Monday, September 21, 2020

In a bipartisan showing, CFTC unanimously approves four final regulations and one proposed rule supplement

By Brad Rosen, J.D.

CFTC Chairman Heath Tarbert led off a virtual open meeting that lasted over five hours, without interruption, observing that "data is the lifeblood of our markets". Those comments were a prelude to an agenda-packed meeting where the Commission unanimously approved three final rules to revise CFTC regulations for swap data reporting, dissemination, and public reporting requirements calculated to improve the quality, accuracy, and completeness of the data reported to the agency. The Commission also unanimously approved a final rule which permits derivatives clearing organizations (DCOs) organized outside of the U.S. to be registered with the CFTC. Finally, the Commission unanimously approved a supplemental notice of proposed rulemaking regarding amendments to the CFTC’s regulations that govern bankruptcy proceedings for commodity brokers.

Amendments to real-time public reporting requirements (Part 43). This final rule revises CFTC regulations for real-time public reporting and dissemination requirements for swap data repositories (SDRs), DCOs. swap execution facilities (SEFs), designated contract markets (DCMs), swap dealers (SDs), major swap participants (MSPs), and swap counterparties that are neither SDs nor MSPs.

Amendments to swap data recordkeeping and reporting requirements (Part 45). This final rule revises CFTC regulations that establish swap data recordkeeping and reporting requirements for SDRs, DCOs, SEFs, DCMs, SDs, MSPs, and swap counterparties that are neither SDs nor MSPs. This rule will give the CFTC access to uncleared margin data for the first time thereby significantly improving the agency’s ability to monitor for systemic risk.

Amendments to regulations relating to certain swap data repository and data reporting requirements (43, 45, and 49 verification). This final rule seeks to improve the accuracy of data reported to, and maintained by SDRs, and provides enhanced and streamlined oversight of SDRs and data reporting generally. Among other changes, the amendments modify existing requirements for SDRs to establish policies and procedures to confirm the accuracy of swap data for both counterparties to a swap. Additionally, the amendments update existing requirements related to corrections for data errors and certain provisions related to SDR governance.

The commissioners weigh in on the swap data reporting final rules. Beyond voting to approve swap data rules, each commissioner had something further to say about them as follows:
  • Chairman Tarbert observed that the data rules "would for the first time require the reporting of margin and collateral data for uncleared swaps significantly strengthen[ing] the CFTC’s ability to monitor for systemic risk" in those markets."
  • Commission Brian Quintenz noted "Today’s rule makes sensible adjustments to how reporting counterparties submit swap data to SDRs and how SDRs fulfill their responsibilities as Commission registrants." He added, "These adjustments are based on the almost decade-long experience of the CFTC staff in supervising SDRs and reviewing swap data, as well as the public’s informed comments to the proposal."
  • In voicing his support for the new framework, Commissioner Rostin Behnam recalled the 2008 financial crisis stating, "Lack of transparency in the over-the-counter swaps market contributed to the financial crisis because both regulators and market participants lacked the visibility necessary to identify and assess swaps market exposures, counterparty relationships, and counterparty credit risk."
  • While approving the general framework, Commissioner Stump took issue with manner by which the final rules addressed the issue of block size thresholds noting, "Despite many years of experience with SEFs and SDRs then, the Commission is today choosing to continue down the previously determined path of raising block sizes instead of leveraging data."
  • Commissioner Dan Berkovitz enthusiastically endorsed the final rules declaring, "The amended rules provide major improvements to the Commission’s swap data reporting requirements." He added, "They will increase the transparency of the swap markets, enhance the usability of the data, streamline the data collection process, and better align the Commission’s reporting requirements with international standards."
Registration with alternative compliance for non-U.S. DCOs. This final rule permits DCOs organized outside of the U.S. to be registered with the CFTC, yet comply with the core principles applicable to DCOs set forth in the Commodity Exchange Act through compliance with their home country regulatory regimes, although subject to certain conditions and limitations. Chairman Tarbert, Commissioners Quintenz, Behnam, Stump and Berkovitz each had further comments about the final alternative compliance rule.

Part 190 Bankruptcy Regulations. This supplemental notice of proposed rulemaking amends Commission regulations that govern bankruptcy proceedings for commodity brokers. In response to comments for rule amendments proposed in April, the Commission now proposes a revision in connection with efforts to foster a resolution proceeding under Title II of the Dodd-Frank Act for a systemically important derivatives clearing organization (SIDCO). This proposed rule has a 30-day comment period after its publication in the Federal Register. Commissioner Berkovitz also had further comment regarding the supplemental notice.