On April 25, 2019, the U.S. Commodity Futures Trading Commission (“CFTC”) announced its approval of a proposed rule and request for comment (“Proposed Rule”) that, if finalized, would amend swap data repository (“SDR”) regulations. The Proposed Rule also proposes to amend existing SDR reporting requirements for market participants. In sum, if adopted, the Proposed Rule will require market participants who are subject to reporting obligations under Part 45 of the CFTC Rules (“reporting counterparties”) to:

  • verify the accuracy of swap data against swaps reports generated and provided by the SDR; and
  • correct swap data errors and omissions “as soon as technologically practicable . . . but no later than three business days following” discovery of the error or omission.

Similarly, any non-reporting counterparty that discovers an error or omission would have to lodge a report with the reporting counterparty as soon as technologically practicable but within three business days after discovering the error or omission.

The comment period for the Proposed Rule ends on July 29, 2019. The remainder of this post provides additional information about the Proposed Rule and potential implications for market participants.

The Proposed Rule marks the first phase of the CFTC’s July 2017 “Roadmap to Achieve High Quality Swaps Data” (“Roadmap”). The Proposed Rule, the first of three anticipated rulemakings, is “intended to address the SDR Operations Review goals of the Roadmap related to confirming the accuracy of swap data, to improve the clarity and consistency of regulations governing SDRs, and to bolster the Commission’s oversight of SDRs.” See Proposed Rule at 21,045. As the three rulemakings “address interconnected issues”, the CFTC expects to open a second comment period for the Proposed Rule and also plans to set a universal compliance date for the three rulemakings. See id. at 21,046. If finalized, in addition to amending the SDR regulations in Part 49 of the CFTC rules, the Proposed Rule would amend the reporting requirements in Parts 23, 43, and 45 of the CFTC Rules to better facilitate the broader goals of the SDR regulations.

Parts 43 and 45. The Proposed Rule intends to better facilitate each SDR’s ability to ensure accurate swap data by: (1) requiring reporting counterparties to verify the accuracy of swap data against swaps reports generated and provided by the SDR; and (2) amending market participants’ existing requirement to correct swap data errors and omissions. The Proposed Rule suggests analogous changes to the real-time reporting requirements in Part 43 of the CFTC Rules. The chart below compares the current Part 45 requirements to those in the Proposed Rule.

Part 45 Requirements

Proposed Part 45 Requirements Under The Proposed Rule
No swap data verification requirement. Proposed 45.14(a): Reporting counterparties must:

(i) Verify swap data by reconciling internal books and records for every open swap with every open swaps report provided by an SDR; and

(ii) Submit a verification of data accuracy (or notice of discrepancy if the data is inaccurate) in the required form and manner to the SDR within 48 hours of the SDR providing the report (if the reporting counterparty is an SD, major swap participant (“MSP”) or derivatives clearing organization (“DCO”)) or within 96 hours of the SDR providing the report (if the reporting counterparty is a non-SD, non-MSP, or non-DCO).
45.14(a): Reporting counterparties must report any errors or omissions in data previously reported to an SDR “as soon as technologically practicable after discovery”. Proposed 45.14(b)(1): Reporting counterparties must:

(i) Report any errors or omissions in data previously reported to an SDR (or the omission of swap data regarding a swap that was not previously reported to an SDR as required) “as soon as technologically practicable . . . but no later than three business days following” discovery and in the method required by the SDR’s policies and procedures; and

(ii) Immediately inform the CFTC Director of the Division of Market Oversight (or other relevant CFTC staff) if unable to correct the data within the timeline in (i).
45.14(b): Non-reporting counterparties who discover an error or omission in swap data must “promptly notify” the reporting counterparty, who must report the error or omission pursuant to Rule 45.14(a). Proposed 45.14(b)(2): Non-reporting counterparties must:

(i) Report any errors or omissions in data previously reported to an SDR (or the omission of swap data regarding a swap that was not previously reported to an SDR as required) “as soon as technologically practicable . . . but no later than three business days following” discovery to the reporting counterparty, who will notify the SDR, if needed; and

(ii) Notify the swap execution facility or designated contract market where the swap was executed of the error or omission if the non-reporting counterparty does not know the identity of the reporting counterparty.
45.14(c): Corrections must be reported in the same format as initially reported to the SDR, unless the CFTC approves the use of a different data format. Removed.

Part 23. If finalized, the Proposed Rule would create an additional requirement for SDs and MSPs to establish, maintain, and enforce written policies and procedures that are reasonably designed to ensure compliance with the applicable SDR reporting obligations in Parts 43 and 45. SDs and MSPs would also be obligated to conduct annual reviews of policies and procedures and update the policies and procedures as needed.

You can locate the CFTC Press Release on the Proposed Rule, a link to the Proposed Rule, and links to CFTC Commissioners’ statements on the Proposed Rule here.

Good day. Good to have a better idea of the (proposed) outer bands of “as soon as technologically practicable”?  DR2.