Statements of Concurrence by Commissioner Rostin Behnam Regarding Proposed Rules on Real-Time Public Reporting and Swap Data Recordkeeping

February 20, 2020

Real-Time Public Reporting Requirements (Part 43)

I respectfully concur in the Commission’s proposal to amend certain real-time public reporting requirements.  I support the Commission’s ongoing review of its swap reporting rules; however, I think it is very important that we not lose sight of why we have these rules in the first place.  Prior to the 2008 financial crisis, swaps were largely exempt from regulation and traded exclusively over-the-counter.[1]  Lack of transparency in the over-the-counter swaps market contributed to the financial crisis because both regulators and market participants lacked the visibility necessary to identify and assess swaps market exposures and counterparty relationships and counterparty credit risk.[2]  In the aftermath of the financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Dodd-Frank Act).[3]  The Dodd-Frank Act largely incorporated the international financial reform initiatives for over-the-counter derivatives laid out at the 2009 G20 Pittsburgh Summit, which sought to improve transparency, mitigate systemic risk, and protect against market abuse.[4]  With respect to data reporting, the policy initiative developed by the G20 focused on establishing a consistent and standardized global data set across jurisdictions in order to support regulatory efforts to timely identify systemic risk.  The critical need and importance of this policy goal given the consequences of the financial crisis cannot be understated.

Among many critically important statutory changes, which have shed light on the over-the-counter derivatives markets, Title VII of the Dodd-Frank Act amended the Commodity Exchange Act and added a new term to the Act:  “real-time public reporting.”[5]  The Act defines that term to mean reporting “data relating to swap transaction, including price and volume, as soon as technologically practicable after the time at which the swap transaction has been executed.”[6]

As we consider amending these rules, I think it is important that we keep in mind the Dodd-Frank Act’s emphasis on transparency, and what transpired to necessitate that emphasis.  While most of today’s proposal encourages and supports the transparency required by the Act, I am concerned about the proposed amendments that would significantly extend the time delays for public dissemination of block trades.  Currently, the time delay for public dissemination of block trades executed pursuant to the rules of a SEF or DCM is 15 minutes.[7]  Today’s proposal would extend the time delay to 48 hours for all block trades.  I look forward to hearing from commenters as to whether this significant reduction in real-time transparency is justified, and whether there are potential risks to market structure efficiency that may reward some participants at the expense of others.

Amendments to the Swap Data Recordkeeping and Reporting Requirements (Parts 45, 46, and 49)

I respectfully concur in the Commission’s proposal to amend certain swap data and recordkeeping and reporting requirements.  The proposed amendments reflect a multi-year effort to streamline, simplify, and internationally harmonize the requirements associated with reporting swaps.  As a whole, the proposed amendments should improve data quality by eliminating duplication, removing alternative or adjunct reporting options, and utilizing universal data elements and identifiers.  Along those lines, I am especially pleased that the Commission is proposing to require consistent application of rules across SDRs for the validation of both part 43 and part 45 data submitted by reporting counterparties.  I believe the proposed amendments to part 49 set forth a practical approach to ensuring SDRs can meet the statutory requirement to confirm the accuracy of swap data set forth in CEA section 21(c)[8] without incurring unreasonable burdens.

I am also pleased that the Commission is considering requiring reporting counterparties to indicate whether a specific swap:  (1) was entered into for dealing purposes (as opposed to hedging, investing, or proprietary trading); and/or (2) needs not be considered in determining whether a person is a swap dealer or need not be counted towards a person’s de minimis threshold as described in paragraph (4) of the “swap dealer” definition in regulation 1.3 pursuant to one of the exclusions or exceptions in the swap dealer definition.  In the past, the Commission staff has identified the lack of these fields as limiting constraints on the usefulness of SDR data to identify which swaps should be counted towards a person’s de minimis threshold, and the ability to precisely assess the current de minimis threshold or the impact of potential changes to current exclusions.[9]  As I have noted, where Congress has dictated that the Commission be the primary regulator for certain swap dealing activities, it should utilize resources efficiently to accomplish its duties.[10]  It seems that the Commission’s ongoing surveillance for compliance with the swap dealer registration requirements would be greatly enhanced by data fields identifying the relationship of a particular swap to its participant’s business or purpose—even where the data might only be reasonably available via the reporting counterparty.  Moreover, it would afford the Commission greater insight into the use and usefulness of current exclusions and exceptions, as well as provide important data to support further consideration of relief.  I look forward to hearing from commenters on this question.