I concur on the Notice of Proposed Rulemaking on Real-Time Public Reporting Requirements and Swap Data Recordkeeping and Reporting Requirements (Proposed Amendments to Parts 43 and 45 or NPRM) because I have concerns that the Commission is straying from the commitment we made to harmonizing data fields across Financial Stability Board (FSB) member jurisdictions.

I would like to thank Owen Kopon, Alicia Viguri, Isabella Bergstein, and Chase Lindsey for their work on the NPRM. I appreciate their help working with me to make revisions to address some of my concerns, and I enjoyed the productive collaboration.

Swap data reporting is a unique area for me because I was at the Commission after the financial crisis when the Dodd-Frank Act first mandated it, and then became familiar with implementation issues in my roles after the I left the Commission.

I believe the harmonization issue needs to be resolved for me to support a final rule. These issues were covered at the November 6, 2023 Global Markets Advisory Committee (GMAC) meeting, with the GMAC adopting recommendations from the Technical Issues Subcommittee on how to address them and move forward.[1] Therefore, my statement today will begin with my view on how swap data reporting came to this juncture and why it is critical that we get it right, and end with what I would need to see to support a final rule, drawing on the GMAC’s recommendations.

Background

In 2009, the G-20 leaders agreed to improve the resilience of the over-the-counter (OTC) derivatives market by, among other things, agreeing that all OTC derivatives transactions should be reported to trade repositories (TRs).[2] Aggregation of data reported to TRs can help authorities obtain a comprehensive view of the OTC derivatives market, including levels of activity in the market and overall size of counterparty credit exposures.[3]

In 2010, Congress passed the Dodd-Frank Act to implement the G-20 reforms.[4] In 2012, the Commission adopted the Part 43 and Part 45 regulations, requiring SDRs to publicly disseminate swap transaction and pricing data, and swap counterparties to report trade level swap data to SDRs.

While trade reporting implementation progressed in the early years, the lack of harmonization of data formats and data quality issues remained challenging.[5] Prior to the Dodd-Frank Act, swap market participants did not adhere to a standard methodology for electronically representing swap terms. As a result, the Commission provided flexibility in Parts 43 and 45 for SDR reporting to balance its need for data with the uncertainty surrounding standards. The initial swap data elements described the information that should be reported to SDRs in terms of legal requirements, instead of standard definitions, formats, and allowable values.[6]

With no standard approach for reporting, CFTC staff made assumptions to account for unstandardized data that was difficult to aggregate.[7] Commission staff was also faced with incomplete or missing fields in the SDR data. Market participants reported swaps to SDRs using different methods with varying degrees of success. For instance, many counterparties left fields blank for more complex swap terms, or entered random values to mark fields as filled.

At the same time, the Commission started bringing SDR reporting enforcement cases against swap dealers for failing to report, misreporting, or over-reporting swap data to SDRs.[8] The number of SDR reporting enforcement cases has only grown over time.[9] These cases send a strong message about the importance of accurate trade reporting so the Commission can monitor risk, but large-scale instances of noncompliance also call into question the quality of the data the Commission is using.

It has also been frustrating for market participants that the Commission has failed to communicate use-cases for the significant amounts of reported data that would justify the high cost of reporting. Part 45 was adopted with the understanding that regulatory reporting would fulfill the Commission’s “regulatory mandates, including systemic risk mitigation, market monitoring, and market abuse prevention.” However, the Commission’s messaging around SDR data has only gone from how to use the data to efforts to improve poor data quality.[10] The Commission still has not messaged a coherent strategy for using swap data to monitor risk, conduct surveillance, or ensure compliance with its regulations.

As the Commission adopted and implemented trade reporting requirements, CFTC staff led or participated in a number of international efforts to coordinate the global implementation of trade reporting.[11] When, at the request of the FSB, CPMI and IOSCO established a joint working group to mandate to develop guidance regarding the definition, format and usage of UTI, UPI and other critical OTC derivatives data elements (CDEs), the CFTC co-chaired the effort with the European Central Bank. The joint working group published multiple rounds of consultations on the technical aspects of UTI, UPI, and CDEs. Commenters to these consultations included many CFTC registrants and trade associations.

The CDE Technical Guidance came out of these workstreams, and provided regulatory authorities with uniform definitions, formats, and allowable values that can be used to represent many of the key terms of swaps.[12] Not only would this harmonize SDR data across FSB member jurisdictions, allowing market participants to report swap data to several jurisdictions in the same format, resulting in potential cost-savings, but it would also support the analysis of global systemic risk in swaps markets.

In 2020, the Commission published final rules amending various swap data reporting regulations to adopt the UTI Technical Guidance and CDE Technical Guidance, and align regulations with those of the SEC and ESMA.[13] A primary objective of the 2020 rule amendments was to reduce the number of fields currently reported to the CFTC, and focus on the minimum number of fields that allow the CFTC to perform its oversight functions, rather than capturing every data point on a swap.[14] Indeed, the final 2020 rules streamlined hundreds of different data fields required by the 2012 Part 43 and Part 45 rules into “128 that truly advance the CFTC’s regulatory goals.”[15]

However, the Proposed Amendments to Parts 43 and 45 threaten to undo the progress made by expanding the data fields from 128 to closer to 200 by adding new data elements, many of which are specific to the CFTC and drive the Commission further away from international harmonization.

The GMAC’s Recommendation

I am pleased with many aspects of the Proposed Amendments to Parts 43 and 45. The proposal, for instance, to make the UPI workable for the other commodity asset class is a creative solution to an operational challenge. I commend staff for proposing an idea, and encourage comments on whether it is practical and feasible.

However, I would only be able to support a final rule that incorporates the feedback from the GMAC’s recommendations to the Commission for improving trade reporting, especially if supported by commenters.[16] Adding CFTC-specific data fields creates further obstacles and uncertainty for meaningful global aggregation and analysis of trade repository data, and unnecessarily increases compliance costs. As the GMAC heard, swap dealers have only just recovered from the significant effort to overhaul their reporting requirements and now are faced with the potential need to implement dozens of additional data fields. The CFTC already requires 47 data fields which are jurisdiction specific. If the NPRM were adopted as is, almost 40% of CFTC’s data fields would be jurisdiction-specific, moving the CFTC further away from the opportunity to meaningfully aggregate data across-borders. The NPRM contradicts the efforts of global regulators to harmonize their requirements for global aggregation by establishing CDE and DMO’s stated intention to streamline swap data reporting to achieve high quality data. I agree that every additional CFTC-specific field increases the complexity of the requirements and risks a degradation of the quality of the reported data.

I again thank the GMAC and the Technical Issues Subcommittee for their comprehensive recommendation, and look forward to the comments on the Proposed Amendments to Part 43 and 45.