The Commission’s Division of Data has today issued a no-action letter providing approximately six additional months for market participants to work through challenges associated with complying with the amendments to swap data reporting regulations recently adopted by the Commission.[1] I believe the Staff’s action is appropriate. Market participants represent that they need this additional time to overcome certain operational and technological issues and to build and test changes to their swap data reporting systems. 

As market participants continue to work through challenges associated with the implementation of these amendments to the swap data reporting rules in Parts 43, 45, 46, and 49 of the Commission’s regulations (the “Amendments”), the Commission has considerable work to do, too.

Block Trade Thresholds 

When we adopted the Amendments in the fall of 2020, I stated, “I believe that the driving force behind the substantial rewrite of the swap data reporting rule set we are adopting today is that the Commission is not confident in the quality of [swap data repository] data, and that an overhaul is needed to provide the CFTC with complete and accurate information for data-driven policy decision making.”[2] Yet, despite the data reliability challenges that necessitated adopting the Amendments, the Commission chose not to re-assess the block size thresholds with the improved data that will result from the Amendments. 

As such, the block size threshold of 67 percent notional that was adopted in 2020 is an arbitrary metric. The 67 percent number was chosen back in 2013, and even then, the Commission contemplated the possibility of adjusting it once reliable swap data was available.[3] In fact, in 2013, the Commission decided that an initial calculation (50-percent threshold notional) was appropriate to determine block sizes, and that it would be followed by implementation of a higher block size threshold (67-percent threshold notional) when one year of reliable swap data was available.[4] Yet, no such one-year period has materialized due to less-than-reliable swap data. Despite the absence of reliable data, the Amendments nevertheless finalized the arbitrary 67 percent notional metric.

At the time of adopting the Amendments, I further stated that “It is unclear what, if any, Commission or staff analysis might transpire between the effective date of the swap data reporting rules (18 months) and the block size threshold compliance date (30 months). I intend to ensure that any input received will be taken seriously, notwithstanding its retrospective nature and the fact that it is well beyond many of our terms of office. I wish for the Commission to soon hold a formal forum to receive input from affected market participants, especially end users in these markets, such as those who manage teacher retirement and college savings plans for millions of Americans. It is that input, and reliable data reported pursuant to the enhanced reporting rules we are adopting today, on which the Commission’s block determinations should be based.”[5]  

Today, I am reiterating my call that the Commission initiate a request for information with regard to the cap and block thresholds that were derived without reliable data and without public input. 

Substituted Compliance 

The Commission must also turn its attention to a principles-based analysis of swap data reporting regimes in other jurisdictions. While efforts have been made to harmonize where possible, each jurisdiction’s reporting rules will undoubtedly retain some unique characteristics. Substituted compliance is essential considering the global nature of the swaps markets and that, currently, over 60% of CFTC-registered swap dealers are non-US persons.

Conclusion 

It is critical that the Commission’s policy decisions be supported by good data. I expect market participants to work diligently toward resolving the operational and technological issues they have encountered in complying with the Amendments. I also expect the Commission to use that data to support its policy decisions—especially decisions that affect the liquidity and transparency of our markets. And finally, I hope that our attempt to better align swap data reporting rules internationally will at last permit much needed international deference among the various regulatory bodies who long ago committed to improving swap data for the benefit of these global markets.