The CFTC Amends Cleared Swap Recordkeeping and Reporting RulesJune 2016 – Securities & Derivatives Alert
On June 14, 2016, the CFTC adopted amendments to existing swap data reporting rules related to cleared swaps transactions. The rule amendments attempt to reconcile existing regulations with the realities of market activity.
Specifically, the rules now define two terms – an “original” or “alpha” swap, which is a swap that has been accepted for clearing by a derivatives clearing organization (“DCO”), and a “clearing” swap, also referred to as beta or gamma swap, which is a swap created by the DCO which has the DCO as a counterparty, whether or not they replace the clearing swap.
Under the rule amendments, the DCO will be the reporting counterparty for cleared swaps and will have the obligation to report creation data for each clearing swap.
For swaps which are executed on or pursuant to the rules of a swap execution facility (“SEF”) or designated contract market (“DCM”), that SEF/DCM has the obligation to choose which swap data repository (“SDR”) receives the reported creation data. For all other swaps, the reporting counterparty has the obligation to choose the SDR.
The amended rules also remove the existing confirmation data reporting requirements for swaps that are intended to be cleared at the time of execution. The reporting counterpart will still be required to report primary economic term data (“PET”) as part of their creation data reporting, but are no longer required to report confirmation data for swaps that are intended to be submitted to a DCO at the time of execution. Instead, the DCO will report both PET and confirmation data for clearing swaps as part of its creation data reporting obligations. The DCO will also be required to report terminations of the original swaps to the SDR to which the original swap was reported.
The amendment also removes the existing requirement that swap dealers and major swap participant reporting counterparties report daily valuation data for cleared swaps. This obligation will also rest with the DCO.
Reporting counterparties should also note the CFTC’s modification of existing PET data fields, and addition of new fields. This includes changes to the reporting of the Legal Identity Identifier (“LEI”) and a new requirement that reporting counterparties report three additional terms:
- the asset class (one of credit, equity, FX, interest rates or other commodities),
- an indication of whether the reporting counterparty is a DCO with respect to the swap; and
- the clearing exception of exemption type (one of end user, inter-affiliate or cooperative).
In addition, DCO’s will have other new PET fields to report, including:
- the Unique Swap Identifier for the original swap,
- the SDR of the original swap,
- the clearing member LEI,
- the clearing member client account,
- the origin (whether principal or agent),
- the clearing receipt timestamp; and
- the clearing acceptance timestamp.
CFTC Chairman Timothy Massad said these rule changes “provide clarity and certainty in a number of areas,” including streamlining the reporting process, eliminating some needless reporting requirements and ensuring “that accurate valuations of swaps are provided on an ongoing basis.”
© 2016 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.