Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Following up on its January 21, 2014, formation of an interdivisional staff working group (Working Group) to review its swap data reporting and other provisions of Part 45 of its regulations, on March 19, 2014, the Commodity Futures Trading Commission (CFTC) opened a broad inquiry into those rules.

The Working Group had been asked, among other objectives, to “identify and make recommendations to resolve reporting challenges, and to consider data field standardization and consistency in reporting by market participants.” See link above at 1 “Consistent with those efforts and informed by the Working Group’s analysis to date,” the CFTC’s inquiry requests comment on “specific swap data reporting and recordkeeping rules to help determine how such rules are being applied and to determine whether or what clarifications, enhancements or guidance may be appropriate.” Id.

The CFTC inquiry consists of 69 questions, not including subsections, covering ten topic areas.

A. Confirmation Data (§ 45.3), including what terms of a confirmation of a swap transaction should be reported to a swap data repositories (SDR) as “confirmation data.”

B. Continuation Data (§ 45.4).

The CFTC is concerned that divergent methods of reporting continuation data introduces challenges to tracking the life of a swap and that nonswap dealers and major swap participants have had difficulty reporting continuation data and in accessing data reported on their behalf by swap dealers (SD) and major swap participants (MSP). The CFTC thus requests comments on how it can “ensure that timely, complete and accurate continuation data is reported to SDRs and that such data tracks all relevant events in the life of a swap.”

C. Transaction Types, Entities, and Workflows.

Market participants have requested clarification regarding the appropriate manner to report certain swap transactions and workflows that are not explicitly addressed in the swap data reporting rules. In response, the CFTC is asking whether swap data reporting rules should be clarified or enhanced to better accommodate certain transactions and workflows present in the swaps markets.

D. Primary Economic Terms (PET) Data and Appendix 1 (§ 45.3 and Appendix 1).

Market participants have faced challenges in either the initial reporting of certain PET or the subsequent reporting of modifications to these terms. Market participants have also indicated that the data elements included in Appendix 1 may not sufficiently reflect all necessary economic terms for various swap transactions. The CFTC asks a series of questions on monitoring the PET of a swap.

E. Reporting of Cleared Swaps (§§ 45.3, 45.4, 45.5, and 45.8).

The CFTC monitors the cleared swap market on a transaction and position basis to ensure compliance with the Act and CFTC rules, including those associated with trade execution and clearing. With that in mind, the CFTC asks questions on how the swap data reporting rules should address cleared swaps.

F. Other SDR and Counterparty Obligations (§§ 45.9, 45.13, 45.14).

The CFTC relies on the accuracy and completeness of swap data reported to an SDR throughout the life of a swap and thus asks how should SDRs and reporting entities ensure that complete and accurate information is reported to, and maintained by, SDRs.

G. Swap Dealer/Major Swap Participant Registration and Compliance.

The CFTC uses SDR to determine whether a market participant meets the definition of, and is required to register as, an SD or MSP. The Commission asks a series of questions on how to enhance Part 45 of its regulations to facilitate oversight of SDs and MSPs.

H. Risk.

Swap data reported to SDRs facilitates a number of CFTC risk monitoring and surveillance activities, including monitoring of both financial and market risks resulting from the accumulation of large positions in cleared and uncleared swaps. Given that use, the CFTC asks how Part 45 can better facilitate risk monitoring and surveillance.

I. Ownership of Swap Data and Transfer of Data Across SDRs.

Since the adoption of the swap data reporting and SDR rules, questions have emerged whether a particular party or parties have the legal authority to direct and/or use such swap data. Thus, the CFTC is requesting industry and public input on whether the current Commission regulations regarding “commercialization” (regulations that provide an SDR with an implied right to use data for regulatory purposes but, absent the consent of counterparties, prohibits SDRs from commercially benefitting from such data) is consistent with legal property interests and industry practices.

J. Additional Comments.

A catch-all category whereby the CFTC asks parties to identify any challenges regarding: 1) the accurate reporting of swap transaction data; 2) efficient access to swap transaction data; and 3) effective analysis of swap transaction data.

Comments will be due around May 19, 2014.