United States: CFTC To Review Swap Data Regulations

The CFTC Division of Market Oversight (the "DMO") will undertake a comprehensive review of swap data reporting requirements.

In a recent letter, the DMO explained that it will review reporting regulations found in CFTC Rules, Parts 43 ("Real-Time Public Reporting"), 45 ("Swap Data Recordkeeping and Reporting Requirements") and 49 ("Swap Data Repositories"). The DMO also released a " Roadmap to Achieve High-Quality Swaps Data," which details objectives, areas of focus and projected timelines for the review. The DMO noted that this review is independent of the CFTC initiative "Project KISS," which was launched earlier this year (see previous coverage).

The DMO identified the following goals for the review: (i) ensuring accuracy, completeness and quality of data in order to improve regulatory oversight, and (ii) streamlining and simplifying reporting requirements.

The first "tranche" of the review process will involve swap data repository ("SDR") operations and data accuracy validation. In particular, the DMO intends to improve completeness of reporting and identify solutions for confirming the accuracy of swap data. The second "tranche" will involve reporting workflows and will focus on the "standardization of data fields and potential delayed reporting deadlines."

CFTC Acting Chair J. Christopher Giancarlo commented on the initiative: "We look forward to working with all stakeholders . . . to ensure that we have the optimal data and swap reporting regime to identify and address potential problems in the global systemically important derivatives market."

The CFTC is soliciting comments on the review process. Comments must be received by August 21, 2017.

Commentary / Nihal Patel

The Roadmap suggests that there is a lot of work to do. In addition to addressing issues with its own requirements, the CFTC will try to build on international standards being put together by a CPMI-IOSCO working group. (See, e.g., " CPMI and IOSCO Seek Comments on Derivative Data Elements in Swap Reporting" and " CPMI-IOSCO Provide Technical Guidance on Unique Transaction Identifiers.") And all of this will happen while the SEC  potentially will be implementing a  parallel set of swap data reporting requirements.

Some prioritization is required. In the Roadmap, the DMO indicates that its first initiative will be to assess SDR operations, with an eye to identifying ways to improve the quality of the data being reported. (A handful of enforcement  actions have suggested that the CFTC found a fair amount of issues with reported data.) This would include ensuring that the counterparties to swaps confirm and reconcile data, while also trying to remove uncertainty as to parties' responsibilities. In "Tranche 2" of the Roadmap (scheduled for mid-2018), the DMO indicates that it will look to harmonize with international efforts while also addressing ongoing marketplace issues with swap data reporting, including (i) the deadlines for submitting reports, (ii) leveraging existing confirmation processes, (iii) problems relating to package transactions, "prime brokerage" swaps, allocations, Exchange for Related Position transactions and more.

Commentary / Steven Lofchie

This nonpolitical regulatory initiative has the potential to produce very material benefits for both regulated entities and regulators. As it is, the CFTC (like other regulators) requires that firms produce tremendous amounts of data that are both difficult to provide and utterly worthless. Ideally, firms will take the time to comment and other regulators will follow suit in undertaking a review of their own requirements.