The CFTC's recently finalized Part 17 large trader reporting rule means firms must implement nearly forty (40) new data elements and interpret their applicability to current trading activities. 1 Reporting firms will also be required to implement a new format – the Financial Information eXchange Markup Language (or FIXML) – for submitting the updated reports. 2 The final rule also retains information previously mandated for reporting, such as long and short positions in options and futures contracts. To further specify the form and manner for submitting these reports, including valid values and further description and instruction, the CFTC simultaneously finalized an updated Part 17 Guidebook. 3
Futures commission merchants (FCM), clearing members, foreign brokers, and designated contract markets (DCM) (collectively, Reporting Firms) must be compliant by June 3, 2026. Reporting Firms should allow plenty of time to accommodate a costly and time intensive process, especially as internal back-office, operations, compliance, and legal resources may also be engaged in the simultaneous implementation of anticipated swaps reporting changes. 4 Comprehensive regulatory adoption could involve system modification (to accommodate a modernized submission format), rule analysis and interpretation of transactions and activities, design (including tracking of post-execution events), testing, and operational implementation.
Why is the Part 17 reporting program being updated now?
According to the Commission and a number of commenters, the Part 17 record reporting format, originally implemented in the 1980s, is outdated, cannot accommodate complex futures and options contracts, and is an inefficient means of performing data quality review, among other concerns. The CFTC believes the Part 17 updates will improve the Commitment of Traders (COT) Report and enhance its market monitoring and surveillance capabilities.
Notably, the CFTC is acting to "align it with other reporting structures set out in the CFTC's regulations" such as Part 43 and Part 45 swaps reporting. For example, the FIXML format is similar to that used in Part 43 and 45 swap data reports and Part 16 trade capture reports. 5
What is the anticipated cost to comply with the Part 17 changes?
Compliance with the rule will likely come at a significant cost to Reporting Firms. The Commission estimates many firms will require over 1,300 hours for system modifications, upgrading, testing and implementing new data elements, as well as ongoing maintenance and operational costs. Cost-wise, the Commission estimates manual filers could spend over $1.31 million in total capital and start-up costs to update, test and implement new data elements alone. 6
Compliance and resource costs will differ for each Reporting Firm. For example, Reporting Firms currently submitting in automated fashion will face significant costs to update current reporting systems, as well as interpret and implement roughly three dozen new data elements. Conversely, Reporting Firms opting to report on a manual basis may incur lower design and implementation costs, but increased resource allocation as an ongoing matter.
What new information is required to be reported?
The new data elements include "product related" fields, day-to-day position changes, and fields intended to enhance the Commission's data processing. We provide an overview of new data elements below. Prior to implementing any changes, Reporting Firms should closely review updates to the Part 17 Guidebook, which provide further description and valid values for all data elements required by regulation. 7
New Data Elements
Product related
Product related and identification data elements are intended to provide more granular data on current futures and options contracts by introducing 13 new fields to Part 17 reporting requirements. 8 These fields are intended to obtain information related to options contracts, including bounds, barriers and non-price or non-numeric strikes, and "other innovative contracts." 9 However, where a firm submits a "unique instrument code" previously provided by an exchange, seven of these fields are no longer required. 10
New product related and identification data elements include the following:
- "Unique Instrument Code," which must be pre-submitted by exchanges and identifies the relevant product entry for a particular futures or options contract.
- "Bound or Barrier Type," which is only required in the event an instrument has a cap, floor, or barrier, and captures the effect of the product when hitting any bound or barrier (e.g., a "knock-in" or "knock-out") result.
- "Commodity Clearing Code," which refers to the "Clearing Code" provided by a clearinghouse and relates to the commodity code for the futures or options contract.
- "Product Type," which refers to the type of derivatives contract executed, such as futures, options on futures, options on combos (i.e., a multi-legged instrument that can include calls, puts, and/or futures) and commodity swaps.
- "Ticker Symbol," which refers to the product traded and captures the legacy "Commodity Code" data element.
Additional product related or product identification fields include: "Maturity Time," "Listing Date," "First Exercise Date," "Strike Level," "Alpha Strike," "Cap Level," "Floor Level," "Bound" or "Barrier Level," "Payout Amount," and "Payout Type."
Position changes
The Final Rule introduces 16 new data elements related to day-to-day changes in positions of special accounts, while incorporating four data elements related to "EDRPs" – or exchanges for derivative positions, more commonly known as an EFRP, EFS and others. These new data elements are intended to provide the Commission with additional information related to the "nature and quantity" of position changes. As a result, reporting firms must either "link" new and previous submissions or, conversely, identify newly executed contracts and position changes occurring on a filing date to meet Part 17 compliance obligations. New data elements include:
- "Contracts Bought" and "Contracts Sold," which refers to the total quantity of contracts bought and sold during the trading day for a special account and includes block trades, give-up acceptances and trade allocations.
- Any "EDRPs," which includes "EFPs Bought," "EFPs Sold," "EFSs Bought," "EFSs Sold," "EOOs Bought," and "EOOs Sold."
- Any "Short" and "Long Transfers Sent," which refers to positions transferred to a different account and excludes give-ups.
- Any "Short" and "Long Transfers Received," which refers to positions received from a different account and excludes give-ups.
Other new data elements explicitly capturing day-to-day position changes include fields capturing long and short option expiry ("Long Options Expired" and "Short Options Expired"), long and short options exercised ("Long Options Exercise" and "Short Options Exercise"), and contracts resulting from an option exercise (i.e., "Long Futures Assigned" and "Short Futures Assigned").
Data processing
New data processing fields include data elements relating to the submission of messages, as well as identification of the sender, special account controller, and the date and time of the submitted report. In the Commission's view, these are necessary to enable the tracking and managing of reports submitted pursuant to the new FIXML standard. These fields include the following:
- "Total Message Count," which includes the total number of reports in a given file.
- "Report ID," which requires a submitting firm to assign a unique identifier to a record or message in a given file.
- "Record Type (Action)," which refers to an action (such as a new, revised, or deleted report) that triggers the mandatory record or message given.
Other data elements include the message type, sender identification (i.e., the CFTC-issued "alpha code" for the submitter), a "To ID" indicating submission was made to the CFTC, and a field requiring the date and time the file was created. Importantly, the CFTC distinguishes the "sender identification" data element from the still-required "Reporting Firm ID" data element. In practice, the "sender" – or submitter of the report – is the clearing member or party responsible for submitting the report. The "reporting firm" data element may differ from the sender where a third-party firm submits on behalf of the responsible reporting firm.
Conclusion
Firms will need to take advantage of the roughly two-year compliance period afforded under the Final Rule to allow for the completion of numerous steps prior to testing. Initially, firms will need to carefully review existing contracts and activities in light of new data elements, as well as the Part 17 Guidebook to develop new reporting files or templates for compliant submission. Although the CFTC has not been as active in pursuing Part 17 violations as it has swap reporting violations (Parts 43 and 45), the agency has previously entered into settlement actions with FCMs involving inconsistent and omitted Part 17 data.
Accordingly, firms should consider the adequacy of internal controls, given the increased regulatory burden presented by the significant revision
Footnotes
1 Large Trader Reporting Requirements, 89 Fed. Reg. 47439 (June 3, 2024) (to be codified at 17 C.F.R. pt. 17), https://www.govinfo.gov/content/pkg/FR-2024-06-03/pdf/2024-11798.pdf.
2 Alternatively, Part 17 reporting firms may submit their reports through the CFTC Portal, which would ultimately convert the reports into FIXML.
3 Commodity Futures Trading Comm'n, Guidebook for Part 17.00: Reports by Reporting Markets, Futures Commission Merchants, Clearing Members, and Foreign Brokers Version 1.9 (Apr. 16, 2024), https://www.cftc.gov/media/10596/Part17_Guidebook/download.
4 Real-Time Public Reporting Requirements and Swap Data Recordkeeping and Reporting Requirements, 88 Fed. Reg. 90046 (proposed Dec. 28, 2023) (to be codified at 17 C.F.R. pts. 43, 45), https://www.cftc.gov/sites/default/files/2023/12/2023-28350a.pdf; a Steptoe client alert providing an overview of the rule proposal is available at https://www.steptoe.com/en/news-publications/an-unwanted-sequel-cftc-proposes-to-require-swaps-entities-and-sdrs-to-implement-new-data-elements-and-other-adjustments-in-wake-of-trade-reporting-re-write.html.
5 Large Trader Reporting Requirements, 89 Fed. Reg. at 47452.
6 Seeid. at 47451–55, "Cost-Benefit Considerations."
7 Commodity Futures Trading Comm'n, Guidebook for Part 17.00: Reports by Reporting Markets, Futures Commission Merchants, Clearing Members, and Foreign Brokers Version 1.9 (Apr. 16, 2024), https://www.cftc.gov/media/10596/Part17_Guidebook/download.
8 Although the Proposed Rule would have introduced an additional data element, "Product-Specific Terms," the Commission's Final Rule and Part 17 Guidebook removes this data element.
9 Large Trader Reporting Requirements, 89 Fed. Reg. at 47446.
10 Specifically, data elements "Product Type," "Listing Date," "Exercise Style," "Payout Amount," "Payout Type," "Underlying Contract ID," and "Underlying Maturity Month Year," would not be required for submission in a Part 17 report where a "Unique Instrument Code" is available and provided.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.