
The SDRs, market participants, and the public benefit from proposed
Sec. 49.28 because the requirements for setting closing hours and
handling SDR data during closing hours would be clearer. Proposed Sec.
49.28 also removes discrepancies between current requirements for SDRs
and SBSDRs related to closing hours, which would allow SDRs that are
also registered as SBSDRs to comply with one requirement.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.28. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of the costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.28. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
xiv. Sec. 49.29--Information Relating To Swap Data Repository
Compliance
The Commission is proposing to add new Sec. 49.29 to provide for
information requests to SDRs regarding compliance with an SDR's
regulatory duties and core principles.
Proposed Sec. 49.29(a) would require SDRs, upon request of the
Commission, to file certain information related to its business as an
SDR or other such information as the Commission determines to be
necessary or appropriate for the Commission to perform its regulatory
duties. The SDRs would be required to provide the requested information
in the form and manner and within the time specified by the Commission
in its request.
Proposed Sec. 49.29(b) would require SDRs, upon the request of the
Commission, to demonstrate compliance with their obligations under the
CEA and Commission regulations, as specified in the request. SDRs would
be required to provide the requested information in the form and manner
and within the time specified by the Commission in its request.
Proposed Sec. 49.29 is based on existing Commission requirements
applicable to SEFs and DCMs.\255\
---------------------------------------------------------------------------
\255\ See, e.g., 17 CFR 37.5 and 38.5.
---------------------------------------------------------------------------
(A) Costs and Benefits
The costs associated with responding to requests for information
would include the staff hours required to prepare and submit materials
related to the requests. These costs would vary among SDRs depending
upon the nature and frequency of Commission inquiries. The Commission
expects these requests to be limited in both size and scope, which
would constrain the cost burden on SDRs. While proposed Sec. 49.29
allows the Commission to make requests on an ad hoc basis, the
Commission expects that the need for these requests would decrease over
time as data quality and SDR compliance with Commission regulations
improves.\256\ The Commission acknowledges that there would be an
incremental cost for each response, given the time required by the SDR
to collect and/or summarize the requested information. The Commission
believes that these costs would be mitigated by the fact that current
practice is for SDRs to provide similar information to the Commission
on
[[Page 21091]]
request and that the SDRs do so regularly.
---------------------------------------------------------------------------
\256\ The Commission currently exercises similar authority fewer
than ten times per year in total with other registered entities,
such as SEFs, DCMs, and DCOs.
---------------------------------------------------------------------------
Information submitted to the Commission would be required to
reflect and adhere to form and manner specifications established
pursuant to proposed Sec. 49.30. The Commission expects that clearly
defining the form and manner for each response would mitigate the cost
burden to the SDRs from any uncertainty as to the information to be
provided.
Benefits attributed to proposed Sec. 49.29 would include improving
the Commission's oversight of SDRs. The Commission expects that this
oversight would lead to improved data quality and SDR compliance with
Commission regulations due to Commission inquiries. Better data quality
should improve the Commission's ability to fulfill its regulatory
responsibilities and help to increase the Commission's understanding of
the swaps market. These improvements are expected to benefit the public
through more accurate and complete SDR data reporting, improved
Commission analyses and oversight of the swaps markets, and increased
market integrity due to the Commission's improved ability to detect and
investigate noncompliance issues and oversee their correction.
Proposed Sec. 49.29 would also help the Commission to obtain the
information it needs to perform its regulatory functions as needed, as
opposed to requiring the information on a set schedule, such as with
the proposed removal of the requirement for annual Form SDR updates in
proposed Sec. 49.3(a)(5). Proposed Sec. 49.29 would allow the
Commission to request the same information that would be contained in
Form SDR and its exhibits when the Commission needs the information, as
opposed to requiring the SDRs to update Form SDR and the exhibits
annually. This would reduce the burden on SDRs from annual filings for
any information that the Commission requests less frequently than
annually.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.29. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these costs and benefits, as well as other information
to support such assessments.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.29. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
xv. Sec. 49.30--Form and Manner of Reporting and Submitting
Information to the Commission
The Commission is proposing to add new Sec. 49.30 to address the
form and manner of information the Commission requests from SDRs.
Proposed Sec. 49.30 would establish the broad parameters of the
``form and manner'' requirements found throughout part 49 in different
regulations. The ``form and manner'' requirement proposed in Sec.
49.30 would not supplement or expand upon existing substantive
provisions of part 49, but instead, would only allow the Commission to
specify how existing information reported to, and maintained by, SDRs
should be formatted and delivered to the Commission. Proposed Sec.
49.30 would provide that the Commission would specify, in writing, the
format, coding structure, and electronic data transmission procedures
for various reports and submissions that are required to be provided to
the Commission under part 49.
(A) Costs and Benefits
The Commission believes that the form and manner requirements would
have costs associated with conforming reports and information to
Commission specifications, including labor, time, and potentially
technology costs for formatting reports. In practice, the incremental
costs are not likely to be significant, because SDRs have extensive
experience working with Commission staff to deliver data and reports in
the form and manner requested by Commission staff. The Commission
believes that, in practice, this experience would significantly
mitigate the costs of this amendment.
The Commission believes that the Commission would benefit through
increased standardization of information provided by SDRs, thereby
aiding the Commission in the performance of its regulatory obligations
by ensuring the provided information is useable by the Commission and
allowing the Commission to alter the form and manner over time, as
standards and technologies change. The ability to standardize the form
and manner of information provided to the Commission would also help
SDRs to efficiently fulfill their obligations to provide this
information to the Commission.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 49.30. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of the costs and benefits, as well as other information to
support such assessments.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 49.30. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
5. Costs and Benefits of Proposed Amendments to Part 45
i. Sec. 45.2--Swap Recordkeeping
The Commission is proposing to move current Sec. 45.2(f) and (g)
(SDR recordkeeping and SDR records retention, respectively) to proposed
new Sec. 49.12. As such, all costs and benefits associated with this
change are discussed above in section 4.viii regarding proposed new
Sec. 49.12.
ii. Sec. 45.14--Verification of Swap Data Accuracy and Correcting
Errors and Omissions in Swap Data
Proposed Sec. 45.14(a) would generally require that reporting
counterparties verify the accuracy and completeness of swap data for
swaps for which they are the reporting counterparty. Proposed Sec.
45.14(a)(1) would require that a reporting counterparty reconcile its
internal books and records for each open swap for which it is the
reporting counterparty with every open swaps report provided to the
reporting counterparty by an SDR pursuant to proposed Sec. 49.11.
Proposed Sec. 45.14(a)(1) would further require that reporting
counterparties conform to the verification policies and procedures
created by an SDR pursuant to Sec. 49.11 for swap data verification.
Proposed Sec. 45.14(a)(2) would require that reporting
counterparties submit either a verification of data accuracy or a
notice of discrepancy in response to every open swaps report received
from an SDR within the following timeframes: (i) 48 hours of the SDR
providing the open swaps report if the reporting counterparty is an SD,
MSP, or DCO; or (ii) 96 hours of the SDR providing the open swaps
report for non-SD/MSP/DCO reporting counterparties.
Proposed Sec. 45.14(a)(3) would require that when a reporting
counterparty does
[[Page 21092]]
not find any discrepancies between the swap data it reported to an SDR
according to its internal books and records for the swaps included in
the open swaps report and the swap data provided by the SDR in the open
swaps report, the reporting counterparty would submit a verification of
data accuracy to the SDR indicating that the swap data is complete and
accurate, within the timeframe applicable to the reporting counterparty
under proposed Sec. 45.14(a)(2).
Proposed Sec. 45.14(a)(4) would require that when a reporting
counterparty finds discrepancies between the swap data it reported to
an SDR according to its internal books and records for the swap data
included, or erroneously not included, in an open swaps report and the
swap data provided by the SDR in the open swaps report, the reporting
counterparty must submit a notice of discrepancy to the SDR in the form
and manner required by the SDR's policies and procedures created
pursuant to Sec. 49.11, within the timeframe applicable to the
reporting counterparty under proposed Sec. 45.14(a)(2).
Proposed Sec. 45.14(b)(1) would require any SEF, DCM, or reporting
counterparty that by any means becomes aware of any errors or omissions
in swap data previously reported to an SDR by the SEF, DCM, or
reporting counterparty to submit corrected swap data to the SDR.
Proposed Sec. 45.14(b)(1) would also require any SEF, DCM, or
reporting counterparty that by any means becomes aware of any swap data
not reported to an SDR by the SEF, DCM, or reporting counterparty as
required to submit the omitted swap data to the SDR. The error and
omission correction requirements include, but are not limited to,
errors or omissions present during the verification process specified
in Sec. 45.14(a). These error and omission correction requirements
also apply regardless of the state of the swap.
Proposed Sec. 45.14(b)(1)(i) would require that SEFs, DCMs, and
reporting counterparties correct swap data as soon as technologically
practicable following discovery of the errors or omissions, but no
later than three business days after discovery of the error or
omission.
Proposed Sec. 45.14(b)(1)(ii) would require that if a SEF, DCM, or
reporting counterparty is unable to correct errors or omissions within
three business days of discovery, the SEF, DCM, or reporting
counterparty must immediately inform the Director of DMO, or such other
Commission employees whom the Director of DMO may designate, in
writing, of the errors or omissions and provide an initial assessment
of the scope of the errors or omissions and an initial remediation plan
for correcting the errors or omissions.
Proposed Sec. 45.14(b)(1)(iii) would require that a SEF, DCM, or
reporting counterparty conform to the SDR's policies and procedures for
corrections of errors and omissions.
Proposed Sec. 45.14(b)(2) would require a non-reporting
counterparty that by any means becomes aware of any error or omission
in swap data previously reported to an SDR, or the omission of swap
data for a swap that was not previously reported to an SDR as required,
to notify the reporting counterparty for the swap of the errors or
omissions as soon as technologically practicable following discovery of
the errors or omissions, but no later than three business days
following the discovery of the errors or omissions.
Proposed Sec. 45.14(b)(2) would also specify that a non-reporting
counterparty that does not know the identity of the reporting
counterparty for a swap must notify the SEF or DCM where the swap was
executed of the errors or omissions as soon as technologically
practicable following discovery of the errors or omissions, but no
later than three business days after the discovery. Proposed Sec.
45.14(b)(2) would also require that if the reporting counterparty and
the non-reporting counterparty agree that the swap data for a swap is
incorrect or incomplete, the reporting counterparty, SEF, or DCM must
correct the swap data in accordance with proposed Sec. 45.14(b)(1).
(A) Costs and Benefits
The proposed changes to Sec. 45.14 would result in administrative
and compliance costs for reporting counterparties to establish
technological systems to review and reconcile open swaps reports
provided by SDRs. To verify open swaps, the reporting counterparties
would be required to maintain records of all data elements reported
pursuant to part 45. This is already a requirement under parts 23 (for
SD and MSP reporting counterparties) and 45 of the Commission's
regulations and as such, the Commission does not believe maintaining
such records would produce additional costs.\257\
---------------------------------------------------------------------------
\257\ See 17 CFR 23.201 (listing the recordkeeping requirements
for SDs and MSPs, including transaction records); 17 CFR 45.2
(listing recordkeeping requirements for swaps, including requiring
SDs and MSPs to keep all records required to be kept pursuant to
part 23).
---------------------------------------------------------------------------
The Commission is not proposing to require particular methods for
reporting counterparties to complete the verification process, but
based on discussions with market participants, the Commission
anticipates that the process would be largely automated. Reporting
counterparties would incur costs in creating these automated systems to
receive the open swaps reports and to complete the verification process
in a timely fashion, but once the verification systems are in place,
the additional costs stemming from the verification process would not
be significant and would be confined to maintaining and updating the
verification system as needed.
A few commenters to the Commission's Roadmap suggested that
commercial end-users and other non-SD/MSP/DCO reporting counterparties
would incur greater costs for reporting and verifying swap data because
swaps are not their primary business.\258\ The Commission has taken
these comments into account and has proposed different requirements for
non-SD/MSP/DCO reporting counterparties that would provide them with
more time to complete the verification process than is permitted for SD
or MSP reporting counterparties.
---------------------------------------------------------------------------
\258\ See, e.g., NRECA/APPA Letter at 3, 5; IECA Letter at 3.
These commenters did not provide details on the additional costs.
---------------------------------------------------------------------------
Reporting counterparties may also incur costs in meeting the
requirements of proposed Sec. 45.14(b)(1), which is largely similar to
current Sec. 45.14(a), but with more specific requirements related to
timing. Additional costs may be incurred by SEFs, DCMs, or reporting
counterparties from correcting errors and omissions within three
business days of discovery and from informing the Director of DMO in
writing with a remediation plan, if necessary. The Commission believes
that these costs would not be significant, however, because the three
business day requirement merely adds a timeframe to the current ``as
soon as technologically practicable after discovery'' requirement,\259\
and reporting counterparties already typically provide a remediation
plan to the Commission for reporting errors and omissions as part of
current practice, which would mitigate the costs of the proposed
requirement, as many reporting counterparties will have experience with
creating and providing remediation plans. SEFs, DCMs, and reporting
counterparties may also incur costs from updating their error and
omission reporting systems or practices in order to maintain
consistency with SDR error and omission policies and procedures created
pursuant to proposed Sec. 49.10(e).
---------------------------------------------------------------------------
\259\ See 17 CFR 45.14(a).
---------------------------------------------------------------------------
[[Page 21093]]
Non-reporting counterparties may also incur additional costs
related to the requirements in proposed Sec. 45.14(b)(2), which are
effectively the same as current Sec. 45.14(b), except for the
inclusion of the three business day time limit for informing the
reporting counterparty or SEF or DCM of discovered errors or omissions
and the additional requirement to inform the SEF or DCM when the non-
reporting counterparty does not know the identity of the reporting
counterparty. The time limit merely adds a boundary to the current
``promptly'' requirement for informing the reporting counterparty of
discovered errors and omissions.\260\ The additional requirement to
inform a SEF or DCM is intended to accommodate the non-reporting
counterparties in fulfilling their role in the data correction process
for swaps executed anonymously and the Commission expects that non-
reporting counterparties would not incur many costs for notifying a SEF
or DCM of errors and omissions beyond the cost currently incurred when
notifying reporting counterparties.
---------------------------------------------------------------------------
\260\ See 17 CFR 45.14(b).
---------------------------------------------------------------------------
The Commission believes verification of swap data accuracy helps
ensure that the Commission has access to the most accurate and complete
swap data possible to fulfill its various regulatory responsibilities.
Accurate swap data enables the Commission to monitor and surveil market
activity and risks within the swaps markets, as well as provide
assessments of the swaps markets to the public. Additionally, the
Commission believes that complete and accurate swap data is necessary
for effective risk management for swap counterparties, and the proposed
verification and correction requirements would assist swap
counterparties with ensuring that the data they possess is accurate and
complete. The Commission believes that complete and accurate swap data
would benefit market participants and the public by improving the
Commission's ability to monitor the swaps markets and maintain market
integrity through market oversight, analysis, and providing information
to the public.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 45.14. Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 45.14. Are there any other alternatives
that may provide preferable costs or benefits than the costs and
benefits related to the proposed amendments?
6. Costs and Benefits of Proposed Amendments to Part 43
i. Sec. 43.3--Method and Timing for Real-Time Public Reporting
The Commission is proposing to amend the error and omission
correction requirements of current Sec. 43.3(e) to make the
requirements consistent with the error and omissions correction
requirements in proposed Sec. 45.14(b). The Commission believes these
amendments would create consistency between the error and omission
correction requirements for swap data and swap transaction and pricing
data, which would reduce confusion surrounding the error and omissions
corrections process.
Proposed Sec. 43.3(e)(1) would require any SEF, DCM, or reporting
counterparty that by any means becomes aware of any errors or omissions
in swap transaction and pricing data previously reported to an SDR by
the SEF, DCM, or reporting counterparty to submit corrected swap
transaction and pricing data to the SDR, regardless of the state of the
swap. Proposed Sec. 43.3(e)(1) would also require any SEF, DCM, or
reporting counterparty that by any means becomes aware of the omission
of swap transaction and pricing data previously not reported to an SDR
by the SEF, DCM, or reporting counterparty as required, to submit
corrected swap transaction and pricing data to the SDR regardless of
the state of the swap.
Proposed Sec. 43.3(e)(1)(i) would require SEFs, DCMs, and
reporting counterparties to correct swap transaction and pricing data
as soon as technologically practicable following discovery of the
errors or omissions, but no later than three business days following
the discovery of the error or omission.
Proposed Sec. 43.3(e)(1)(ii) would provide that if a SEF, DCM, or
reporting counterparty is unable to correct the errors or omissions
within three business days following discovery of the errors or
omissions, the SEF, DCM, or reporting counterparty must immediately
inform the Director of DMO, or his or her designee, in writing, of such
errors or omissions and provide an initial assessment of the scope of
the errors or omissions and an initial remediation plan for correcting
the errors or omissions.
Proposed Sec. 43.3(e)(1)(iii) would require that a SEF, DCM, or
reporting counterparty conform to an SDR's policies and procedures for
corrections of errors and omissions in previously reported swap
transaction and pricing data and reporting of omitted swap transaction
and pricing data.
Proposed Sec. 43.3(e)(2) would require a non-reporting
counterparty that by any means becomes aware of any error or omission
in swap transaction and pricing data previously reported to an SDR, or
the omission of swap transaction and pricing data for a swap that was
not previously reported to an SDR as required, to notify the reporting
counterparty as soon as technologically practicable following discovery
of the errors or omissions, but no later than three business days
following the discovery of the errors or omissions.
Proposed Sec. 43.3(e)(2) would also require that a non-reporting
counterparty that does not know the identity of the reporting
counterparty for a swap to notify the SEF or DCM where the swap was
executed of the errors and omissions as soon as technologically
practicable after discovery of the errors or omissions, but no later
than three business days after the discovery. Proposed Sec. 43.3(e)(2)
would also require that, if the non-reporting counterparty and the
reporting counterparty, SEF, or DCM, as applicable, agree that the swap
transaction and pricing data for a swap is incorrect or incomplete, the
reporting counterparty, SEF, or DCM, as applicable, must correct the
swap transaction and pricing data in accordance with proposed Sec.
43.3(e)(1).
The Commission is proposing to move all of the requirements of
current Sec. 43.3(f) and (g) to proposed new Sec. 49.28. As such, all
costs and benefits associated with this change are discussed above in
section VII.C.4.xiii.
(A) Costs and Benefits
The costs and benefits for the proposed changes to Sec. 43.3(e)
are similar to the costs and benefits previously discussed for the
proposed changes to Sec. 45.14(b), as the proposed changes to each
section are intended to be consistent in all respects, aside from the
verification requirements. Therefore, the proposed changes to Sec.
43.3(e) may also result in administrative and compliance costs for
reporting counterparties. These costs would, however, be mitigated by
the fact that the requirements of proposed Sec. 43.3(e) are similar to
the requirements of current Sec. 43.3(e).
[[Page 21094]]
Additional costs may be incurred by SEFs, DCMs, or reporting
counterparties from correcting errors and omissions within three
business days of discovery and from informing the Director of DMO in
writing with an initial assessment and initial remediation plan if
necessary under proposed Sec. 43.3(e)(1)(i) and (ii). The Commission
believes that these costs would not be significant, however, because
the three-day requirement merely adds a specific timeframe to the
current ``promptly'' requirement,\261\ and reporting counterparties
typically provide a remediation plan to the Commission for reporting
errors and omissions as part of current practice. SEFs, DCMs, and
reporting counterparties may also incur costs from updating their error
and omission reporting systems or practices in order to maintain
consistency with SDR error and omission policies and procedures created
pursuant to proposed Sec. 49.10(e), as would be required under
proposed Sec. 43.3(e)(1)(iii).
---------------------------------------------------------------------------
\261\ See generally 17 CFR 43.3(e).
---------------------------------------------------------------------------
Non-reporting counterparties may also incur additional costs
related to the requirements in proposed Sec. 43.3(e)(2), which are
similar to the requirements of current Sec. 43.3(e)(1)(i), except for
the proposed inclusion of the three business day time limit for
informing the reporting counterparty, SEF, or DCM of discovered errors
or omissions and the additional requirement to inform the SEF or DCM
when the non-reporting counterparty does not know the identity of the
reporting counterparty. The time limit merely adds a boundary to the
current ``promptly'' requirement for informing the reporting
counterparty of discovered errors and omissions.\262\ The additional
requirement to inform a SEF or DCM is intended to accommodate the non-
reporting counterparties in fulfilling their role in the data
correction process for swaps executed anonymously and the Commission
expects that non-reporting counterparties would not incur many costs
for notifying a SEF or DCM of errors and omissions beyond the cost
currently incurred when notifying reporting counterparties.
---------------------------------------------------------------------------
\262\ See 17 CFR 43.3(e)(i).
---------------------------------------------------------------------------
As with the benefits described above in section 5.ii, the
Commission believes consistent error and omission correction
requirements for swap data and swap transaction and pricing data helps
ensure that the Commission has access to the most accurate and complete
swap transaction and pricing data possible to fulfill its various
regulatory responsibilities. Accurate swap transaction and pricing data
helps the Commission to monitor and surveil market activity and risks
within the swaps markets. Accurate and complete swap transaction and
pricing data is also beneficial to market participants and the public
who rely on the data in their swaps-related decision-making.
Additionally, the Commission believes that complete and accurate swap
transaction and pricing data is necessary for effective risk management
for swap counterparties, and the proposed correction requirements would
assist swap counterparties with ensuring that the swap transaction and
pricing data they possess is accurate and complete.
SDRs and counterparties also benefit from proposed Sec. 43.3(e)
creating consistency between the error and omission correction
requirements for swap data and for swap transaction and pricing data.
Inconsistent requirements could lead to confusion, improper correction,
and unnecessary effort for counterparties and SDRs. The consistency
created by the proposed amendments to Sec. 43.3(e) would help avoid
those issues.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. 43.3(e). Are there
additional costs and benefits that the Commission should consider?
Commenters are encouraged to include both qualitative and quantitative
assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. 43.3(e). Are there any other
alternatives that may provide preferable costs or benefits than the
costs and benefits related to the proposed amendments?
7. Costs and Benefits of Proposed Amendments to Part 23
i. Sec. Sec. 23.204 and 23.205--Reports to Swap Data Repositories and
Real-Time Public Reporting
Proposed amendments to Sec. Sec. 23.204 and 23.205 add a paragraph
(c) to each section requiring SDs and MSPs to establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
that SDs and MSPs comply with their swap reporting obligations pursuant
to parts 45 and 43, respectively. The proposed amendments also require
SDs and MSPs to perform annual reviews of these policies and
procedures.
For proposed Sec. 23.204, the policies and procedures related to
reporting under part 45 of the Commission's regulations would need to
contain details related to their responsibilities to verify swap data.
This would include policies and procedures related to regularly
accepting open swap reports from SDRs, cross-checking with internal
records to ensure the swap data is accurate and complete, and
responding to the SDR, as required. SDs and MSPs are already
responsible for keeping up-to-date records on all swaps to which they
are a counterparty under parts 23 and 45 of the Commission's
regulations.\263\
---------------------------------------------------------------------------
\263\ See 17 CFR 23.201-23.203 (detailing the recordkeeping
requirements for SDs and MSPs); 17 CFR 45.2 (containing swap
recordkeeping requirements for SDs and MSPs and referencing the part
23 recordkeeping requirements).
---------------------------------------------------------------------------
(A) Costs and Benefits
The Commission believes that the costs associated with the proposed
amendment to Sec. Sec. 23.204 and 23.205 for SDs and MSPs \264\ would
be associated with creating and enforcing the policies and procedures,
and would consist mostly of administrative efforts to draft, review,
implement, and update policies and procedures. The Commission expects
that SDs and MSPs that are participants of more than one SDR may incur
higher associated costs than those entities that are participants of
only one SDR, as the SD and MSP policies and procedures would need to
contemplate the reporting requirements for each SDR.\265\
---------------------------------------------------------------------------
\264\ There are 103 provisionally-registered SDs as of February
28, 2019, all of which are expected to be a participant on at least
one of the three existing SDRs. See https://www.nfa.futures.org/NFA-swaps-information/regulatory-info-sd-and-msp/SD-MSP-registry.HTML.
\265\ For additional discussion of the costs and benefits
related to part 23, see generally Part 23 Adopting Release.
---------------------------------------------------------------------------
Even though SDs and MSPs may incur upfront costs related to the
proposed amendments, the Commission believes that these financial
outlays would be mitigated for two reasons. First, SDs and MSPs have
experience with establishing and enforcing policies and procedures
related to other Commission regulations.\266\ Second, the proposed
amendments to Sec. Sec. 23.204 and 23.205 are substantially similar to
the SEC's requirements for its security-based SDs/MSPs.\267\ While not
all SDs and MSPs covered by the proposed amendments would be subject to
these SEC requirements, the Commission expects that there would be
significant overlap.
[[Page 21095]]
Consequently, these SDs and MSPs should be able to leverage resources
and reduce duplicative costs.
---------------------------------------------------------------------------
\266\ See, e.g., 17 CFR 23.501 (confirmations with
counterparty); 17 CFR 23.504 (counterparty onboarding
documentation); 17 CFR 23.602 (supervision policies).
\267\ See 17 CFR 242.906 (requiring security-based SDs and
security-based MSPs to establish, maintain, and enforce policies and
procedures reasonably designed to ensure compliance with reporting
requirements).
---------------------------------------------------------------------------
The Commission believes the proposed amendments would also provide
important benefits. SD and MSP policies and procedures reasonably
designed to ensure compliance with the reporting requirements of parts
43 and 45 would help improve compliance with the reporting rules. For
example, policies and procedures designating the responsibility for
reporting swap transactions should reduce confusion as to who within
the organizations is responsible for reporting the required SDR data,
according to the reporting procedures of the different SDRs. The
Commission expects that there would also likely be fewer reporting
errors (and less subsequent ad hoc work, with its associated costs, by
SD/MSP staff to correct these errors) because SD/MSP employees would be
able to follow the policies and procedures to perform their functions
correctly.
The Commission also expects that the proposed amendments would help
lead to enhanced communication between reporting counterparties and
SDRs. Increased communication that is focused on improving the accuracy
of SDR data would help to identify areas that require special attention
that might not be specifically addressed in these proposed regulations.
Hence, this enhanced working relationship between market participants
and SDRs may lead to improved data reporting beyond that specifically
contemplated by the regulations.
The Commission also believes that, because SDs and MSPs submit the
large majority of the reported SDR data, the requirements for policies
and procedures related to reporting would improve the overall quality
of reported data. SDs and MSPs generate a considerable majority of the
total number of transactions reported to SDRs and serve as the
reporting counterparty for the overwhelming majority of swaps.\268\ A
Commission analysis of SDR data indicates that from January 1, 2017
through December 31, 2017, almost all swap transactions involved at
least one registered SD as a counterparty--greater than 99 percent for
interest rate, credit default, foreign exchange, and equity swaps. For
non-financial commodity swaps, approximately 86 percent of transactions
involved at least one registered SD as a counterparty. Overall,
approximately 98 percent of transactions involved at least one
registered SD.\269\ The Commission expects that these additional
requirements for SDs and MSPs, and the attendant benefits to data
quality, would have a substantial impact on the overall quality of the
data reported to SDRs because of the important role these reporting
counterparties perform in the swaps market.
---------------------------------------------------------------------------
\268\ Based on the requirements of Sec. 45.8, any swap with at
least one SD or MSP counterparty will have an SD or MSP serving as
the reporting counterparty. See 17 CFR 45.8 (detailing the
requirements for determining which counterparty must report swap
data).
\269\ 83 FR at 56674.
---------------------------------------------------------------------------
The Commission also expects that the requirement for SDs and MSPs
to have policies and procedures relating to real-time reporting under
part 43 would improve swap transaction and pricing information that
SDRs would then provide the public. Hence, the Commission believes the
proposed amendments would also improve transparency in the swaps
markets and provide benefits to market participants and the public in
general.
(B) Request for Comment
The Commission requests comment on its considerations of the costs
and benefits of the proposed amendments to Sec. Sec. 23.204(c) and
23.205(c). Are there additional costs and benefits that the Commission
should consider? Commenters are encouraged to include both qualitative
and quantitative assessments of these costs and benefits.
The Commission requests comments on its consideration of
alternatives to proposed Sec. Sec. 23.204(c) and 23.205(c). Are there
any other alternatives that may provide preferable costs or benefits
than the costs and benefits related to the proposed amendments?
8. Section 15(a) Factors
The Dodd-Frank Act sought to promote the financial stability of the
United States, in part, by improving financial system accountability
and transparency. More specifically, Title VII of the Dodd-Frank Act
directs the Commission to promulgate regulations to increase swaps
markets' transparency and thereby reduce the potential for counterparty
and systemic risk.\270\ Transaction-based reporting is a fundamental
component of the legislation's objectives to increase transparency,
reduce risk, and promote market integrity within the financial system
generally, and the swaps market in particular. The SDRs and the SEFs,
DCMs, and reporting counterparties that submit data to SDRs are central
to achieving the legislation's objectives related to swap reporting.
---------------------------------------------------------------------------
\270\ See Congressional Research Service Report for Congress,
The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title
VII, Derivatives, by Mark Jickling and Kathleen Ann Ruane (August
30, 2010); Dep't of the Treasury, Financial Regulatory Reform: A New
Foundation: Rebuilding Financial Supervision and Regulation 1 (June
17, 2009) at 47-48.
---------------------------------------------------------------------------
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of the proposed amendments to parts 23, 43, 45, and
49 with respect to the following factors:
Protection of market participants and the public;
Efficiency, competitiveness, and financial integrity of
markets;
Price discovery;
Sound risk management practices; and
Other public interest considerations.
A discussion of these proposed amendments in light of section 15(a)
factors is set out immediately below.
i. Protection of Market Participants and the Public
In the Part 49 Adopting Release, the Commission noted that it
believed that the registration and regulation of SDRs would serve to
better protect market participants by providing the Commission and
other regulators with important oversight tools to monitor, measure,
and comprehend the swaps markets. Inaccurate and incomplete data
reporting hinders the Commission's ability to oversee the swaps market.
The Commission believes that the adoption of all the proposed
amendments to parts 23, 43, 45, and 49 would improve the quality of the
data reported, increase transparency, and enhance the Commission's
ability to fulfill its regulatory responsibilities, including its
market surveillance and enforcement capabilities. In addition, the
Commission believes that monitoring of potential risks to financial
stability would be more effective with more accurate data. More
accurate data would therefore lead to improved protection of market
participants and the public.
ii. Efficiency, Competitiveness, and Financial Integrity of Markets
The Commission believes that the adoption of the proposed
amendments to parts 23, 43, 45, and 49, together with the swap data
recordkeeping and reporting requirements in parts 43 and 45, would
provide a robust source of information on the swaps market that is
expected to promote increased efficiency and competition. The
Commission believes that more accurate swap transaction and pricing
data would lead to greater efficiencies for market participants
executing swap transactions due to a better understanding of their
overall positions
[[Page 21096]]
within the context of the broader market. This improved understanding
would be facilitated by two distinct channels. First, amendments that
result in improved part 43 swap transaction and pricing data being made
available to the public would improve the ability of market
participants to monitor real-time activity by other participants and to
respond appropriately. Second, amendments that result in improved swap
data would improve the Commission's ability to monitor the swaps
markets for abusive practices and improve the Commission's ability to
create policies that ensure the integrity of the swaps markets. This
improvement would be facilitated by the Commission's oversight and
enforcement capabilities and the reports and studies published by the
Commission's research and information programs.
In particular, the proposed amendments to Sec. Sec. 23.204, 45.14,
49.2, 49.10, 49.11, 49.12, 49.13, and 49.26 would help improve the
financial integrity of markets. For example, the verification and
correction of swap data would improve the accuracy and completeness of
swap data available to the Commission and would assist the Commission
with, among other things, improving monitoring of risk exposures of
individual counterparties, monitoring concentrations of risk exposure,
and evaluating systemic risk. In addition, the SDRs' requirement to
perform monitoring, screening, and analyzing tasks, as proposed in the
amendments to Sec. 49.13, would support the Commission's other
regulatory functions, including market surveillance. The efficient
oversight and accurate data reporting enabled by these proposed
amendments would improve the financial integrity of the swaps markets.
In the Part 49 Adopting Release, the Commission expected that the
introduction of SDRs would further automate the reporting of swap data.
The Commission expected that automation would benefit market
participants and reduce transactional risks through the SDRs and other
service providers offering important ancillary services, such as
confirmation and matching services, valuations, pricing, reconciliation
functions, position limits management, and dispute resolution. These
benefits to market participants and related service providers also
enhance the efficiency, competitiveness, and financial integrity of
markets.\271\ The proposed amendments would help to further enhance
these benefits.
---------------------------------------------------------------------------
\271\ See Part 49 Adopting Release at 54573.
---------------------------------------------------------------------------
iii. Price Discovery
The CEA requires that swap transaction and pricing data be made
publicly available. The CEA and its existing implementing regulations
in part 43 also require swap transaction and pricing data to be
available to the public in real-time. Combined, parts 23, 43, and 49
achieve the statutory objective of providing transparency and enhanced
price discovery to swap markets in a timely manner. The proposed
amendments to Sec. Sec. 23.205, 43.3, 49.2, 49.10, 49.11, 49.12,
49.13, and 49.26 improve the fulfillment of these objectives. The
proposed amendments would both directly and indirectly upgrade the
quality of real-time public reporting of swap transaction and pricing
data by improving the quality of information that is reported to the
SDRs and disseminated to the public.
As with the swap data reported for use by regulators, the
Commission believes that inaccurate and incomplete swap transaction and
pricing data hinders the public's use of the data, which harms
transparency and price discovery. The Commission is aware of at least
three publicly available studies that support this point. The studies
examined data and remarked on incomplete, inaccurate, and unreliable
data. The first study analyzed the potential impact of the Dodd-Frank
Act on OTC transaction costs and liquidity using real-time CDS trade
data and stated that more than 5,000 reports had missing prices and
more than 15,000 reports included a price of zero, leaving a usable
sample of 180,149 reports.\272\ The second study reported a number of
fields that were routinely null or missing making it difficult to
analyze swap market volumes.\273\ The third study assessed the size of
the agricultural swaps market and described problems identifying the
underlying commodity as well as other errors in the reported data that
made some data unusable, including, for example, swaps with a reported
notional quantity roughly equal to the size of the entire U.S. soybean
crop.\274\ Market participants would be better able to analyze swap
transaction and pricing data because it is more accurate and complete
due to the proposed amendments, and as a result, transparency and price
discovery should improve.
---------------------------------------------------------------------------
\272\ Y.C. Loon, Z. (Ken) Zhong, ``Does Dodd-Frank affect OTC
transaction costs and liquidity? Evidence from real-time trade
reports,'' Journal of Financial Economics (2016), available at
http://dx.doi.org/10.1016/j.jfineco.2016.01.019.
\273\ See Financial Stability Report, Office of Financial
Research (Dec. 15, 2015) at 84-85, available at https://financialresearch.gov/financial-stability-reports/files/OFR_2015-Financial-Stability-Report_12-15-2015.pdf.
\274\ Peterson, P.E. 2014. ``How Large is the Agricultural Swaps
Market?'' Proceedings of the NCCC-134 Conference on Applied
Commodity Price Analysis, Forecasting, and Market Risk Management.
St. Louis, MO, available at http://www.farmdoc.illinois.edu/nccc134.
---------------------------------------------------------------------------
iv. Sound Risk Management Practices
In the Part 49 Adopting Release, the Commission stated that part 49
and part 45 would greatly strengthen the risk management practices of
the swaps market.\275\ Prior to the adoption of the Dodd-Frank Act,
participants in the swaps markets operated without obligations to
disclose transactions to regulators or to the public. The Dodd-Frank
Act specifically changed the transparency of the swaps market with the
adoption of CEA section 21 and the establishment of SDRs as the
entities to which swap data and swap transaction and pricing data is
reported and maintained for use by regulators or disseminated to the
public. The Commission believes that the improved reporting of SDR data
to SDRs would serve to improve risk management practices by market
participants. To the extent that better swap transaction and pricing
data improves the ability of market participants to gauge their risks
in the context of the overall market, risk management practices should
improve. Earlier and more informed discussions between relevant market
participants and regulators regarding systemic risk facilitated by
accurate swap data would also lead to improved risk management
outcomes. Market participants should also see improvements in their
risk management practices, as improved swap data allows for more
accurate and timely market analyses that are publicly disseminated by
the Commission.
---------------------------------------------------------------------------
\275\ See Part 49 Adopting Release at 54574.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments to parts 23,
43, 45, and 49 would improve the quality of SDR data reported to SDRs
and, hence, improve the Commission's ability to monitor the swaps
market, react to potential market emergencies, and fulfill its
regulatory responsibilities generally. The Commission believes that
regulator access to high-quality SDR data is essential for appropriate
risk management and is especially important for regulators' ability to
monitor the swaps market for systemic risk. Moreover, the Commission
expects that efforts to improve data quality would increase market
participants' confidence in the SDR data and therefore their
[[Page 21097]]
confidence in any subsequent analyses based on the data.
v. Other Public Interest Considerations
The Commission believes that the increased transparency resulting
from improvements to the SDR data collected by SDRs via the proposed
amendments to parts 23, 43, 45, and 49 has other public interest
considerations including:
Creating greater understanding for the public, market
participants, and the Commission of the interaction between the swaps
market, other financial markets, and the overall economy;
Improved regulatory oversight and enforcement
capabilities; and
More information for regulators so that they may establish
more effective public policies to reduce overall systemic risk.
9. Request for Comment
The Commission requests comment on all aspects of the proposed
rules. Beyond specific questions interspersed throughout this
discussion, the Commission generally requests comment on all aspects of
its consideration of costs and benefits, including: identification and
assessment of any costs and benefits not discussed herein; the
potential costs and benefits of the alternatives that the Commission
discussed in this release; data and any other information to assist or
otherwise inform the Commission's ability to quantify or qualitatively
describe the benefits and costs of the proposed rules; and
substantiating data, statistics, and any other information to support
statements by commenters with respect to the Commission's consideration
of costs and benefits. Commenters also may suggest other alternatives
to the proposed approach where the commenters believe that the
alternatives would be appropriate under the CEA and provide a superior
cost-benefit profile.
D. Anti-trust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA, in issuing any order or adopting any Commission
rule or regulation.
The Commission does not anticipate that the proposed amendments to
parts 23, 43, 45, and 49 would result in anti-competitive behavior.
However, the Commission encourages comments from the public on any
aspect of the proposal that may have the potential to be inconsistent
with the anti-trust laws or anti-competitive in nature.
List of Subjects
17 CFR Part 23
Swap dealers and major swap participants.
17 CFR Part 43
Real-time public swap reporting.
17 CFR Part 45
Swaps; data recordkeeping requirements; data reporting
requirements.
17 CFR Part 49
Swap data repositories; registration and regulatory requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR parts 23, 43, 45, and 49 as
set forth below:
PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS
0
1. The authority citation for part 23 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, and 24a as amended by
Pub. L. 111-203, 124 Stat. 1376 (2010)
PART 23 [AMENDED]
0
2. In the table below, for each section indicated in the left column,
remove the term indicated in the middle column from wherever it appears
in the section, and add in its place the term indicated in the right
column:
------------------------------------------------------------------------
Section Remove Add
------------------------------------------------------------------------
23.204(a)................... swap transaction swap data.
data.
23.204(a)................... information and data swap data.
23.204(b)................... swap transaction swap data.
data.
23.204(b)................... information and data swap data.
23.205(a)................... information and swap swap transaction and
transaction and pricing data.
pricing data.
23.205(a)................... public recording.... public reporting.
23.205(b)................... swap transaction swap transaction and
data. pricing data.
23.205(b)................... information and data swap transaction and
pricing data.
------------------------------------------------------------------------
0
3. In Sec. 23.204, add paragraph (c) to read as follows:
Sec. 23.204 Reports to swap data repositories.
* * * * *
(c) Each swap dealer and major swap participant shall establish,
maintain, and enforce written policies and procedures that are
reasonably designed to ensure that it complies with all obligations to
report swap data to a swap data repository in accordance with part 45
of this chapter. Each such swap dealer and major swap participant shall
review its policies and procedures at least annually and update the
policies and procedures to reflect the requirements of part 45 of this
chapter as needed.
0
4. In Sec. 23.205, add paragraph (c) to read as follows:
Sec. 23.205 Real-time public reporting.
* * * * *
(c) Each swap dealer and major swap participant shall establish,
maintain, and enforce written policies and procedures that are
reasonably designed to ensure that it complies with all obligations to
report swap transaction and pricing data to a swap data repository in
accordance with part 43 of this chapter. Each such swap dealer and
major swap participant shall review its policies and procedures at
least annually and update the policies and procedures to reflect the
requirements of part 43 of this chapter as needed.
PART 43--REAL-TIME PUBLIC REPORTING
0
5. The authority citation for Part 43 continues to read as follows:
Authority: 7 U.S.C. 2(a), 12a(5), and 24a, as amended by Pub. L.
111-203, 124 Stat. 1376 (2010).
0
6. In Sec. 43.3 revise paragraph (e) and remove and reserve paragraphs
(f) and (g) to read as follows:
Sec. 43.3 Method and timing for real-time public reporting.
* * * * *
(e) Correction of errors and omissions in swap transaction and
pricing data.
[[Page 21098]]
(1) Any swap execution facility, designated contract market, or
reporting counterparty that by any means becomes aware of any error or
omission in swap transaction and pricing data previously reported to a
swap data repository by the swap execution facility, designated
contract market, or reporting counterparty, or of the omission of swap
transaction and pricing data for a swap that was not previously
reported to a swap data repository as required under this part by the
swap execution facility, designated contract market, or reporting
counterparty, shall, as applicable, submit corrected swap transaction
and pricing data to the swap data repository that maintains the swap
transaction and pricing data for the relevant swap or correctly report
swap transaction and pricing data for a swap that was not previously
reported to a swap data repository as required under this part,
regardless of the state of the swap that is the subject of the swap
transaction and pricing data.
(i) The swap execution facility, designated contract market, or
reporting counterparty shall submit the corrections for errors or
submit the omitted swap transaction and pricing data to the swap data
repository as soon as technologically practicable following discovery
of the errors or omissions, but no later than three business days
following the discovery of the errors or omissions.
(ii) If the swap execution facility, designated contract market, or
reporting counterparty is unable to correct the errors or omissions
within three business days following discovery of the errors or
omissions, the swap execution facility, designated contract market, or
reporting counterparty shall immediately inform the Director of the
Division of Market Oversight, or such other employee or employees of
the Commission as the Director may designate from time to time, in
writing, of such errors or omissions and provide an initial assessment
of the scope of the errors or omissions and an initial remediation plan
for correcting the errors or omissions.
(iii) In order to satisfy the requirements of this section, a swap
execution facility, designated contract market, or reporting
counterparty shall conform to a swap data repository's policies and
procedures created pursuant to Sec. 49.10 of this chapter for
correction of errors and omissions in previously-reported swap
transaction and pricing data and reporting of omitted swap transaction
and pricing data.
(2) Any non-reporting counterparty that by any means becomes aware
of any error or omission in swap transaction and pricing data
previously reported to a swap data repository, or of the omission of
swap transaction and pricing data for a swap that was not previously
reported to a swap data repository as required under this part, for a
swap to which it is the non-reporting counterparty shall notify the
reporting counterparty for the swap of the errors or omissions as soon
as technologically practicable following discovery of the errors or
omissions, but no later than three business days following the
discovery of the errors or omissions. If the non-reporting counterparty
does not know the identity of the reporting counterparty, the non-
reporting counterparty shall notify the swap execution facility or
designated contract market where the swap was executed of the errors or
omissions as soon as technologically practicable following discovery of
the errors or omissions, but no later than three business days
following the discovery of the errors or omissions. If, as applicable,
the reporting counterparty and non-reporting counterparty, or the swap
execution facility or designated contract market and non-reporting
counterparty, agree that the swap transaction and pricing data for a
swap is incorrect or incomplete, the reporting counterparty, swap
execution facility, or designated contract market, as applicable, shall
correct the swap transaction and pricing data in accordance with
paragraph (e)(1) of this section.
* * * * *
PART 45--SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS
0
7. The authority citation for Part 45 continues to read as follows:
Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a, and 24a, as amended
by Title VII of the Wall Street Reform and Consumer Protection Act
of 2010, Pub. L. 111-203, 124 Stat. 1376 (2010), unless otherwise
noted.
Sec. 45.2 [Amended].
0
8. In Sec. 45.2, remove and reserve paragraphs (f) and (g
0
9. Revise Sec. 45.14 to read as follows:
Sec. 45.14 Verification of swap data accuracy and correcting errors
and omissions in swap data.
(a) Verification of swap data accuracy to a swap data repository. A
reporting counterparty shall verify the accuracy and completeness of
swap data for swaps for which it is the reporting counterparty in
accordance with this paragraph (a).
(1) In order to verify the accuracy and completeness of swap data
for swaps for which it is the reporting counterparty as required by
this section, a reporting counterparty shall reconcile its internal
books and records for each open swap for which it is the reporting
counterparty with every open swaps report provided to the reporting
counterparty by a swap data repository pursuant to Sec. 49.11 of this
chapter. In order to satisfy the requirements of this section, a
reporting counterparty shall conform to a swap data repository's
policies and procedures created pursuant to Sec. 49.11 of this chapter
for verification of swap data.
(2) For every open swaps report provided to a reporting
counterparty by a swap data repository pursuant to Sec. 49.11 of this
chapter, the reporting counterparty shall submit to the swap data
repository either a verification of data accuracy in accordance with
paragraph (3) of this section or a notice of discrepancy in accordance
with paragraph (4) of this section within:
(i) 48 hours of the swap data repository providing the open swaps
report to the reporting counterparty pursuant to Sec. 49.11 of this
chapter, if the reporting counterparty is a swap dealer, major swap
participant, or a derivatives clearing organization; or
(ii) 96 hours of the swap data repository providing the open swaps
report to the reporting counterparty pursuant to Sec. 49.11 of this
chapter, if the reporting counterparty is not a swap dealer, major swap
participant, or a derivatives clearing organization.
(3) If a reporting counterparty finds no discrepancies between the
accurate and current swap data for a swap according to the reporting
counterparty's internal books and records and the swap data for the
swap contained in the open swaps report provided by the swap data
repository, the reporting counterparty shall submit a verification of
data accuracy indicating that the swap data is complete and accurate to
the swap data repository in the form and manner required by the swap
data repository's policies and procedures created pursuant to Sec.
49.11 of this chapter.
(4) If the reporting counterparty finds any discrepancy between the
accurate and current swap data for a swap according to the reporting
counterparty's internal books and records and the swap data for the
swap contained in the open swaps report provided by the swap data
repository, including, but not limited to, any over-reporting or under-
reporting of swap data for any swap, the reporting counterparty shall
submit a notice of discrepancy to the swap data repository
[[Page 21099]]
in the form and manner required by the swap data repository's policies
and procedures created pursuant to Sec. 49.11 of this chapter.
(b) Correction of errors and omissions in swap data. (1) Any swap
execution facility, designated contract market, or reporting
counterparty that by any means becomes aware of any error or omission
in swap data previously reported to a swap data repository by the swap
execution facility, designated contract market, or reporting
counterparty, or of the omission of swap data for a swap that was not
previously reported to a swap data repository as required under this
part by the swap execution facility, designated contract market, or
reporting counterparty, including, but not limited to, errors or
omissions present during the verification process specified in
paragraph (a) of this section, shall, as applicable, submit corrected
swap data to the swap data repository that maintains the swap data for
the relevant swap or correctly report swap data for a swap that was not
previously reported to a swap data repository as required under this
part, regardless of the state of the swap that is the subject of the
swap data.
(i) The swap execution facility, designated contract market, or
reporting counterparty shall submit the corrections for errors or
submit the omitted swap data to the swap data repository as soon as
technologically practicable following discovery of the errors or
omissions, but no later than three business days following the
discovery of the errors or omissions.
(ii) If the swap execution facility, designated contract market, or
reporting counterparty is unable to correct the errors or omissions
within three business days following discovery of the errors or
omissions, the swap execution facility, designated contract market, or
reporting counterparty shall immediately inform the Director of the
Division of Market Oversight, or such other employee or employees of
the Commission as the Director may designate from time to time, in
writing, of such errors or omissions and provide an initial assessment
of the scope of the errors or omissions and an initial remediation plan
for correcting the errors or omissions.
(iii) In order to satisfy the requirements of this section, a swap
execution facility, designated contract market, or reporting
counterparty shall conform to a swap data repository's policies and
procedures created pursuant to Sec. 49.10 of this chapter for
correction of errors or omissions in previously-reported swap data and
reporting of omitted swap data.
(2) Any non-reporting counterparty that by any means becomes aware
of any error or omission in swap data previously reported to a swap
data repository, or of the omission of swap data for a swap that was
not previously reported to a swap data repository as required under
this part, for a swap to which it is the non-reporting counterparty,
shall notify the reporting counterparty for the swap of the errors or
omissions as soon as technologically practicable following discovery of
the errors or omissions, but no later than three business days
following the discovery of the errors or omissions. If the non-
reporting counterparty does not know the identity of the reporting
counterparty, the non-reporting counterparty shall notify the swap
execution facility or designated contract market where the swap was
executed of the errors or omissions as soon as technologically
practicable following discovery of the errors or omissions, but no
later than three business days following the discovery of the errors or
omissions. If, as applicable, the reporting counterparty and non-
reporting counterparty, or the swap execution facility or designated
contract market and non-reporting counterparty, agree that the swap
data for a swap is incorrect or incomplete, the reporting counterparty,
swap execution facility, or designated contract market, as applicable,
shall correct the swap data in accordance with paragraph (b)(1) of this
section.
PART 49--SWAP DATA REPOSITORIES
0
10. The authority citation for Part 49 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2(a), 6r, 12a, and 24a, as amended by
Title VII of the Wall Street Reform and Consumer Protection Act of
2010, Pub. L. 111-203, 124 Stat. 1376 (Jul. 21, 2010), unless
otherwise noted.
PART 49 [AMENDED]
0
11. In part 49:
0
a. Remove the phrase to ``registered swap data repository'' and add in
its place ``swap data repository'';
0
b. Remove the phrase ``Registered Swap Data Repository'' and add in its
place ``Swap Data Repository''; and
0
c. Remove the phrase ``registered swap data repositories'' and add in
its place ``swap data repositories.''
0
12. In the table below, for each section and paragraph indicated in the
left column, remove the term indicated in the middle column from
wherever it appears in the section or paragraph, and add in its place
the term indicated in the right column:
----------------------------------------------------------------------------------------------------------------
Section Remove Add
----------------------------------------------------------------------------------------------------------------
49.3(d)..................... swap transaction data SDR data
49.3(d)..................... Sec. 40.1(e) Sec. 40.1
49.4(c) (heading)........... Revocation of Registration for False Application. Revocation of registration for
false application.
49.16(a)(2)(i).............. Section 8 Material section 8 material
49.16(a)(2)(ii)............. Other SDR Information other SDR information or SDR
data
49.16(a)(2)(iii)............ Intellectual intellectual
49.16(a)(2)(iii)............ person associated with the swap data repository person associated with a swap
data repository
49.16(a)(2)(iii)(A)......... Section 8 Material section 8 material
49.16(a)(2)(iii)(A)......... other SDR Information SDR information or SDR data
49.16(a)(2)(iii)(B)......... persons associated with the swap data repository persons associated with a swap
data repository
49.17(a).................... swap data SDR data
49.17(a).................... Section 8 of the Act section 8 of the Act
49.17(b)(1)(heading)........ Appropriate Domestic Regulator. Appropriate domestic
regulator.
49.17(b)(1)................. The term ``Appropriate Domestic Regulator'' shall The term ``appropriate
mean: domestic regulator'' shall
mean:
49.17(b)(2)(heading)........ Appropriate Foreign Regulator. Appropriate foreign regulator.
49.17(b)(2)................. The term ``Appropriate Foreign Regulator'' shall The term ``appropriate foreign
mean regulator'' shall mean
49.17(b)(2)................. those Foreign Regulators those foreign regulators
49.17(c)(2)................. analyzing of swap data analyzing of SDR data
49.17(c)(2)................. transfer of data transfer of SDR data
49.17(c)(3)................. swap data provided SDR data provided
49.17(c)(3)................. authorizedusers authorized users
[[Page 21100]]
49.17(d)(1)(heading)........ General Procedure for Gaining Access to Registered General procedure for gaining
Swap Data Repository Data. access to swap data
repository swap data.
49.17(d)(1)(i).............. Appropriate Domestic Regulator appropriate domestic regulator
49.17(d)(1)(i).............. Appropriate Foreign Regulator appropriate foreign regulator
49.17(d)(1)(ii)............. Appropriate Domestic Regulators and Appropriate Appropriate domestic
Foreign Regulators seeking regulators and appropriate
foreign regulators seeking
49.17(d)(1)(ii)............. applicable to Appropriate Domestic Regulators and applicable to appropriate
Appropriate Foreign Regulators domestic regulators and
appropriate foreign
regulators
49.17(d)(3)(heading)........ Foreign Regulator Foreign regulator
49.17(d)(3)................. Foreign Regulator foreign regulator
49.17(d)(3)................. Foreign Regulator's foreign regulator's
49.17(d)(4)(heading)........ requests for data access requests for swap data access
49.17(d)(4)(i).............. Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.17(d)(4)(i).............. Appropriate Domestic Regulator's or Appropriate appropriate domestic
Foreign Regulator's regulator's or appropriate
foreign regulator's
49.17(d)(4)(iii)............ Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.17(d)(4)(iii)............ Appropriate Domestic Regulator's or Appropriate appropriate domestic
Foreign Regulator's regulator's or appropriate
foreign regulator's
49.17(d)(5)(heading)........ Timing; Limitation, Suspension or Revocation of Timing, limitation,
Swap Data Access. suspension, or revocation of
swap data access.
49.17(d)(5)................. Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.17(d)(6)(heading)........ Confidentiality Arrangement. Confidentiality arrangement.
49.17(d)(6)................. Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.17(e).................... swap data and SDR Information SDR data and SDR information
49.17(e)(1)................. swap data and SDR Information SDR data and SDR information
49.17(e)(2)................. swap data or SDR Information SDR data or SDR information
49.17(e)(2)................. swap data and SDR Information SDR data and SDR information
49.17(f)(1)................. swap data maintained SDR data maintained
49.17(g) (heading).......... Commercial uses of data Commercial uses of SDR data
49.17(g).................... Swap data accepted SDR data accepted
49.17(g)(1)................. swap data required SDR data required
49.17(g)(2)(A).............. The swap dealer, counterparty, or any other The swap execution facility,
registered entity designated contract market,
or reporting counterparty
49.17(g)(2)(A).............. swap data maintained SDR data maintained
49.17(g)(2)(B).............. swap transaction data SDR data
49.17(g)(2)(B).............. reporting party swap execution facility,
designated contract market,
or reporting counterparty
49.17(g)(2)(B).............. any reported data any reported SDR data
49.17(g)(3)................. real-time swap data swap transaction and pricing
data
49.17(h)(3)................. CEA section 21(c)(7) section 21(c)(7) of the Act
49.17(h)(4)................. Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.18(a)(heading)........... Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator. or appropriate foreign
regulator.
49.18(a).................... Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.18(a).................... Appropriate Domestic Regulator's or Appropriate appropriate domestic
Foreign Regulator's regulator's or appropriate
foreign regulator's
49.18(d).................... Appropriate Domestic Regulator or Appropriate appropriate domestic regulator
Foreign Regulator or appropriate foreign
regulator
49.18(d).................... Appropriate Domestic Regulator's or Appropriate appropriate domestic
Foreign Regulator's regulator's or appropriate
foreign regulator's
49.19(a).................... paragraph section
49.20(b)(heading)........... Transparency of Governance Arrangements. Transparency of governance
arrangements.
49.20(c)(1)(i).............. Regulation section
49.20(c)(1)(i)(A)(2)........ Independent Perspective independent perspective
49.20(c)(1)(i)(B)........... Independent Perspective independent perspective
49.20(c)(5)................. Regulation section
49.23(a).................... swap transaction data SDR data
49.23(e)(heading)........... commission Commission
49.24(a).................... all swap data in its custody all SDR data in its custody
49.24(e)(3)(i).............. dissemination of swap data dissemination of SDR data
49.24(e)(3)(ii)............. normal swap data reporting, normal SDR data reporting,
49.24(f)(2)................. all swap data contained all SDR data contained
49.24(j)(1) Definition of data and information SDR data and SDR information
``Controls''.
49.24(j)(1) Definition of data and information SDR data and SDR information
``Enterprise technology
risk assessment''.
[[Page 21101]]
49.24(j)(1) Definition of integrity of data integrity of SDR data
``Security incident''.
49.24(k)(1)................. report swap data report SDR data
49.24(k)(2)................. report swap data report SDR data
49.24(l)(3)................. any data related to any SDR data related to
49.24(m).................... Board of Directors board of directors
49.26(a).................... swap data maintained SDR data maintained
49.26(c).................... safeguarding of swap data safeguarding of SDR data
49.26(d).................... any and all swap data any and all SDR data
49.26(d).................... reporting entity swap execution facility,
designated contract market,
or reporting counterparty
49.26(e).................... swap data that it receives SDR data that it receives
49.26(e).................... market participant, any registered entity, or any swap execution facility,
other person; designated contract market,
or reporting counterparty;
49.26(h).................... rebates; and rebates;
49.26(i).................... arrangements. arrangements; and
49.27(a)(2)................. Regulation section
49.27(b).................... reporting of swap data reporting of SDR data
Part 49, App. B (heading)... Registered Swap Data Respositories Swap Data Repositories
----------------------------------------------------------------------------------------------------------------
0
13. Revise Sec. 49.2 to read as follows:
Sec. 49.2 Definitions.
(a) As used in this part:
Affiliate. The term ``affiliate'' means a person that directly, or
indirectly, controls, is controlled by, or is under common control
with, the swap data repository.
As soon as technologically practicable. The term ``as soon as
technologically practicable'' means as soon as possible, taking into
consideration the prevalence, implementation, and use of technology by
comparable market participants.
Asset class. The term ``asset class'' means a broad category of
commodities including, without limitation, any ``excluded commodity''
as defined in section 1a(19) of the Act, with common characteristics
underlying a swap. The asset classes include interest rate, foreign
exchange, credit, equity, other commodity, and such other asset classes
as may be determined by the Commission.
Commercial use. The term ``commercial use'' means the use of SDR
data held and maintained by a swap data repository for a profit or
business purposes. A swap data repository's use of SDR data for
regulatory purposes and/or to perform its regulatory responsibilities
would not be considered a commercial use regardless of whether the swap
data repository charges a fee for reporting such SDR data.
Control. The term ``control'' (including the terms ``controlled
by'' and ``under common control with'') means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise.
Foreign regulator. The term ``foreign regulator'' means a foreign
futures authority as defined in section 1a(26) of the Act, foreign
financial supervisors, foreign central banks, foreign ministries, and
other foreign authorities.
Independent perspective. The term ``independent perspective'' means
a viewpoint that is impartial regarding competitive, commercial, or
industry concerns and contemplates the effect of a decision on all
constituencies involved.
Market participant. The term ``market participant'' means any
person participating in the swap market, including, but not limited to,
designated contract markets, derivatives clearing organizations, swap
execution facilities, swap dealers, major swap participants, and any
other counterparty to a swap transaction.
Non-affiliated third party. The term ``non-affiliated third party''
means any person except:
(1) The swap data repository;
(2) The swap data repository's affiliate; or
(3) A person jointly employed by a swap data repository and any
entity that is not the swap data repository's affiliate (the term
``non-affiliated third party'' includes such entity that jointly
employs the person).
Non-swap dealer/major swap participant/derivatives clearing
organization reporting counterparty. The term ``non-swap dealer/major
swap participant/derivatives clearing organization reporting
counterparty'' means a reporting counterparty that is not a swap
dealer, major swap participant, derivatives clearing organization, or
exempt derivatives clearing organization.
Open swap. The term ``open swap'' means an executed swap
transaction that has not reached maturity or the final contractual
settlement date, and has not been exercised, closed out, or terminated.
Person associated with a swap data repository. The term ``person
associated with a swap data repository'' means:
(1) Any partner, officer, or director of such swap data repository
(or any person occupying a similar status or performing similar
functions);
(2) Any person directly or indirectly controlling, controlled by,
or under common control with such swap data repository; or
(3) Any person employed by such swap data repository, including a
jointly employed person.
Position. The term ``position'' means the gross and net notional
amounts of open swap transactions aggregated by one or more attributes,
including, but not limited to, the:
(1) Underlying instrument;
(2) Index, or reference entity;
(3) Counterparty;
(4) Asset class;
(5) Long risk of the underlying instrument, index, or reference
entity; and
(6) Short risk of the underlying instrument, index, or reference
entity.
Reporting counterparty. The term ``reporting counterparty'' means
the counterparty responsible for reporting SDR data to a swap data
repository pursuant to parts 43, 45, or 46 of this chapter.
SDR data. The term ``SDR data'' means the specific data elements
and information required to be reported to a swap data repository or
disseminated by a swap data repository pursuant to two or more of parts
43, 45, 46, and/or 49
[[Page 21102]]
of this chapter, as applicable in the context.
SDR information. The term ``SDR information'' means any information
that the swap data repository receives or maintains related to the
business of the swap data repository that is not SDR data.
Section 8 material. The term ``section 8 material'' means the
business transactions, SDR data, or market positions of any person and
trade secrets or names of customers.
Swap data. The term ``swap data'' means the specific data elements
and information required to be reported to a swap data repository
pursuant to part 45 of this chapter or made available to the Commission
pursuant to this part, as applicable.
Swap transaction and pricing data. The term ``swap transaction and
pricing data'' means the specific data elements and information
required to be reported to a swap data repository or publicly
disseminated by a swap data repository pursuant to part 43 of this
chapter, as applicable.
(b) Other defined terms. Terms not defined in this part have the
meanings assigned to the terms in Sec. 1.3 of this chapter.
0
14. In Sec. 49.3, revise paragraph (a)(5) to read as follows:
Sec. 49.3 Procedures for registration.
(a) * * *
(5) Amendments. If any information reported on Form SDR or in any
amendment thereto is or becomes inaccurate for any reason before the
application for registration has been granted under this paragraph (a),
the swap data repository shall promptly file an amendment on Form SDR
updating such information.
* * * * *
0
15. Revise Sec. 49.5 to read as follows:
Sec. 49.5 Equity interest transfers.
(a) Equity interest transfer notification. A swap data repository
shall file with the Commission a notification of each transaction
involving the direct or indirect transfer of ten percent or more of the
equity interest in the swap data repository. The Commission may, upon
receiving such notification, request that the swap data repository
provide supporting documentation of the transaction.
(b) Timing of notification. The equity interest transfer notice
described in paragraph (a) of this section shall be filed
electronically with the Secretary of the Commission at its Washington,
DC headquarters at [email protected] and the Division of Market
Oversight at [email protected], at the earliest possible time but
in no event later than the open of business ten business days following
the date upon which a firm obligation is made to transfer, directly or
indirectly, ten percent or more of the equity interest in the swap data
repository.
(c) Certification. Upon a transfer, whether directly or indirectly,
of an equity interest of ten percent or more in a swap data repository,
the swap data repository shall file electronically with the Secretary
of the Commission at its Washington, DC headquarters at
[email protected] and the Division of Market Oversight at
[email protected], a certification that the swap data repository
meets all of the requirements of section 21 of the Act and the
Commission regulations adopted thereunder, no later than two business
days following the date on which the equity interest of ten percent or
more was acquired.
0
16. Revise Sec. 49.6 to read as follows:
Sec. 49.6 Request for transfer of registration.
(a) Request for approval. A swap data repository seeking to
transfer its registration from its current legal entity to a new legal
entity as a result of a corporate change shall file a request for
approval to transfer such registration with the Secretary of the
Commission in the form and manner specified by the Commission.
(b) Timing for filing a request for transfer of registration. A
swap data repository shall file a request for transfer of registration
as soon as practicable prior to the anticipated corporate change.
(c) Required information. The request for transfer of registration
shall include the following:
(1) The underlying documentation that governs the corporate change;
(2) A description of the corporate change, including the reason for
the change and its impact on the swap data repository, including the
swap data repository's governance and operations, and its impact on the
rights and obligations of market participants;
(3) A discussion of the transferee's ability to comply with the
Act, including the core principles applicable to swap data repositories
and the Commission's regulations;
(4) The governance documents adopted by the transferee, including a
copy of any constitution; articles or certificate of incorporation,
organization, formation, or association with all amendments thereto;
partnership or limited liability agreements; and any existing bylaws,
operating agreement, or rules or instruments corresponding thereto;
(5) The transferee's rules marked to show changes from the current
rules of the swap data repository; and
(6) A representation by the transferee that it:
(i) Will be the surviving entity and successor-in-interest to the
transferor swap data repository and will retain and assume the assets
and liabilities of the transferor, except if otherwise indicated in the
request;
(ii) Will assume responsibility for complying with all applicable
provisions of the Act and the Commission's regulations; and
(iii) Will notify market participants of all changes to the
transferor's rulebook prior to the transfer, including those changes
that may affect the rights and obligations of market participants, and
will further notify market participants of the concurrent transfer of
the registration to the transferee upon Commission approval and
issuance of an order permitting the transfer.
(d) Commission determination. Upon review of a request for transfer
of registration, the Commission, as soon as practicable, shall issue an
order either approving or denying the request for transfer of
registration.
0
17. Revise Sec. 49.9 to read as follows:
Sec. 49.9 Open swaps reports provided to the Commission.
Each swap data repository shall provide reports of open swaps to
the Commission in accordance with this section.
(a) Content of the open swaps report. In order to satisfy the
requirements of this section, each swap data repository shall provide
the Commission with open swaps reports that contain an accurate
reflection of the swap data for every swap data field required to be
reported for swaps pursuant to part 45 of this chapter for every open
swap maintained by the swap data repository, organized by the unique
identifier created pursuant to Sec. 45.5 of this chapter associated
with each open swap, as of the time the swap data repository compiles
the open swaps report.
(b) Transmission of the open swaps report. A swap data repository
shall transmit all open swaps reports to the Commission as instructed
by the Commission. Such instructions may include, but are not limited
to, the method, timing, and frequency of transmission as well as the
format of the swap data to be transmitted.
0
18. In Sec. 49.10, add paragraph (e) to read as follows:
[[Page 21103]]
Sec. 49.10 Acceptance of data.
* * * * *
(e) Errors and omissions. In accordance with this paragraph (e), a
swap data repository shall correct errors and omissions in SDR data
previously reported to the swap data repository pursuant to parts 43,
45, and 46 of this chapter and shall correct omissions in reporting SDR
data for swaps that were not previously reported to the swap data
repository as required under parts 43, 45, or 46 of this chapter,
regardless of the state of the swap that is the subject of the SDR
data.
(1) A swap data repository shall accept corrections for errors and
omissions reported to the swap data repository pursuant to parts 43,
45, or 46 of this chapter.
(2) A swap data repository shall correct the reported errors and
omissions as soon as technologically practicable after the swap data
repository receives a report of errors or omissions.
(3) A swap data repository shall disseminate corrected SDR data to
the public and the Commission, as applicable, in accordance with this
chapter, as soon as technologically practicable after the swap data
repository corrects the SDR data.
(4) A swap data repository shall establish, maintain, and enforce
policies and procedures designed for the swap data repository to accept
corrections for errors and omissions, to correct the errors and
omissions as soon as technologically practicable after the swap data
repository receives a report of errors or omissions, and to disseminate
such corrected SDR data to the public and to the Commission, as
applicable, in accordance with this chapter.
0
19. Revise Sec. 49.11 to read as follows:
Sec. 49.11 Verification of swap data accuracy.
(a) General requirement. Each swap data repository shall verify the
accuracy and completeness of swap data that it receives from swap
execution facilities, designated contract markets, or reporting
counterparties, or third-party service providers acting on their
behalf, in accordance with paragraph (b) of this section. A swap data
repository shall also establish, maintain, and enforce policies and
procedures reasonably designed to verify the accuracy and completeness
of swap data that it receives from swap execution facilities,
designated contract markets, or reporting counterparties, or third-
party service providers acting on their behalf.
(b) Distribution of open swaps reports. In order to verify the
accuracy and completeness of swap data as required by this section, a
swap data repository shall, on a regular basis, distribute to each
reporting counterparty an open swaps report detailing the swap data
maintained by the swap data repository for all open swaps as of the
time the swap data repository compiles the open swaps report for which
the recipient of the open swaps report is the reporting counterparty.
(1) Content of open swaps reports. In order to satisfy the
requirements of this section, the swap data repository shall distribute
an open swaps report that contains an accurate reflection of the swap
data for every swap data field required to be reported for swaps
pursuant to part 45 of this chapter, unless access to a particular data
field is prohibited by other Commission regulations, for every open
swap maintained by the swap data repository for which the recipient of
the report is the reporting counterparty, organized by the unique
identifier created pursuant to Sec. 45.5 of this chapter associated
with every open swap, as of the time the swap data repository compiles
the open swaps report.
(2) Frequency of open swaps reports for swap dealer, major swap
participant, and derivatives clearing organization reporting
counterparties. In order to satisfy the requirements of this section,
the swap data repository shall distribute an open swaps report to all
reporting counterparties that are swap dealers, major swap
participants, or derivatives clearing organizations on a weekly basis,
no later than 11:59 p.m. Eastern time on the day of the week that the
swap data repository chooses to regularly distribute the open swaps
reports. The swap data repository shall distribute all open swaps
reports on the same day of the week.
(3) Frequency of open swaps reports for non-swap dealer/major swap
participant/derivatives clearing organization reporting counterparties.
In order to satisfy the requirements of this section, the swap data
repository shall distribute an open swaps report to all non-swap
dealer/major swap participant/derivatives clearing organization
reporting counterparties on a monthly basis, no later than 11:59 p.m.
Eastern time on the day of the month that the swap data repository
chooses to regularly distribute the open swaps report. The swap data
repository shall distribute all open swaps reports on the same day of
the month.
(c) Receipt of verification of data accuracy or notice of
discrepancy. In order to satisfy the requirements of this section, the
swap data repository shall receive from each reporting counterparty for
each open swaps report (i) a verification of data accuracy indicating
that the swap data contained in an open swaps report distributed
pursuant to paragraph (b) of this section is accurate and complete or
(ii) a notice of discrepancy indicating that the swap data contained in
an open swaps report contains one or more discrepancies, in accordance
with Sec. 45.14 of this chapter. The swap data repository shall
establish, maintain, and enforce policies and procedures reasonably
designed for the swap data repository to successfully receive the
verification of data accuracy or notice of discrepancy.
(d) Amending verification policies and procedures. A swap data
repository shall comply with the requirements under part 40 of this
chapter in adopting or amending the policies and procedures required by
this section.
0
20. Revise Sec. 49.12 to read as follows:
Sec. 49.12 Swap data repository recordkeeping requirements.
(a) General requirement. A swap data repository shall keep full,
complete, and systematic records, together with all pertinent data and
memoranda, of all activities relating to the business of the swap data
repository, including, but not limited to, all SDR information and all
SDR data that is reported to the swap data repository pursuant to this
chapter.
(b) Maintenance of records. A swap data repository shall maintain
all records required to be kept by this section in accordance with this
paragraph (b).
(1) A swap data repository shall maintain all SDR information,
including, but not limited to, all documents, policies, and procedures
required by the Act and the Commission's regulations, correspondence,
memoranda, papers, books, notices, accounts, and other such records
made or received by the swap data repository in the course of its
business. All SDR information shall be maintained in accordance with
Sec. 1.31 of this chapter.
(2) A swap data repository shall maintain all SDR data and
timestamps reported to or created by the swap data repository pursuant
to this chapter, and all messages related to such reporting, throughout
the existence of the swap that is the subject of the SDR data and for
five years following final termination of the swap, during which time
the records shall be readily accessible by the swap data repository and
available to the Commission via real-time electronic access, and for a
period of at least ten additional years in archival storage from which
such records are retrievable by the swap data repository within three
business days.
[[Page 21104]]
(c) Records of data errors and omissions. A swap data repository
shall create and maintain records of data validation errors and SDR
data reporting errors and omissions in accordance with this paragraph
(c).
(1) A swap data repository shall create and maintain an accurate
record of all reported SDR data that fails to satisfy the swap data
repository's data validation procedures including, but not limited to,
all SDR data reported to the swap data repository that fails to satisfy
the data validation procedures, all data validation errors, and all
related messages and timestamps. A swap data repository shall make
these records available to the Commission on request.
(2) A swap data repository shall create and maintain an accurate
record of all SDR data errors and omissions reported to the swap data
repository and all corrections disseminated by the swap data repository
pursuant to parts 43, 45, and 46 of this chapter. A swap data
repository shall make these records available to the Commission on
request.
(d) Availability of records. All records required to be kept
pursuant to this part shall be open to inspection upon request by any
representative of the Commission or the United States Department of
Justice in accordance with the provisions of Sec. 1.31 of this
chapter. A swap data repository required to keep, create, or maintain
records pursuant to this section shall provide such records in
accordance with the provisions of Sec. 1.31 of this chapter, unless
otherwise provided in this part.
0
21. Revise Sec. 49.13 to read as follows:
Sec. 49.13 Monitoring, screening, and analyzing data.
(a) Duty to monitor, screen, and analyze data. A swap data
repository shall establish automated systems for monitoring, screening,
and analyzing all relevant SDR data in its possession in the form and
manner as may be directed by the Commission. A swap data repository
shall routinely monitor, screen, and analyze relevant SDR data at the
request of the Commission.
(1) Monitoring, screening, and analyzing. Monitoring, screening,
and analyzing requirements shall include utilizing relevant SDR data
maintained by the swap data repository to provide information to the
Commission concerning such relevant SDR data. Monitoring, screening,
and analyzing requests may require the compiling and/or calculation of
requested information within discrete categories and/or over periods of
time, including the comparison of information from different categories
and/or over multiple periods of time. Requests for monitoring,
screening, and analyzing may require swap data repositories to provide
information to the Commission related to:
(i) The accuracy, timeliness, and quality of SDR data reported
pursuant to this chapter;
(ii) Updates and corrections to, and verification of the accuracy
of, SDR data reported pursuant to this chapter;
(iii) Currently open swaps and the consistency of SDR data related
to individual swaps;
(iv) The calculation of market participant swap positions,
including for purposes of position limit compliance, risk assessment,
and compliance with other regulatory requirements;
(v) Swap counterparty exposure to other counterparties and standard
market risk metrics;
(vi) Swap valuations and margining activities;
(vii) Audit trails for individual swaps, including post-transaction
events such as allocation, novation, and compression, and all related
messages;
(viii) Compliance with Commission regulations;
(ix) Market surveillance;
(x) The use of clearing exemptions and exceptions; and/or
(xi) Statistics on swaps market activity.
(2) Discretion of the Commission. All monitoring, screening, and
analyzing requests shall be at the discretion of the Commission. Such
discretion includes, but is not limited to, the content, scope, and
frequency of each required response. All information provided by a swap
data repository pursuant to this section shall conform to the form and
manner requirements established pursuant to Sec. 49.30 for a
particular request.
(3) Timing. All monitoring, screening, and analyzing requests shall
be fulfilled within the time specified by the Commission for the
particular request.
(b) Capacity to monitor, screen, and analyze SDR data. A swap data
repository shall establish and at all times maintain sufficient
information technology, staff, and other resources to fulfill the
requirements in this section in the manner prescribed by the
Commission.
(c) Duty to notify the Commission of noncompliance. A swap data
repository shall promptly notify the Commission of any swap transaction
for which the swap data repository is aware that:
(1) The swap transaction and pricing data was not received by the
swap data repository in accordance with part 43 of this chapter;
(2) The swap data was not received by the swap data repository in
accordance with part 45 of this chapter; or
(3) Data was not received by the swap data repository in accordance
with part 46 of this chapter.
0
22. Revise Sec. 49.15 to read as follows:
Sec. 49.15 Real-time public reporting by swap data repositories.
(a) Scope. The provisions of this section apply to the real-time
public reporting of swap transaction and pricing data submitted to a
swap data repository pursuant to part 43 of this chapter.
(b) Systems to accept and disseminate data in connection with real-
time public reporting. A swap data repository shall establish such
electronic systems as are necessary to accept and publicly disseminate
swap transaction and pricing data submitted to the swap data repository
pursuant to part 43 of this chapter in order to meet the real-time
public reporting obligations of part 43 of this chapter. Any electronic
system established for this purpose shall be capable of accepting and
ensuring the public dissemination of all data fields required by part
43 this chapter.
0
23. Amend Sec. 49.16 by revising paragraphs (a)(1), (b), and (c) to
read as follows:
Sec. 49.16 Privacy and confidentiality requirements of swap data
repositories.
(a) * * *
(1) Establish, maintain, and enforce written policies and
procedures reasonably designed to protect the privacy and
confidentiality of any and all SDR information and all SDR data that is
not swap transaction and pricing data disseminated under part 43 of
this chapter. Such policies and procedures shall include, but are not
limited to, policies and procedures to protect the privacy and
confidentiality of any and all SDR information and all SDR data (except
for swap transaction and pricing data disseminated under part 43 of
this chapter) that the swap data repository shares with affiliates and
non-affiliated third parties; and
* * * * *
(b) A swap data repository shall not, as a condition of accepting
SDR data from any swap execution facility, designated contract market,
or reporting counterparty, require the waiver of any privacy rights by
such swap execution facility, designated contract market, or reporting
counterparty.
(c) Subject to section 8 of the Act, a swap data repository may
disclose aggregated SDR data on a voluntary basis or as requested, in
the form and manner prescribed by the Commission.
[[Page 21105]]
0
24. In Sec. 49.17, revise paragraph (b)(3), the introductory text of
paragraph (c), paragraphs (c)(1) and (f)(2) to read as follows and
remove paragraph (i).
Sec. 49.17 Access to SDR data.
* * * * *
(b) * * *
(3) Direct electronic access. For the purposes of this section, the
term ``direct electronic access'' shall mean an electronic system,
platform, framework, or other technology that provides internet-based
or other form of access to real-time SDR data that is acceptable to the
Commission and also provides scheduled data transfers to Commission
electronic systems.
(c) Commission access. A swap data repository shall provide access
to the Commission for all SDR data maintained by the swap data
repository pursuant to this chapter in accordance with this paragraph
(c).
(1) Direct electronic access requirements. A swap data repository
shall provide direct electronic access to the Commission or the
Commission's designee, including another registered entity, in order
for the Commission to carry out its legal and statutory
responsibilities under the Act and the Commission's regulations
thereunder. A swap data repository shall maintain all SDR data reported
to the swap data repository in a format acceptable to the Commission,
and shall transmit all SDR data requested by the Commission to the
Commission as instructed by the Commission. Such instructions may
include, but are not limited to, the method, timing, and frequency of
transmission, as well as the format and scope of the SDR data to be
transmitted.
* * * * *
(f) * * *
(2) Exception. SDR data and SDR information related to a particular
swap transaction that is maintained by the swap data repository may be
accessed by either counterparty to that particular swap. However, the
SDR data and SDR information maintained by the swap data repository
that may be accessed by either counterparty to a particular swap shall
not include the identity or the legal entity identifier (as such term
is used in part 45 of this chapter) of the other counterparty to the
swap, or the other counterparty's clearing member for the swap, if the
swap is executed anonymously on a swap execution facility or designated
contract market, and cleared in accordance with Sec. Sec. 1.74,
23.610, and 39.12(b)(7) of this chapter.
* * * * *
Sec. 49.18 [Amended]
0
25. Amend Sec. 49.18 by removing paragraph (e).
0
26. In Sec. 49.20, revise paragraphs (b)(2)(v), (b)(2)(vii), and
(c)(1)(ii)(B) to read as follows:
Sec. 49.20 Governance arrangements (Core Principle 2).
* * * * *
(b) * * *
(2) * * *
(v) A description of the manner in which the board of directors, as
well as any committee referenced in paragraph (b)(2)(ii) of this
section, considers an independent perspective in its decision-making
process, as Sec. 49.2(a) defines such term;
* * * * *
(vii) Summaries of significant decisions impacting the public
interest, the rationale for such decisions, and the process for
reaching such decisions. Such significant decisions shall include
decisions relating to pricing of repository services, offering of
ancillary services, access to SDR data, and use of section 8 material,
SDR information, and intellectual property (as referenced in Sec.
49.16). Such summaries of significant decisions shall not require the
swap data repository to disclose section 8 material or, where
appropriate, information that the swap data repository received on a
confidential basis from a swap execution facility, designated contract
market, or reporting counterparty.
* * * * *
(c) * * *
(1) * * *
(ii) * * *
(B) A description of the relationship, if any, between such members
and the swap data repository or any swap execution facility, designated
contract market, or reporting counterparty user thereof (or, in each
case, affiliates thereof, as Sec. 49.2(a) defines such term); and
* * * * *
0
27. In Sec. 49.22 revise paragraph (a), (b)(1) introductory text,
paragraphs (b)(1)(i), (c), (d)(2) through (6), (e), (f), and (g) to
read as follows and remove paragraph (d)(7).
Sec. 49.22 Chief compliance officer.
(a) Definitions. For purposes of this section, the term--
Board of directors means the board of directors of a swap data
repository, or for those swap data repositories whose organizational
structure does not include a board of directors, a body performing a
function similar to a board of directors.
Senior officer means the chief executive officer or other
equivalent officer of the swap data repository.
(b) * * *
(1) Chief compliance officer required. Each swap data repository
shall designate an individual to serve as a chief compliance officer.
(i) The position of chief compliance officer shall carry with it
the authority and resources to develop, in consultation with the board
of directors or senior officer, the policies and procedures of the swap
data repository and enforce such policies and procedures to fulfill the
duties set forth for chief compliance officers in the Act and
Commission regulations.
* * * * *
(c) Appointment, supervision, and removal of chief compliance
officer. (1) Appointment and compensation of chief compliance officer.
(i) Only the board of directors or senior officer may appoint the chief
compliance officer.
(ii) The board of directors or senior officer shall approve the
compensation of the chief compliance officer.
(iii) The swap data repository shall notify the Commission within
two business days of the appointment, whether interim or permanent, of
a chief compliance officer.
(2) Supervision of chief compliance officer. The chief compliance
officer shall report directly to the board of directors or the senior
officer of the swap data repository.
(3) Removal of chief compliance officer. (i) Only the board of
directors or the senior officer may remove the chief compliance
officer.
(ii) The swap data repository shall notify the Commission within
two business days of the removal, whether interim or permanent, of a
chief compliance officer.
(4) Annual meeting with the chief compliance officer. The chief
compliance officer shall meet with the board of directors or senior
officer of the swap data repository at least annually.
(d) * * *
(2) Taking reasonable steps, in consultation with the board of
directors or the senior officer of the swap data repository, to resolve
any material conflicts of interest that may arise;
(3) Establishing and administering written policies and procedures
reasonably designed to prevent violations of the Act and the rules of
the Commission;
(4) Taking reasonable steps to ensure compliance with the Act and
Commission regulations relating to agreements, contracts, or
transactions, and with Commission regulations
[[Page 21106]]
created pursuant to section 21 of the Act;
(5) Establish procedures reasonably designed to handle, respond,
remediate, retest, and resolve noncompliance issues identified by the
chief compliance officer through any means, including any compliance
office review, look-back, internal or external audit finding, self-
reported error, or validated compliant; and
(6) Establishing and administering a compliance manual designed to
promote compliance with the applicable laws, rules, and regulations and
a written code of ethics for the swap data repository designed to
prevent ethical violations and to promote honesty and ethical conduct
by swap data repository personnel.
(e) Preparation of annual compliance report. The chief compliance
officer shall, not less than annually, prepare and sign an annual
compliance report that covers the prior fiscal year. The report shall,
at a minimum, contain:
(1) A description and self-assessment of the effectiveness of the
written policies and procedures of the swap data repository, including
the code of ethics and conflict of interest policies, designed to
reasonably ensure compliance with the Act and applicable Commission
regulations;
(2) A list of any material changes made to compliance policies and
procedures during the coverage period for the report and any areas of
improvement or recommended changes to the compliance program;
(3) A description of the financial, managerial, and operational
resources set aside for compliance with the Act and applicable
Commission regulations;
(4) A description of any material non-compliance matters identified
and an explanation of the corresponding action taken to resolve such
non-compliance matters; and
(5) A certification by the chief compliance officer that, to the
best of his or her knowledge and reasonable belief, and under penalty
of law, the annual compliance report is accurate and complete in all
material respects.
(f) Submission of annual compliance report and related matters--(1)
Furnishing the annual compliance report prior to submission to the
Commission. Prior to submission to the Commission, the chief compliance
officer shall provide the annual compliance report for review to the
board of directors of the swap data repository or, in the absence of a
board of directors, to the senior officer of the swap data repository.
Members of the board of directors and the senior officer shall not
require the chief compliance officer to make any changes to the annual
compliance report.
(2) Submission of annual compliance report to the Commission. The
annual compliance report shall be submitted electronically to the
Commission not later than 90 calendar days after the end of the swap
data repository's fiscal year. The swap data repository shall
concurrently file the annual compliance report with the fourth quarter
financial report pursuant to Sec. 49.25(f)(3).
(3) Amendments to annual compliance report. Promptly upon discovery
of any material error or omission made in a previously filed annual
compliance report, the chief compliance officer shall file an amendment
with the Commission to correct the material error or omission. The
chief compliance officer shall submit the amended annual compliance
report to the board of directors, or in the absence of a board of
directors, to the senior officer of the swap data repository, pursuant
to paragraph (f)(1) of this section. An amendment shall contain the
certification required under paragraph (e)(5) of this section.
(4) Requests for extension. A swap data repository may request an
extension of time to file its annual compliance report from the
Commission. Reasonable and valid requests for extensions of the filing
deadline may be granted at the discretion of the Commission.
(g) Recordkeeping. The swap data repository shall maintain all
records demonstrating compliance with the duties of the chief
compliance officer and the preparation and submission of annual
compliance reports consistent with Sec. 49.12(b)(1).
0
28. In Sec. 49.24, revise paragraphs (d), the introductory text of
(i), and (i)(5) to read as follows:
Sec. 49.24 System safeguards.
* * * * *
(d) A swap data repository shall maintain a business continuity-
disaster recovery plan and business continuity-disaster recovery
resources, emergency procedures, and backup facilities sufficient to
enable timely recovery and resumption of its operations and resumption
of its ongoing fulfillment of its duties and obligations as a swap data
repository following any disruption of its operations. Such duties and
obligations include, without limitation, the duties set forth in
Sec. Sec. 49.10 to 49.18, Sec. 49.23, and the core principles set
forth in Sec. Sec. 49.19 to 49.21 and 49.25 to 49.27, and maintenance
of a comprehensive audit trail. The swap data repository's business
continuity-disaster recovery plan and resources generally should enable
resumption of the swap data repository's operations and resumption of
ongoing fulfillment of the swap data repository's duties and obligation
during the next business day following the disruption. A swap data
repository shall update its business continuity-disaster recovery plan
and emergency procedures at a frequency determined by an appropriate
risk analysis, but at a minimum no less frequently than annually.
* * * * *
(i) As part of a swap data repository's obligation to produce books
and records in accordance with Sec. 1.31 of this chapter and Sec.
49.12, a swap data repository shall provide to the Commission the
following system safeguards-related books and records, promptly upon
the request of any Commission representative:
* * *
(5) Nothing in paragraph (i) of this section shall be interpreted
as reducing or limiting in any way a swap data repository's obligation
to comply with Sec. 1.31 of this chapter or with Sec. 49.12.
* * * * *
0
29. In Sec. 49.25, revise paragraphs (a)(1) and (f)(3) to read as
follows:
Sec. 49.25 Financial resources.
(a) * * *
(1) A swap data repository shall maintain sufficient financial
resources to perform its statutory and regulatory duties set forth in
this chapter.
* * * * *
(f) * * *
(3) The reports and any supporting documentation required by this
section shall be filed not later than 40 calendar days after the end of
the swap data repository's first three fiscal quarters, and not later
than 90 calendar days after the end of the swap data repository's
fourth fiscal quarter, or at such later time as the Commission may
permit, in its discretion, upon request by the swap data repository.
0
30. In Sec. 49.26,
0
a. Revise the introductory text; and
0
b. Add paragraph (j).
The revisions and additions read as follows:
Sec. 49.26 Disclosure requirements of swap data repositories.
Before accepting any SDR data from a swap execution facility,
designated contract market, or reporting counterparty; or upon a swap
execution facility's, designated contract market's, or reporting
counterparty's request; a swap data repository shall furnish to the
swap execution facility, designated contract market, or reporting
counterparty a disclosure document that
[[Page 21107]]
contains the following written information, which shall reasonably
enable the swap execution facility, designated contract market, or
reporting counterparty to identify and evaluate accurately the risks
and costs associated with using the services of the swap data
repository:
* * * * *
(j) The swap data repository's policies and procedures regarding
the reporting of SDR data to the swap data repository, including the
swap data repository's SDR data validation procedures, swap data
verification procedures, and procedures for correcting SDR data errors
and omissions.
0
31. Add Sec. 49.28 to read as follows:
Sec. 49.28 Operating hours of swap data repositories.
(a) Except as otherwise provided in this paragraph (a), a swap data
repository shall have systems in place to continuously accept and
promptly record all SDR data reported to the swap data repository as
required in this chapter and, as applicable, publicly disseminate all
swap transaction and pricing data reported to the swap data repository
as required in part 43 of this chapter.
(1) A swap data repository may establish normal closing hours to
perform system maintenance during periods when, in the reasonable
estimation of the swap data repository, the swap data repository
typically receives the least amount of SDR data. A swap data repository
shall provide reasonable advance notice of its normal closing hours to
market participants and to the public.
(2) A swap data repository may declare, on an ad hoc basis, special
closing hours to perform system maintenance that cannot wait until
normal closing hours. A swap data repository shall schedule special
closing hours during periods when, in the reasonable estimation of the
swap data repository in the context of the circumstances prompting the
special closing hours, the special closing hours will be the least
disruptive to the swap data repository's SDR data reporting
responsibilities. A swap data repository shall provide reasonable
advance notice of its special closing hours to market participants and
to the public whenever possible, and, if advance notice is not
reasonably possible, shall provide notice of its special closing hours
to market participants and to the public as soon as reasonably possible
after declaring special closing hours.
(b) A swap data repository shall comply with the requirements under
part 40 of this chapter in adopting or amending normal closing hours
and special closing hours.
(c) During normal closing hours and special closing hours, a swap
data repository shall have the capability to accept and hold in queue
any and all SDR data reported to the swap data repository during the
normal closing hours or special closing hours.
(1) Upon reopening after normal closing hours or special closing
hours, a swap data repository shall promptly process all SDR data
received during normal closing hours or special closing hours, as
required pursuant to this chapter, and, pursuant to part 43 of this
chapter, publicly disseminate all swap transaction and pricing data
reported to the swap data repository that was held in queue during the
normal closing hours or special closing hours.
(2) If at any time during normal closing hours or special closing
hours a swap data repository is unable to receive and hold in queue any
SDR data reported pursuant to this chapter, then the swap data
repository shall immediately issue notice to all swap execution
facilities, designated contract markets, reporting counterparties, and
the public that it is unable to receive and hold in queue SDR data.
Immediately upon reopening, the swap data repository shall issue notice
to all swap execution facilities, designated contract markets,
reporting counterparties, and the public that it has resumed normal
operations. Any swap execution facility, designated contract market, or
reporting counterparty that was obligated to report SDR data pursuant
to this chapter to the swap data repository, but could not do so
because of the swap data repository's inability to receive and hold in
queue SDR data, shall report the SDR data to the swap data repository
immediately after receiving such notice.
0
32. Add Sec. 49.29 to read as follows:
Sec. 49.29 Information relating to swap data repository compliance.
(a) Requests for information. Upon the Commission's request, a swap
data repository shall file with the Commission information related to
its business as a swap data repository and such information as the
Commission determines to be necessary or appropriate for the Commission
to perform the duties of the Commission under the Act and regulations
thereunder. The swap data repository shall file the information
requested in the form and manner and within the time period the
Commission specifies in the request.
(b) Demonstration of compliance. Upon the Commission's request, a
swap data repository shall file with the Commission a written
demonstration, containing supporting data, information, and documents,
that it is in compliance with its obligations under the Act and the
Commission's regulations thereunder, as the Commission specifies in the
request. The swap data repository shall file the written demonstration
in the form and manner and within the time period the Commission
specifies in the request.
0
33. Add Sec. 49.30 to read as follows:
Sec. 49.30 Form and manner of reporting and submitting information
to the Commission.
Unless otherwise instructed by the Commission, a swap data
repository shall submit SDR data reports and any other information
required under this part to the Commission, within the time specified,
using the format, coding structure, and electronic data transmission
procedures approved in writing by the Commission.
0
34. Add Sec. 49.31 to read as follows:
Sec. 49.31 Delegation of authority to the Director of the Division
of Market Oversight relating to certain part 49 matters.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, the following functions to the Director of
the Division of Market Oversight and to such members of the Commission
staff acting under his or her direction as he or she may designate from
time to time:
(1) All functions reserved to the Commission in Sec. 49.5.
(2) All functions reserved to the Commission in Sec. 49.9.
(3) All functions reserved to the Commission in Sec. 49.10.
(4) All functions reserved to the Commission in Sec. 49.12.
(5) All functions reserved to the Commission in Sec. 49.13.
(6) All functions reserved to the Commission in Sec. 49.16.
(7) All functions reserved to the Commission in Sec. 49.17.
(8) All functions reserved to the Commission in Sec. 49.18.
(9) All functions reserved to the Commission in Sec. 49.22.
(10) All functions reserved to the Commission in Sec. 49.23.
(11) All functions reserved to the Commission in Sec. 49.24.
(12) All functions reserved to the Commission in Sec. 49.25.
(13) All functions reserved to the Commission in Sec. 49.29.
(14) All functions reserved to the Commission in Sec. 49.30.
(b) The Director of the Division of Market Oversight may submit to
the Commission for its consideration any
[[Page 21108]]
matter that has been delegated under paragraph (a) of this section.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated in this section.
0
35. Revise Appendix A to Part 49 to read as follows:
Appendix A to Part 49--Form SDR
COMMODITY FUTURES TRADING COMMISSION
FORM SDR
SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR
REGISTRATION
REGISTRATION INSTRUCTIONS
Intentional misstatements or omissions of material fact may
constitute federal criminal violations (7 U.S.C. 13 and 18 U.S.C.
1001) or grounds for disqualification from registration.
DEFINITIONS
Unless the context requires otherwise, all terms used in this Form
SDR have the same meaning as in the Commodity Exchange Act, as
amended (``Act''), and in the General Rules and Regulations of the
Commodity Futures Trading Commission (``Commission'') thereunder (17
CFR chapter I).
For the purposes of this Form SDR, the term ``Applicant'' shall
include any applicant for registration as a swap data repository or
any applicant amending a pending application.
GENERAL INSTRUCTIONS
1. This Form SDR, which includes instructions, a Cover Sheet, and
required Exhibits (together ``Form SDR''), is to be filed with the
Commission by all Applicants, pursuant to section 21 of the Act and
the Commission's regulations thereunder. Upon the filing of an
application for registration in accordance with the instructions
provided herein, the Commission will publish notice of the filing
and afford interested persons an opportunity to submit written
comments concerning such application. No application for
registration shall be effective unless the Commission, by order,
grants such registration.
2. Individuals' names, except the executing signature, shall be
given in full (Last Name, First Name, Middle Name).
3. Signatures on all copies of the Form SDR filed with the
Commission can be executed electronically. If this Form SDR is filed
by a corporation, it shall be signed in the name of the corporation
by a principal officer duly authorized; if filed by a limited
liability company, it shall be signed in the name of the limited
liability company by a manager or member duly authorized to sign on
the limited liability company's behalf; if filed by a partnership,
it shall be signed in the name of the partnership by a general
partner duly authorized; if filed by an unincorporated organization
or association that is not a partnership, it shall be signed in the
name of such organization or association by the managing agent,
i.e., a duly authorized person who directs manages or who
participates in the directing or managing of its affairs.
4. If this Form SDR is being filed as an application for
registration, all applicable items must be answered in full. If any
item is inapplicable, indicate by ``none,'' ``not applicable,'' or
``N/A,'' as appropriate.
5. Under section 21 of the Act and the Commission's regulations
thereunder, the Commission is authorized to solicit the information
required to be supplied by this Form SDR from any Applicant seeking
registration as a swap data repository. Disclosure by the Applicant
of the information specified in this Form SDR is mandatory prior to
the start of the processing of an application for registration as a
swap data repository. The information provided in this Form SDR will
be used for the principal purpose of determining whether the
Commission should grant or deny registration to an Applicant. The
Commission may determine that additional information is required
from an Applicant in order to process its application. A Form SDR
that is not prepared and executed in compliance with applicable
requirements and instructions may be returned as not acceptable for
filing. Acceptance of this Form SDR, however, shall not constitute a
finding that the Form SDR has been filed as required or that the
information submitted is true, current, or complete.
6. Except in cases where confidential treatment is requested by the
Applicant and granted by the Commission pursuant to the Freedom of
Information Act and Commission Regulation Sec. 145.9, information
supplied on this Form SDR will be included in the public files of
the Commission and will be available for inspection by any
interested person. The Applicant must identify with particularity
the information in these exhibits that will be subject to a request
for confidential treatment and supporting documentation for such
request pursuant to Commission Regulations Sec. 40.8 and Sec.
145.9.
APPLICATION AMENDMENTS
1. An Applicant amending a pending application for registration as a
swap data repository shall file an amended Form SDR electronically
with the Secretary of the Commission in the manner specified by the
Commission.
2. When filing this Form SDR for purposes of amending a pending
application, an Applicant must re-file the entire Cover Sheet,
amended if necessary, include an executing signature, and attach
thereto revised Exhibits or other materials marked to show any
amendments. The submission of an amendment to a pending application
represents that all unamended items and Exhibits remain true,
current, and complete as previously filed.
WHERE TO FILE
This Form SDR shall be filed electronically with the Secretary of
the Commission in the manner specified by the Commission.
BILLING CODE 6351-01-P
[[Page 21109]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.002
[[Page 21110]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.003
[[Page 21111]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.004
[[Page 21112]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.005
[[Page 21113]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.006
[[Page 21114]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.007
[[Page 21115]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.008
[[Page 21116]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.009
[[Page 21117]]
[GRAPHIC] [TIFF OMITTED] TP13MY19.010
BILLING CODE 6351-01-C
Issued in Washington, DC, on April 25, 2019, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Proposed Amendments to the Commission's Regulations
Relating to Certain Swap Data Repository and Data Reporting
Requirements
Appendix 1--Commission Voting Summary
On this matter, Chairman Giancarlo and Commissioners Quintenz
and Berkovitz voted in the affirmative. Commissioners Behnam and
Stump voted to concur. No Commissioner voted in the negative.
Appendix 2--Statement of Chairman J. Christopher Giancarlo
A critical component of the 2008 financial crisis was the
inability of regulators to assess and quantify the counterparty
credit risk of large banks and swaps dealers. To address this
shortcoming, the Dodd-Frank Act gave the CFTC broad responsibility
to enhance regulatory transparency and price discovery for market
participants through trade reporting to swap data repositories
(SDRs).
In 2011 and 2012, the CFTC adopted rules for swap data
reporting, recordkeeping and SDRs. Unfortunately, these initial
rules lacked technological detail and specification. Under my
direction in 2017, CFTC staff began the process of assessing the
effectiveness of the swap reporting rules in Parts 43, 45, and 49 of
the CFTC's regulations. The 2017 Roadmap to Achieve High Quality
Swaps Data (Roadmap) outlined a series of steps to improve data
reporting requirements. The CFTC received a wide range of feedback
on the Roadmap, via written comments and discussions with SDRs and
market participants.
I am pleased to see the first part of the Roadmap, the proposed
changes to Part 49, issued today. These proposed changes update the
requirements for SDRs and swap counterparties to verify the accuracy
and completeness of swap data reported to SDRs. Completion of these
and the other changes proposed by the Roadmap will result in more
complete, more accurate, and higher-quality data available to the
CFTC and to the public; streamline data reporting; and help the CFTC
perform its regulatory responsibilities. The time has come to
revisit this important post-crisis reform and ensure the CFTC is
fulfilling its commitments.
Appendix 3--Statement of Concrrence of Commissioner Rostin Behnam
I respectfully concur with the Commodity Futures Trading
Commission's (the ``Commission'' or ``CFTC'') approval of its
proposed rule regarding amendments to the Commission's Regulations
Relating to Certain Swap Data Repository and Swap Data Reporting
Requirements (the ``Proposal''). In 2011, the Commission adopted
part 49 of the Commission's Regulations \1\ to implement the
requirements of section 21 of the Commodity Exchange Act (the
``Act'' or ``CEA'').\2\ Section 21 describes the registration regime
for and operation of swap data repositories (``SDRs'') by setting
out applicable registration rules, data standards, duties, core
principles, and requirements regarding confidentiality and chief
compliance officers as envisioned by Congress in the Dodd-Frank Act
to implement the key trade reporting provisions laid out at the 2009
G20 Pittsburgh Summit.\3\ Similarly, part 49 builds out a regulatory
framework aimed at ensuring the legal and operational stability and
soundness of SDRs in support of post-trade transparency in the swaps
market. The Proposal aims to improve upon the quality, accuracy, and
completeness of swap data reported to the Commission via SDRs and
generally follows a plan laid out in the Commission's 2017 Roadmap
to Achieve High Quality Swap Data.\4\ This Proposal purports to be
the first step in following that Roadmap. While true, I prefer to
view this as a part of the Commission's ongoing duties to regularly
review its Regulations to increase efficiencies and avoid unintended
consequences, and to be certain that our SDR rules further the goals
of increasing transparency and identifying risk.
---------------------------------------------------------------------------
\1\ Swap Data Repositories: Registration Standards, Duties and
Core Principles, 76 FR 54538 (Sept. 1, 2011).
\2\ 7 U.S.C. 24a.
\3\ Id.
\4\ Roadmap to Achieve High Quality Swap Data, available at
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
---------------------------------------------------------------------------
As I have stated several times during my tenure as a
Commissioner, as we engage in strategic regulatory decisions, our
policy goals from 2010 remain unchanged. As we endeavor to provide
surgical flexibility and a more principles-based approach, I will
continue to oppose any roll backs of Dodd-Frank initiatives.\5\
While I do not believe that today's Proposal would be considered a
rollback per se, I would like to call attention to a section of the
Proposal where we deviate from the language of section 21 regarding
the role of the chief compliance officer (``CCO'') at an SDR.
---------------------------------------------------------------------------
\5\ Rostin Behnam, Commissioner, U.S. Comm. Fut. Trading Comm'n,
Remarks of Rostin Behnam before FIA/SIFMA Asset Management Group,
Asset Management Derivatives Forum 2018, Dana Point, California
(Feb. 8, 2018), https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam2.
---------------------------------------------------------------------------
Section 21(e)(2)(C) affirmatively requires an SDR's CCO, in
consultation with the board of directors or similar body, to
``resolve any conflicts of interest that may arise.'' The
Commission's current part 49 rules mirror the language of the CEA
exactly. Regulation 49.22(d)(2) affirmatively requires an SDR's CCO
to ``resolve any conflicts of interest that may arise,'' using
precisely the same language as the Act.
However, today's Proposal would amend 49.22(d)(2) in a way that
deviates from the plain language of the statute. While the statute
requires that CCOs actually resolve any conflicts of interest,
today's Proposal would simply require a CCO to take ``reasonable
steps'' to resolve any conflict of interest. In addition, the
Proposal would only apply to ``material'' conflicts of interest.
Neither this new reasonableness standard nor this new materiality
standard appear in the language of the statute. My concern is that
adding these new standards may deviate from Congressional intent.
This potentially dilutes the CCO's obligation to address conflicts
of interest, but perhaps more importantly, it dilutes the CCO's
ability to do
[[Page 21118]]
so. Under the language of the Act and the current Regulation, a CCO
can point to their statutory obligation in working to resolve
conflicts of interest. Imposing a new reasonableness standard may
have the real world impact of making it more difficult for a CCO to
actually resolve conflicts of interest.
I note that the same statutory language appears elsewhere in the
Act regarding CCO resolution of conflicts of interest at other types
of Commission registrants, and the Commission has issued a final
rule implementing the same new reasonableness and materiality
standards regarding CCOs of futures commission merchants, swap
dealers and major swap participants.\6\ The Commission also has
recently proposed adding these new standards for CCOs of swap
execution facilities.\7\ However, in contrast, this week the
Commission is issuing amendments to the Part 39 regulations for
Derivatives Clearing Organizations (``DCO'') (the ``Part 39
Proposal''). Current regulation 39.10(c)(2)(ii) requires a DCO's CCO
to resolve conflicts of interest. Regulation 39.10(c)(2)(ii) exactly
follows the language of Section 5b(i)(2)(C). While the Part 39
Proposal makes amendments to 39.10, the Commission does not alter
the CCO's current duty to resolve conflicts of interest. In other
words, for DCOs the Commission is choosing to maintain the statutory
language. I believe that this may be the more appropriate approach
for CCOs generally.
---------------------------------------------------------------------------
\6\ Chief Compliance Officer Duties and Annual Report
Requirements for Futures Commission Merchants, Swap Dealers, and
Major Swap Participants, 83 FR 43510 (Aug. 27, 2018).
\7\ Swap Execution Facilities and Trade Execution Requirement,
83 FR 61946 (Nov. 30, 2018).
---------------------------------------------------------------------------
The Commission has, of late, begun a practice of re-interpreting
statutory provisions with a somewhat flippant regard for their
underlying purpose and rationales in order to lessen the burdens
that are rarely substantiated by anything more than a call for
change. While it is not out of the ordinary for an independent
agency to reexamine whether its regulatory approach remains fit for
purpose, I believe that we should be mindful that our role is not to
bend too easily to unsupported claims of burden or complexity. This
is particularly true when the re-interpretation seems to be at odds
with the express language of the statute itself. I look forward to
reading the comments on this CCO issue. I am particularly interested
to learn whether various stakeholders believe that the statute
itself is diluted by the addition of the reasonableness and
materiality standards to CCO obligations in this and other
rulemakings.
Appendix 4--Statement of Concurrence of Commissioner Dawn D. Stump
The Commission is publishing for public comment ``Proposed
Amendments to the Commission's Regulations Relating to Certain Swap
Data Repository and Swap Data Reporting Requirements'' (Proposal).
Accurate swap data reporting is vital to our ability to make
appropriate policy choices. I very much look forward to receiving
feedback from all parties impacted by this Proposal to assure that
the Commission has robust and accurate data, which is a lynchpin of
future Commission decision-making.
However, a Latin proverb reads: Qui tacet consentire videtur,
ubi loqui debuit ac potuit (he who is silent, when he ought to have
spoken and was able to, is taken to agree). While I share the
Commission's desire for accurate swap data, I do not agree with all
the policy and procedural choices in this Proposal. I question
certain of the underlying assumptions driving these policy changes,
and the promulgation of this rulemaking in isolation and without
corresponding changes to other swap data reporting rules. I am
uncomfortable with the lack of details and nebulous description of
certain obligations in many parts of the Proposal, which I believe
will make it difficult for the public to comment in an informed
fashion. And I disagree with imposing immense additional burdens on
swap data repositories (SDRs) and all types of reporting
counterparties (RCPs), particularly without commensurate
streamlining of regulatory obligations in the rest of the
Commission's swap data reporting rule set.
Because I share the Commission's ultimate goal of accurate swaps
data, I support the Proposal going out for comment, with the caveat
that the other aspects of the swaps data ``Roadmap'' \1\ are
published in quick succession. I look forward to feedback from all
interested parties as to how that goal can best be achieved in light
of my concerns about the Proposal discussed below and other options
that may be at the Commission's disposal to enhance data accuracy
while appropriately balancing costs and benefits.
---------------------------------------------------------------------------
\1\ See Roadmap to Achieve High Quality Swaps Data (DMO July 10,
2017), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf,
published with CFTC Letter 17-33, Division of Market Oversight
Announces Review of Swap Reporting Rules in Parts 43, 45, and 49 of
Commission Regulations (DMO July 10, 2017), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf.
---------------------------------------------------------------------------
I. Verification: Solution in Search of a Problem?
This Proposal is predicated upon a view that new verification
procedures are needed because the swap data currently being reported
to SDRs is substantially wrong and inaccurate. Yet, the Commission
has recently proffered positive reviews of the role of SDR data in
enhancing its understanding of swaps markets, citing the ``more
complete information now available regarding certain portions of the
swap market, [and] the data analytical capabilities developed since
the [swap dealer] regulations were adopted'' \2\ as supporting its
policy decision making. Specifically, the Commission cited analysis
based upon a year of SDR data sourced from data reported to the
registered SDRs in its recent rulemaking concerning the de minimis
exception to the swap dealer definition relating to insured
depository institutions (IDIs).\3\ Given that the Commission has not
voiced concern about widespread discrepancies or inaccuracies in
swaps data reported to SDRs in relying upon that data in our
rulemakings, I am not convinced that it is necessary to add new
layers of complexity to swaps data reporting and create new burdens
on market participants via the steps outlined in the Proposal.
---------------------------------------------------------------------------
\2\ De Minimis Exception to the Swap Dealer Definition--Swaps
Entered Into by Insured Depository Institutions in Connection With
Loans to Customers, 81 FR 12450, 12452 (April 1, 2019) (IDI De
Minimis Rulemaking).
\3\ Id. at 12454 and n.59 (``The Commission believes that end-
users would primarily benefit from the IDI De Minimis Provision by
entering into [interest rate swaps, or `IRS'], [foreign exchange, or
`FX'] swaps, and [non-financial commodity, or `NFC'] swaps with IDIs
to hedge loan-related risks. SDR data indicates that IDIs that have
between $1 billion and $50 billion in [aggregate gross notional
amount, or `AGNA'] of swaps activity primarily enter into IRS, FX
swaps, and NFC swaps, as measured by AGNA and transaction count.
---------------------------------------------------------------------------
Taken in isolation, asking RCPs to verify the accuracy of data
reported to SDRs is appealing. But how does the Commission know that
a substantial portion of that data is actually incorrect? The
Proposal attempts to depict a data accuracy problem by referencing
that it is not uncommon for discrepancies to be found in SDR data.
However, from the universe of reported swap data that contains
millions of swap transactions and exponentially more messages sent
to SDRs over the course of the last five years, the Proposal
mentions only two examples of errors: ``In the processing of swap
data to generate the CFTC's Weekly Swaps Report, for example, there
are instances when the notional amount differs between the
Commission's open swaps information and the swap data reported for
the same swap. Other common examples of discrepancies include
incorrect references to an underlying currency, such as a notional
value incorrectly linked to U.S. dollars instead of Japanese Yen.''
\4\ I would expect a much more extensive and egregious list of
systemic, recurring errors in reported swaps data to warrant the
expansive new obligations contained in the Proposal.
---------------------------------------------------------------------------
\4\ Proposal, text accompanying n.239.
---------------------------------------------------------------------------
The Proposal strains to quantify the number of inaccuracies in
reported SDR data by opining that, ``[b]ased on swap data available
to the Commission and discussions with the SDRs, the Commission
estimates that an SDR would perform an average of approximately
2,652,000 data corrections per year.'' \5\ The Proposal does not
explain exactly how this figure was derived, identify the
interaction between SDRs and RCPs referenced in its corrections
estimate, indicate whether the ``correction'' refers to incomplete
or inaccurate data,\6\ or provide critical context as to the
percentage of messages that this number represents. Indeed, it is
impossible to know for certain that an RCP was intending to correct
erroneously reported data based on the data schema utilized by SDRs
to address changes in swaps data--which include actions such as
``snapshot,'' ``amendment,'' and
[[Page 21119]]
``modify,'' \7\ but may not actually include a category of
``correction'' messages.
---------------------------------------------------------------------------
\5\ Id., at section VII.B.3.v.
\6\ Incomplete data is not the same things as inaccurate data.
Thus, ``corrections'' of incomplete data would not be relevant to
the verification with respect to inaccurate data that is the subject
of this Proposal.
\7\ DTCC SDR templates, for instance, include the following
message and action types. The modify action type allows for the
valid modification or correction to an existing trade that has
previously been reported by the submitting party. However, firms
could reflect a correction using other methods. The snapshot message
allows participants to report the current state of the swap in their
portfolio as a ``point-in-time'' view of the position. The reported
position should reflect all post-trade events and non-position
forming amendments that the submitter may wish to reflect on their
trade record. The amendment transaction type could be utilized as an
indication of a confirmable amendment, via a negotiated agreement,
to a previously confirmed and reported trade. As a result, it would
be difficult to conclude with any certainty the actual number of
corrections without a critical review of contrasting terms related
to a particular trade on each type of action, message, or
transaction type submission.
---------------------------------------------------------------------------
While the Proposal posits the annual number of corrections
across all SDRs to be about 8 million ``corrections'' (3
provisionally registered SDRs * 2,652,000 annual data corrections
per SDR), it lacks the total number of data submissions that are
received by the SDRs. The Paperwork Reduction Act portion of the
Proposal does provide one potentially related data point, as it
includes an estimate of 462,981,508 total annual responses across
all SDRs for the relevant information collection.\8\ Without the
benefit of further clarity, the corrections could apply to the
entire universe of the collections associated with the Proposal. If
the figures are roughly rounded for the sake of simplicity, and it
is stipulated for the sake of argument that all the corrections
cited by the Proposal reveal data inaccuracies, then does this
suggest that only approximately 2% (400 million responses/8 million
corrections) of all messages might be inaccurate? In my opinion, the
burdens that this Proposal would impose on SDRs and RCPs (including
commercial end users) may be difficult to justify if the problem the
Commission is attempting to rectify may equate to 2% of all messages
delivered to SDRs.
---------------------------------------------------------------------------
\8\ Proposal at section VII.B.3.xi.
---------------------------------------------------------------------------
I share the view that has been stated by some of my colleagues
recently that the Commission should strive to make data-driven
policy determinations and should avoid relying on assumptions or
anecdotes when engaged in rulemaking activity.\9\ Yet, the same is
true when it comes to imposing costs and burdens on market
participants that are already heavily encumbered by a broad swath of
regulatory obligations that continue to shift and expand. Our recent
rulemakings have referenced data driven policy making, learning from
experience with Dodd-Frank implementation, and demonstrating
supporting evidence for regulatory change, but the verification
provisions of this Proposal deviate from that approach. The
Commission should delay this rulemaking until the other aspects of
the Roadmap critical to improving swaps data reporting and lessening
unnecessary regulatory burdens were ready to be proposed. But, short
of that, I welcome public comment and data evaluating the breadth
and depth of inaccuracies in SDR data.\10\ Such information would
help to determine how much reported SDR data is actually incorrect
before the Commission requires SDRs and RCPs to build additional
systems and undertake significant new compliance burdens and
obligations to address an accuracy problem that, at this point, has
not been proved. I look forward to comments and data that
demonstrate the actual need for the proposed changes.
---------------------------------------------------------------------------
\9\ See, e.g., IDI De Minimis Rulemaking at 12467 (Statement of
Chairman J. Christopher Giancarlo) (``As I have said many times
before, I believe that CFTC policy is best when it is driven by data
and not assumptions.'').
\10\ The cost-benefit consideration in the Proposal loosely
references and mischaracterizes information contained in three
public studies that allude to challenges in SDR data. Unfortunately,
these studies are from 2015 or earlier and are based upon data from
the initial roll-out of SDR reporting. These studies address
incomplete rather than inaccurate data and do not belong in this
Proposal that focuses on verification of data. See fn. 6, supra. The
Roadmap explained that validations should be utilized to reject swap
data reports with missing data fields, and these issues would be
better served by a holistic implementation of the Roadmap and do not
require the onerous verification aspects of the Proposal.
Furthermore, some of these identified issues also would be resolved
by the technical specification detailed in the Roadmap and, again,
if proposed in unison, would provide RCPs with clear definition,
form and manner, and allowable values. The reference to the third
study also fails to mention that the two soybean swaps referred to
were removed from a universe of 39,622 agricultural swaps.
---------------------------------------------------------------------------
II. Insufficient Level of Detail for Appropriate Public Comment and
Cost-Benefit Consideration
The Administrative Procedure Act (APA) requires that, in issuing
its rules, the Commission ``examine the relevant data and articulate
a satisfactory explanation for its action including a rational
connection between the facts found and the choices made.'' \11\
Section 15(a) of the Commodity Exchange Act (CEA) further requires
that in doing so, the Commission must consider the costs and
benefits of its proposed action.\12\ A notice of proposed rulemaking
affords the Commission the opportunity to gather information and
build a record that will provide the reasons for the conclusions
that it ultimately draws when final rules are issued. If the
Commission fails to properly exercise this responsibility, we risk
having our rules set aside as arbitrary and capricious agency
action.\13\
---------------------------------------------------------------------------
\11\ Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut.
Auto Ins. Co., 463 U.S. 29, 43 (1983).
\12\ 7 U.S.C. 19(a).
\13\ See APA, 7 U.S.C. 706(2)(A).
---------------------------------------------------------------------------
While I support the purposes and intent underlying the Proposal,
I am concerned that some of the proposed rules are too vague to
enable the public to provide the Commission with information
necessary to adopt a sound final rule set. For RCPs, the Proposal
informs them of their general obligations, but leaves a tremendous
amount of the details to future action by the Commission (often
delegated to staff) and the SDRs to dictate the operational work
flows that RCPs will have to adhere to in order to comply with the
Commission's rules. RCPs reading the proposed rules still would not
know what changes are being proposed in what they have to report,
when they must report by, and how they are to deliver that
information to SDRs. The proposed rules are often amorphous, lacking
specificity as to the actual processes and procedures to be imposed,
with RCPs left to comment without really knowing what much of this
would actually require of them in the future.
The same is true for SDRs. For example, proposed Sec. 49.9
covering open swaps reports to be provided to the Commission is
quite opaque, and provides no detail as to any potential future
instructions from the Commission that ``may include, but are not
limited to, the method, timing, and frequency of transmission as
well as the format of the swap data to be transmitted.'' Similarly,
proposed Sec. 49.17(c)(1) would require an SDR to transmit all swap
data requested by the Commission, but provides that the SDR will
receive instructions that may include, but are not limited to, the
method, timing, and frequency of transmission, and the format and
scope of the SDR data to be transmitted, at a later time.
How can RCPs and SDRs prepare for, budget, build, test, and
implement systems to comply with these requirements without ample
information ahead of time as to what these requirements entail?
Indeed, it is not clear to me how RCPs and SDRs can even
meaningfully comment on either the merits or the costs and benefits
of the proposed rules when these critical elements of the
requirements are left for future determination.
But the proposed rule that troubles me most in this regard is
proposed Sec. 49.13, which addresses an SDR's duty to monitor,
screen, and analyze data upon the request of the Commission. The
Proposal explains that in its original consideration of current
Regulation 49.13,\14\ the Commission received comments that the rule
does not sufficiently describe the specific tasks that SDRs are
expected to perform. The Commission decided to later establish
specific monitoring, screening, and analyzing duties when its
knowledge was more fully developed, and that is where we find
ourselves presently. Yet, despite the Commission's experience with
swaps data over the last five plus years, this Proposal still fails
to delineate specific duties that would enable an SDR to provide
appropriate budget, technological development, and staff resources
to assure an ability to comply with the demands that may be made
upon it.
---------------------------------------------------------------------------
\14\ 17 CFR 49.13.
---------------------------------------------------------------------------
Proposed Sec. 49.13(a)(1) requires SDRs to be prepared to
comply with Commission requests for monitoring, screening, and
analyzing of data. Several of the tasks alluded to in the proposal
rule could impose significant, albeit wholly undefined, obligations
on SDRs. For example, proposed Sec. 49.13(a)(1)(iv) contemplates
assessments of risk, which is not particularly an SDR function and
which can be a very complicated exercise that is defined and
calculated differently by different market participants. Proposed
Sec. 49.13(a)(1)(viii) would appear to render SDRs an arm of the
Commission's enforcement program, as it would require them to
provide information
[[Page 21120]]
about compliance with Commission regulations without clarifying how
SDRs could do so, and despite the fact that SDRs are not self-
regulatory organizations.
Proposed Sec. 49.13(b), in turn, requires SDRs to ``establish
and at all times maintain sufficient information technology, staff,
and other resources to fulfill'' these Commission requests. Yet,
proposed Sec. 49.13(a)(2) provides that the content, scope, and
frequency of all monitoring, screening, and analyzing requests shall
be at the discretion of the Commission (to be exercised by staff
pursuant to delegated authority); further, in addition to the 11
types of potential Commission requests identified in the proposal,
SDRs also would have to be prepared to comply with other,
unspecified, types of requests for monitoring, screening, and
analyzing as well. How can an SDR be expected to efficiently
allocate capital and meet the standards of proposed Sec. 49.13(b)
with respect to information technology, staff, and ``other''
(undefined) resources when it does not know what the actual
requirements will be, when it will be expected to deliver, at what
frequency, and the exact form and manner of the deliverable?
Finally, proposed Sec. 49.30 would mandate that ``a swap data
repository shall submit SDR data reports and any other information
required under this part to the Commission, within the time
specified, using the format, coding structure, and electronic data
transmission procedures approved in writing by the Commission.'' I
cannot begin to fathom the uncomfortable (and unenviable) position
of an SDR under rules whereby the Commission can ask for almost
anything under proposed Sec. 49.13, and then demand its submission
whenever and however it wishes under proposed Sec. 49.30.
The Proposal states, somewhat incredibly, that it ``expects
specifying these topic areas [in proposed Sec. 49.13] would not
impose substantial new fixed costs on SDRs. . .'' \15\ It is wishful
thinking to claim that the extensive list of undefined, open-ended
tasks hypothesized in proposed Sec. 49.13(a)(1) that SDRs must
prepare to build and deliver will not represent a meaningful burden.
Although it is not clear how SDRs could quantify the costs of
compliance with such vague obligations, it is likely that the costs
incurred by SDRs will be significant--and that their clients,
including commercial end-users, ultimately will pay the price.
---------------------------------------------------------------------------
\15\ Proposal at section II.I.
---------------------------------------------------------------------------
I appreciate that it is not possible to foresee all future
circumstances when proposing a rulemaking, and I recognize the need
for flexibility in aspects of the Commission's day-to-day
administration of the Dodd-Frank swap regulatory regime.
Nevertheless, I am concerned that the Proposal fails to inform the
public as to the full nature of the responsibilities that the
Commission intends to impose upon RCPs and SDRs so that they can
provide appropriate comment and feedback to drive the best final
rule outcome possible. I wonder how the Commission can produce a
complete cost-benefit consideration without specifying the actual
scope and technical details of the requirements it is proposing to
impose, particularly with respect to requests to SDRs to be made via
proposed Sec. 49.13. In sum, I fear that in proposing several rules
where critical elements are left for future specification (often by
staff), the Commission will not receive informed and meaningful
public comments (including comments on costs and benefits) that are
necessary to provide the foundation on which our rules ultimately
must rest.
III. Suboptimal Policy Choices
Certain elements of the Proposal rest on questionable policy
choices that I wish to highlight in order to garner public input as
part of the comment process.
First, the Proposal would remove a longstanding market practice
of trusted sources when it comes to verification of data accuracy
without demonstrating why such a change is necessary, or
appropriate. The Proposal states: ``The Commission provided an
exception to the requirement that SDRs `confirm with both
counterparties to the swap the accuracy of the data that was
submitted' in Sec. 49.11(b)(1)(ii) for swap creation data and Sec.
49.11(b)(2)(ii) for swap continuation data when swap data is
received from a [swap execution facility, or `SEF'], [designated
contract market, or `DCM'], derivatives clearing organization
(`DCO'), or from a third-party service provider acting on behalf of
the swap counterparty, under certain conditions.'' \16\ The
Proposal's departure from this policy means that SDRs would no
longer be able to rely on an exception from the requirement to
affirmatively confirm with both counterparties where (1) the SDR
forms a reasonable belief that the data is accurate, (2) the
reporting identifies that both counterparties agreed to the data
submitted, and (3) the SDR provides both counterparties with a 48-
hour correction window.
---------------------------------------------------------------------------
\16\ Id., text accompanying n.70.
---------------------------------------------------------------------------
The Proposal argues, without citing any evidence, that, ``based
on the Commission's experience with swap data submitted by SEFs,
DCMs, DCOs, and third-party service providers since the rule was
adopted, the Commission believes that such swap data has not been
consistently complete and accurate in some instances, and the swap
data accuracy is not sufficient to justify the exception to the
requirement that SDRs confirm the reported swap data's accuracy with
swap counterparties. The current requirements have had a negative
effect on swap data accuracy and consistency, which has hampered the
Commission's ability to carry out its regulatory responsibilities.''
\17\ I do not believe that trading venues, which value execution
certainty and must deliver accurate trade details to clients, or
clearing organizations, which must have verified trade details
available for risk management purposes, would report systematically
or consistently inaccurate swaps data to SDRs, given their level of
technological expertise and concern for reputational risk. At a
minimum, I would not eliminate the existing exception absent
evidence establishing that this is the case.
---------------------------------------------------------------------------
\17\ Id., text immediately following n.73.
---------------------------------------------------------------------------
Second, the Proposal would mandate in proposed Sec. Sec.
43.3(e) and 45.14(b) that corrections of errors and omissions be
performed by SEFs, DCMs, and RCPs ``regardless of the state of the
swap that is the subject of the swap data.'' The Proposal defines an
``open swap'' as ``an executed swap transaction that has not reached
maturity or the final contractual settlement date, and has not been
exercised, closed out, or terminated.'' Thus, the Proposal is
requiring additional reporting for ``dead'' swaps without
demonstrating a relevant use-case to warrant such a requirement.
It is more difficult for RCPs to correct dead/expired swaps that
are no longer on their books and records. SDRs also face additional
challenges and complexity in modifying swaps that are no longer what
the Proposal defines as an ``open swap.'' The Proposal does not
identify a Commission or public use-case that justifies the
increased burden and challenge associated with correcting data on
dead/expired swaps. The financial crisis that precipitated Dodd-
Frank was not caused by, nor could it have been prevented by,
regulatory oversight of dead swaps, but rather was the result of
active risk. Again, absent an identified justification with
evidentiary support, I do not support imposing additional regulatory
burdens that force market participants to shift resources from the
management of active risks to the reporting of dead swaps.
Third, I would prefer a more sensible approach to the duration
of the recordkeeping requirements for SDRs. Proposed Sec.
49.12(b)(2) would require SDR records--including SDR data,
timestamps, and messages--to be readily accessible following final
termination of the swap for five years, and then for a period of ten
additional years in archival storage, which, of course, has an
associated cost. Unless the Commission can clearly articulate the
use-case and regulatory purpose that would justify requiring
archival storage up to 15 years after the expiration of the swap, I
believe the Commission should consider reducing the recordkeeping
time frame for SDRs.
IV. Process Foul To Address Only One Aspect of the Complex Swap Data
Reporting Puzzle
I also am uncomfortable with the sequencing of this Proposal and
the rush to publication on a stand-alone basis rather than as part
of the contemplated overhaul of all the swaps data reporting rules.
I expressed a similar view about the application of a holistic
approach to interrelated regulations during last November's Open
Meeting concerning SEFs when I noted that ``I would prefer that the
Commission be able to opine on a final SEF rule and a final rule on
name give-up at the same time. Acting on all aspects impacting SEF
trading contemporaneously would benefit all entities involved.''
\18\ The same principles apply to swap data reporting, as both the
public and the Commission would benefit from holistically addressing
the
[[Page 21121]]
entirety of the swap data reporting universe. Unfortunately, the
Commission continues to propose regulations that are interrelated
and that would govern the same activity in an inefficient, piecemeal
manner.
---------------------------------------------------------------------------
\18\ See Opening Statement of Commissioner Dawn D. Stump before
the CFTC Open Meeting, November 5, 2018, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/stumpstatement110518.
---------------------------------------------------------------------------
Swap data reporting is a complex web of interrelated processes
and systems that must all work in sync in order to generate complete
and accurate data in a timely and cost effective manner. Many tasks
in reporting are sequential in nature, and it takes all participants
in the reporting ecosystem to coordinate and cooperate with a
complete understanding of all the swap data reporting regulations
from the Commission. For example, SDRs have to scope out and create
policies and procedures and build systems/templates for any new
requirement. RCPs cannot adequately prepare for, much less build and
test, systems on how to comply until they receive final feedback and
instructions from the SDR. For this reason, implementing reporting
changes--which invariably is quite costly to both SDRs and RCPs in
terms of the expenditure of time, energy, and money--must be
orchestrated and timed very carefully.
SDRs and RCPs have previously expressed to the Commission the
importance of being made aware of anticipated future modifications
to reporting so that they can understand the expected end-game that
the Commission has in mind.\19\ Market participants also have
commented on the need to understand the entire policy idea and all
the associated pieces before committing time and energy to provide
the Commission with meaningful comments and input.\20\
---------------------------------------------------------------------------
\19\ In late 2015, CFTC staff issued a request for comment on
draft technical specifications for certain prioritized swap data
elements and sought input on 80 enumerated questions addressing 120
data elements for several swap data reporting topics. See Draft
Technical Specifications for Certain Swap Data Elements (December
22, 2015), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/specificationsswapdata122215.pdf and https://www.cftc.gov/PressRoom/PressReleases/pr7298-15. In responding to staff's request for
comment, SIFMA stated that it ``view[s] the Draft Technical
Specifications as one component of a broader initiative to enhance
swap data reporting'' and that the ``interrelationships among the
Draft Technical Specifications and these other workstreams, as well
as their shared dependencies on the same technology and human
resources, necessitate a well-planned and sequenced approach to
enhancing swap data reporting requirements. Prioritizing among the
various enhancements under consideration will help to avoid
inadvertent inconsistencies and associated potential for erroneous
data and unnecessary infrastructure costs.'' Letter from Kyle
Brandon, SIFMA, at 2 (March 7, 2016), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=60702&SearchText=.
\20\ SIFMA and ISDA jointly commented on the swaps data Roadmap
and suggested that the Commission align the anticipated timeframes
for swaps data reporting changes: ``[G]iven the interconnection
between SDR functions and the counterparties' reporting workflows,
we believe that any proposed rule amendments and final rules
associated with Tranche 1 and Tranche 2 should be issued at the same
time.'' Their letter then went on to comment: ``Alternatively,
should the Commission decide to publish the proposed rule amendments
to the SDR rules first in Tranche 1, then we recommend that the
public comment period for this release remain open for at least 90
days following publication of the proposed rule amendments to the
reporting workflow rules in Tranche 2. This extended comment period
would provide market participants with a comprehensive and holistic
understanding of whether the two proposals achieve the desired
policy outcomes and account for operational costs and possible
additional builds to comply with a modified reporting regime.''
Letter from Steven Kennedy, ISDA, and Kyle Brandon, SIFMA, at 3-4
(August 21, 2017) (footnote omitted), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61288&SearchText=.
---------------------------------------------------------------------------
I appreciate that the Proposal states that ``[w]hen the
Commission proposes the next two rulemakings, the Commission
anticipates re-opening the comment period for this proposal to
provide market participants with an opportunity to comment
collectively on the three rulemakings together, because the
proposals address interconnected issues.'' \21\ But I do not see the
benefit of proceeding in such an inefficient manner. Issuing the
Proposal now does provide notice of the Commission's intentions with
respect to one piece of the swaps data Roadmap, but no notice of
what else from the Roadmap might come to pass. Such ``partial
notice'' does not enable parties to evaluate, and comment upon, the
full picture of their new compliance obligations, including their
costs and burdens.\22\ Under these circumstances, I would not be
surprised if market participants simply waited for all of the
reporting rules to be proposed before providing feedback to the
Commission on the whole of what is being proposed.
---------------------------------------------------------------------------
\21\ Proposal, text immediately following n.23.
\22\ The Commission's disjointed delivery of proposed changes to
its swap data reporting rules also raises questions as to its
consideration of relevant costs and benefits. Cost-benefit
considerations, by their very nature, must evaluate the proposed
changes in comparison to the status quo--including the present state
of other relevant regulations. As a result, the cost-benefit portion
of the Proposal could be deemed obsolete to the extent it does not
incorporate any of the modifications to other swap data reporting
requirements in parts 43 and 45 of the Commission's regulations that
the Commission intends to propose and act upon. The failure to
propose all the swaps data reporting rule amendments in unison would
seem to necessitate a refresh of the accompanying cost-benefit
portion of this Proposal, and further public comment.
---------------------------------------------------------------------------
In addition, if, as the Proposal suggests, there actually is a
significant problem with inaccurate swap data being reported to
SDRs, the piecemeal issuance of these rulemakings makes it more
difficult for the Commission to evaluate whether that problem can be
rectified by allowing other facets of the swaps data Roadmap to gain
traction. Query whether the Commission generating a technical
specification removing uncertainty as to what must be reported and
how, harmonizing with other regulators and implementing unique
identifiers (Unique Transaction Identifiers and Unique Product
Identifiers) and critical data elements from CPMI-IOSCO work
streams, minimizing the number of fields required to be reported,
and affording RCPs more time to report would organically resolve a
large proportion of any inaccurate data reporting problem that may
exist. The manner in which the Commission has elected to proceed
will make it challenging for SDRs and RCPs to comment appropriately
on these questions, and I fear will place the Commission in a
predicament as it attempts to make informed policy decisions on how
best to proceed.
V. Lack of Harmonization With the SEC
Market participants of all shapes-and-sizes--even those that are
often on opposing sides of most regulatory debates--all agree on a
common theme that has been repeatedly urged upon the Commission via
every imaginable medium since the enactment of Dodd-Frank: The
Commission and the Securities and Exchange Commission (SEC) should
coordinate and harmonize their respective derivatives regulations to
the maximum extent possible, and especially concerning entities that
have already incurred systems and compliance costs in connection
with the corresponding requirements of the related agency. All types
of market participants have implored both the Commission and the SEC
to minimize compliance burdens on potential dual registrants in
connection with the derivatives rules, such as swap data reporting.
And yet, notwithstanding the current emphasis on CFTC-SEC
harmonization,\23\ the Commission is proposing a swap data reporting
rule that appears to take an approach that is the opposite of, and
in direct contrast to, the SEC's thinking on the same issue.
---------------------------------------------------------------------------
\23\ See, e.g., Memorandum of Understanding Between the U.S.
Securities and Exchange Commission and the U.S. Commodity Futures
Trading Commission Regarding Coordination in Areas of Common
Regulatory Interest and Information Sharing (July 11, 2018)
(specifically addressing the regulatory regime for swaps and
security-based swaps), available at https://www.cftc.gov/sites/default/files/2018-07/CFTC_MOU_InformationSharing062818.pdf and
https://www.cftc.gov/PressRoom/PressReleases/7745-18.
---------------------------------------------------------------------------
The SEC published a proposed rulemaking in December 2018 \24\
that specifically discusses, among other things, verification of the
terms of reported security-based swaps--as does the Proposal. Yet,
while the Proposal would increase regulatory burdens on all entities
in its amended regulatory reporting scheme, the SEC is considering a
more pragmatic approach. The SEC, in its proposal, ``believes it to
be an appropriate time to revisit and request comment on an issue
previously identified in connection with the rules . . . [that]
require[] each registered SDR to `confirm with both counterparties
to the security-based swap the accuracy of the data that was
submitted.' '' \25\
---------------------------------------------------------------------------
\24\ Risk Mitigation Techniques for Uncleared Security-Based
Swaps, 84 FR 4614 (February 15, 2019) (proposed rules).
\25\ Id. at 4633-4634 (footnote omitted).
---------------------------------------------------------------------------
Specifically, the SEC in its proposal states that ``SDRs may be
able to reasonably rely on certain third parties to address the
accuracy of the transaction data. For example, the Commission
previously stated that if an SDR develops reasonable policies and
procedures that rely on confirmations completed by another entity,
such as a third-party confirmation provider, as long as such
reliance is reasonable the SDR could use such confirmation to
fulfill its obligations under certain SDR rules. Because the two
[[Page 21122]]
relevant provisions that we are proposing today generally relate to
the obligation of [Security-Based Swap, or `SBS'] Entities to take
certain steps in the reconciliation and documentation processes
related specifically to the reporting of the relevant security-based
swap data to an SDR . . . the Commission believes that . . . these
measures, taken together, could provide an SDR with a set of factors
to assess the reasonableness of relying on an SBS Entity's ability
to independently provide the definitive report of a given security-
based swap position, thereby providing a basis for the SDR to
satisfy its statutory and regulatory obligations to verify the
accuracy of the reported data when the SBS Entity's counterparty is
not a member of the SDR.'' \26\
---------------------------------------------------------------------------
\26\ Id. at 4634 (footnotes omitted).
---------------------------------------------------------------------------
In other words, the SEC is considering whether the
reconciliation process undertaken by security-based swap dealers of
their swaps portfolios could satisfy the statutory obligation to
confirm the accuracy of data reported to SDRs. This sensible
approach being considered demonstrates deference to trusted sources
for swap data accuracy when a third-party service provider is
employed to address the confirmation of swaps data, similar to the
exceptions in Regulations 49.11(b)(1)(ii) and 49.11(b)(2)(ii) that
the Proposal would eliminate.
As discussed more fully in Section VI below, based on the
Commission's reporting hierarchy in Regulation 45.8,\27\ swap
dealers (SDs) are the RCP and transmit required swap data elements
to an SDR for the vast preponderance of swap transactions. These
same SDs are already subject to another regulatory obligation
relating to verification of the terms of their swap transactions, as
they must conduct a portfolio reconciliation exercise on a regularly
recurring basis via Regulation 23.502.\28\ Portfolio reconciliation
forces the ``[e]xchange [of] the material terms of all swaps in the
swap portfolio between the counterparties'' and requires the parties
to ``[r]esolve any discrepancy in material terms and valuations.''
\29\ Since SDs already must check the accuracy of their portfolios
through a reconciliation exercise, and since SDs report almost all
swaps, then the Commission, like the SEC, should consider leveraging
this existing process and afford SDs that undertake such an exercise
enough time for it to run its course and then submit that same
accurate and verified data set for SDR reporting purposes.
Leveraging this existing regulatory process, rather than creating
yet another process that compliance officers and operations staff
must adhere to, may offer a ``good government'' solution, assuming
the existence of a systemic problem with SDR data accuracy. If SDs
represent that the same data reconciled with counterparties per Rule
23.502 is reported to SDRs, then the Commission might not need to
impose the burdensome new requirements set out in the Proposal.
---------------------------------------------------------------------------
\27\ 17 CFR 45.8.
\28\ 17 CFR 23.502.
\29\ 17 CFR 23.500(i)(1), (3).
---------------------------------------------------------------------------
It is unfortunate that the Commission did not propose--or even
request comment on--the less burdensome approach to verification
that the SEC is considering in light of our stated commitment to
harmonizing the agencies' derivatives rules. And it is even more
mystifying to me why we are proposing these rule amendments in the
inefficient, piecemeal manner described above when delaying the
issuance of this Proposal would not only enable us to issue the
various proposed amendments to our swap data reporting rules as a
unified package, but also to learn from comments on the SEC's data
verification discussion (the comment period closed on April 16)
whether the SEC may have identified a better option for fostering
accurate reported swaps data.
VI. Outsized Burden Placed Upon SDRs and RCPs, Including End-Users
Swap market participants have repeatedly emphasized to the
Commission that the swap data reporting rules are overly
complicated, difficult to implement, and a significant operational
burden and compliance challenge for all concerned, including end-
users.\30\ Yet, the Proposal would add more layers of complexity to
reporting workflows, and require SDRs and RCPs to commit more time
and money to submit more reports and undertake additional
obligations.
---------------------------------------------------------------------------
\30\ In responding to staff's request for comment on the Draft
Technical Specifications, see fn. 19, supra, ISDA stated:
``End[hyphen]users which either have reporting obligations or which
would be compelled to provide data to the reporting counterparty
necessitated by the proposed fields would be particularly burdened
by the requirements and many will lack the technological capability
to capture, transform and report or provide data as required. The
small to mid[hyphen]sized commodity producers, processors, merchants
and other end[hyphen]users that use swaps to mitigate commodity,
interest rates, foreign exchange or other price risks will require
additional technology, compliance and legal support in order to
accommodate additional reporting requirements. This will impose
significant, unjustified costs to end-users . . . . ISDA, on behalf
of commercial end[hyphen]users, requests the CFTC to avoid imposing
changes and additional reporting requirements on end[hyphen]users by
maintaining their obligations under the current Reporting
Regulations to the greatest extent possible.'' Letter from Tara
Kruse, ISDA, at 7-8 (March 7, 2016), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=60713&SearchText=. ISDA continued to advocate
against placing additional burdens on end-users through its joint
comment letter with SIFMA to the Swap Data Roadmap and suggested the
Commission ``should not require non-reporting counterparties, end-
users, and smaller firms to perform reconciliations because these
entities generally do not have the resources to effectively validate
their swap transactions.'' See fn. 20, supra, at 6.
---------------------------------------------------------------------------
In particular, the Commission has heard from many end-users
about the immense nature of their reporting burdens, how regulatory
capture on end-users has impacted their business models and their
ability to hedge via derivatives markets, and the unintended
consequences of the initial implementation of the Dodd-Frank swap
reporting regime. In response, the Commission, commendably, has made
considerable progress in addressing reporting issues and limiting
burdens on end-users via the various tools at our disposal when
consistent with our regulatory responsibilities. It is not clear to
me why this Proposal would break from those efforts and go in the
opposite direction by placing new and burdensome swap data reporting
obligations on end-users.
End-user RCPs would bear several onerous obligations under this
Proposal. End-user RCPs would have to commit considerable resources
to create more sophisticated and elaborate reporting systems in
order to be compliant. The Proposal estimates that 1,585 RCPs are
neither SDs, major swap participants (MSPs), nor DCOs.\31\ As a
result of the Proposal, all of these end-user RCPs would have to
acquire or build additional processes and hire more staff to comply
with these new reporting regulations, regardless of the number,
notional amount, asset class, or risk profile of the swaps for which
they are the RCP. To provide some perspective, staff has indicated
that of new transactions in January 2019, trades with at least one
SD counterparty (which would serve as the RCP) per asset class
represented 99.6183% of the 22,446 CDS trades; 98.2466% of the
137,499 IRS trades; 97.0540% of the 603,696 FX trades; 99.9998% of
the 471,657 Equity trades; and 85.3056% of the 60,021 Commodity
trades. In other words, the 1,585 RCPs that are not SDs, MSPs, or
DCOs reported, at most, 86 CDS, 2,454 IRS, 18,325 FX, 1 Equity, and
10,339 Commodity swaps during this time period. Given the limited
number of swaps for which end-users are RCPs compared to the overall
swaps market, I question whether imposing on all end-users that may
serve as an RCP the additional burdens of preparing for compliance
with the requirements of this Proposal reflects an appropriate
consideration of costs and benefits.
---------------------------------------------------------------------------
\31\ Proposal, text accompanying n.226.
---------------------------------------------------------------------------
The Commission has made strides post the initial roll-out of its
Dodd-Frank rulemakings to fix unintended consequences of its swap
data reporting rules and minimize the burdens on end-users where
appropriate. This Proposal, unfortunately, errs in the other
direction. I welcome suggestions via the public comment process on
the appropriate role for end-user RCPs to play in assuring the
accuracy of reported swap data short of imposing the burdens set out
in the Proposal.
VII. Alternate Approaches for Further Consideration
To be clear, my concern with the Proposal is not simply that it
would impose costs on market participants; all necessary regulatory
requirements do so. Rather, my concern is with the extent of the
burdens that the Proposal would impose on market participants,
including end-users, in light of the prospects that the Proposal
will meaningfully improve the quality of reported swap data. As
discussed above, the Proposal does not establish that there actually
is a systemic problem in that regard. But assuming that to be the
case, consider the following fact pattern and whether any errors
would be found and rectified under the Proposal:
RCP submits data to an SDR from its regulatory
reporting databases;
SDR creates Open Swaps reports based upon the data
received;
[[Page 21123]]
SDR provides a mechanism for the RCP to verify the
accuracy of the Open Swaps report; and
RCP checks the Open Swaps report against the data that
it submitted to the SDR.
In other words, if the original data set utilized by the RCP
contains an inaccuracy, the Proposal could simply impose a futile
exercise based on circular logic. The end result of the new burdens
placed upon RCPs and SDRs would merely be a false positive in this
scenario. If the RCP's data is inaccurate in the first place, then
the Proposal would be successful only in making swap data reporting
more complicated and expensive, without actually improving the
accuracy of the data reported to the SDR.\32\
---------------------------------------------------------------------------
\32\ To be sure, the Proposal might identify situations in which
the SDR inexplicably alters the data that it receives from an RCP.
But current Regulation 49.10(c), 17 CFR 49.10(c), already prohibits
such activity since an SDR ``shall establish policies and procedures
reasonably designed to prevent any provision in a valid swap from
being invalidated or modified through the confirmation or recording
process of the swap data repository. The policies and procedures
must ensure that the swap data repository's user agreements are
designed to prevent any such invalidation or modification.''
---------------------------------------------------------------------------
Accurately reported swap data is, of course, crucial to the
Commission's performance of its regulatory responsibilities and the
effective operation of the Dodd-Frank swap regime. That is why I am
concurring in the issuance of the Proposal--because I support the
Commission's efforts to determine whether appropriate improvements
can be made to its swap data reporting rule set.
This Proposal provides an opportunity for the public to suggest
other, perhaps better, solutions to more efficiently produce the
desired outcome of accurate swap data for purposes of conducting the
Commission's work, facilitating risk oversight and management, and
fostering robust swaps markets. I strongly encourage SDRs, SDs,
DCOs, end-users, and the public in general to take advantage of this
opportunity and provide not only feedback on the Proposal, but also
their ideas on how to appropriately balance the need for accurately
reported swap data with the costs and burdens associated with
obtaining it. The Commission should consider any alternate
approaches that can satisfy the policy goal of improving the quality
of SDR data while limiting the impact on market participants already
saturated with complex and repetitive reporting obligations.
I would like to offer, and invite comment on, a few alternatives
with respect to RCPs. CEA Section 21(c)(2) provides that SDRs shall
``confirm with both counterparties to the swap the accuracy of the
data that was submitted.'' \33\ As a result, a clear obligation
exists as to what SDRs must do. The statute is less clear on what
RCPs must do, if anything.
---------------------------------------------------------------------------
\33\ 7 U.S.C. 24a(c)(2).
---------------------------------------------------------------------------
Under the Commission's current regulations, all RCPs must submit
hundreds of fields per transaction to their respective SDRs. Some
RCPs have thousands of open swaps that would be captured under this
Proposal and require recurring verification. I hope that commenters
will address whether a smaller number of swaps and/or a limited
subset of essential fields that must be verified would enable the
Commission to conduct its regulatory functions without
indiscriminately requiring verification of all swap data elements.
Another option on which public comment would be helpful is
requiring RCPs to verify only the accuracy of a statistically
significant portion of their Open Swaps report and then decide,
based on the level of accuracy, whether the entirety of Open Swaps
must be analyzed. Still another option might be to require
verification of only a limited set of the most important fields
required to understand the basic terms of plain-vanilla swap
transactions. Finally, commenters could address a possible de
minimis level that must be exceeded before the new reporting
obligations in this Proposal would apply. For example, if an RCP has
less than X swaps per year, or less than Y notional transacted per
year, then it would not have to perform these verification
functions.
With respect to end-user RCPs in particular, where the ability
to build reporting systems and the cost of doing so on a per swap
basis is much different than for SDs, MSPs, and DCOs, comment would
be beneficial on whether end-user RCPs should have more time than
proposed, both for replying to Open Swaps reports with a
``verification'' or ``notification of discrepancy'' message and
correcting errors and omissions. Also, commenters may wish to
address the frequency of how often end-user RCPs should be required
to participate in this labor-intensive process. I recognize that the
Proposal includes less stringent obligations on end-user RCPs in
comparison to SDs, MSPs, and DCOs that are RCPs, but I welcome
comment on whether the Commission should strive to do more in this
regard.
As written, the Proposal would impose a number of new, often
undefined, obligations with respect to swap data reporting. The
potential alternatives noted above, together with others that
commenters may suggest, could represent a common sense approach to
addressing concerns regarding swap data accuracy while appropriately
calibrating the costs and burdens associated with verification of
SDR data.
Appendix 5--Statement of Commissioner Dan. M. Berkovitz
I am pleased to support the Commission's notice of proposed
rulemaking (``NPRM'') to amend its rules for swap data repositories
(``SDRs'') and data reporting requirements.\1\ The proposed
amendments reflect the Commission's commitment to accurate,
detailed, and timely swaps data for regulators, market participants,
and the public through enhanced data verification and error
correction procedures, among other amendments. They are an important
step in achieving the Dodd-Frank Act's mandate of swap data
reporting as an integral part of OTC derivatives reform and
financial market stability. \2\
---------------------------------------------------------------------------
\1\ The NPRM notes that it is the first of three rulemakings
anticipated pursuant to the Commission's 2017 ``Roadmap to Achieve
High Quality Swaps Data'' (``Roadmap''). See NPRM section I(C).
Information regarding the Roadmap is available in CFTC Letter 17-33
(Division of Market Oversight Announces Review of Swap Reporting
Rules in Parts 43, 45, and 49 of Commission Regulations) (July 10,
2017), available at http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf. The Roadmap itself is
available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
\2\ See also G20, Leaders' Statement: The Pittsburgh Summit
(Sept. 24-25, 2009), paragraph 13, available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
---------------------------------------------------------------------------
The Dodd-Frank Act codified important new swap data reporting
obligations, \3\ and established SDRs as the vehicles for reporting
and retaining swaps data. \4\ It recognized the role of regulatory
reporting and real-time public reporting in enhancing transparency
and reducing systemic risk in the U.S. financial system. Consistent
with these foundational principles, the Commission has focused on
swap data reporting since the very inception of its Dodd-Frank
efforts. In 2011, it began finalizing a series of coordinated
reporting rules that provide for both regulatory and real-time
public reporting of swap transaction and pricing data (Parts 45 and
43); \5\ establish SDRs to receive data and make it available to
regulators and the public (Part 49); \6\ and define certain swap
dealer and major swap participant reporting obligations (Part 23).
\7\
---------------------------------------------------------------------------
\3\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, section 727, Public Law 111-203, 124 Stat. 1376 (2010) (the
``Dodd-Frank Act''), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.
\4\ See Dodd-Frank Act, section 728.
\5\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136 (Jan. 13, 2012) (``Part 45 Adopting Release'') and Real-Time
Public Reporting of Swap Transaction Data, 77 FR 1182 (``Part 43
Adopting Release'').
\6\ Swap Data Repositories: Registration Standards, Duties and
Core Principles, 76 FR 54538 (Sept. 1, 2011).
\7\ Swap Dealer and Major Swap Participant Recordkeeping,
Reporting, and Duties Rules; Futures Commission Merchant and
Introducing Broker Conflicts of Interest Rules; and Chief Compliance
Officer Rules for Swap Dealers, Major Swap Participants, and Futures
Commission Merchants, 77 FR 20128 (Apr. 3, 2012).
---------------------------------------------------------------------------
The Commission's regulations leverage real-time public reporting
to help increase transparency, fairness, and efficiency in swaps
markets, \8\ while regulatory reporting assists the Commission and
other financial regulators in market oversight and systemic risk
mitigation. \9\ In this regard, SDRs provide a more consolidated
view \10\ of market
[[Page 21124]]
participants' exposures across their swaps portfolios, and can help
to identify concentrations and other potential risks that are
dispersed across individual portfolios, trading platforms, and
clearinghouses. Accurate, complete, and timely information is
therefore vital to any successful swaps data reporting regime. These
objectives were central to post-crisis reform efforts, and they must
remain the primary considerations as the Commission moves to enhance
its reporting rules.
---------------------------------------------------------------------------
\8\ See Part 43 Adopting Release, 77 FR 1182, 1183.
\9\ See Part 45 Adopting Release, 77 FR 2136, 2138.
\10\ However, in a jurisdiction with multiple SDRs, such as the
United States, regulators' view into market participants' swap
positions is not fully consolidated. The presence of different SDRs
in jurisdictions across the globe also impinges on full
consolidation. These limitations give added import to standardizing
data reporting, data fields, and regulators' access to data.
Aggregation by regulators in a jurisdiction with multiple SDRs, for
example, is greatly facilitated by agreed reporting conventions.
---------------------------------------------------------------------------
It is important to note that the existing reporting rules have
already achieved important successes. Currently, three provisionally
registered SDRs \11\ facilitate regulatory reporting and real-time
public reporting, and CFTC staff estimates that SDRs processed
approximately 13 million unique swaps in 2018. SDRs provide online
systems where any member of the public can track transaction-by-
transaction information as swaps are executed and publicly reported.
SDRs have also designed portals and other resources to provide CFTC
staff with more complete regulatory access.
---------------------------------------------------------------------------
\11\ Chicago Mercantile Exchange Inc. Swap Data Repository; DTCC
Data Repository (U.S.); and ICE Trade Vault.
---------------------------------------------------------------------------
While building on this solid foundation, the NPRM and the
proposed amendments acknowledge areas where the Commission's
existing swap data reporting rules are not working as effectively as
they might. Registered swap dealers began reporting swap data on
December 31, 2012, and the proposed amendments are therefore based
on over six years of Commission experience with SDRs and swap data
reporting. In this regard, the NPRM addresses several areas that the
Commission identified for improvement in its 2017 Roadmap. For
example, the NPRM addresses swap data verification and the prompt
correction of errors or omissions in previously reported data. It
proposes to clarify and strengthen the obligations of SDRs and
reporting counterparties by requiring SDRs to provide reporting
counterparties with regular reports on open swaps to ``verify the
accuracy and completeness of swap data reported to SDRs.'' \12\ In
turn, reporting counterparties must respond affirmatively by
indicating that the records in the reports they receive are
accurate, or otherwise correcting any errors or omissions.\13\
Reporting counterparties must respond within timeframes specified in
the NPRM, and they must do so pursuant to standards established by
SDRs.
---------------------------------------------------------------------------
\12\ See NPRM section II(G) (discussing proposed section 49.11).
\13\ See NPRM section III(B) (discussing proposed section
45.14).
---------------------------------------------------------------------------
The NPRM also proposes that SDRs provide open swap reports to
the Commission. SDRs must provide such reports pursuant to timing,
method, frequency, content, and other instructions that the
Commission may issue.\14\ While working with SDRs, open swaps
reports will help the Commission to perform its regulatory functions
more effectively and efficiently through reports that SDRs
standardize in content, format, calculation methods, and other
variables.
---------------------------------------------------------------------------
\14\ See NRPM section II(E) (discussing proposed section 49.9).
---------------------------------------------------------------------------
In addition to these important data-focused amendments, the NPRM
also proposes amendments to rules in Part 49 of the Commission's
regulations that govern the internal operations of SDRs,
particularly as they pertain to an SDR's chief compliance officer
(``CCO''), conflicts of interest, and annual compliance reports. I
am interested in receiving comments regarding these proposed
amendments, including areas where the Commission's existing CCO-
related rules for SDRs are working well and where they could be
improved. In this regard, the Commission should be vigilant that
changes to compliance or other requirements made in the name of
efficiency do not diminish the self-regulatory foundation of the
Commission's oversight of derivatives markets.
I thank the staff of the Division of Market Oversight for their
dedicated work on both this NPRM and potential future proposals
related to swaps data reporting. I also thank staff for their
responsiveness to questions and comments from my office, including
their willingness to consider changes that have improved the NPRM
before the Commission today. While swap data reporting is not always
the most glamorous area of the Commission's work, it is vitally
important that we get it right. I look forward to public comments on
the NPRM, and to continued efforts by market participants and the
Commission to achieve the most effective swap data reporting
possible.
[FR Doc. 2019-08788 Filed 5-10-19; 8:45 am]
BILLING CODE 6351-01-P