Industry stakeholders share common views on swap reporting

By Brad Rosen, J.D.

The comment period for the comprehensive review of the swap data reporting regulations contained in Parts 43, 45, and 49 of the CFTC’s regulations came to a close on August 21, 2017. The review, initiated by the CFTC’s Division of Market Oversight (DMO) in July of this year, resulted in the submission of 22 separate public comments. Eight comments came from trade organizations representing end-users, as well as another eight from the exchange/swap data repository (SDR) community. Two comment letters were submitted by financial trade organizations and two by financial firms. One comment was submitted by an organization promoting the public interest, and one by an individual member of the public.

The DMO’s stated objective for the review, as contained in CFTC Letter 17-33, is to focus on potential rule changes (1) to ensure that the CFTC receives accurate, complete, and high quality data on swaps transactions for its regulatory oversight role; and (2) to streamline reporting, reduce messages that must be reported, and right-size the number of data elements that are reported to meet the agency’s priority use-cases for swaps data. The commentators, most of which were industry stakeholders of one kind or another, enthusiastically embraced the DMO’s review initiative. Their comments expressed common themes across the communities of SDRs, exchanges, market end-users, and financial firms. An organization representing the public interest, and a member of the general public, expressed deep concerns and saw the review as first step towards dismantling reforms implemented as part of the Dodd-Frank legislation in the wake of the 2008 financial crisis.

The below comments are representative of those received from the various industry stakeholders.

Comments from the SDRs and exchanges. The CME Group, ICE Trade Vault, and Bloomberg BSDR (the SDRs) submitted a joint comment letter which contained recommendations found in many of the other submissions. Some of the main points include:

• Work to remove uncertainty as to what must be reported and how;
• Explore whether to combine PET (preliminary economic terms) and confirmation data into a single, clearly defined and electronically reportable set of data elements;
• Identify most efficient and effective solution for swap counterparty(ies) to confirm the accuracy and completeness of data held in an SDR;
• Look to reduce the number of fields currently reported;
• Leverage existing SDR validation processes to improve consistency and completeness of data reporting; and, 
• Work with SDRs to setup processes for rejecting swap data reports with missing or invalid data. 

In its letter, the SDRs also supported limiting the number of reporting fields to those that the CFTC requires to perform its oversight functions. They asserted that doing so will reduce burdens on reporting counterparties and the SDRs while still ensuring that the Commission can carry out its regulatory mandate.

Comments from market end-users. Market end-users echoed many of the points in their submissions made by the SDRs. The Coalition for Derivatives End-Users underscored the point that the sole legal obligation and responsibility for reporting swap transaction data should rest with the single party to the transaction that is best situated to provide and confirm timely, complete data. The Coalition concluded “imposing new reporting obligations on non-reporting parties (such as end-users), which are not in the business of dealing swaps and do not have the dedicated systems, personnel or resources to confirm swap details at an SDR, would be unnecessarily burdensome, inefficient and costly”.

Comments from ISDA and SIFMA. The International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA), the financial industry trade organizations, submitted a joint letter reflecting many of the above comments, while also encouraging regulatory harmonization among the CFTC, global regulators, and the SEC, including aligning reporting requirements on key economic and real-time data fields and values to the maximum extent possible. They noted that inconsistencies in the global reporting requirements create significant operational complexity for counterparties, which may be required to report a swap to multiple jurisdictions.

Comments from Better Markets. The comments received from Better Markets, a public interest organization, were in stark contrast to the submissions provided by the industry stakeholders. Better Markets expressed its significant concerns that the true objective of the rules review reflected an effort to weaken the regulatory framework that the CFTC had carefully crafted and previously adopted to ensure that the swaps markets are as stable, transparent, and as fair as possible. Rather than diluting the regulations in the name of streamlining the requirements and minimizing industry costs under the guise of fostering economic prosperity, Better Markets contends that swap data reporting regulations should be enhanced.

Better Markets was also troubled that the CFTC’s announcement for the swap reporting rule review made no mention of any engagement with non-industry stakeholders such as the public at large or public interest advocates during the review process. Better Markets advocates that as the review proceeds, “the Commission and the DMO should seek input from a much broader spectrum of stakeholders, not only market participants with their own self-interest in curtailing regulation.”

The Commission has previously indicated that it is aims to complete the regulatory review and revision process with full industry implementation by the end of 2019.