Section 727 of the Dodd-Frank Act amends the Commodity Exchange Act by inserting a new section 2(a)(13), which requires public availability of swap transaction data. The Dodd-Frank Act specifies that swap price and volume data be reported to the public as soon as technologically practicable after the swap has been executed. The Dodd-Frank Act also requires that reported information does not identify the participants to the swap transaction. The CFTC has proposed rules to implement Section 727 of the Dodd-Frank Act.
Parties Responsible for Reporting
The proposed rules require the parties to a swap to report swap data to a real-time disseminator, which would be either a swap data repository that accepts data for the particular asset class, or to a third-party service provider. Such report must be made as soon as technologically practicable.
Parties to a swap may satisfy this requirement by executing the transaction on a swap market, which is either a swap execution facility, or SEF, or a designated contract market, or DCM. Under the proposed rules, the swap market would be responsible for reporting the swap data to a real-time disseminator as soon as technologically practicable following execution of the transaction.
For swaps executed off of a SEF or DCM, the proposed rules specify an order of precedence for reporting the swap pricing and volume data. If the swap includes a swap dealer, then the swap dealer is responsible for reporting. If the swap does not include a swap dealer but does include a major swap participant, or MSP, then the MSP is responsible for reporting the swap. If the swap includes two swap dealers or two MSPs, then the parties to the swap must choose which party must report. If the swap does not include either a swap dealer or a MSP, then the parties to the swap must choose which party must report.
Data to be Reported
The proposed rules specify data fields that must be reported to the public. The data fields provide meaning to the price of the swap by defining the contract type, the underlying asset class and commodity, the tenor of the swap, the payment frequencies, and other relevant fields.
Timing of Reporting
The proposed rules require that swap transactions be reported to a real-time disseminator as soon as technologically practicable. Upon receipt of the data, the real-time disseminator must make the swap transaction data publicly available as soon as technologically practicable. Reports for block trades and large notional swap transactions are subject to a delay in reporting to the public.
Block Trades and Large Notional Swaps
A block trade is a swap of large notional or principal value that:
- is made available for trading on a SEF or DCM;
- occurs off the SEF’s or DCM’s trading system or platform pursuant to the SEF or dDCM rules;
- is consistent with the appropriate minimum block size requirements in the proposed rules; and
- is reported in accordance with the SEF’s or DCM’s rules and procedures and subject to the appropriate time delay in the proposed rules.
Block trades and large notional swaps are similar in that they are both swaps of large notional or principal value. However, unlike a block trade, a large notional swap is a swap that is not available for trading or execution on a swap execution facility or designated contract market. A large notional swap must be consistent with the appropriate minimum size requirements in the proposed rules. Additionally, a large notional swap must be reported in accordance with the appropriate time delay in the proposed rules.
Under the proposed rules block trades and large notional swaps are subject to a delay in the reporting of swap transaction and pricing data to the public. For standard contracts, which are traded on a SEF or DCM or are subject to the end-user exemption, the reporting delay is 15 minutes. The reporting party is responsible for transmitting the swap transaction and pricing data to the real-time disseminator as soon as technologically practicable. The real-time disseminator would hold the data until the expiration of the 15-minute period following execution.
For customized trades, the CFTC is requesting comment regarding the appropriate time delay for reporting such large notional swap transactions.
Appropriate Minimum Block Size
The proposed rules specify a procedure using two tests—the distribution test and the social size multiple test—to determine the appropriate minimum block size for block trades and large notional transactions. The distribution test determines the transaction size that is larger than 95 percent of transactions for that category of swap instrument over the past calendar year. The social size multiple test is the transaction size that is five times the largest of the mean, median, and mode of transaction sizes for that category swap instrument over the past calendar year. The appropriate minimum block size would be the larger size determined by those two tests. SDRs would be responsible for determining the appropriate minimum block size.
The CFTC is requesting comment on whether a third test should also be applied in determining the minimum appropriate block size. Specifically, should the minimum appropriate block size be set so that no more than 10 percent of swap transactions in the category of swap instrument would have qualified as a block trade or large notional swap transaction?
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