2011-33173
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Federal Register, Volume 77 Issue 5 (Monday, January 9, 2012)[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Rules and Regulations]
[Pages 1182-1266]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33173]
[[Page 1181]]
Vol. 77
Monday,
No. 5
January 9, 2012
Part III
Commodity Futures Trading Commission
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17 CFR Part 43
Real-Time Public Reporting of Swap Transaction Data; Final Rule
Federal Register / Vol. 77 , No. 5 / Monday, January 9, 2012 / Rules
and Regulations
[[Page 1182]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 43
RIN 3038-AD08
Real-Time Public Reporting of Swap Transaction Data
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is adopting regulations to implement certain statutory
provisions enacted by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act''). Specifically, in accordance with
the Dodd-Frank Act, the Commission is adopting rules to implement a
framework for the real-time public reporting of swap transaction and
pricing data for all swap transactions.
DATES: Effective date: March 9, 2012.
FOR FURTHER INFORMATION CONTACT: Thomas Leahy, Associate Director,
Division of Market Oversight (``DMO'') at (202) 418-5278 or
tleahy@cftc.gov; Jeffrey L. Steiner, Special Counsel, DMO at (202) 418-
5482 or jsteiner@cftc.gov; Susan Nathan, Senior Special Counsel, DMO at
(202) 418-5133 or snathan@cftc.gov; Jason Shafer, Attorney-Advisor,
Office of General Counsel at (202) 418-5097 or jshafer@cftc.gov; or
Laurie Gussow, Attorney-Advisor, DMO at (202) 418-7623 or
lgussow@cftc.gov; Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Overview
B. Summary of the Proposed Part 43 Regulations
1. Proposed Sec. 43.3--Method and Timing for Real-Time Public
Reporting
2. Proposed Sec. 43.4--Swap Transaction and Pricing Data To Be
Publicly Disseminated in Real-Time
3. Proposed Sec. 43.5--Block Trades and Large Notional Swaps
for Particular Markets and Transactions
4. Proposed Appendix A to Part 43
C. Overview of Comments Received
D. Proposed Sec. 43.5--Block Trades and Large Notional Swaps
II. Part 43 of the Commission's Regulations--Final Rules
A. Section 43.1--Purpose, Scope and Rules of Construction
1. Scope--Generally
2. Swaps Between Affiliates and Portfolio Compression Exercises
3. Uncleared or Bespoke Swaps
4. Foreign Exchange (``FX'') Asset Class
5. Limitations and Special Accommodations
6. Liquidity
7. International Issues
8. Final Rule Text of Sec. 43.1
B. Section 43.2--Definitions
1. Harmonization
2. Defined Terms
3. Additional Issues Relating to Defined Terms
C. Section 43.3--Method and Timing for Real-Time Public
Reporting
1. Responsibilities of Parties to a Swap (Sec. 43.3(a))
2. Public Dissemination of Swap Transaction and Pricing Data
(Sec. 43.3(b))
3. Requirements for Registered Swap Data Repositories in
Providing the Public Dissemination of Swap Transaction and Pricing
Data (Sec. 43.3(c))
4. Requirements for Third-Party Service Providers (Proposed
Sec. 43.3(d))
5. Availability of Swap Transaction and Pricing Data to the
Public (Sec. 43.3(d))
6. Errors and Omissions (Sec. 43.3(e))
7. Hours of Operation of Registered Swap Data Repositories
(Sec. 43.3(f))
8. Acceptance of Data During Closing Hours (Sec. 43.3(g))
9. Timestamp Requirements (Sec. 43.3(h))
10. Fees Charged by SDRs (Sec. 43.3(i))
D. Section 43.4--Swap Transaction and Pricing Data to be
Publicly Disseminated in Real-Time
1. In General (Sec. 43.4(a))
2. Public Dissemination of Data Fields (Sec. 43.4(b))
3. Additional Swap Information (Sec. 43.4(c))
4. Amendments to Data Fields (Proposed Sec. 43.4(d))
5. Anonymity of the Parties to a Publicly Reportable Swap
Transaction (Sec. 43.4(d))
6. Unique Product Identifier (Sec. 43.4(e))
7. Reporting of Notional or Principal Amounts to a Registered
Swap Repository (Sec. 43.4(f))
8. Public Dissemination of Rounded Notional or Principal Amounts
(Sec. 43.4(g))
9. Public Dissemination Caps on Notional or Principal Amounts
(Sec. 43.4(h))
E. Section 43.5--Time Delays for Public Dissemination of Swap
Transaction and Pricing Data
F. Appendix A to Part 43 (``Data Fields for Public
Dissemination'')
III. Effectiveness/Implementation and Interim Period
IV. Paperwork Reduction Act
V. Cost-Benefit Considerations
VI. Regulatory Flexibility Act
VII. List of Commenters
I. Background
A. Overview
On July 21, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank Act'')
\1\ Title VII of which amended the Commodity Exchange Act (``CEA'' or
the ``Act'') \2\ to establish a comprehensive new regulatory framework
for swaps and security-based swaps. The legislation was intended to
reduce risk, increase transparency and promote market integrity within
the financial system by, among other things: (1) Providing for the
registration and comprehensive regulation of swap dealers (``SDs'') and
major swap participants (``MSPs''); (2) imposing clearing and trade
execution requirements on standardized derivative products; (3)
creating robust recordkeeping and real-time reporting regimes; and (4)
enhancing the Commission's rulemaking and enforcement authorities with
respect to, among others, all registered entities and intermediaries
subject to the Commission's oversight.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010), available at
http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm. Pursuant
to section 701 of the Dodd-Frank Act, Title VII may be cited as the
``Wall Street Transparency and Accountability Act of 2010.''
\2\ 7 U.S.C. 1, et seq.
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Section 727 of the Dodd-Frank Act added to the CEA new section
2(a)(13), which establishes standards and requirements related to real-
time reporting and the public availability of swap transaction and
pricing data. This section directs the Commission to promulgate rules
providing for the public availability of such data in real-time,\3\ in
such form and at such times as the Commission deems appropriate to
enhance price discovery.\4\ CEA section 2(a)(13)(C) establishes the
four types of swaps for which transaction and pricing data must be
reported to the public in real-time.\5\ Because these categories
together comprise all swaps, the real-time reporting requirements apply
to all swaps, including those swaps executed on or pursuant to the
rules of a registered swap execution facility (``SEF'') or a designated
contract market (``DCM''), and those swaps executed bilaterally between
counterparties and
[[Page 1183]]
not pursuant to the rules of a SEF or DCM (``off-facility swaps'').\6\
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\3\ New Section 2(a)(13)(A) of the CEA defines real-time public
reporting as reporting ``data relating to a swap transaction,
including price and volume, `as soon as technologically practicable'
after the time at which the swap transaction has been executed.''
\4\ CEA section 2(a)(13)(B) states that ``[t]he purpose of this
section is to authorize the Commission to make swap transaction and
pricing data available to the public in such form and at such times
as the Commission determines appropriate to enhance price
discovery.''
\5\ The four categories are: (i) Swaps that are subject to the
mandatory clearing requirement in CEA section 2(h)(1) [added by
Section 723(a)(3) of the Dodd-Frank Act]; (ii) swaps that are not
subject to the mandatory clearing requirement but are nonetheless
cleared at a registered derivatives clearing organization (``DCO'');
(iii) swaps that are not cleared at a registered DCO and which are
reported to a registered swap data repository (``SDR'') or to the
Commission pursuant to CEA section 2(h)(6); and (iv) swaps that are
``determined to be required to be cleared'' under CEA section
2(h)(2) but are not cleared.
\6\ As explained more fully in the Commission's Notice of
Proposed Rulemaking, the legislative history of the Dodd-Frank Act
suggests that the real-time reporting requirements of CEA section
2(a)(13) apply to all swaps. See Commission, Notice of Proposed
Rulemaking: Real-Time Public Reporting of Swap Transaction Data, 75
FR 76140 (Dec. 7, 2010) (``Real-Time NPRM'' or ``Proposing
Release'').
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With regard to swaps that are subject to the mandatory clearing
requirement (or excepted from such requirement) and those that are not
required to be cleared by a registered DCO but are cleared, CEA section
2(a)(13)(E) directs the Commission to prescribe rules that (i) ensure
that publicly disclosed information does not identify the participants;
(ii) specify the criteria for determining what constitutes a large
notional swap transaction (block trade) for particular markets and
contracts; (iii) specify the appropriate time delay for reporting large
notional swap transactions (block trades) to the public; and (iv) take
into account whether public disclosure will materially reduce market
liquidity. CEA section 2(a)(13)(E) does not require explicitly that the
rules promulgated by the Commission contain similar provisions for the
uncleared swaps described in CEA section 2(a)(13)(C)(iii) and (iv).
However, in exercising its authority under CEA section 2(a)(13)(B) to
``make swap transaction and pricing data available to the public in
such form and at such times as the Commission determines appropriate to
enhance price discovery,'' the Commission is authorized to prescribe
rules similar to those provisions in CEA section 2(a)(13)(E) for
uncleared swaps described in CEA sections 2(a)(13)(C)(iii) and (iv).\7\
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\7\ In addition, the Commission is required by CEA section
2(a)(13)(C)(iii) to prescribe real-time public reporting
requirements for uncleared swaps, other than those uncleared swaps
described in CEA section 2(a)(13)(C)(iv), ``in a manner that does
not disclose the business transactions and market positions of any
person.''
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B. Summary of the Proposed Part 43 Regulations
On December 7, 2010, the Commission published for comment proposed
part 43 of its regulations to implement the real-time reporting mandate
of the Dodd-Frank Act.\8\ At the foundation of these regulations was
the Commission's belief that real-time public dissemination of swap
transaction and pricing data supports the fairness and efficiency of
markets and increases transparency, which in turn improves price
discovery and decreases risk (e.g., liquidity risk). The Commission's
Proposing Release thus introduced, in addition to definitions of terms
and processes relevant to real-time public reporting, rules governing:
(1) The entities or persons that shall be responsible for reporting
swap transaction and pricing data; (2) the entities or persons that
shall be responsible for publicly disseminating such data; (3) the data
fields and guidance with respect to the appropriate format and manner
for data to be reported to the public in real time; (4) the appropriate
minimum size and time delay for block trades and large notional swaps;
and (5) the proposed effective date and implementation schedule for the
proposed rules.
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\8\ See Real-Time NPRM supra note 6. Interested persons are
directed to the Real-Time NPRM for a full discussion of each of the
proposed part 43 rules.
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The Commission's proposed part 43 rules reflected consultation with
staff of both the Securities and Exchange Commission (the ``SEC'') \9\
and the Board of Governors of the Federal Reserve.\10\ The proposed
rules also were informed by discussions during a joint public
roundtable to discuss swap data, SDRs and real-time reporting conducted
by CFTC and SEC staff on September 14, 2010 (the ``Roundtable'');
public comments received and posted on the Commission's Internet Web
site; \11\ and meetings and discussions between CFTC staff and market
participants.
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\9\ Section 763 of the Dodd-Frank Act authorizes the SEC to
promulgate rules ``to provide for the public availability of
security-based swap transaction, volume, and pricing data * * *.''
The SEC is adopting rules related to the real-time reporting of
security-based swaps as required by Section 763 of the Dodd-Frank
Act.
\10\ Section 712(a)(1) of the Dodd-Frank Act requires staff to
consult with the SEC and other prudential regulators.
\11\ Comment letters received in response to the Proposing
Release may be found on the Commission's Web site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=919.
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As proposed, part 43 applied to all swaps \12\ as defined in CEA
section 1a(47) and as may be further defined by Commission regulations.
The proposed rules applied real-time reporting requirements to
registered entities (SEFs, DCMs and registered swap data repositories
(``SDRs'')) and the swap counterparties--including registered or exempt
SDs, registered or exempt MSPs and U.S.-based end-users.
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\12\ As noted, the categories of swaps described in CEA section
2(a)(13)(C) account for all swaps, whether cleared or uncleared and
regardless of whether executed on or pursuant to the rules of a SEF
or DCM, or executed off-facility.
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1. Proposed Sec. 43.3--Method and Timing for Real-Time Public
Reporting
CEA section 2(a)(13) directed the Commission to prescribe rules
specifying the method and timing for real time public reporting.
Consistent with that mandate, the Commission proposed in Sec. 43.3 to
require: (1) The parties to a swap transaction (including agents of the
parties) to report swap transaction and pricing data to the appropriate
registered entity in a timely manner; \13\ and (2) registered entities
to publicly disseminate swap transaction and pricing data.\14\ To
implement its authority to make swap transaction and pricing data
available to the public in such form and at such times as it determines
appropriate to enhance price discovery, the Commission proposed in
Sec. 43.3 to establish the manner in which swap counterparties must
report the swap transaction and pricing data to the appropriate
registered entity, the manner in which registered entities must
publicly disseminate the data in real time and the responsibilities of
the reporting party to each swap. Proposed Sec. 43.3 also established
requirements for acceptance and public dissemination of swap
transaction and pricing data by SDRs and third-party service providers
and specified standards for data recordkeeping and retention as well as
availability and accessibility of real-time swap transaction and
pricing data. In addition, proposed Sec. 43.3 established the process
by which errors or omissions in publicly disseminated swap transaction
and pricing data would be cancelled and/or corrected, the hours of
operation for SDRs and the procedures for scheduling closing hours.
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\13\ See CEA section 2(a)(13)(F).
\14\ See CEA section 2(a)(13)(D).
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2. Proposed Sec. 43.4--Swap Transaction and Pricing Data To Be
Publicly Disseminated in Real-Time
CEA section 2(a)(13)(B) directs the Commission to make swap
transaction and pricing data available to the public in such form and
at such times as the Commission determines appropriate to enhance price
discovery. Proposed Sec. 43.4 required that swap transaction
information be reported to a real-time disseminator and established the
manner and format in which this data will be publicly disseminated. In
that regard, appendix A to proposed part 43 provides a list of data
fields which an SDR must publicly disseminate regarding swap
transactions, and pricing data, as well as guidance on an acceptable
public reporting format and order for the listed data fields.
CEA sections 2(a)(13)(C) and (E) reflect Congress' intent that
regulators ``ensure that the public reporting of swap transactions and
pricing data does not disclose the names or identities of
[[Page 1184]]
the parties to the transactions.'' \15\ In response, the Commission
proposed in Sec. 43.4(e)(1) to prohibit the public dissemination of
swap transaction and pricing information which identifies or otherwise
facilitates the identification of a party to a swap. This section
further provided that an SDR may not report such data in a manner that
discloses or otherwise facilitates the identification of a party to a
swap. The Commission recognized that the latter prohibition may result
in a loss of clarity with respect to the precise characteristics of
swaps in certain circumstances, and required in proposed Sec.
43.4(e)(2) that a reporting party or a swap market \16\ provide the
real-time disseminator with a specific description of the underlying
asset and tenor of a swap that is general enough to provide anonymity
but specific enough to permit a meaningful understanding of the swap.
For certain off-facility swaps--particularly ``other commodity'' swaps
that have underlying assets with specific delivery or pricing points--
market participants may be able to infer the identity of a party or
swap counterparties based on the description of an underlying asset.
Accordingly, proposed Sec. 43.4(e)(2) was intended to permit reporting
parties of off-facility swaps to publicly disseminate a description of
an underlying asset or tenor in a way that does not disclose a party to
a swap but nonetheless provides a meaningful understanding of the swap
for purposes of enhancing price discovery.\17\
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\15\ 156 Cong. Rec. S5921 (daily ed. July 15, 2010) (Statement
of Sen. Blanche Lincoln).
\16\ The term ``swap market'' was defined in proposed Sec.
43.2(z) as ``any registered swap execution facility or registered
designated contract market that makes swaps available for trading.''
As discussed below, the Commission is not adopting the term ``swap
market'' and is, for clarity, changing such references to
``registered swap execution facility or designated contract
market.''
\17\ The Commission described a hypothetical example in which
the underlying asset to an off-facility swap that has a specific
delivery point at Lake Charles, Louisiana--a contract commonly known
to be traded by only two companies. Disclosing the underlying asset
to the public would effectively disclose that one of those two
companies was entering into the trade. See Real-Time NPRM supra note
6, at 76150. Proposed Sec. 43.4(e)(2) would enable the reporting
party to use a broader geographic region in place of the specific
delivery point.
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In proposing Sec. 43.4(e), the Commission recognized that SEFs and
DCMs may differ and that new types of swaps may emerge. For that
reason, the Commission did not propose specific guidelines for
describing an underlying asset for the purposes of this rule. Because
the specificity of the description would vary based on particular
markets and contracts, the proposed rules were intended to provide
reporting parties with discretion in reporting swap transaction and
pricing data. Proposed Sec. 43.4(e)(2) and proposed part 23 of the
Commission's regulations \18\ would require SDs and MSPs who do not
specifically describe an underlying asset and/or tenor because such
disclosure would facilitate the identification of a counterparty, to
document why the specific information was not publicly disseminated.
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\18\ The Commission issued proposed part 23 which was published
in the Federal Register on November 23, 2010. 75 FR 71397. Proposed
part 23 provided, inter alia, the business conduct standards for SDs
and MSPs. Proposed Sec. 23 establishes reporting, recordkeeping,
and daily trading records requirements for SDs and MSPs.
Specifically, Sec. 23.201(d) provides that SDs and MSPs would be
required to maintain records of information required to be reported
on a real-time basis and records of information relating to large
notional swaps in accordance with proposed part 43 and CEA section
(2)(a)(13). When a less specific data field is reported in order to
protect anonymity of participants to such swap, then the record must
contain the rationale for reporting a less specific data field. The
comment period for proposed part 23 closed on June 3, 2011; however
the rule has not yet been adopted.
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The Commission anticipated that unique product identifiers may
develop for various swap products in various markets. Proposed Sec.
43.4(f) provided that if a unique product identifier is developed that
sufficiently describes the information in one or more of the data
fields for public dissemination, consistent with appendix A to proposed
part 43, the unique product identifier may be used in lieu of such data
fields. Absent a unique product identifier, the publicly disseminated
swap transaction and pricing data must contain all of the appropriate
product identification fields in appendix A to proposed part 43.
As proposed, Sec. 43.4(g) required public dissemination of any
swap-specific event \19\ that occurs during the life of a swap and
affects the price of the swap (a ``price forming continuation event'').
Proposed Sec. Sec. 43.4(h) and (i) would govern public reporting of
the notional or principal amount for all swaps. As proposed, these
rules would require (i) a reporting party to transmit to a SEF or DCM
the actual notional or principal size of any swap (including large
notional swaps) or any block trade; and (ii) a SEF or DCM to transmit
to a real-time disseminator the actual notional or principal size for
all swaps executed on or pursuant to its rules. Section 43.4(j)
proposed a rounding convention for notional or principal size and
provided that the rounding should be applied at the point of public
dissemination.
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\19\ Swap-specific events would include novations, swap unwinds,
partial novations and partial swap unwinds.
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3. Proposed Sec. 43.5--Block Trades and Large Notional Swaps for
Particular Markets and Transactions
CEA sections 2(a)(13)(E)(ii) and (iii) require the Commission to
prescribe rules ``to specify the criteria for determining what
constitutes a large notional swap transaction (block trade) for
particular markets and contracts'' and ``to specify the appropriate
time delay for reporting large notional swap transactions (block
trades) to the public,'' with respect to swaps subject to the clearing
mandate (including swaps that are excepted from the clearing mandate
pursuant to CEA section 2(h)(7)) and those swaps that are not subject
to the clearing mandate but are cleared. Similar provisions are not
explicitly required for uncleared swaps, however, the Commission is
authorized pursuant to its authority under CEA section 2(a)(13)(B) to
prescribe similar rules for uncleared swaps described in CEA sections
2(a)(13)(C)(iii) and (iv). Proposed Sec. 43.5 established: (1) The
procedures for determining the appropriate minimum sizes for block
trades and large notional swaps; and (2) the appropriate time delays
for the reporting of block trades and large notional swaps. In
describing the proposed block trade rules, the Commission noted that it
would continue to analyze and study the effects of increased
transparency on post-trade liquidity in the context of block trades and
large notional swaps.\20\ The Commission anticipated that new data
would continue to inform this discussion and could cause subsequent
revision of the Proposing Release.
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\20\ See 75 FR 76159 at note 67.
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As noted, CEA section 2(a)(13)(A) requires that all parties to swap
transactions, including parties to block trades and large notional
swaps, report data relating to swap transactions ``as soon as
technologically practicable after the time at which the swap
transaction has been executed.'' The Dodd-Frank Act also requires that
the Commission promulgate rules ``to specify the appropriate time delay
for reporting large notional swaps transactions (block trades) to the
public.'' \21\ In writing such rules, the Commission is charged to
``take into account whether public disclosure will materially reduce
market
[[Page 1185]]
liquidity.'' \22\ The Commission recognized that the potential market
impact of reporting a block trade or large notional swap is an
important consideration in the determination of an appropriate time
delay before public dissemination of block trade or large notional swap
transaction and pricing data. Proposed Sec. 43.5(k) specified the
appropriate time delays for public dissemination of block trades and
large notional swaps and established that the time delay for public
dissemination begins at execution of the swap.
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\21\ CEA section 2(a)(13)(E)(iii). As noted above, the
Commission is only required to prescribe rules relating to CEA
section 2(a)(13)(E) for swaps subject to the mandatory clearing
requirement (including those excepted from such requirement pursuant
to CEA section 2(h)(7)) and swaps that are not subject to the
mandatory clearing requirement but are cleared, as described in CEA
sections 2(a)(13)(C)(i) and (ii).
\22\ CEA section 2(a)(13)(E)(iv). As noted above, the Commission
is only required to prescribe rules relating to CEA section
2(a)(13)(E) for swaps subject to the mandatory clearing requirement
(including those excepted from such requirement pursuant to CEA
section 2(h)(7)) and swaps that are not subject to the mandatory
clearing requirement but are cleared, as described in CEA sections
2(a)(13)(C)(i) and (ii).
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4. Proposed Appendix A to Part 43
The Commission anticipated that real-time swap transaction and
pricing data may be publicly disseminated by multiple real-time
disseminators in the same asset class. In order to minimize the effects
of fragmentation and enhance consistency both within and among asset
classes, the Commission proposed in appendix A to part 43 a number of
data fields that should be publicly disseminated and provided guidance
on the format and manner of reporting. The Commission believes that the
public dissemination of standardized data should reduce the search
costs to the public and market participants while increasing
consolidation of real-time swap transaction and pricing data and
promoting post-trade transparency and price discovery.
C. Overview of Comments Received \23\
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\23\ In addition to the comments specifically discussed herein,
the Commission also received comments from various groups during the
course of external meetings. Those commenters include, among others:
Rabobank Nederland, Insurance Groups (American Counsel of Life
Insurers, Genworth, Manulife, John Hancock Life, New York Life,
Northwestern Mutual, Prudential, MetLife and Allstate Life);
Fidelity Investments; and Vanguard.
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The Commission received comments from 88 interested parties \24\
representing a cross-section of the global financial services industry,
including trade associations for both financial and non-financial end-
users, potential SDs and MSPs; law firms representing diverse
interests; exchanges; and numerous service and technology
providers.\25\ While many commenters expressed general support for the
proposed part 43 rules, they also offered recommendations for
clarification or modification of specific proposed regulations. Other
commenters objected to particular aspects of the Proposing Release.
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\24\ The initial comment period with respect to proposed part 43
closed on February 7, 2011. The comment periods for most proposed
rulemakings implementing the Dodd-Frank Act--including the proposed
part 43 rules--subsequently were reopened for the period of April 27
through June 2, 2011.
\25\ A complete list of the full names and abbreviations of
commenters is included in section VII at the end of this release;
comment letters are available through the Commission Web site at
http://comments.cftc.gov/PublicComments/CommentList.aspx?id=919.
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In addition to a general solicitation for comment on all aspects of
the Proposing Release, the Commission requested comment on a number of
specific, focused questions related to particular provisions. For
example, commenters were asked to address issues related to (i) the
appropriate implementation schedule for the final rules; (ii) which
swap counterparties should be covered by the reporting requirements of
part 43 in order to enhance price discovery; (iii) the responsibilities
of the swap counterparties to report swap transaction and pricing data
(including the advisability of establishing maximum timeframes in which
reporting parties must report data to an SDR); (iv) whether the final
rules should address the reporting and public dissemination of swap
transaction and pricing data for swaps transacted between two non-U.S.
persons; (v) the circumstances under which SEFs and DCMs are deemed to
have satisfied their public dissemination requirements; (vi)
recordkeeping and retention requirements, including the anticipated
costs associated with storing real-time swap transaction and pricing
data for an extended period of time; (vii) protection of the anonymity
of swap counterparties (including the utility of rounding notional
amounts); (viii) the utility of the proposed data fields (including
whether dissemination of additional data fields would enhance
transparency and price discovery); and (ix) whether there would be an
adverse price impact for traders and/or an impact on liquidity if all
market participants knew the swap transaction and pricing details of
all swaps in real-time.
As noted, the SEC is separately authorized by section 763 of the
Dodd-Frank Act to adopt real-time reporting rules for security-based
swaps (``SBSs''). Because the Commission and the SEC regulate different
products and markets and thus may have proposed differing regulatory
requirements, the Commission particularly requested comments on the
impact of any differences between the two regulatory approaches.
The Commission also requested comment with respect to its cost-
benefit considerations generally, and specifically asked whether there
are alternative ways it can meet its mandate under section 727 of the
Dodd-Frank Act in a less costly manner. Similarly, commenters were
invited to submit data or other information quantifying or qualifying
the costs and benefits of the Proposing Release.
The comments received will be addressed as appropriate throughout
the following discussion of the final rules.
D. Proposed Sec. 43.5--Block Trades and Large Notional Swaps
Several commenters urged that the Commission study additional data
before setting appropriate minimum block sizes and time delays \26\ for
public dissemination of block trades and large notional off-facility
swaps.\27\ The Commission recognized the merit in those concerns, and
subsequent to publication of the proposed part 43 rules, it continued
to receive and analyze swap data for various asset classes in order to
make informed decisions with respect to the appropriate criteria for
determining block trade sizes and the initial appropriate minimum block
trade sizes. The Commission agrees with the commenters that additional
analysis is necessary prior to issuance of final rules for appropriate
minimum block sizes, and accordingly has determined not to make final
its proposed Sec. 43.5 rules specifying the criteria for determining
block trade sizes. Instead, the Commission intends to issue a separate
notice of proposed rulemaking that will specifically address the
appropriate criteria for determining appropriate minimum block trade
sizes in light of data and comments received.\28\ Comments on these
issues received in connection with the instant rulemaking will be
considered by the Commission in its re-proposal of the block trade
rules.
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\26\ Commenters included: MFA; Barclays; AII; GS; UBS; GFXD;
Freddie Mac; ISDA/SIFMA; Better Markets; ABC/CIEBA; SIFMA AMG;
WMBAA; FHLBanks; Coalition for Derivatives End-Users; Cleary; and
Vanguard.
\27\ In light of clarifications in Sec. 43.2, the terms ``large
notional swap'' and ``large notional off-facility swap'' will be
used interchangeably throughout this Adopting Release. See infra
note 29.
\28\ The notice of proposed rulemaking regarding block trade
sizes and criteria is referenced throughout this release as the
``block trade re-proposal'' or ``re-proposal of the block trade
rules.''
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II. Part 43 of the Commission's Regulations--Final Rules
As proposed in the Real-Time NPRM, the provisions of part 43
governed the
[[Page 1186]]
method and timing of real-time public reporting; swap transaction and
pricing data to be publicly disseminated in real-time; and time delays
for public dissemination of swap transaction and pricing data. The
purpose, scope and rules of construction of part 43 were established in
proposed Sec. 43.1; proposed definitions of terms and processes
relevant to real-time public reporting were specified in proposed Sec.
43.2. Proposed Sec. 43.3 established the method and timing for real-
time public reporting and dissemination of swap transaction and pricing
data; this rule also delineated the responsibilities of swap
counterparties and SDRs, and established procedures for recordkeeping,
correction of errors and omissions, and hours of operation. Proposed
Sec. 43.4 specified the format in which swap transaction and pricing
data would be publicly disseminated and appendix A to proposed part 43
described the fields for which an SDR must publicly disseminate swap
transaction and pricing data. As proposed, Sec. 43.5 prescribed the
criteria for determining what constitutes a large notional swap
transaction (block trade) and specified the appropriate time delay for
reporting block trades to the public.
While the Commission has adopted the part 43 rules substantially as
proposed, there are several salient changes.\29\ As noted above, the
Commission is not adopting those elements of proposed Sec. 43.5
relating to the establishment of block trade sizes. The Commission
believes, in accordance with comments, that further study and analysis
of block trade data is necessary prior to establishing minimum block
trade size and for that reason has determined to make final only those
elements of proposed Sec. 43.5 relating to timestamp requirements and
time delays for the public dissemination of swap transaction and
pricing data. In that regard, Sec. 43.5 provides that until the
Commission establishes an appropriate minimum block size for a swap or
group of swaps, the time delays specified therein will apply to all
swaps that do not have an appropriate minimum block size. The anonymity
provisions in Sec. 43.4 have been clarified, and the Commission has
eliminated a provision in proposed Sec. 43.3 which would have
permitted dissemination of swap transaction and pricing data by third-
party service providers. Instead, the Commission will require that all
public dissemination of such data occur through an SDR. Unless
otherwise discussed in this section, the regulations are adopted as
proposed.
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\29\ This adopting release is referred to herein as the
``Adopting Release.''
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A. Section 43.1--Purpose, Scope and Rules of Construction
Proposed Sec. 43.1 applied to all swaps as defined in CEA section
1a(47) and as may be further defined by Commission regulation. The
provisions of part 43 also applied to the categories of swaps set forth
in CEA section 2(a)(13)(C); those categories account for the universe
of swaps subject to the Dodd-Frank Act's regulatory regime, whether
cleared or uncleared, and regardless of whether executed on a SEF, DCM
or off-facility. The proposed rules applied real-time reporting
requirements to SEFs, DCMs, SDRs and the swap counterparties, including
registered or exempt SDs, registered or exempt MSPs and U.S.-based end-
users. The Commission requested comment generally on the scope of
transactions covered by this part, and specifically with respect to
which swap counterparties should be subject to the reporting
requirements of this part.
1. Scope--Generally
Proposed Sec. 43.1(a) stated that the purpose of part 43 related
to ``the collection and public dissemination of certain swap
transaction and pricing data to enhance transparency and price
discovery.'' \30\ As proposed, Sec. 43.1(b)(1) stated that the
provisions of part 43 applied to all swaps as defined in CEA section
1(a)(47) and any implementing regulations therefrom, including the
categories of swaps set forth in section 2(a)(13)(C) of the Act.\31\
Further, proposed Sec. 43.1(b)(2) provided that the provisions of part
43 apply to all SEFs, DCMs, SDRs and swap counterparties (including
registered or exempt SDs, registered or exempt MSPs and U.S.-based end-
users). Proposed Sec. 43.1(c) specified the rules of construction for
part 43, and explained that although the examples in part 43 and the
related appendices are not exclusive, compliance with an example would
constitute compliance with such portions of the rule to which the
example relates.
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\30\ CEA section 2(a)(13)(B) provides that the purpose of
section 727 of the Dodd-Frank Act is ``to authorize the Commission
to make swap transaction and pricing data available to the public in
such form and at such times as the Commission determines appropriate
to enhance price discovery.''
\31\ CEA section 2(a)(13)(C) provides that ``[t]he Commission is
authorized and required to provide by rule for the public
availability of swap transaction and pricing data'' for four
categories of swaps: (1) Swaps subject to the mandatory clearing
requirement described in CEA section 2(h)(1) (including those swaps
that are excepted from the requirement pursuant to CEA section
2(h)(7)); (2) swaps that are not subject to the mandatory clearing
requirement described in CEA section 2(h)(1), but are cleared at a
registered DCO; (3) swaps that are not cleared at a registered DCO
and are reported to an SDR under CEA section 2(h)(6) (reporting for
this category of swaps must be done in a manner that does not
disclose the business transactions and market positions of any
person); and (4) swaps that are determined to be required to be
cleared under CEA section 2(h)(2) but are not cleared.
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Forty-six commenters addressed various aspects of the scope
provisions.\32\ Commenters expressed concerns related to swaps between
affiliates, portfolio compression exercises,\33\ uncleared and bespoke
\34\ swaps, end-user to end-user swaps, foreign exchange swaps,
international issues, distress scenarios and other scope-related
issues.\35\
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\32\ See supra note 23.
\33\ A separate proposed rulemaking under part 23 addresses
rules relating to portfolio compression. 75 FR 81519 (Dec. 18,
2010).
\34\ As used throughout this Adopting Release, ``bespoke''
indicates that a swap is off-facility and is not standardized.
\35\ In addition, one commenter stated that the reporting and
disclosure requirements could violate the First and Fifth Amendments
to the United States Constitution by purportedly compelling ``non-
commercial speech'' without satisfying a heightened standard and by
``taking'' protected private information without just compensation.
See CL-Sadis and Goldberg. The Commission has carefully considered
these comments and pertinent judicial precedent. It believes that
the data reporting and disclosure requirements at issue would not
violate the First Amendment because, among other reasons, the
information at issue is commercial speech subject to a lower,
reasonably-related standard. See, e.g., Zauderer v. Office of
Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 650-53
(1985) (state bar did not violate First Amendment by requiring
attorneys to fully disclose fee and cost arrangements in
advertisements; the speech was commercial because it pertained to
the economic interests of the parties, applicable standard was
therefore whether the disclosure requirement was reasonably related
to legitimate state interest, and the disclosure requirement at
issue was rationally related to the state's interest in preventing
deception of consumers). The Commission also believes that the
requirements at issue would not violate the Fifth Amendment. Among
other reasons, participants have no reasonable investment-backed
expectation that information they submit will be kept confidential
because they voluntarily submit it, knowing that it will be publicly
disclosed to the extent provided by statute and regulation. In
addition, the reporting and disclosure requirements are reasonably
related to the government's legitimate interests in transparency and
price discovery. See, e.g., Ruckelshaus v. Monsanto, 467 U.S. 986,
1006-07 (1984) (determining that there was no regulatory taking
where applicant for pesticide registration was required by federal
pesticide law to submit certain trade secret product data to EPA
that EPA could then publicly disclose; applicant knew at time of
submission that statute authorized EPA to do so, applicant therefore
could not have had a ``reasonable investment-backed expectation''
that data would be kept confidential, and the government's action
was reasonably related to legitimate government interest in an area
of public concern and regulation).
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[[Page 1187]]
2. Swaps Between Affiliates and Portfolio Compression Exercises
Several commenters questioned whether swaps between affiliates
should be subject to the real-time public reporting requirements of
part 43. Some commenters stated that swaps between affiliates have no
price discovery or transparency value and thus should not be publicly
reported.\36\ One commenter noted that the real time dissemination of
anonymous data regarding swaps between affiliates that price credit and
market risk at or near zero might distort price discovery, rather than
enhance it.\37\ Other commenters stated variously that inter-affiliate
trades and portfolio management exercises should not be considered
``reportable transactions,'' \38\ and that reporting swaps between
affiliates will add reporting requirements to end-users.\39\ A
commenter noted the reporting of data on physical gas and power
transactions between affiliates is excluded in other contexts.\40\
Another argued that the public reporting of inter-affiliate
transactions could seriously interfere with the internal risk
management practices of a corporate group, thereby prompting market
participants to act in a way that would prevent the corporate group
from following through with its risk management strategy. This
commenter suggested that such a result could raise the costs to
corporate groups of managing risk internally, in addition to confusing
market participants with irrelevant information.\41\
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\36\ See, e.g., CL-Cleary; CL-FSR; CL-Working Group of
Commercial Energy Firms; CL-Coalition of Energy End-Users; CL-ISDA/
SIFMA; CL-Japanese Banks; and CL-Coalition for Derivatives End-
Users.
\37\ The commenter stated that ``default risk among affiliated
entities within a corporate group is negligible,'' and ``an inter-
affiliate swap does not price hedging costs the same as a market-
facing swap because each inter-affiliate swap is entered into on the
general assumption that the market risk of all transactions within
the corporate group will be hedged by the centralized hedging
affiliate under a market-facing transaction.'' CL-Shell at 6.
\38\ See CL-TriOptima; CL-WMBAA.
\39\ See CL-Coalition for Derivatives End-Users.
\40\ See CL-Working Group of Commercial Energy Firms.
\41\ See CL-Cleary.
---------------------------------------------------------------------------
The Commission agrees with the comments regarding the public
dissemination of certain swaps between affiliates and portfolio
compression exercises. The Commission concurs that publicly
disseminating swap transaction and pricing data related to certain
swaps between affiliates would not enhance price discovery, as such
swap transaction and pricing data would already have been publicly
disseminated in the form of the related market-facing swap. This
information may create an inaccurate appearance of market depth.
Notably, there is a very high volume of swaps between affiliates in
certain asset classes (e.g., foreign exchange).\42\ To require public
dissemination of all such transactions could be very costly for market
participants. Where there are no price discovery benefits to publicly
disseminating such transactions, the Commission has determined not to
require the public dissemination of these transactions at this time.
---------------------------------------------------------------------------
\42\ See CL-GFXD. ``Many millions of trades occur daily between
different affiliates of the same institution which are not relevant
to the institution's external market positioning.'' Id. at p. 13.
---------------------------------------------------------------------------
Accordingly, the Commission is adopting a definition in Sec. 43.2
for the term ``publicly reportable swap transaction'' that does not
presently require the public dissemination of internal swaps.\43\
Specifically, a publicly reportable swap transaction means, among other
things, any executed swap that is an arm's length transaction between
two parties that results in a corresponding change in the market risk
position between the two parties. As adopted, the definition of a
publicly reportable swap transaction also provides, by way of example,
that internal transactions to move risk between wholly-owned
subsidiaries of the same parent, without having credit exposure to the
other party \44\ would not presently require public dissemination
because such swaps are not arm's-length transactions.
---------------------------------------------------------------------------
\43\ As discussed and referenced in this rule, internal swaps
between one-hundred percent owned subsidiaries of the same parent
entity may include back-to-back swap transactions between or among
such wholly-owned subsidiaries to help manage the risks associated
with a market-facing swap transaction. In general, a back-to-back
swap transaction effectively transfers the risks associated with a
market-facing swap transaction to an affiliate that was not an
original party to such transaction.
Back-to-back swap transactions may occur in a number of
different ways. For example, an affiliate immediately may enter into
a mirror swap transaction with its affiliate on the same terms as
the marketing-facing swap transaction. By way of further example, a
market-facing affiliate may enter into multiple transactions with
affiliates that are not at arm's-length in order to transfer the
risks associated with an arm's-length, market-facing transaction.
\44\ Section 608 of the Dodd-Frank Act adds to paragraph 7 of
the definition of ``covered transaction'' in Section 23A of the
Federal Reserve Act (12 U.S.C. 371(c)): ``(G) a derivative
transaction, as defined in paragraph (3) of section 5200(b) of the
Revised Statutes of the United States (12 U.S.C. 84(b)), with an
affiliate, to the extent that the transaction causes a member bank
or a subsidiary to have credit exposure to the affiliate.'' Hence,
all derivatives transactions will be subjected to Section 23A of the
Federal Reserve Act to the extent that they cause the bank to have
credit exposure to the affiliate. Section 23B of the Federal Reserve
Act contains an arm's-length requirement stating that a member bank
and its subsidiaries may engage in any covered transaction with an
affiliate only ``(A) on terms and under circumstances, including
credit standards, that are substantially the same, or at least as
favorable to such bank or its subsidiary, as those prevailing at the
time for comparable transactions with or involving other
nonaffiliated companies, or (B) in the absence of comparable
transactions, on terms and under circumstances, including credit
standards, that in good faith would be offered to, or would apply
to, nonaffiliated companies.'' The Commission considers any covered
transaction between affiliates as described in Sections 23A and 23B
of the Federal Reserve Act to be publicly reportable swap
transactions.
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Similarly, the Commission agrees that portfolio compression
exercises should not be publicly disseminated at this time.\45\ The
purpose of such transactions is to mitigate risk between counterparties
and any new swaps that were executed as a result of portfolio
compression exercises would be a result of the compression itself and
not an arm's-length transaction between the parties.\46\ As adopted,
the definition of a publicly reportable swap transaction also cites
portfolio compression exercises as an example that does not presently
require public dissemination.
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\45\ In its proposed part 23 release relating to ``Confirmation,
Portfolio Reconciliation, and Portfolio Compression Requirements for
Swap Dealers and Major Swap Participants,'' portfolio compression is
defined as ``a mechanism whereby substantially similar transactions
among two or more counterparties are terminated and replaced with a
smaller number of transactions of decreased notional value in an
effort to reduce the risk, cost, and inefficiency of maintaining
unnecessary transactions on the counterparties' books.'' 75 FR
81532.
\46\ See CL-TriOptima; CL-Shell.
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3. Uncleared or Bespoke Swaps
The Commission received comments from various market participants
relating to the scope of CEA section 2(a)(13) and proposed part 43, as
it applies to uncleared and bespoke swaps. Some commenters stated that
only standardized, cleared swaps should be real-time reported and
publicly disseminated. Others urged that uncleared trades be treated
differently than cleared trades and that the statute does not require
that non-standardized swaps be real-time reported (e.g., customized
trades should receive a greater time prior to public dissemination).
A commenter argued that only uncleared swaps that perform a
significant price discovery function should be publicly
disseminated.\47\ Another commenter argued that bespoke trade data has
little value and public dissemination of such information involves
complex technical issues.\48\
[[Page 1188]]
Still another commenter explained that the public dissemination of swap
transaction and pricing data should be phased in based on
liquidity.\49\ In contrast, two commenters said that the real-time
reporting requirements should apply to all swaps, both standard and
bespoke.\50\
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\47\ The commenter recommended that the Commission utilize a
process to identify swaps that perform a ``significant price
discovery'' function. See CL-Dominion.
\48\ See CL-TriOptima.
\49\ See CL-FINRA.
\50\ See CL-IECA; CL-Better Markets.
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Several commenters asserted that bespoke or customized swap
transactions are not subject to real-time reporting, citing a perceived
absence of authority under CEA section 2(a)(13)(C)(iii) to include
these transactions. Others commented that bespoke transactions should
not be subjected to real-time public reporting obligations because the
transactions do not enhance price discovery and may compromise
anonymity of the parties to the swap.
Some commenters focused on perceived burdens to end-users inherent
in the proposed rules; many stated that end-users should not be
required to report swaps.\51\ Additionally, certain commenters stated
that end-users do not have sufficient technology to report swaps; one
commenter stated that end-user to end-user swaps should have next
business day reporting.\52\ Others contended that end-users should be
treated differently because the public dissemination of swaps
information involving such parties does not enhance price
discovery.\53\ Two commenters questioned the value of disclosing
information relating to end-user to end-user power swaps compared to
the harm that disclosing such information would have to these end-users
and the public in general.\54\
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\51\ See CL-IPAA; CL-IECA; CL-COPE; CL-PCS Nitrogen Fertilizer;
CL-Coalition of Energy End-Users; CL-NFPEEU; CL-API; and Meeting
with EEI (Feb. 10, 2011).
\52\ See CL-IPAA.
\53\ See CL-COPE; CL-Coalition of Energy End-Users.
\54\ See CL-Coalition of Energy End-Users; CL-NFPEEU.
---------------------------------------------------------------------------
The Commission interprets CEA section 2(a)(13)(C) to grant the
Commission the authority to require the real-time public reporting of
all swaps in order enhance price discovery.\55\ Accordingly, the
Commission does not believe that the transactions described above
(e.g., bespoke, end-user to end-user, etc.) should be excluded from
real-time reporting obligations. Such swap transactions, unlike
internal swaps between affiliates and portfolio compression exercises,
are executed at arm's length and result in a change in market risk
between the swap counterparties. Thus, the Commission believes that the
public dissemination of these transactions will provide price discovery
benefits and transparency to the swap markets.
---------------------------------------------------------------------------
\55\ The Commission stated in in the Proposing Release that it
interprets CEA section 2(a)(13)(C) to apply to all swap
transactions. The Commission agrees with the overall concern
expressed by commenters regarding the statutory duty to ensure
confidentiality. CEA sections 2(a)(13)(C)(iii) and 2(a)(13)(E)(i)
emphasize the importance of not identifying swap counterparties. As
discussed more fully below, CEA section 2(a)(13)(C)(iii) explicitly
directs the Commission to require that real-time public reporting of
transactions occur in a manner that does not disclose a party's
business transactions and market position.
---------------------------------------------------------------------------
However, the Commission agrees with commenters that the real-time
public dissemination of swap transaction and pricing data should be
phased in with longer initial time delays for public dissemination, as
well as phased in compliance dates, for different asset classes and
market participants within an asset class. Phasing in real-time
reporting for certain transactions by allowing for longer initial time
delays and phased compliance dates addresses concerns regarding bespoke
transactions, including market liquidity and the ability for parties to
report transactions. In particular, phasing in the public dissemination
of bespoke transactions will allow the Commission to ensure that the
public dissemination of such transactions will protect the identities
of swap participants, not disclose the business transactions and market
positions of any person involved in an uncleared swap and mitigate any
adverse impact on market liquidity.
4. Foreign Exchange (``FX'') Asset Class
Several commenters sought clarification as to which FX swaps will
be subject to the real-time public reporting requirements; some argued
that FX forwards and swaps should not be subject to real-time public
reporting rules. One commenter argued that the universe of FX market
participants is massive given that FX transactions are an integral part
of the global payment systems, presenting a practical challenge to
ensuring that all relevant reporting participants are able to report.
To the extent that FX swaps or forwards, or both, are excluded from
the definition of ``swap'' pursuant to a determination by United States
Department of the Treasury (``Treasury''), the requirements of CEA
section 2(a)(13) would not apply to those transactions, and such
transactions shall not be subject to the real-time public reporting
requirements of part 43. Treasury issued a proposed determination on
April 29, 2011, in which it stated that FX swaps and forwards that
would be excluded from the definition of ``swap,'' and thereby exempt
from certain requirements established in the Dodd-Frank Act, including
registration and clearing. However, the CEA provides that, even if
Treasury determines that FX swaps and forwards may be excluded from the
definition of ``swap,'' these transactions are not excluded from
regulatory reporting requirements to an SDR.\56\ Nonetheless, such
transactions would not be subject to the real-time reporting
requirements under part 43. Treasury has proposed to act pursuant to
the authority in Section 721 of the Dodd-Frank Act that permits a
determination that certain FX swaps and forwards should not be
regulated as swaps and are not structured to evade the Dodd-Frank Act.
The Commission has noted that, as proposed, Treasury's determination
would exclude FX swaps and forwards, as defined in CEA section 1a, but
would not apply to FX options or non-deliverable forwards
(``NDFs'').\57\ FX instruments that are not covered by Treasury's final
determination would still be subject to the real-time public reporting
rules described in part 43.\58\
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\56\ See CEA section 1(a)(47)(E).
\57\ See 76 FR 29818, 29835-29837 (May 23, 2011) (proposed
rulemaking issued jointly by Commission and SEC to further define,
among others, the term ``swap'').
\58\ See 76 FR 25774 (May 5, 2011). Treasury's proposed
determination may also be found at http://www.treasury.gov/initiatives/wsr/Documents/FX%20Swaps%20and%20Forwards%20NPD.pdf.
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Section 43.1 as adopted does not distinguish between transactions
within the FX asset class; such a decision to exclude FX forwards and
swaps will be determined by Treasury pursuant to CEA section 1(a)(47).
5. Limitations and Special Accommodations
Several scope-related comments focused on very specific issues.
Some commenters argued that novations should not be publicly reportable
swap transactions. Another commenter asserted that the Commission has
no statutory basis for requiring that post-swap events (e.g.,
novations, amendments, terminations, etc.) be subject to part 43. This
commenter stated that real-time reporting should be limited to trade
execution and that lifecycle events should not be reported.\59\
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\59\ See CL-NFPEEU.
---------------------------------------------------------------------------
The Commission agrees that to the extent that novations or other
lifecycle events do not change the pricing of an initial execution of
the swap they would not be considered publicly reportable swap
transactions and therefore would not be publicly disseminated.\60\ As
two
[[Page 1189]]
commenters pointed out, the reporting of a novation that is just a
change in ownership could lead to duplication in reporting and
misrepresentative prices in the market.\61\ As discussed more fully
below, in the case of novations where there is no change in the
pricing, the novations would not be publicly reportable swap
transactions pursuant to Sec. 43.2.
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\60\ See the definition of ``publicly reportable swap
transaction'' in Sec. 43.2.
\61\ See CL-Barclays; CL-Working Group of Commercial Energy
Firms.
---------------------------------------------------------------------------
The Commission recognizes that there are certain swap contract
amendments or other transactions that could enhance price discovery.
Those transactions that have a price impact should be subject to the
real-time reporting rules of part 43. If price-changing lifecycle
events were not required to be publicly disseminated, swap
counterparties could enter into a swap at one price and then
immediately enter into an amendment to change a material term of the
swap. The Commission is clarifying the definition of ``publicly
reportable swap transaction'' to ensure that only those lifecycle or
continuation events that have a price-changing impact should be
publicly disseminated. Requiring such price-forming continuation data
to be publicly disseminated eliminates the incentive for swap
counterparties to enter into a swap followed by an amendment in order
to disguise the price of a swap.
Commenters stated that illiquid markets should not be subject to
real-time reporting.\62\ The Commission believes that, consistent with
CEA section 2(a)(13), such swaps generally are subject to the public
dissemination requirements of part 43. Certain accommodations, however,
have been made for such swaps in part 43, including longer initial time
delays for public dissemination in final Sec. 43.5.
---------------------------------------------------------------------------
\62\ See CL-Members of Congress; CL-MS. Additionally, one
commenter suggested less frequent reporting for illiquid parts of
the market. CL-Chesapeake.
---------------------------------------------------------------------------
One commenter stated that power markets should not be subject to
real-time reporting.\63\ The Commission acknowledges this commenter's
concern; swaps in the power market are priced in reference to specific
locations and thus present issues regarding the protection of the
identities of the counterparties. To the extent that these are off-
facility swaps, the Commission intends to propose to describe the form
and manner for their reporting in its block trade re-proposal. As
discussed more fully below, until such standards are adopted, such off-
facility swaps would not be subject to the real-time public reporting
requirements of part 43.
---------------------------------------------------------------------------
\63\ See CL-NFPEEU.
---------------------------------------------------------------------------
A few commenters argued that physical forwards should be expressly
excluded from the real-time reporting requirements. Others contended
that various types of swaps--including total return swaps, stand-alone
options and structured transactions--should not be subject to the real-
time reporting requirements of part 43 or should be given special
accommodations. To the extent that any of these types of swaps are
excluded from the definition of ``swap,'' such transactions are not
subject to the real-time reporting requirements. Accordingly, the
Commission does not intend to provide any specific exemption from part
43 at this time.
The Commission received two comments regarding special
accommodations for real-time public reporting in distress scenarios and
DCO default scenarios.\64\ One commenter stated that special
accommodations should be made for distress scenarios; the other stated
that swaps in connection with a DCO's default management should not be
reported. This commenter also provided language to address this
situation in the final rule.
---------------------------------------------------------------------------
\64\ See CL-Barclays; CL-LCH.Clearnet.
---------------------------------------------------------------------------
The Commission agrees that, depending on the circumstances, default
and distress scenarios may warrant different reporting requirements.
The Commission believes that distress and DCO default scenarios may be
situations in which the Commission may exercise its authority to
temporarily suspend real-time public reporting obligations under part
43. The Commission may address such emergency authority in a future
Commission rulemaking. The Commission does not accept the
recommendation that real-time reporting obligations be suspended
automatically upon the occurrence of a distress scenario; in its view
any suspension or delay of reporting should occur only upon a
Commission determination. Further, the Commission believes that time
delays described in Sec. 43.5 will address some of the concerns
expressed in these comments.
6. Liquidity
Some commenters asserted that real-time public reporting could
cause a reduction of liquidity, particularly in already illiquid
markets.\65\ The Commission believes that the availability of
previously-inaccessible swap pricing data in close to real-time will
increase the competition among potential swap counterparties regarding
the pricing of such swaps, and that such increased competition will be
a central benefit of the real-time reporting rules. The enhanced
transparency and reliability of transactional data provided by the
real-time dissemination of swap transaction data can be expected to
promote confidence in the fairness and integrity of swaps markets.
Thus, the Commission anticipates that while a trade-off between
liquidity and transparency may manifest itself in the beginning of the
implementation period, the increased transparency ultimately should
increase participation in the swaps markets.\66\
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\65\ See, e.g., CL-Chesapeake; CL-Dominion; CL-MS; CL-ATA and
Meeting with Barclays (January 24, 2011).
\66\ The Commission believes that it has achieved the
appropriate balance between transparency and liquidity. However, the
Commission recognizes that certain market participants may disagree
with the Commission and choose not to enter into certain types of
swaps. The Commission believes that increased price transparency
will attract additional liquidity providers based on confidence that
their competitive pricing will better attract business.
---------------------------------------------------------------------------
Another key benefit of real-time reporting of previously
unavailable swap transaction and pricing data is enhanced price
discovery. Broader access to information will be of particular value to
buy-side participants and end-users. As one commenter noted, the
ability to observe information about recent transactions and to seek
customized trades offers potential benefits to end-users.\67\ In this
regard, the Commission disagrees with commenters who opined that
transaction data about bespoke, bilateral swaps provides no price
discovery information. On the contrary, such information helps to
complete the picture of the swap market for all market participants,
and would likely inform traders seeking to transact economically
similar--although not identical--swaps.
---------------------------------------------------------------------------
\67\ See CL-Reval.
---------------------------------------------------------------------------
As SDs and MSPs adapt to the real-time public reporting of swap
transaction data, the Commission anticipates that these market
participants, who typically are large and technologically
sophisticated, will compete on price to attract end-users and other
typically smaller, less-sophisticated market participants as swap
counterparties. The Commission believes that its phase in approach to
dissemination delays provided in Sec. 43.5 of this rule will allow
market participants time to adapt to the new procedures.
7. International Issues
The Commission received several comments addressing international
[[Page 1190]]
concerns as they relate to the scope of the Proposing Release. Four
commenters stated that the Commission should explicitly require that
only data relating to swap transactions involving at least one U.S.-
person must be reported and publicly disseminated.\68\ Seven comments
urged that the Commission consult with foreign regulators before
establishing extraterritoriality scope; \69\ one comment stated that
jurisdictional boundaries should be defined \70\ and seven comments
stated that any SD or MSP in a swap should be the reporting party
regardless of whether it is a U.S. person.\71\ Additionally, the Public
Roundtable on Dodd-Frank Implementation produced comments regarding the
need for the CFTC and SEC to harmonize their reporting requirements
with international regulators.\72\
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\68\ See CL-ISDA/SIFMA; CL-GFXD; CL-Foreign Headquartered Banks;
and CL-Working Group of Commercial Energy Firms.
\69\ See CL-ISDA/SIFMA; CL-Commodity Markets Council; CL-Foreign
Headquartered Banks; CL-WFE/IOMA; CL-Tradeweb; CL-SIFMA AMG; and CL-
Soc Gen.
\70\ See CL-ISDA/SIFMA.
\71\ See CL-Vanguard; CL-MarkitSERV; CL-SIFMA AMG; CL-ICI; CL-
ISDA/SIFMA; CL-BlackRock; and CL-DTCC.
\72\ See CL-MarkitSERV; CL-AFGI; and CFTC/SEC Public Roundtable
on International Issues Relating to Dodd-Frank (Aug. 1, 2011).
Public Roundtable comments can be found at http://comments.cftc.gov/publiccomments/commentlist.aspx?id=1065.
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Two commenters questioned whether the Commission has the legal
authority to implement proposed Sec. 43.1(b)(2) with respect to non-
U.S. parties \73\ and suggested the Commission reach agreements with
foreign regulators before requiring that all transactions with any U.S.
person be subject to the requirements in part 43.\74\
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\73\ As proposed, Sec. 43.1(b) established the scope of part
43. Proposed Sec. 43.1(b)(2) provides that the part 43 rules apply
to all SEFs, DCMs, SDRs, as well as parties to a swap including
registered SDs, registered MSPs and U.S.-based end-users.
\74\ See CL-ISDA/SIFMA; CL-GFXD.
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The Commission recognizes the benefits of consultation with
international regulators in developing the real-time public reporting
rules set forth in part 43 of the Commission's regulations. To that
end, Commission staff has had discussions with a number of
international regulators, including the UK FSA, AEuropean Commission
(``EC''),\75\ European Parliament Rapporteur for the Regulation on OTC
Derivatives, Central Counterparties and Trade Repositories, European
Securities and Markets Authority (``ESMA''), Canadian Provincial
Regulators and Japan FSA.\76\ Commission staff continues to discuss
with international regulators issues related to extraterritoriality.
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\75\ It should be noted that the 2004 version of Markets in
Financial Instruments' Directive (``MiFID'') contained language for
equities that ``Member States shall, at least, require regulated
markets to make public the price, volume and time of the
transactions executed in respect of shares admitted to trading.
Member States shall require details of all such transactions to be
made public, on a reasonable commercial basis and as close to real-
time as possible.'' The European Commission published its MiFID and
Markets in Financial Instruments Regulation (``MiFIR'') on October
20, 2011. The European Commission's legislative proposals require
that regulated markets, multilateral trading facilities (``MTFs'')
and organized trading facilities (``OTFs'') shall make public the
price, volume and time of transaction executed for all derivatives
admitted to trading or which are traded on an MTF or an OTF. These
organized trading venues shall make this transaction data public as
close to real-time as is technically possible. Investment firms that
make public trades outside of trading venues must make those trades
available through Approved Publication Arrangements which are
regulated by MiFID.
\76\ In addition, the Commission met with European industry
representatives, including Credit Suisse, Deutsche Bank, Citi, J.P.
Morgan, Barclays, Goldman Sachs and UBS (Mar. 22, 2011).
---------------------------------------------------------------------------
Several commenters stated that an SD or MSP should be the reporting
party regardless of whether it is a U.S. person. The Commission
generally agrees that if a registered SD or MSP is a party to a
publicly reportable swap transaction, it should be the reporting party,
to the extent that such transaction is subject to real-time reporting.
The Commission understands the need for flexibility where one party to
a swap is a U.S. counterparty and the other is a foreign counterparty.
Accordingly, as discussed in greater detail below, the Commission is
adopting language in Sec. 43.3(a)(3) that allows parties to a publicly
reportable swap transaction involving an off-facility swap to mutually
agree on the reporting party for such transaction; such agreement would
be a term of the swap.
8. Final Rule Text of Sec. 43.1
After consideration of comments relating to the purpose, scope and
rules of construction in proposed Sec. 43.1, the Commission is
adopting Sec. 43.1 substantially as proposed, with some clarifying
changes responsive to commenters' concerns relating to the
extraterritorial scope of part 43. Additionally, as discussed below,
the Commission is adopting other provisions, including a revised
definition of ``publicly reportable swap transaction'' that responds to
many commenters' concerns.
The Commission is adopting Sec. 43.1(a) as proposed, with
technical and clarifying changes including (i) changing the words ``set
forth'' to ``implements;'' (ii) changing the word ``collection'' to
``reporting;'' and (iii) the addition of a reference to the Dodd-Frank
Act. The Commission is adopting Sec. 43.1(b) with technical and
clarifying changes relating to numbering and word changes as well as
with a change to the last sentence. The last sentence of Sec. 43.1(b),
as adopted, states that ``[t]his part shall apply to registered
entities as defined in the Act, as well as to parties to a swap
including SDs, MSPs and U.S.-based market participants in a manner as
the Commission may determine.'' The change to the last sentence of
Sec. 43.1(b) deletes the references to ``registered or exempt'' when
referring to SDs and adds the clause ``in a manner as the Commission
may determine'' as compared to proposed Sec. 43.1(b). Finally, Sec.
43.1(c) is being adopted with two clarifying changes: ``constitute'' is
changed to ``shall constitute;'' and ``such'' is changed to ``the
particular.''
B. Section 43.2--Definitions
As proposed, Sec. 43.2 specified definitions for a number of terms
and concepts related to real-time public reporting of swap transaction
and pricing data. In response, the Commission received comments from 20
interested parties, including industry associations representing myriad
financial market participants, potential SDs, an asset manager,
potential SDRs and a DCM. In addition to comments on the definitions
proposed in Sec. 43.2, commenters addressed terms not defined in
proposed Sec. 43.2, such as ``illiquid market.''
1. Harmonization
A number of commenters suggested that the Commission and the SEC
harmonize the use of the defined terms in proposed Sec. 43.2 in order
to foster operational efficiency, lessen the incidence of errors and
place fewer burdens on reporting agencies.\77\ The Commission agrees
that harmonization of certain terms is desirable and the two agencies
have coordinated their responses to the Dodd-Frank Act as closely as
possible. The Commission notes that the two agencies have jurisdiction
over different types of swaps which necessitates some differences in
terminology. The Commission believes therefore that any differences
between the two commissions with respect to defined terms are justified
and necessary to accomplish the purposes of the Act.
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\77\ See CL-GFXD; CL-ISDA/SIFMA; and CL-Vanguard.
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[[Page 1191]]
2. Defined Terms
Section 43.2 contains the definitions for terms and concepts
throughout part 43 and its related appendices.\78\ The specific terms
defined in Sec. 43.2 are discussed below.
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\78\ Proposed Sec. 43.2 used subparagraph lettering for the
definitions; however, the Commission has removed the subparagraph
lettering from final Sec. 43.2 to enable the addition of defined
terms as rules relating to block trades and large notional off-
facility swaps are promulgated, without necessitating a renumbering
with Sec. 43.2.
---------------------------------------------------------------------------
Act--Proposed Sec. 43.2(a)
The Commission is adopting the definition as proposed with a
clarifying citation to the United States Code.\79\
---------------------------------------------------------------------------
\79\ No comments were received in connection with the proposed
definition for ``Act.''
---------------------------------------------------------------------------
Affirmation--Proposed Sec. 43.2(b)
A commenter suggested that the use of terms like ``affirmation''
should reflect long-standing market conventions that differ according
to the type of underlying reference asset.\80\ Another commenter
pointed to a perceived loophole in the Commission's proposed definition
that would allow for the avoidance of block trade reporting by agreeing
on swap terms at one point in time and affirming terms of trade details
later.\81\ The Commission believes that the definition as proposed
provided adequate clarity to permit flexibility for different market
participants, asset classes and methods of execution. The Commission is
not persuaded by the argument that the proposed definition contains a
loophole that would allow for the avoidance of block trade reporting.
The Commission believes that the business conduct and straight-through
processing rules proposed in part 23 of its regulations,\82\ in
addition to anti-evasion requirements (proposed to be included in part
1 of its regulations), should provide adequate oversight rules.\83\
---------------------------------------------------------------------------
\80\ See CL-ISDA/SIFMA. As discussed below, this comment was
broadly applied to terms such as ``execution'' and ``confirmation.''
\81\ See Communication with Darrell Duffie (Dec. 15, 2010).
\82\ See supra note 18.
\83\ Proposed part 1 of the Commission's regulations provides
that all transactions that are willfully structured to evade the
requirements of the Dodd-Frank Act will be treated as swaps. See 76
FR 29818 at 29865-66 (May 23, 2011). The rule has not yet been
adopted.
---------------------------------------------------------------------------
Comments emphasizing the need for harmonization between the CFTC
and the SEC focused in part on the definition of ``affirmation.'' The
SEC's proposed Regulation SBSR does not include the concept of
``affirmation''; however, the Commission believes that this difference
is not material.
For the reasons discussed above, the Commission believes that the
proposed definition of ``affirmation'' provides adequate clarity for
different market participants, asset classes and methods of execution.
Accordingly, the Commission is adopting the definition as proposed.
Appropriate Minimum Block Size--Proposed Sec. 43.2(c)
The Commission is adopting the definition of ``appropriate minimum
block size'' with a few modifications. As discussed below, since the
definition of ``swap instrument'' is not being adopted in these final
rules, the reference to that definition is removed.\84\ The statement
in the proposed definition regarding the calculation of appropriate
minimum block sizes has been removed since those proposed rules are
being reconsidered at this time.
---------------------------------------------------------------------------
\84\ No comments were received in connection with the language
of the proposed definition for ``appropriate minimum block size.''
---------------------------------------------------------------------------
As Soon as Technologically Practicable--Proposed Sec. 43.2(d)
Proposed Sec. 43.2(d) defined the term ``as soon as
technologically practicable'' as ``as soon as possible, taking into
consideration the prevalence of technology, implementation and use of
technology by comparable market participants.'' The Commission
anticipated that this term could have different interpretations for
different swap counterparties (i.e., SDs, MSPs and end-users), for
different types of swaps (e.g., energy swaps, credit default swaps,
interest rate swaps, etc.) and for different methods of execution
(i.e., SEFs, DCMs and off-facility swaps).
The Commission received twelve comments from various interested
parties, including trading platforms, industry groups/associations and
a data vendor. One commenter \85\ stated that while the SEC's proposed
definition of ``real time'' more easily replicates current market
practice than ``as soon as technologically practicable,'' the CFTC and
SEC should propose one consistent definition of real-time reporting for
their respective rules.
---------------------------------------------------------------------------
\85\ See CL-Chris Barnard.
---------------------------------------------------------------------------
While the comments generally support the flexibility of the
definition, some commenters requested further clarification. One
commenter, for example, requested that the Commission distinguish
between SDs that are banks and those that are non-banks.\86\ Another
commenter requested clarification whether ``as soon as technologically
practicable'' would mean the same thing for swaps executed on or
pursuant to the rules of a SEF or DCM as for swaps under CEA section
2(h)(7).\87\
---------------------------------------------------------------------------
\86\ See CL-Working Group of Commercial Energy Firms.
\87\ See CL-Coalition for Derivatives End-Users.
---------------------------------------------------------------------------
Some commenters suggested that the Commission refrain from
establishing maximum reporting time frames, except for large SDs and
MSPs or, at a minimum, either adopt longer time frames for reporting
for market participants that are not SDs or MSPs, or allow custom and
market practice to eventually define the time period that is a
responsible interpretation of ``technologically practicable.'' \88\
Other commenters addressed the concept of backstops for real-time
reporting for non-block trades.\89\ One stated that there must be a
maximum time limit of no longer than five minutes,\90\ while another
said that maximum reporting timeframes should be given only for SDs and
MSPs (or at a minimum reporting timeframes should be longer for end-
users).\91\ Another commenter contended that real-time reporting should
occur after confirmation to reduce errors and omissions and since the
confirmation process is what drives the booking of a trade into a
firm's trade capture system.\92\
---------------------------------------------------------------------------
\88\ Id.
\89\ See CL-Better Markets; CL-Markit; and CL-Coalition for
Derivatives End-Users.
\90\ See CL-Better Markets.
\91\ See CL-Coalition for Derivatives End-users.
\92\ See CL-DTCC.
---------------------------------------------------------------------------
The Commission acknowledges that SDs and MSPs are more likely to
have the infrastructure and resources available to report their swap
transaction and pricing data to an SDR faster than other categories of
market participants (i.e., financial and non-financial end-users).
However, the Commission believes it would be premature to establish
maximum timeframes at this time without information on the manner and
frequency in which these swaps are executed or a clear understanding of
the technological capabilities of reporting parties. Declining to
establish backstops is a less prescriptive approach that takes into
account the different technological capabilities of different markets
and market participants. The Commission can analyze timestamp data,
which is not currently available, to determine whether reporting
parties are reporting ``as soon as technologically practicable.''
In response to comments requesting further clarification of the
definition, the Commission believes that the proposed definition
provided adequate flexibility for different market participants, asset
classes and methods of execution. If the definition of ``as
[[Page 1192]]
soon as technologically practicable'' were more rigid (e.g., setting
forth maximum reporting times) the costs to less sophisticated
reporting parties could be greater, particularly in the initial phases
of the rule.\93\
---------------------------------------------------------------------------
\93\ The Commission notes that real-time swap transaction and
pricing data must be reported ``as soon as technologically
practicable'' after ``execution'' which is linked to the
``affirmation'' of the swap. ``Confirmation'' of the swap may occur
at a point after the affirmation and execution, or at the same time
(e.g., SEF or DCM execution of a swap).
---------------------------------------------------------------------------
With respect to comments regarding backstops, the Commission
believes that there could be potentially significant costs to certain
market participants--particularly end-users--in complying with a
backstop. For this reason as well, the Commission has determined to
retain the flexibility of the definition by excluding backstops. While
the SEC's proposed Regulation SBSR provided a 15-minute backstop, it is
important to note that the markets overseen by the SEC have
significantly fewer end-users participating in the credit and equities
markets than the markets under the Commission's authority. The
Commission believes this distinction justifies the difference in
approach between the agencies.
For the reasons discussed above, the Commission has retained a less
prescriptive definition of ``as soon as technologically practicable''
in order to provide adequate flexibility for different market
participants, asset classes and methods of execution, particularly when
weighed against the potential costs to market participants to comply
with more rigid timeframes. Accordingly, the Commission is adopting the
definition as proposed.
Asset Class--Proposed Sec. 43.2(e)
Proposed Sec. 43.2(e) provided that the asset classes include five
major categories: Interest rate, currency, credit, equity and ``other
commodity,'' as well as any other asset class that may be determined by
the Commission. Commenters offered various views with respect to
categorizing the asset classes. One commenter recommended that
relatively few defined asset classes would create increased aggregation
of services and reduce the risks of duplication or omission in public
dissemination or erroneous consolidation by the public of available
data, while also reducing the burden on market participants to connect
and reconcile among multiple SDRs.\94\ ISDA and SIFMA jointly opined
that providing sub-asset classes for ``other commodity'' would be
advisable for reporting requirements.\95\
---------------------------------------------------------------------------
\94\ See CL-DTCC.
\95\ See CL-ISDA/SIFMA.
---------------------------------------------------------------------------
One commenter expressed concern with respect to the definition,
treatment and reporting of an FX forward under the Proposing
Release.\96\ This commenter requested clarification that spot
transactions with value dates less than or equal to T+2 \97\ are
excluded from the definition and further requested clarification with
respect to the reporting obligations on those FX products that may be
excluded by Treasury. Commenters also requested further clarification
in defining an ``FX swap'' and ``cross currency swap.'' These
commenters distinguished between a cross currency swap (an interest
rate product with multi-payment schedules, traded by interest rate
desks with interest rate market participants) and an FX swap (``FX
products traded by distinct FX desks with different market participants
using different internal and external systems infrastructure'').\98\ In
the commenters' opinion, cross-currency swaps should be reported in the
interest rate asset class, while FX swaps should be reported in a
separate FX asset class.
---------------------------------------------------------------------------
\96\ See CL-GFXD.
\97\ The terms ``T+1'' and ``T+2'' refer to the transaction date
plus one day or two days, respectively.
\98\ See CL-GFXD.
---------------------------------------------------------------------------
One commenter suggested that, with respect to FX instruments,
market conventions are needed to determine whether (i) both legs of the
transaction are reported by a single counterparty; or (ii) whether the
transaction is instead reported separately as two legs by two
counterparties with two separate trade identifications. Additionally,
the commenter suggested that an FX sub-classification system should be
categorized by an industry association sufficiently familiar with the
FX market.\99\
---------------------------------------------------------------------------
\99\ Id.
---------------------------------------------------------------------------
One commenter recommended that the definition of ``asset class'' be
harmonized with the SEC's definition to facilitate ease of tracking by
market participants.\100\ The Commission believes that references to
the credit and equity asset classes should, to the extent possible, be
defined consistently between the two agencies, but notes that the SEC
will not be regulating products in asset classes other than credit and
equity. Because the Commission is best situated to define the asset
classes within its jurisdiction, it believes that any differences
between the CFTC and the SEC with respect to the definition of ``asset
class'' have their origins in different statutory and regulatory
schemes and are justified and necessary.
---------------------------------------------------------------------------
\100\ See CL-Vanguard.
---------------------------------------------------------------------------
The Commission is persuaded by the suggestions regarding the
subdivision of asset classes and agrees that fewer asset classes will
decrease fragmentation of data and reduce the burden of market
participants to reconcile among multiple SDRs. Additionally, since an
SDR that accepts swap transaction and pricing data for a swap within an
asset class must accept data for all swaps in that asset class, market
participants will more likely be able to report data for both real-time
and regulatory reporting purposes.\101\ The Commission also agrees that
there is merit to providing a sub-class for the ``other commodity''
asset class. The ``other commodity'' asset class may be broken down
into sub-asset classes for purposes of public dissemination;\102\
however, the ``other commodity'' asset class remains an asset class
that includes energy, metals, precious metals, agricultural
commodities, weather, property and other commodities.
---------------------------------------------------------------------------
\101\ See Sec. 49.10(b). See also 76 FR 54538, 54579 (Sep. 1,
2011). Part 49 establishes the registration and compliance
requirements for SDRs. See also Sec. 43.3(c)(2).
\102\ Accordingly, appendix A to part 43 provides a data field
for public dissemination entitled ``sub-asset class for other
commodity.''
---------------------------------------------------------------------------
Finally, the Commission agrees that clarification and additional
guidance is needed to address FX products.\103\ Specifically, the
Commission has determined to include cross-currency swaps in the
interest rate asset class and FX options, swaps and forwards will be
included in an FX asset class. Therefore, the Commission has modified
the definition to better reflect the fact that the industry typically
characterizes ``currency'' swaps as ``interest rate swaps.'' \104\
Accordingly, the Commission is replacing the term ``currency'' in the
definition of asset class with ``foreign exchange'' in Sec. 43.2 to
accurately reflect the asset classes employed by the swaps market.
---------------------------------------------------------------------------
\103\ See CL-GFXD.
\104\ This characterization is based on the attributes of
currency swaps that resemble the structure and operation exhibited
by interest rate swaps while in ``foreign exchange'' swaps, the
underlying currencies are exchanged by the parties.
---------------------------------------------------------------------------
As discussed above, to the extent that FX swaps or forwards, or
both, are excluded from the definition of ``swap'' pursuant to a
determination by Treasury, the requirements of CEA section 2(a)(13)
would not apply to those transactions, and such transactions shall not
be subject to the real-time reporting requirements of part 43. Under
Treasury's proposed determination, while FX swaps and forwards would be
excluded from the
[[Page 1193]]
real-time reporting requirements of part 43, FX options and NDFs would
not be excluded and would be subject to part 43's real-time reporting
requirements.\105\
---------------------------------------------------------------------------
\105\ See 76 FR 25774 at 25776. ``[U]nlike most derivatives,
foreign exchange swaps and forwards have fixed payment obligations,
are physically settled, and are predominantly short-term
instruments.''
---------------------------------------------------------------------------
The Commission has determined to clarify the definition of ``asset
class'' by changing the asset class from ``currency'' to ``foreign
exchange.'' In addition, such change would place ``cross-currency
swaps'' in the ``interest rate'' asset class. Finally, the Commission
is making technical changes to the definition of ``asset class.'' For
example, ``the broad category of goods, services or commodities'' is
changed to ``a broad category of commodities, including, without
limitation, any `excluded commodity' as defined in Section 1a(19) of
the Act, with common characteristics underlying a swap.'' \106\
---------------------------------------------------------------------------
\106\ The terms ``commodity'' and ``excluded commodity'' as used
in the definition of ``asset class'' are defined in CEA sections
1a(9) and 1a(19) respectively.
---------------------------------------------------------------------------
Block Trade--Proposed Sec. 43.2(f)
The Commission has determined to modify the proposed definition of
``block trade'' by making certain technical and conforming changes in
light of other definitional changes and terminology usage throughout
part 43.\107\ The Commission clarified that a block trade involves a
swap that is ``listed on a SEF or DCM'' and therefore deleted the
phrase ``made available for trading.'' Such change ensures that block
trades may be executed with respect to any listed contract.
Additionally, the Commission clarified certain aspects of the
definition, including changing the word ``off'' to ``away from'' to
indicate that a block trade is executed away from the trading system or
platform. The other revisions to the ``block trade'' definition provide
clarification and reflect consistency with other changes to the final
rule. As previously discussed, this rulemaking does not address issues
related to the determination of appropriate minimum block sizes.
---------------------------------------------------------------------------
\107\ The Commission received no comments addressing its
proposed definition of ``block trade.''
---------------------------------------------------------------------------
Business Day
The Commission has determined to add ``business day'' as a defined
term to address the final time delay provisions in Sec. 43.5. The
Commission defined the term ``business day'' in Sec. 43.2 as follows:
``Business day means the twenty-four hour day, on all days except
Saturdays, Sundays and legal holidays in the location of the reporting
party or registered entity reporting data for the swap.''
The Commission believes that defining business day as twenty-four
hours is necessary given the global nature of the swaps market. The
determination of the business day will be based on the time zone of the
location of the reporting party, SEF or DCM. For example, if the
reporting party is an SD located in London who enters into a swap with
a U.S.-based entity, London time would be used to determine the
business day.
Business Hours
The Commission did not receive comments suggesting a definition of
``business hour;'' however, it believes that the addition of such
defined term is necessary to provide clarity with respect to the real-
time reporting provisions in final Sec. 43.5. The term ``business
hours'' is defined in Sec. 43.2 as follows: ``Business hours means the
consecutive hours of one or more consecutive business days.''
Since ``business day'' is defined as the twenty-four hour day,
``business hours'' are consecutive hours during and across ``business
days.'' For example if a publicly reportable swap transaction has a
time delay of 24 business hours and it is executed at 6 a.m. EST on
Friday, then such swap would be publicly disseminated at 6 a.m. EST on
Monday, assuming that weekend days are not business days in the locale
of the reporting party.
Confirmation--Proposed Sec. 43.2(g)
One commenter stated that the definition of confirmation was
appropriately broad.\108\ With respect to the proposed requirement that
a confirmation would legally supersede any previous agreement
(electronic or otherwise), this commenter requested clarification or
confirmation that this provision does not mean that a confirmation
supersedes terms in the package of documentation that make up the
``agreement,'' unless the parties themselves so agree.\109\ The
commenter stated that this clarification is necessary because some
fiduciaries of plans ensure that the terms of a swap are the best terms
available from the perspective and interests of plan participants by
having the lead fiduciary centralize the negotiation of the terms of
the Schedule and Paragraph 13 of the ISDA Agreement.\110\
---------------------------------------------------------------------------
\108\ See CL-ABC/CIEBA. See supra note 80.
\109\ Id.
\110\ The Schedule provides an opportunity for parties to a swap
to negotiate terms of or add terms to the pre-printed ISDA Master
Agreement. Paragraph 13 provides an opportunity for parties to a
swap to negotiate the terms of or add terms to the Credit Support
Annex (New York Agreement) for the OTC swap transaction.
---------------------------------------------------------------------------
A commenter suggested that use of terms such as ``confirmation''
should reflect long-standing market conventions that differ according
to the type of underlying reference asset.\111\ Another commented
similarly that the definition used for ``confirmation'' should reflect
the underlying conventions that are prevalent in the FX market, which
may be different to those used in other asset classes.\112\
---------------------------------------------------------------------------
\111\ See CL-ISDA/SIFMA. This suggestion is part of a broader
comment recommending that defined terms should follow market
conventions.
\112\ See CL-GFXD.
---------------------------------------------------------------------------
The Commission agrees that clarification is necessary with respect
to the proposed requirement that a confirmation would legally supersede
any previous agreement (electronically or otherwise).\113\ The
Commission believes that adding the phrase ``relating to the swap''
following ``previous agreement'' provides sufficient clarity. Absent a
requirement that the confirmation legally supersedes the previous
agreement relating to the swap, transparency could be lost as key terms
could be included in the schedule or credit support annex and conflict
with terms later added to the confirmation. It is industry practice
that the confirmation is the controlling document, and such
confirmation will usually incorporate the schedule, master and any
collateral arrangement(s) by reference.
---------------------------------------------------------------------------
\113\ See CL-ABC/CIEBA.
---------------------------------------------------------------------------
With respect to the comment that ``confirmation'' should reflect
long-standing market conventions that differ according to the type of
underlying reference class, the Commission believes that the definition
as proposed, with the modification as described above, provides
adequate clarity to allow flexibility for different market
participants, asset classes and methods of execution. Therefore, the
Commission is adopting the definition of confirmation as proposed with
some minor clarifications, including adding ``relating to the swap'' to
the end of the definition to make clear that the agreement that would
be legally superseded would have to relate to the same swap.
Confirmation by Affirmation--Proposed Sec. 43.2(h)
This term is adopted as proposed, except for the deletion of the
last
[[Page 1194]]
sentence of the proposed definition.\114\ Upon further consideration,
while it agrees with that statement, the Commission believes that this
statement is not necessary and therefore should not be included in the
definition.
---------------------------------------------------------------------------
\114\ Proposed Sec. 43.2(h) contained the sentence: ``With the
affirmation by one party to the complete swap terms submitted by the
other party, the swap is legally confirmed and a legally binding
confirmation is consummated (i.e., confirmation by affirmation).''
---------------------------------------------------------------------------
Embedded Option--Proposed Sec. 43.2(i)
This defined term is adopted as proposed with a minor
clarification. The proposed definition stated that an embedded option
was a right, but not an obligation, provided to one party of a swap by
the other party ``to the same swap that provides the party in
possession of the option * * *.'' The Commission is clarifying this
language to provide that the ``party holding the option'' that has the
ability to change any of the economic terms of the swap ``as those
terms previously were established at confirmation (or were in effect on
the start date).''
Executed--Proposed Sec. 43.2(j)
The Commission is adopting this term as proposed.
Execution--Proposed 43.2(k)
Proposed Sec. 43.2(k) defined ``execution'' as the agreement
between parties to the terms of a swap that legally binds the parties
to such terms under applicable law. An agreement may be in electronic
form (e.g., on a SEF or DCM or via instant message); oral (e.g.,
telephonically); in writing (e.g., a bespoke, structured transaction
where documents are exchanged); or in some other format not
contemplated at this time. Execution is simultaneous with or
immediately follows the affirmation of the swap. The SEC does not
define ``execution'' in its Proposed Regulation SBSR, but rather
defines ``time of execution'' as the ``point at which the
counterparties to an SBS become irrevocably bound under applicable
law.'' \115\ One commenter asserted that the use of terms such as
``execution'' should reflect long-standing market conventions that
differ according to the type of underlying reference asset.\116\ The
commenter further stated that harmonization of these terms in the
Commission's and SEC's rules for a particular product type will foster
operational efficiency, lessen the incidence of errors, and place fewer
burdens on reporting agencies. Another commenter stated that the
definition used for ``execution'' should reflect the underlying
conventions that are prevalent in the FX market, which may be different
from those used in other asset classes.\117\
---------------------------------------------------------------------------
\115\ See 75 FR 75211, n. 30 (Dec. 2, 2010).
\116\ See CL-ISDA/SIFMA. See supra note 80.
\117\ See CL-GFXD.
---------------------------------------------------------------------------
In response to the comments that ``execution'' should reflect long-
standing market conventions that differ according to the type of
underlying reference asset and underlying conventions in the FX market,
the Commission believes that the definition as proposed provides
adequate clarity to allow flexibility for different market
participants, asset classes and methods of execution. Additionally, the
definition is substantially similar to that in proposed Commission
regulation Sec. 23.500(d).\118\
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\118\ ``Execution'' is defined in proposed Sec. 23.500(d) to
mean, with respect to a swap transaction, ``an agreement by the
counterparties (whether orally, in writing, electronically, or
otherwise) to the terms of the swap transaction that legally binds
the counterparties to such terms under applicable law.'' See 75 FR
81519 at 81530.
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However, in order to provide additional clarity with respect to the
definition of ``execution,'' the Commission is modifying the last
sentence of the proposed definition to read, ``Execution occurs
simultaneous with or immediately following the affirmation of the
swap.'' The Commission believes that swaps associated with structured
transactions will, for the most part, be bespoke, or customized,
transactions. These structured transactions will be identified as
bespoke when publicly disseminated. Additionally, the Commission
believes it is necessary to make clear that execution (i.e., when a
legally binding contract is formed) for certain structured transactions
may not occur until the documents are signed and/or the deal is funded.
Large Notional Swap--Proposed Sec. 43.2(l)
Although no comments were received in connection with the proposed
definition, the Commission has determined to make certain technical and
conforming changes consistent with other definitional changes and
terminology throughout part 43: The term ``large notional swap'' is
renamed ``large notional off-facility swap'' for added clarity. All
references to ``large notional swap'' should be read interchangeably
with the term ``large notional off-facility swap'' for the purposes of
these part 43 rules. In addition, the Commission has made minor
technical and conforming changes to the definition. Specifically, the
definition is simplified to clarify that the term large notional off-
facility swaps applies to all off-facility swaps with a notional or
principal amount at or above the appropriate minimum block size that
nevertheless are not block trades.
Minimum Block Trade Size--Proposed Sec. 43.2(m)
The Commission is not adopting a definition for ``minimum block
trade size'' at this time; the definition will be addressed in
connection with the block trade re-proposal to be published for comment
in the Federal Register.
Newly-Listed Swap--Proposed Sec. 43.2(n)
The Commission is not adopting a definition for ``newly-listed
swap'' in this final rulemaking; the definition will be addressed in
connection with the block trade re-proposal to be published for comment
in the Federal Register.
Novation--Proposed Sec. 43.2(o)
The Commission is adopting the defined term ``novation'' as
proposed with a minor, non-substantive clarification.
Off-Facility Swap--Proposed Sec. 43.2(p)
One commenter contended that the definition of ``off-facility
swaps'' unnecessarily complicate an already complex process and is not
required by the Act.\119\ The Commission disagrees: Terms and
sufficiently detailed definitions assist readers to understand the
rule, to adequately define complex products and to assist in describing
the requirements for registered entities and market participants.
---------------------------------------------------------------------------
\119\ See CL-NFPEEU.
---------------------------------------------------------------------------
While there are no substantive changes to this definition, the
Commission made minor technical and conforming changes by adding
``publicly'' before ``reportable swap transaction'' to conform with the
change to the defined term.
Other Commodity--Proposed Sec. 43.2(q)
Although the Commission did not receive comments addressing the
definition of ``other commodity,'' it has determined to modify the
definition to more appropriately reflect other revisions to proposed
Sec. 43.2. The proposed definition stated, ``Other commodity means any
commodity that cannot be grouped in the credit, currency, equity or
interest rate asset class categories.'' Section 43.2 defines ``other
commodity'' as follows: ``Other commodity means any commodity that is
not categorized in the other asset classes as may be determined by the
Commission.''
[[Page 1195]]
The phrase ``as may be determined by the Commission'' modifies the
phrase ``other asset classes'' to adequately reflect the language in
the definition of ``asset class.''
Public Dissemination and Publicly Disseminate--Proposed Sec. 43.2(r)
The proposed definition of ``publicly disseminate'' states that
data should be disseminated on a non-discriminatory basis. Commenters
requested further clarification relating to the definition of
``publicly disseminate.'' One believed that the definition was too
passive in describing how the data is delivered. Two commenters asked
for clarification whether the data that is publicly disseminated is
pre- or post-allocation.
The Commission clarifies that the swap transaction and pricing data
that must be publicly disseminated is pre-allocation data. Accordingly,
the notional or principal amount that would be publicly disseminated
would be the pre-allocated amount.
The Commission disagrees that the definition of ``publicly
disseminate'' is too passive in describing how the data are delivered.
The Commission believes that ``publicly disseminate'' should mean
making the data readily available in a non-discriminatory manner to
those who wish to access it, rather than pushing out the data to market
participants, data vendors, news media, etc.
In the Commission's view the proposed definition of ``publicly
disseminate,'' is sufficiently clear. This definition is intended to
convey that the data are available to all interested parties. The
Commission believes that posting the swap transaction and pricing data
on an Internet Web site and providing the Commission with a link to a
conspicuous Internet Web site on which anyone can freely access the
information is sufficient to satisfy the definition of publicly
disseminate. The Commission expects to post these links on its Web site
to provide market participants and the public with a central location
to access such data.\120\
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\120\ The Commission's Web site can be accessed at www.cftc.gov.
---------------------------------------------------------------------------
The Commission agrees with commenters that the term ``widely
published'' should be clarified, and has defined ``widely published''
in Sec. 43.2 to mean, ``to publish and make available through
electronic means and in a manner that is freely available and readily
accessible to the public.''
Real-Time Disseminator--Proposed Sec. 43.2(s)
All real-time data must be sent to SDRs, and SDRs must ensure that
such data is publicly disseminated. For this reason, the Commission has
concluded that a separate definition of ``real-time disseminator''
could be confusing and is unnecessary. Accordingly, the Commission has
determined not to adopt this defined term in Sec. 43.2.
Real-Time Public Reporting--Proposed Sec. 43.2(t)
The Commission is adopting this term as proposed.\121\
---------------------------------------------------------------------------
\121\ No comments were received in response to the proposed
definition of ``real-time public reporting.''
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Remaining Party--Proposed Sec. 43.2(u)
This Commission is adopting this term as proposed.\122\
---------------------------------------------------------------------------
\122\ No comments were received in response to the proposed
definition of ``remaining party.''
---------------------------------------------------------------------------
Reportable Swap Transaction--Proposed Sec. 43.2(v)
Proposed Sec. 43.2(v) defined this term as ``any executed swap,
novation, swap unwind, partial novation, partial swap unwind or such
post-execution event that affects the price of a swap.'' The proposed
definition included both the execution of a swap and certain price-
affecting events that occur over the life of a swap. The Commission
believes novations and swap unwinds are events that may affect the
price of the swap and should be publicly disseminated in real-time, but
only to the extent that they affect the pricing of the swap. In
addition to novations and swap unwinds, other price-affecting events
over the life of a swap may be considered ``reportable swap
transactions.'' One commenter contended that the criteria for
``reportable swap transaction'' should exclude internal transactions
between related or affiliated parties, such as back-to-back
transactions between trading centers for the purpose of transferring
the management of risk, where the pricing of the individual transaction
could be influenced by group internal issues.\123\ Another commenter
stated that the reporting of lifecycle events should be limited to
price-forming events. This commenter further suggested the inclusion of
an unconditional requirement to report any information which could
affect prices or pricing attributes during the life of a swap.\124\
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\123\ See CL-TriOptima.
\124\ See CL-Chris Barnard.
---------------------------------------------------------------------------
The Commission recognizes commenters' concerns regarding the
criteria for ``reportable swap transaction'' and also agrees that the
reporting of lifecycle events should be limited to price-forming
events. Accordingly, it is modifying the definition of ``reportable
swap transaction'' in proposed Sec. 43.2(v) to address these concerns.
The defined term has been changed to ``publicly reportable swap
transaction'' to make clear that the scope of the definition covers
only those swaps and lifecycle events that are to be publicly
disseminated pursuant to part 43, and not necessarily all of the swaps
and lifecycle events that must be reported to SDRs for regulatory
purposes. The Commission is limiting the scope of publicly reportable
swap transactions to those executed swaps that are arm's-length and
that result in a change in the market risk position between two
parties. The Commission also is providing clarifying examples in the
definition regarding executed swaps that need not be publicly
disseminated because they are not arm's-length transactions between two
parties, notwithstanding that they do result in a corresponding change
in the market risk position between the two parties. The definition
provides that such swaps include: (1) Internal swaps between one-
hundred percent owned subsidiaries of the same parent entity; and (2)
portfolio compression exercises.\125\
---------------------------------------------------------------------------
\125\ The Commission notes that the examples provided in the
definition of ``publicly reportable swap transaction'' are not
exhaustive.
---------------------------------------------------------------------------
The Commission's definition of publicly reportable swap transaction
does not include swaps that are not executed at arm's-length. These
transactions do not serve the price discovery objective of CEA section
2(a)(13)(B). Moreover, the public dissemination of such trades and
exercises may reveal the identity of a counterparty in violation of CEA
sections 2(a)(13)(E)(i) and (C)(iii). Further, the public dissemination
of such information may mislead the market.\126\ The definition also
modifies the list of lifecycle events (``price-forming continuation
events''). This modification was made to provide clarity as to the
types of lifecycle events that are publicly reportable swap
transactions and to provide conformity between Commission
regulations.\127\
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\126\ See the discussion of Sec. 43.1 for further discussion
relating to swaps between affiliates and portfolio compression
exercises.
\127\ This language is consistent with the definition of ``swap
transaction'' in proposed Sec. 23.500(m). See 75 FR 81519 (December
28, 2010).
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[[Page 1196]]
Reporting Party--Proposed Sec. 43.2(w)
The Commission is adopting this definition as proposed with minor
conforming changes including adding the word ``publicly'' before
``reportable swap transaction'' and adding ``43'' after ``part.''
Social Size--Proposed Sec. 43.2(x)
The Commission is not adopting the defined term ``social size'' at
this time. The Commission will address the concept of ``social size''
in a forthcoming re-proposal of the block trade rules to be published
for comment in the Federal Register. Comments regarding ``social size''
received in connection with the Proposing Release will be considered by
the Commission in its re-proposal of the block trade rules.
Swap Instrument--Proposed Sec. 43.2(y)
In the Proposing Release, the Commission stated that swap
instrument groupings or categories should be relatively broad for the
purposes of calculating minimum block sizes.\128\ The Commission
solicited comments addressing how it should refine the definition and
received eleven comments from various interested parties, including
industry associations representing myriad financial market
participants, SDs, an asset manager, potential SDRs and a financial
end-user. Several commenters requested further clarification of this
definition. Others challenged the Commission's ability to develop
adequate swap instrument categories and a definition without adequate
data.
---------------------------------------------------------------------------
\128\ See Real-Time NPRM supra note 6, at 76145.
---------------------------------------------------------------------------
Some commenters urged the Commission to consider various criteria
when creating groupings or categories of swaps instruments. One
commenter provided a list of major currencies to consider while another
cited a list of the key drivers of liquidity. Another commenter
submitted information on how liquidity should be considered when
determining the swap instrument groupings. Other commenters argued that
the groupings or categories for ``swap instrument'' should be more
specific. One commenter suggested that the Commission define the
relevant swap markets and contracts with sufficient granularity to
appropriately reflect different types of swap transactions. The
Commission does not believe it is necessary to adopt a more granular
definition of swap contracts in light of the revisions to the asset
class definition, the re-proposal relating to block trades sizes and
the implementation phase in.
The Commission agrees that its ability to develop adequate swap
instrument groupings or categories would benefit from adequate market
data as well as further research. Therefore the Commission has
determined not to define ``swap instrument'' at this time. The
Commission will address the concept of ``swap instrument'' in a re-
proposal of the block trade rules to be published for comment in the
Federal Register.\129\
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\129\ Comments regarding ``swap instrument'' received in
connection with the Proposing Release also will be considered by the
Commission in its re-proposal of the block trade rules.
---------------------------------------------------------------------------
Swap Market--Proposed Sec. 43.2(z)
As discussed above, the Commission disagrees that definitions such
as ``swap markets,'' ``off-facility swaps,'' ``real-time price
disseminators'' and ``third party service providers'' unnecessarily
complicate an already complex process.\130\ The Commission believes
that such terminology, including sufficiently-detailed definitions, is
necessary to assist readers' understanding of the rule and to
adequately define and describe complex products and the requirements of
registered entities and market participants. Nor does the Commission
agree that the creation of such terms is inconsistent with the statute.
The Commission believes the terms are consistent with the statutory
purposes and/or requirements of CEA section 2(a)(13). However, in the
interest of clarity the Commission is replacing the term ``swap
market'' with ``registered swap execution facility or designated
contract market'' in the final rule.
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\130\ See CL-NFPEEU.
---------------------------------------------------------------------------
Swap Unwind--Proposed Sec. 43.2(aa)
In light of changes to the term ``publicly reportable swap
transaction,'' the Commission is not adopting the defined term ``swap
unwind.''
Third-Party Service Provider--Proposed Sec. 43.2(bb)
In light of changes to final Sec. 43.3, the Commission is not
adopting the defined term ``third-party service provider.''
Transferee--Proposed Sec. 43.2(cc)
The Commission is adopting this defined term as proposed.
Transferor--Proposed Sec. 43.2(dd)
The Commission is adopting this defined term as proposed.
Unique Product Identifier--Proposed Sec. 43.2(ee)
The Commission is adopting this defined term as proposed with the
clarification that the definition refers to a ``product in an asset
class or sub-asset class'' and not the asset class itself, as well as
an additional reference to appendix A to part 43.
U.S. Person--Proposed Sec. 43.2(ff)
The Commission is not adopting the defined term ``U.S. person''
since the term is not used in the final rules.
3. Additional Issues Relating to Defined Terms
Several commenters suggested adding defined terms that were not
included in proposed Sec. 43.2:
Illiquid Markets
Commenters suggested that the Commission define ``illiquid
markets'' subject to this provision by reference to particular
commodities, such as jet fuel, or by a formula relating to the average
number of transactions per day. One comment suggested that market
segments be defined by distance on the forward curve.\131\ The
commenter believes that many swap contracts in physical commodities
that are longer than nine months forward should be eligible for a delay
in public dissemination. Another commenter suggested that the
determination of what constitutes an illiquid market should be based on
the number of reported transactions, and that any market in which the
average number of transactions (measured annually) is less than five
transactions per day be deemed to be ``illiquid.'' \132\
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\131\ See CL-ATA.
\132\ See CL-MS.
---------------------------------------------------------------------------
The Commission has considered these comments, but does not believe
that a definition of ``illiquid markets'' is necessary to this
rulemaking. Comments regarding liquidity are discussed in this Adopting
Release and will be further considered by the Commission in its re-
proposal of the block trade rules.
Widely Published
One commenter suggested that the term ``widely published,'' as used
within the definition of ``public dissemination and publicly
disseminate'' is subject to interpretation and should be separately
defined.\133\ Accordingly, the Commission has defined ``widely
published'' in Sec. 43.2 as follows: ``Widely published means to
publish and make available through electronic means in a manner that is
freely available and readily accessible to the public.''
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\133\ See CL-CME.
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[[Page 1197]]
C. Section 43.3--Method and Timing for Real-Time Public Reporting
As proposed, Sec. 43.3 specified both the manner in which swap
counterparties must report swap transaction and pricing data to the
appropriate registered entity, and the manner in which registered
entities must publicly disseminate such data. This section also
established requirements for: (1) Acceptable forms of media through
which swap transaction and pricing data may be made available to the
public; (2) appropriate methods to cancel or correct erroneous or
omitted data that has been publicly disseminated; (3) the hours of
operation that SEFs, DCMs and SDRs must maintain for the public
dissemination of swap transaction and pricing data; and (4)
recordkeeping of data.
1. Responsibilities of Parties to a Swap (Sec. 43.3(a))
CEA section 2(a)(13)(F) provides the Commission with authority to
determine reporting requirements for swap counterparties:
[p]arties to a swap (including agents of the parties to a swap)
shall be responsible for reporting swap transaction information to
the appropriate registered entity in a timely manner as may be
prescribed by the Commission.
As proposed, Sec. 43.3(a) provided that the reporting party to
each swap transaction would be responsible for reporting to a real-time
disseminator ``as soon as technologically practicable.'' The
designation of the responsible party depended on the execution of the
swap transaction. For swap transactions executed on a SEF or DCM,
proposed Sec. 43.3(a)(2)(i) provided that the SEF or DCM must report
to a real-time disseminator ``as soon as technologically practicable.''
For off-facility swaps, proposed Sec. 43.3(a)(3) established the
following hierarchy of counterparties to determine who has the
responsibility to report to an SDR:
If only one party is an SD or MSP, the SD or MSP shall be
the reporting party.
If one party is an SD and the other party is an MSP, the
SD shall be the reporting party.
If both parties are SDs, the SDs shall designate which
party shall be the reporting party.
If both parties are MSPs, the MSPs shall designate which
party shall be the reporting party.
If neither party is an SD or MSP, the parties shall
designate which party (or its agent) shall be the reporting party.
Proposed Sec. 43.3(a)(3) provided that the reporting party must
report swap transaction and pricing data to a real-time disseminator
``as soon as technologically practicable.'' The above-referenced
hierarchy is consistent with the reporting requirements for uncleared
swaps to an SDR under CEA section 4r(a).\134\
---------------------------------------------------------------------------
\134\ The Commission notes that CEA section 4r(a)(3) provides:
(A) ``With respect to a swap in which only 1 counterparty is a swap
dealer or major swap participant, the swap dealer or major swap
participant shall report the swap as required under [CEA sections
4r(a)(1) and (2)];'' (B) ``With respect to a swap in which 1
counterparty is a swap dealer and the other is a major swap
participant, the swap dealer shall report the swap as required under
[CEA sections 4r(a)(1) and (2)];'' and (C) ``With respect to any
other swap not described in subparagraph (A) or (B), the
counterparties to the swap shall select a counterparty to report the
swap as required under [CEA sections 4r(a)(1) and (2)].''
---------------------------------------------------------------------------
Proposed Sec. 43.3(a)(2)(i) also specified that for swaps executed
on a SEF's or DCM's trading system or platform, ``a reporting party
shall satisfy its reporting requirement under this section by executing
such reportable swap transaction on [such SEF or DCM].'' Proposed Sec.
43.3(b) provided that a SEF or DCM satisfies its reporting requirement
by (i) sending the real-time swap transaction and pricing data to an
SDR that accepts and publicly disseminates such data; or (ii) sending
such data to a third party service provider. Proposed Sec. 43.3(a)(3)
provided that bilateral swaps must be sent to an SDR that accepts and
publicly disseminates swap transaction and pricing data.
The Commission received 21 comments addressing the responsibilities
of swap counterparties with respect to real-time public reporting. The
commenters included industry associations representing myriad financial
market participants, a potential SD, and several service providers to
the OTC derivatives industry.\135\
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\135\ Commenters include: WFE/IOMA; GFXD; Tradeweb; Working
Group of Commercial Energy Firms; FHLBanks; SIFMA AMG; DTCC; Markit;
MarkitSERV; BlackRock; Barclays; ISDA/SIFMA; Coalition of
Derivatives End-Users; ICE; Foreign Headquartered Banks; WMBAA;
NFPEEU; ICI; FSR; Coalition of Energy End-Users; and Better Markets.
---------------------------------------------------------------------------
Several commenters expressed concern regarding the proposed
framework for determining responsibility to report swap transaction and
pricing data pursuant to part 43. Specifically, commenters questioned
how responsibility is allocated when two parties are within the same
category (i.e., both parties are MSPs or end-users). Proposed Sec.
43.3(a)(3) provided that when both parties to an off-facility swap are
within the same category, the parties must designate which of them will
be the reporting party. Some commenters agreed with this approach.
Others, however, believe that the Commission should amend proposed part
43 to follow current market conventions. For instance, a few commenters
noted that in the interdealer market, the seller of protection is
responsible for confirming the swap transaction with a confirmation
service.\136\ Another commenter noted that while adopting current
market conventions would eliminate confusion in asset classes like
credit and equity, it would not eliminate confusion in other asset
classes such as foreign exchange.\137\ Commenters also questioned
whether DCOs should be able to act as reporting parties when an off-
facility swap is cleared.\138\ Several other commenters argued that the
reporting party should be able to contract with any third-party service
providers to fulfill its reporting obligation, including SEFs and
existing confirmation/matching service providers.\139\ Many of these
commenters emphasized the perceived adverse and disproportionate impact
that reporting obligations would place on end-users.\140\ Indeed, one
commenter stated that an end-user would have to expend significant time
and resources to develop infrastructure and automation to comply with
the reporting requirements in the Proposing Release.\141\
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\136\ The commenters addressing this issue include: Barclays;
BlackRock; ISDA/SIFMA; GFXD; Coalition of Energy End-Users; ICE; and
MarkitSERV.
\137\ See CL-GFXD.
\138\ The commenters include: Barclays; BlackRock; WFE/IOMA;
ISDA/SIFMA; WMBAA; SIFMA AMG; ICI; NFPEEU; DTCC; Markit; and
MarkitSERV.
\139\ See CL-MarkitSERV.
\140\ See CL-ICI; CL-SIFMA AMG.
\141\ See CL-ICI.
---------------------------------------------------------------------------
Two commenters argued that, to ensure accuracy and reduce
fragmentation, only regulated SDRs should be able to satisfy the real-
time reporting requirement. Several commenters also stated that the
Commission's Proposing Release was not consistent with the SEC's
proposed Regulation SBSR regarding the explicit ability of end-users to
use third parties to comply with their reporting obligations.
Certain comments focused on the Commission's reporting framework in
proposed Sec. 43.3(a)(3). Three commenters contended that the
Proposing Release was somewhat inflexible and would create
disproportionate burdens on end-users that would not have the capacity
to report swap transaction and pricing data
[[Page 1198]]
in real-time.\142\ To relieve this perceived burden, these commenters
asked the Commission to allow parties to off-facility swaps to
independently designate the reporting party or, in the alternative, to
place most of the responsibility on dealers and MSPs. These commenters
believe that the swap counterparties should be able to decide the
reporting party, regardless of whether the parties are within the same
category.
---------------------------------------------------------------------------
\142\ The specific commenters include: FSR; ICI; and SIFMA AMG.
---------------------------------------------------------------------------
As noted, the Proposing Release provided that the reporting party
must report swap transaction and pricing data ``as soon as
technologically practicable.'' \143\ The Commission solicited comments
as to whether it should establish maximum reporting timeframes for the
various categories of reporting parties to swap transactions (e.g.,
``as soon as technologically practicable but no later than X
minutes''). In response, some commenters recommended that the
Commission not establish maximum reporting timeframes, primarily
because of the end-users' limited technological reporting capacity and
the resulting significant financial burdens on end-users.\144\ These
commenters argued alternatively that if the Commission prescribes
specific timeframes, it should aim for an appropriate balance between
speed and accuracy and adopt longer time frames for end-users.
---------------------------------------------------------------------------
\143\ Additionally, CEA section 2(a)(13)(A) states that the
definition of real-time public reporting means ``to report data
relating to a swap transaction, including price and volume, as soon
as technologically practicable after the time at which the swap
transaction has been executed.''
\144\ See CL-Coalition for Derivatives End-Users; CL-ISDA/SIFMA.
---------------------------------------------------------------------------
Many commenters supported proposed Sec. 43.3(a)(2)(i), which
provided that the swap transaction and pricing data reporting
requirement is itself satisfied by the act of execution on the SEF or
DCM.\145\ Commenters reasoned that SEFs and DCMs should have the
capability to report transactions ``as soon as technologically
practicable'' and to preserve anonymity. Two commenters recommended
that the decision where to report remain with the parties of the swap
and not be satisfied by executing on a SEF or DCM.\146\ As noted in the
discussion of Sec. 43.1(b) above, commenters also raised
extraterritoriality concerns with regard to reporting parties of swaps.
---------------------------------------------------------------------------
\145\ See CL-ICE; CL-Tradeweb; CL-Coalition of Energy End-Users;
CL-DTCC; and CL-MarkitSERV.
\146\ See CL-DTCC; CL-MarkitSERV.
---------------------------------------------------------------------------
After consideration of these comments the Commission is adopting
Sec. 43.3(a) with certain revisions. The Commission received no
comments directly addressing proposed Sec. 43.3(a)(1). It is adopting
these provisions with technical and clarifying changes to reflect
changes to defined terms in Sec. 43.2 as well as a clarification that
the reporting should occur ``after such publicly reportable swap
transaction is executed.'' Additionally, the Commission is adding a
sentence at the end of this provision to make clear that, for purposes
of part 43, any references to a ``registered swap data repository''
would include provisionally registered SDRs.\147\
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\147\ Pursuant to part 49, the Commission may grant provisional
registration to an SDR if the applicant is in substantial compliance
with the registration standards set forth in Sec. 49.3(a)(4) and is
able to demonstrate operational capability, real-time processing,
multiple redundancy and robust security controls.
---------------------------------------------------------------------------
With respect to proposed Sec. 43.3(a)(2)(i), the Commission agrees
that SEFs and DCMs should serve as reporting parties for swaps that are
executed on the execution platform. The Commission acknowledges the
recommendation that the decision where to report the swap transaction
and pricing data instead remain with the parties to the swap. However,
the Commission believes that there are several benefits to requiring
SEFs and DCMs to report these transactions directly to SDRs, including
utilization of the technology of the execution platform, increased
speed of reporting (and therefore increased transparency) and the
ability for straight-through processing.
Proposed Sec. 43.3(a)(2)(ii) prescribed the method and timing for
real time public reporting of block trades executed pursuant to the
rules of a SEF or DCM. Although the Commission has determined not to
adopt the proposed Sec. 43.5 rules relating to block trades, it
believes that proposed Sec. 43.3(a)(2)(i) and (ii) can be combined in
this final rule to simplify the requirement. For the reasons discussed
above, the Commission is adopting the provisions of Sec. 43.3(a)(2)
largely as proposed, with several clarifying, technical and conforming
changes necessitated by other part 43 definitional and terminology
changes.
The provision now references swaps ``executed'' on or pursuant to
the rules of a SEF or DCM to ensure that block trades executed
``pursuant to the rules of'' a SEF or DCM would be included in the
provision. Accordingly, if parties executed a block trade away from a
SEF or DCM and then brought the swap transaction and pricing data
pertaining to that block trade to the SEF or DCM pursuant to its rules,
the parties to the swap would satisfy their reporting requirements
under part 43. The SEF or DCM would then report the swap transaction
data for public dissemination.
With respect to proposed Sec. 43.3(a)(3), the Commission has
considered comments that DCOs should be authorized to act as reporting
parties when an off-facility swap is cleared. The Commission has also
noted commenters' contention that the reporting party should be able to
contract with any third party, including SEFs and existing
confirmation/matching service providers, to satisfy its reporting
obligation. The Commission agrees that the reporting party to an off-
facility swap which is cleared should be able to contract with third
parties (including DCOs or confirmation/matching service providers) to
meet its reporting obligations under part 43.\148\ The Commission
believes that competition among third-party providers may foster the
development of innovative and cost effective technological solutions
that would create efficiencies for market participants that do not have
the resources to develop such solutions. The use of third parties in
reporting swap transaction and pricing data could reduce costs to
market participants. For example, third parties may be able to develop
low-cost and readily accessible web-based solutions to enable financial
and non-financial end-users to comply with their reporting obligations
when entering into transactions with other end-users.\149\
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\148\ In this circumstance, the Commission notes that the
obligation to report remains with the reporting party.
\149\ It is important to note that DCOs may provide reporting
services; however, real-time reporting and public dissemination must
occur ``as soon as technologically practicable'' after execution
unless subject to an appropriate time delay as described in Sec.
43.5.
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The Commission acknowledges that its Proposing Release and the
SEC's proposed Regulation SBSR differ with respect to end-users'
reporting obligations.\150\ The Commission
[[Page 1199]]
explicitly permits end-users, SEFs and DCMs to utilize third parties to
comply with reporting obligations described in Sec. 43.3 in a manner
similar to that described in the SEC's proposed Regulation SBSR.
However, unlike proposed Regulation SBSR, the Proposing Release
provided that a reporting party's reporting obligation is satisfied by
executing a publicly reportable swap transaction on or pursuant to the
rules of a SEF or DCM. SEFs and DCMs then have the obligation to report
swaps that are executed on or pursuant to their trading system or
platform to an SDR pursuant to Sec. 43.3(b)(1), discussed below. A
reporting party, SEF or DCM would retain the obligation to ensure that
the appropriate information is provided in the appropriate timeframe to
an SDR for public dissemination.\151\
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\150\ Proposed Regulation SBSR provided, ``[P]roposed Rule
901(a) would not prevent a reporting party to a SBS from entering
into an agreement with a third party to report the transaction on
behalf of the reporting party. For example, for a SBS executed on a
security-based swap execution facility (``SB SEF'') or a national
securities exchange, the SB SEF or national securities exchange
could transmit a transaction report for the SBS to a registered SDR.
By specifying the reporting party with the duty to report SBS
information under proposed Regulation SBSR, the Commission does not
intend to inhibit the development of commercial ventures to provide
trade processing services to SBS counterparties. Nevertheless, a SBS
counterparty that is a reporting party would retain the obligation
to ensure that information is provided to a registered SDR in the
manner and form required by proposed Regulation SBSR, even if the
reporting party has entered into an agreement with a third party to
report on its behalf.'' 75 FR 75211-75212.
\151\ Thus, a reporting party, SEF or DCM would be liable for a
violation of Sec. 43.3 if, for example, a third party acting on
behalf of a reporting party did not report the appropriate swap
transaction and pricing data to an SDR for public dissemination.
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The Commission has also considered comments addressing the
allocation of reporting obligations when counterparties fall within the
same market participant category. The Commission agrees that market
conventions may determine which party will be obligated to report to an
SDR when both parties to an off-facility swap are within the same
category. However, the Commission favors a flexible approach and
believes the swap counterparties should decide whether a market
convention is used for determining the reporting party. In asset
classes where market conventions currently exist, the Commission
believes that parties to an off-facility swap should still have the
same ability to agree on which party will serve as the reporting party.
In response to these comments, the Commission has added the
language ``[u]nless otherwise agreed to by the parties prior to the
execution of the publicly reportable swap transaction, the following
persons shall be reporting parties for off-facility swaps * * *''
before the listing of reporting parties for off-facility swaps. The
Commission concurs with commenters that there may be circumstances in
which it makes greater economic or practical sense for a party other
than the one described in the hierarchy in Sec. 43.3(a)(3) to be the
reporting party. This additional language will give the parties
flexibility to agree on the reporting party in situations described in
Sec. 43.3(a)(3)(i) and (ii) as long as such agreement occurs prior to
the execution of the publicly reportable swap transaction.\152\ And the
Commission believes that in the situations described in Sec. Sec.
43.3(a)(3)(iii), (iv) and (v), the designation of the reporting party
for an off-facility swap provided for in the rule should be agreed to
prior to execution of such swap in order to ensure compliance with the
requirements of part 43. The requirement serves to ensure that
reporting after execution is not hampered by the parties' inability to
agree.
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\152\ To the extent that the parties have not agreed to the
reporting party prior to the execution of the swap, the reporting
party would be the SD or the MSP as applicable.
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The Commission disagrees that the reporting framework in proposed
Sec. 43.3(a)(3) was inflexible and would create disproportionate
burdens on end-users which do not have the capability to report swap
transaction and pricing data in real-time.\153\ In the Commission's
view, the approach taken in the Proposing Release created a balanced
framework by placing a greater burden on SDs and MSPs, but not
mandating which party must report if two parties are of the same
category. Further, the Commission is adding to this provision the
flexibility to determine the reporting party for a particular
transaction if both parties agree prior to execution of the swap. As
discussed above, the Commission believes such an approach is preferable
to a prescriptive rule governing reporting.
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\153\ See CL-FSR; CL-ICI; and CL-SIFMA AMG.
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The reporting framework in Sec. 43.3(a)(3) strikes an appropriate
balance from a cost-benefit perspective. Avoiding a more prescriptive
regime for assigning the reporting responsibility in transactions
between parties of the same category should allow the parties to
determine which party can report the transaction at a lower cost.\154\
In the Commission's view, it is appropriate to assign a greater cost
burden to SDs and MSPs than to the buy-side (including end-users), as
SDs and MSPs are likely to be larger, more sophisticated and more
active in swap markets and thus more able to realize economies of scale
in carrying out reporting responsibilities. In addition, allowing
reporting parties to contract with third parties should allay concerns
regarding the potential disproportionate cost burden placed on end-
users. Moreover, the Commission's definition of ``as soon as
technologically practicable'' provides additional flexibility as its
application includes consideration of the ``prevalence, implementation
and use of technology by comparable market participants.'' \155\ The
hierarchy of reporting parties described in Sec. 43.3(a)(3) for off-
facility swaps would not apply to counterparties to block trades.
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\154\ The Commission recognizes that a publicly reportable swap
transaction may be a multi-asset or hybrid instrument (e.g., a
commodity-linked interest rate swap), meaning that each leg of such
swap falls in a different asset class. The Commission believes that
with respect to reporting such multi-asset or hybrid swaps pursuant
to part 43, absent an agreement by the swap counterparties stating
otherwise, the reporting party, SEF or DCM shall choose the SDR to
which the real-time swap transaction and pricing data is reported
for public dissemination. The Commission expects that if an SDR is
available for only one leg of a hybrid swap, the reporting party,
SEF or DCM will send the real-time swap transaction and pricing data
to such SDR for public dissemination.
\155\ See supra Sec. 43.2 and related discussion in section
II.B.2.
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Commenters have asserted that, to avoid ambiguity, the Commission
should explicitly state in part 43 that only data relating to swap
transactions where at least one party is a U.S.-based person are
required to be reported and publicly disseminated in real-time.\156\
The Commission believes that both U.S.-based and non-U.S.-based
counterparties that transact on or pursuant to the rules of a SEF or
DCM should be subject to all of the real-time reporting requirements.
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\156\ See CL-ISDA/SIFMA; CL-GFXD; CL-Foreign Headquartered
Banks; and CL-TriOptima.
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Proposed Sec. 43.3(a)(4) provided a process for reporting off-
facility swaps when no SDR was available. As discussed below, under the
Commission's phase in and compliance date schedule, an SDR must be
registered or provisionally registered for a particular asset class in
order to comply with the part 43 requirements.\157\ The Commission
believes that coordinating the real-time reporting obligations with the
regulatory reporting obligations will enable market participants to
reduce reporting costs. Therefore, the Commission is not adopting Sec.
43.3(a)(4) at this time.
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\157\ The Commission notes that until such time as an SDR is
registered or provisionally registered for an asset class, reporting
parties, SEFs and DCMs are permitted to publicly disseminate real-
time swap transaction and pricing data.
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2. Public Dissemination of Swap Transaction and Pricing Data (Sec.
43.3(b))
CEA section 2(a)(13)(D) authorizes the Commission to require
registered entities to publicly disseminate the swap transaction and
pricing data required to be reported under CEA section 2(a)(13).
Accordingly, proposed Sec. 43.3(b) specified the method and timeliness
of public dissemination of
[[Page 1200]]
swap transaction and pricing data for swaps that are executed on a SEF
or DCM.
Proposed Sec. 43.3(b)(1)(i) provided that a SEF or DCM must send
or otherwise electronically transmit swap transaction and pricing data
``as soon as technologically practicable'' to: (1) An SDR that accepts
swaps for the particular asset class of ``reportable swap
transactions;'' or (2) a third-party service provider operating on
behalf of the SEF or DCM. Such data would then be publicly disseminated
in the same manner described in proposed Sec. 43.3(a)(3) for swaps
that are executed off-facility (i.e., the SDR publicly disseminates
such data ``as soon as technologically practicable''). The Proposing
Release specified that if a SEF or DCM chose to use a third-party
service provider for public dissemination, the obligation to ensure
that such data was publicly disseminated would remain with the SEF or
DCM, since the third-party service provider would be an unregulated
entity.\158\ Accordingly, proposed Sec. 43.3(b)(1)(i) required a SEF
or DCM to remain vigilant in monitoring the timeliness and accuracy of
the public dissemination if it chooses to use a third-party service
provider.
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\158\ While proposed Sec. 43.3(c) generally required SDRs to
register and comply with the requirements set forth in proposed part
49, neither the Commission's proposal nor the Commission itself has
the authority to require third-party service providers to comply
with the same requirements. Instead, proposed Sec. 43.3(d)
attempted an indirect approach at requiring third-party service
providers to comply with proposed part 49's requirements. In
particular, proposed Sec. 43.3(d) provided that a [SEF or DCM] must
ensure that the third-party service provider maintains standards for
public reporting of swap transaction and pricing data that are, at a
minimum, equal to those standards for registered SDRs as described
in proposed Sec. 43.3(c) and proposed part 49 of the Commission's
regulations.
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Proposed Sec. 43.3(b)(2)(i) prohibited SEFs, DCMs or any reporting
party to a swap from disclosing transaction and pricing data for a
particular swap before an SDR or third-party service provider has
disseminated data for that swap to the public. This prohibition--
sometimes referred to as the ``embargo rule''--is intended to ensure
that swap transaction and pricing data is disseminated uniformly and is
not published in a manner that creates an unfair advantage for any
segment of market participants. At the same time, however, proposed
Sec. 43.3(b)(2)(ii) permitted a SEF or DCM to make swap transaction
and pricing data available to participants on its market prior to
public dissemination of such data. Similarly, proposed Sec.
43.3(b)(2)(iii) permitted an SD to share swap transaction and pricing
data with its customers prior to public dissemination of such data.
These sections were intended to give SEFs, DCMs and SDs the flexibility
to share swap transaction and pricing data with their market
participants or customers, respectively, concurrent with the
transmission of such data to an SDR or third-party service provider for
public dissemination.
Various interested parties commented on the method of dissemination
of swap transaction and pricing data to the public.\159\ These
commenters raised a number of issues including: (1) The use of SDRs for
public dissemination; (2) the use of third-party service providers for
public dissemination; (3) the requirement that SDRs accept all swaps in
a particular asset class; (4) the embargo rule; and (5) the
consolidation of data.
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\159\ The commenters include: GFXD; Working Group of Commercial
Energy Firms; Coalition of Energy End-Users; WFE/IOMA; ICI; NFPEEU;
ISDA/SIFMA; Better Markets, Inc.; Coalition for Derivative End-
Users; Reval; Tradeweb; DTCC; CME; Argus; Markit; MarkitSERV;
BlackRock; FINRA; and NGX.
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Two commenters asserted that SDRs should not be used to real-time
report swap transaction and pricing data.\160\ One urged that SDRs not
be used because they are the last party to receive the swap data; \161\
the other suggested that SDRs may have an unfair competitive advantage
over third-party real-time disseminators.\162\ Conversely, four
commenters argued that only SDRs should be used for dissemination of
real-time data.\163\ One commenter requested that the Commission
clarify the responsibilities of an SDR under part 43.\164\
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\160\ See CL-Reval; CL-Argus.
\161\ See CL-Reval.
\162\ See Meeting with Argus (December 15, 2010).
\163\ See CL-Markit; CL-NFPEEU; CL-MarkitSERV; and CL-DTCC.
\164\ See CL-MarkitSERV.
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Commenters expressed varying opinions with respect to the use of
third-party service providers in public dissemination. One commenter
supported the Commission's proposal to give SEFs and DCMs the option to
use third-party service providers to satisfy their public dissemination
obligation.\165\ Five commenters opposed the use of potentially
unregistered third-party service providers to satisfy the public
dissemination obligation.\166\ Several commenters expressly supported
the use of DCOs to disseminate real-time data.\167\ Specifically, one
commenter stated that DCOs should publicly disseminate data for real-
time purposes, because they currently have the infrastructure to
support such operations.\168\ One commenter questioned the Commission's
statutory authority to introduce the third-party service provider
concept. Indeed, this commenter argued that terms not in section 727 of
the Dodd-Frank Act, such as third-party service provider, are
unnecessary complications to an already complex statutory mandate and
are not required by the Dodd-Frank Act.\169\
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\165\ See CL-ISDA/SIFMA.
\166\ See CL-Coalition of Energy End-Users; CL-MarkitSERV; CL-
Tradeweb; CL-NFPEEU; and CL-DTCC.
\167\ See CL-Working Group of Commercial Energy Firms; CL-Reval;
CL-BlackRock; CL-CME; and CL-NFPEEU.
\168\ See CL-CME.
\169\ See CL-NFPEEU.
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Commenters also offered solutions to the circumstance in which no
SDR is available to disseminate swap transaction data. One commenter
asserted that in those circumstances, if both counterparties are end-
users, the reporting party should not be obligated to report at
all.\170\ Another recommended that if no SDR is available to accept
swap transaction and pricing data for a specific asset class, the swap
transaction and pricing data should be reported to the Commission by
the end of the day.\171\
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\170\ See CL-Coalition of Energy End-Users.
\171\ See CL-GFXD.
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Commenters also questioned the ``embargo rule.'' One commenter
stated that permitting SEFs, DCMs and reporting parties to disclose
data prior to public dissemination would afford them an unfair
competitive advantage over the general public.\172\ Another argued that
any information embargo should be eliminated entirely.\173\ Another
commenter, however, argued that if data were publicly disseminated
later, it would cause confusion because ``[the] data, if disseminated
after the fact * * * will not be representative of current market data
when it is made public.'' \174\ One commenter argued that the role of
``work-up'' in the interdealer markets is important and data should not
be reported to an SDR until the work-up process is completed.\175\
Similarly, this commenter argued that with regard to the ``work-up''
process, trading platforms should be able to share the last trade
information to market participants prior to reporting such data to an
SDR.
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\172\ See CL-ICI.
\173\ See CL-Better Markets.
\174\ See CL-Coalition of Energy End-Users.
\175\ See CL-WMBAA.
---------------------------------------------------------------------------
Several commenters urged the Commission to require the
consolidation of swap transaction and
[[Page 1201]]
pricing data.\176\ One commenter recommended that the Commission and
the SEC jointly establish a single consolidator for the public
dissemination of swap and security-based swap transaction and pricing
data.\177\ As the Commission noted in the Proposing Release, neither
the CEA nor the Dodd-Frank Act grants the Commission explicit statutory
authority to establish a real-time reporting consolidator.\178\ The
SEC's proposed Regulation SBSR similarly would require public
dissemination of real-time swap data by SDRs and does not establish a
consolidator.\179\
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\176\ See CL-Coalition for Derivatives End-Users; CL-Better
Markets; CL-Markit; CL-MarkitSERV; and CL-FINRA.
\177\ See CL-FINRA.
\178\ See 75 FR 76149.
\179\ See 75 FR 75208.
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With respect to proposed Sec. 43.3(b)(1)(i) and comments
addressing the use of SDRs for public dissemination, the Commission
agrees with the majority of the commenters that third party service
providers should not be used for public dissemination. Accordingly, the
Commission is modifying the proposed rule to require that SEFs and DCMs
satisfy the requirements of this subparagraph by transmitting swap
transaction and pricing data to an SDR for public dissemination ``as
soon as technologically practicable'' after such swap has been executed
on the SEF or DCM.\180\ The Commission expects that ``transmittal'' of
such data would mean, at a minimum, some form of electronic conveyance.
This change removes the requirement in proposed Sec. 43.3(b)(1)(i)
that SEFs and DCMs must publicly disseminate by sending data either to
an SDR or to a third-party service provider. SEFs and DCMs may enter
into a contractual relationship with a third party service provider to
transmit the swap transaction and pricing data to an SDR; however, the
SEF or DCM will remain responsible for such reporting requirement
pursuant to part 43.
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\180\ The Commission notes that, pursuant to Sec.
48.8(a)(9)(i), registered foreign boards of trade must ensure that
swap transaction data be sent to an SDR that is either registered
with the Commission or has an information sharing arrangement with
the Commission.
---------------------------------------------------------------------------
In its Proposing Release, the Commission imposed public
dissemination obligations on SDRs that accept and publicly disseminate
swap transaction and pricing data in real-time. Further, CEA section
2(a)(13)(D) provides the Commission with the authority to require
registered entities to publicly disseminate swap data. The Commission
is further clarifying Sec. 43.3(b) by adding Sec. 43.3(b)(2) to
provide that SDRs must then ensure that such data is publicly
disseminated as soon as technologically practicable'' pursuant to part
43 for SEF and DCM executed swaps as well as off-facility swaps, unless
a time delay described in Sec. 43.5 is applicable. The Commission
believes that this approach addresses various commenters' suggestions
and concerns and is consistent with the SEC's approach in proposed
Regulation SBSR. The Commission further believes that eliminating the
option to use a third-party service provider will reduce (i)
fragmentation in the market; (ii) search costs for market participants;
and (iii) inconsistencies in data formats reported to various
disseminators. Additionally, SDRs will be registered entities subject
to the Commission's jurisdiction, whereas third-party service providers
are unregistered entities over which the Commission has no authority.
The Commission notes that the rule does not prohibit an SDR from
contracting with a third party which may perform the public
dissemination function. Should an SDR choose to enter into such a
contractual relationship, it will remain responsible to ensure public
dissemination under CFTC regulations.
With respect to proposed Sec. 43.3(b)(1)(ii), the Commission has
considered the comments and, as discussed, believes that reporting
parties (including SEFs and DCMs) should be permitted to transmit their
swap transaction and pricing data only to SDRs for public
dissemination. Consistent with this determination, the Commission is
eliminating in the final rule the option for SEFs, DCMs and reporting
parties to send or otherwise electronically transmit their swap
transaction and pricing data to a third-party service provider.
However, the Commission believes that an SDR may ensure public
dissemination by contracting with a third-party service provider to
assist in the public dissemination of swap transaction and pricing data
in real-time. Finally, in requiring that the reporting parties transmit
the real-time swap transaction and pricing data only to SDRs, the
Commission notes that nothing in part 43 would prohibit DCOs, SEFs or
DCMs from registering as SDRs.
The Commission has considered the comments addressing the embargo
rule and has determined to modify proposed Sec. 43.3(b)(3) to provide
further clarity.\181\ Three clarifying criteria are established in the
final rule: (1) Disclosure is made only to market participants on such
SEF or DCM (changed from ``participants on its market''); \182\ (2)
market participants are provided advance notice of such disclosure; and
(3) any disclosure must be non-discriminatory.\183\ A SEF or DCM that
wishes to disclose swap data prior to the public dissemination by an
SDR must provide advance notice to its market participants of any
disclosure of such swap transaction and pricing data.\184\ The
Commission also notes that this policy is consistent with the practice
of public dissemination in the futures markets. Further, pursuant to
Sec. 43.3(b)(3)(i)(A), SEFs and DCMs must not disclose such data prior
to sending such data to an SDR for public dissemination.
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\181\ The Commission does not intend that Sec. 43.3(b)(3) apply
to risk management activities, post-trade processing or regulatory
reporting where it would be necessary to transmit the full swap
details to comply with such activities.
\182\ For the purposes of Sec. 43.3(b)(3)(i), the Commission
believes that market participants on a SEF or DCM include those
persons with trading privileges on such platform, as well as others
without trading privileges that subscribe to the SEF or DCM for
information services.
\183\ The Commission seeks to avoid a situation that would
permit discrimination among those market participants of a SEF or
DCM.
\184\ For example, a SEF or DCM may provide advance notice by
including a provision in its rulebook describing the disclosure of
swap transaction and pricing data to market participants.
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Section 43.3(b)(3)(ii) replaces proposed Sec. 43.3(b)(2)(iii) and
establishes data reporting requirements for SDs and MSPs reporting to
their customer bases that are substantially similar to part 43's data
reporting requirements for SEFs and DCMs providing such information to
their market participants. Section 43.3(b)(3)(ii)(B) establishes that
an SD's or MSP's ``customer base'' includes parties that maintain
accounts with or have been swap counterparties with such SD or MSP.
This provision also expands the scope of parties that can share such
swap data to include MSPs, as the Proposing Release permitted only SDs
to share such data. Section 43.3(b)(3)(ii)(C) requires an SD or MSP to
provide a swap counterparty to a publicly reportable swap transaction
with advance notice of any disclosure by the SD or MSP of such swap
transaction and pricing data.\185\ Further, SDs and MSPs must ensure
that the data shared with their customer bases is not shared prior to
sending such data to an SDR for public dissemination and that any
disclosure is non-discriminatory.
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\185\ For example, advance notice is sufficiently given when an
SD or MSP, prior to the execution of such publicly reportable swap
transaction, informs a swap counterparty that it will disclose the
relevant swap transaction and pricing data.
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There are several advantages to this approach. Allowing
participants to see last trade information for the particular markets
on which they are trading, in many cases prior to the data being
disseminated to the public, will
[[Page 1202]]
enhance price discovery. Information is not delayed to market
participants on a particular SEF or DCM. This approach does not allow
the sharing of information by a trading facility or platform
immediately upon execution, as one commenter suggested. However, the
Commission believes that the requirement to send swap transaction and
pricing data to an SDR simultaneously with or prior to sharing such
information with persons with trading privileges will reduce potential
inequities while incentivizing faster reporting by SEFs, DCMs, SDs and
MSPs that wish to share such data. If real-time reporting is delayed as
part of a phase in, or if no SDR is registered or provisionally
registered in an asset class, the individual markets could share the
information to allow for last trade information and post-trade price
discovery on a particular SEF or DCM, until such time as compliance is
required.
The Commission notes that its part 49 rules governing SDRs do not
permit SDRs to use real-time data between the time they receive the
data from SEFs, DCMs and reporting parties and the time they publicly
disseminate the data.\186\
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\186\ See 76 FR 54550; See also 76 FR 54582. Section 43.3(d),
discussed below, does not prohibit an SDR from transmitting real-
time swap transaction and pricing data to market participants at the
same time that such data is publicly disseminated pursuant to part
43. However, as prescribed in Sec. 49.17(g) of the Commission's
regulations, the distribution of such data prior to the public
dissemination pursuant to part 43 would constitute a ``commercial
use'' of such data.
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3. Requirements for Registered Swap Data Repositories in Providing the
Public Dissemination of Swap Transaction and Pricing Data (Sec.
43.3(c))
As proposed, Sec. 43.3(c) required that: (1) SDRs register and
comply with the requirements set forth in proposed part 49; (2) SDRs
that accept and publicly disseminate real-time data for swaps in
selected asset classes shall accept and publicly disseminate real-time
data for all swaps within such asset classes; and (3) any SDR that
accepts and publicly disseminates real-time data perform an annual
independent compliance review.
The Commission is adopting Sec. 43.3(c)(1) substantially as
proposed with certain technical and conforming changes.\187\ For
example, the phrase ``unless the data is subject to a time delay in
accordance with Sec. 43.5'' was changed to state, ``except as
otherwise provided in this part.'' Additionally, the language ``in
accordance with this part'' was added as a clarification.
---------------------------------------------------------------------------
\187\ The Commission received no comments on proposed Sec.
43.3(c)(1).
---------------------------------------------------------------------------
Proposed Sec. 43.3(c)(2) provided that if an SDR chose to publicly
disseminate swap transaction and pricing data in real-time for a
specific asset class, the SDR must accept all swaps within such asset
class. The Commission received three comments \188\ supporting this
proposal; these commenters contended that such a provision would help
avoid fragmentation of the SDR landscape. The Commission agrees that
this provision will reduce fragmentation and is adopting Sec.
43.3(c)(2) as proposed with some minor technical and conforming
changes. For example, the phrase ``and public dissemination'' was added
to the title of (c)(2), and the phrase ``unless otherwise prescribed by
the Commission'' was added to the end of the text. The Commission also
notes that the definition of ``asset class'' was revised in Sec.
43.2.\189\
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\188\ See CL-GFXD; CL-DTCC; and CL-MarkitSERV.
\189\ See Sec. 49.10(b) of the Commission's regulations
regarding SDRs which is identical to Sec. 43.3(c)(2).
---------------------------------------------------------------------------
The Commission is adopting Sec. 43.3(c)(3) as proposed with one
conforming change: ``43'' was added to the end of the text.\190\
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\190\ The Commission received no comments addressing proposed
Sec. 43.3(c)(3).
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4. Requirements for Third-Party Service Providers--Proposed Sec.
43.3(d)
Proposed Sec. 43.3(d) established requirements for SEFs and DCMs
that publicly disseminate through a third-party service provider. As
discussed above, the Commission is requiring that public dissemination
of swap transaction and pricing data for the purposes of part 43 occur
through an SDR. This new requirement obviates proposed Sec. 43.3(d),
and the Commission is not adopting the provision.
5. Availability of Swap Transaction and Pricing Data to the Public
(Sec. 43.3(d))
Proposed Sec. 43.3(e) required SDRs that report swap transaction
and pricing data to the public in real-time to make the data available
and accessible in an electronic format that is capable of being
downloaded, saved and/or analyzed. Requiring that SDRs make swap
transaction and pricing data available to market participants and the
public ensures equal access such data.\191\
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\191\ In addition to the comments discussing the definitions of
``as soon as technologically practicable'' and ``public
dissemination or publicly disseminate,'' one commenter stated that
the Commission should consider the additional requirement that an
SDR make available any real-time reporting data to all market
participants, including SEFs, DCMs and DCOs on a non-discriminatory
basis. See CL-Tradeweb at 5 (``Without such requirements, the
Commission is effectively taking away from market participants,
including swaps markets and DCOs, a potentially significant and
valuable component of their market data services.'').
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The Commission believes that additional clarity is needed with
regard to proposed Sec. 43.3(e)--which has been renumbered as Sec.
43.3(d) in the final rules--and therefore is adopting Sec. 43.3(d)(1)-
(3). Section 43.3(d)(1) is similar in substance to proposed Sec.
43.3(e); however, the Commission has clarified that the data must be in
``a consistent, usable and machine-readable electronic'' format that
``allows the data to be downloaded, saved and analyzed.'' These
modifications address several comments relating to the definitions of
``public dissemination or publicly disseminate'' by providing clarity
with respect to the format in which publicly disseminated data must be
made available.
Section 43.3(d)(2) reflects the Commission's belief that data must
be made freely available to market participants and the public, on a
non-discriminatory basis. Finally, Sec. 43.3(d)(3) requires that SDRs
provide the Commission with a hyperlink to a Web site where the public
can access the publicly-disseminated swap transaction and pricing data.
The Commission anticipates that it will make these links available to
the public on its own Web site. In this manner, the Commission will
provide a centralized location where market participants and the public
can find all available swap transaction and pricing data, thus
enhancing price discovery.
6. Errors or Omissions (Sec. 43.3(e))
As proposed, Sec. 43.3(f) outlined the process for correcting or
cancelling any errors or omissions in swap transaction and pricing data
that are publicly disseminated in real-time. Proposed Sec. 43.3(f)(1)
established the process by which such errors or omissions must be
corrected or cancelled, depending on whether the data error or omission
was discovered by the reporting party to the swap or the non-reporting
party. The Proposing Release also sought to prevent fraudulent
dissemination for the purpose of distorting market pricing.
Specifically, pursuant to proposed Sec. 43.3(f)(2) reporting parties,
SEFs, DCMs and SDRs that accept and publicly disseminate swap
transaction and pricing data in real-time were prohibited from
submitting or agreeing to submit a cancellation or correction for the
purpose of re-reporting swap transaction and pricing data in order to
gain or extend a delay in publication or
[[Page 1203]]
to otherwise evade the reporting requirements of proposed part 43.
Proposed Sec. 43.3(f)(3) specified the appropriate method of
canceling incorrectly published swap transaction and pricing data,
providing that a real-time disseminator must cancel incorrect data that
has been disseminated to the public by publishing a cancellation in the
format and manner described in appendix A to proposed part 43. As
proposed, the rule would have required a real-time disseminator to
correct any erroneous or omitted data disseminated by (i) first
publicly disseminating a cancellation of the incorrect data; and (ii)
then publicly disseminating the correct data pursuant to the format
described in appendix A to proposed part 43. In addition to the
substantive changes discussed below, the Commission has determined to
make minor technical and conforming changes to Sec. 43.3. In that
regard, proposed Sec. 43.3(f) is redesignated as Sec. 43.3(e) in the
final rule and will be referred to accordingly below.
The Commission received five comments addressing the proposed
treatment of errors and omissions in real-time reporting of swap
transaction and pricing data. The commenters--industry groups and a
non-financial end-user--generally supported the Proposing Release that
errors and omissions should be reported ``as soon as technologically
practicable.'' However, one commenter suggested that in the event of a
dispute between counterparties regarding the reported data, the
reporting party would control the public record regarding the swap and
thus would always prevail. The commenter further urged that the non-
reporting party should be permitted to report the disputed data to the
SEF, DCM or ``real-time disseminator,'' who would then be obliged by
rule to review the disputed data.\192\ Two commenters contended that
the proposed requirement that the cause of the error or omission be
included in any correction was unnecessary. These commenters suggested
that reporting parties should not be responsible for data that is
inaccurately transcribed or corrupted after it has been submitted to an
SDR or for correcting data errors of which they are unaware.\193\
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\192\ See CL-MFA.
\193\ See CL-GFXD; CL-ISDA/SIFMA.
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One commenter recommended that cancellations not due to an error in
the primary economic terms should not be required to be reported in
real time, but should instead be reported in accordance with
requirements specified in the general reporting rule.\194\
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\194\ See CL-ISDA/SIFMA; CL-Working Group of Commercial Energy
Firms.
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Two commenters noted that longer reporting times would reduce
errors. In this regard, they asserted that the proposed reporting times
are more ``aggressive'' than those that the industry has committed to
in the past, and may lead to an increase in reporting errors.\195\ One
commenter suggested a reporting time of T+1,\196\ while another
suggested that the Commission balance the sometimes competing needs of
reporting speed and data accuracy in proposing timeframes for
regulatory reporting.\197\ Another recommended that the Commission
explicitly state in the final rule that it will not prosecute, penalize
or otherwise impose ``remedies'' on parties for inadvertent errors in
reporting under any new standardized information collection system
required by the final rules.\198\
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\195\ See CL-ISDA/SIFMA.
\196\ See CL-MFA.
\197\ See CL-GFXD; CL-ISDA/SIFMA.
\198\ See CL-AGA.
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In response to comments suggesting that the non-reporting party
should be permitted to submit errors or corrections in the case of a
dispute between the non-reporting party and the reporting party, the
Commission believes that dispute resolution mechanisms should be
exercised before the data is sent back to an SDR for public
dissemination. In its view, the execution platform or the parties to
the swap are in the best position to determine whether an error has
been made in public dissemination and to agree upon the corrected swap
transaction and pricing data. The Commission is deleting in final Sec.
43.3(e)(1)(i) references to the ``reporting party'' and is requiring
instead that one party to a swap must notify the other party if it
becomes aware of an error or omission. As described in Sec.
43.3(e)(1)(ii), the reporting party remains responsible for submitting
corrections and cancellations.
The Commission is adopting Sec. 43.3(e)(1)(ii) with clarifications
to certain terminology changed in the rule (e.g., references to real-
time disseminator are eliminated). This provision requires that the
reporting party submit corrections to the same SEF, DCM or SDR to which
that data was originally submitted for the purposes of reporting. The
reporting party may report corrections to a SEF or DCM if it becomes
aware that the SEF or DCM submitted incorrect data to an SDR for public
dissemination for a swap executed on the platform or if the reporting
party submitted the data to a SEF or DCM with respect to a block trade.
The Commission notes that pursuant to CEA section 21(c)(2), an SDR has
a duty to ``confirm with both counterparties to a swap the accuracy of
the data that was submitted.''
The Commission is adopting Sec. 43.3(e)(1)(iii)-(iv) and Sec.
43.3(e)(2)-(4) with technical and clarifying changes. For example, in
Sec. 43.3(e)(3), a clarification has been added that cancellations
must be publicly disseminated by an SDR ``as soon as technologically
practicable'' to mirror the requirements for corrections in Sec.
43.3(e)(4).
Several comments suggested that the Commission omit from the final
rule the requirement that the reason for any amendment to swap
transaction and pricing data be reported during the correction process.
The Commission notes that there is no requirement in Sec. 43.3(e) that
such information be included in any type of correction or cancellation
report. The Commission requires that any correction of incorrect data
that has been publicly disseminated must be reported in the same format
as all other data reported under part 43, ``as soon as technologically
practicable'' and as set forth in appendix A to part 43.
The Commission agrees that the reporting parties should not be
responsible for data that is inaccurately transcribed or corrupted
after it has been submitted to an SDR. However, the Commission expects
that reporting parties will take due care to ensure that the data
submitted to an SDR is accurate and complete. Under Sec. 43.3(a)(2), a
reporting party has satisfied its reporting requirement ``by executing
a publicly reportable swap transaction on or pursuant to the rules of a
registered swap execution facility or designated contract market.'' For
off-facility swaps, Sec. 43.3(a)(3) provides that a reporting party
has satisfied its reporting requirement when the swap has been
``reported to a registered swap data repository for the appropriate
asset class.'' Once the data have been reported in accordance with the
relevant provision, the reporting party has satisfied its reporting
requirement under this section and will not be responsible for
correction of subsequent inaccuracies in said data; no additional
modification is necessary.
The Commission considered the comment that cancellations not due to
an error in the primary economic terms need not be reported in real
time. The Commission does not agree with the suggestion that the
correction of errors
[[Page 1204]]
in data reported under part 43 should be reported pursuant to a
periodic reporting schedule. The correction of errors or omissions in
real time is necessary to fulfill the price discovery mandate of
Section 727 of the Dodd-Frank Act. In addition, depending on the
circumstance, a cancellation may or may not be followed by a
correction. For example, a cancellation may occur where a clearinghouse
does not accept a particular swap for clearing: Such a swap may be
busted and would not require a correction. In another situation, one or
more terms to a swap may be incorrectly reported by the reporting
party, and the error would be realized upon confirmation of the swap.
Under the final rules, such a circumstance would require a cancellation
of the original--incorrectly reported--data, followed by a correction
with accurate swap transaction and pricing data. When reporting a
cancellation or correction, the SDR must report the data in the same
form and manner in which it was originally reported and include a date
stamp reflecting the time of the original transaction, so that market
participants and the public are aware of which swap has been canceled
or corrected.
The Commission agrees that a longer reporting time would reduce
reporting errors. Section 43.5 (``Time delays for public dissemination
of swap transaction and pricing data'') provides initial timeframes for
reporting swap transaction and pricing data during an initial interim
period. These timeframes will provide additional time for reporting.
The Commission believes that longer reporting times during the phase in
period should allay concerns about errors resulting from speed of
reporting and should also provide market participants and registered
entities with the necessary time to develop appropriate systems to
reduce errors in the reporting process.
One commenter requested an explicit undertaking from the Commission
that it will not prosecute, penalize or otherwise impose ``remedies''
on parties for inadvertent errors in reporting under any new
standardized information collection system required by the final rules.
Such relief is not appropriately part of a rulemaking. Parties seeking
such relief may do so pursuant to the no-action procedures of Sec.
140.99.\199\
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\199\ The Commission has the ability to review all error and
omission reports and is authorized under the CEA and Commission
regulations to investigate and prosecute false reports.
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7. Hours of Operation of Registered Swap Data Repositories (Sec.
43.3(f))
Proposed Sec. 43.3(g)(1) specified that an SDR that accepts and
publicly disseminates real-time data must be able to do so twenty-four
hours a day. However, proposed Sec. 43.3(g)(2) permitted an SDR to
declare special closing hours to perform maintenance on an ad hoc
basis. Such closing would require advance notice by the SDR to market
participants and the public. Proposed Sec. 43.3(g)(3) further provided
that special closing hours should not be scheduled during periods when
the U.S. markets and major foreign swap markets are most active.
Proposed Sec. 43.3(h) provided that during special closing hours, an
SDR that is a real-time disseminator must have the capability to
receive and hold in queue information regarding ``reportable swap
transactions.''
The Commission received three comments regarding an SDR's hours of
operation. One commenter suggested that the real-time disseminator
should operate continuously in light of the global nature of
derivatives markets and participation by non-U.S. persons.\200\ Another
stated that SDRs should operate 24 hours a day, six days a week to
permit continuous access to data by regulators (including during
periods where individual exchanges or other trading platforms are
closed). Requiring such operating hours recognizes the global nature of
trading in derivatives markets and the round-the-clock participation in
these markets by U.S. persons.\201\ The third commenter suggested that
scheduled downtime should be permitted so that the ``real-time
disseminator'' could perform routine maintenance and to mark the
beginning and end of the trading day. This commenter also stated that
the downtime periods should extend for no less than 30 minutes and
should be scheduled for time periods that are least disruptive (i.e.,
when market activity is at low levels).\202\
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\200\ See CL-Working Group of Commercial Energy Firms.
\201\ See CL-DTCC.
\202\ See CL-CME.
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The Commission agrees that the global nature of the swaps market
requires that an SDR be able to publicly disseminate swap transaction
and pricing data at all times and believes that SDRs that publicly
disseminate swap transaction and pricing data should be fully
operational 24 hours a day, 7 days a week.\203\ Accordingly, in
addition to minor technical changes--including the redesignation of
proposed Sec. 43.3(g)(1) as Sec. 43.3(f) in the final rule--the
Commission has amended the proposed rule to add: ``Unless otherwise
provided in this subsection,'' a registered swap data repository
``shall have systems in place to continuously receive and publicly
disseminate swap transaction and pricing data in real time pursuant to
this part.''
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\203\ The Commission notes that the CEA does not require SDRs to
have any scheduled down time.
---------------------------------------------------------------------------
The Commission also agrees that scheduled downtime should be
permitted to allow the SDR to perform routine maintenance and that
these periods should be scheduled during time periods that are least
disruptive (i.e., when market activity for the asset class of the SDR
is low). Accordingly, the Commission is adopting in Sec. 43.3(f)(2) a
provision that the SDR should, to the extent reasonably possible, avoid
scheduling closing hours when, in its estimation, the U.S. market and
major foreign markets are most active. However, the Commission does not
believe it is necessary to close an SDR daily to mark the beginning and
end of the trading day. The Commission also disagrees that SDRs should
operate 24/6 and believes that such continuous operating hours are
appropriate given the global nature of trading derivatives.\204\
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\204\ By requiring SDRs to operate continuously for the purposes
of the real-time public reporting requirements of part 43, market
participants will be less likely to execute during SDR downtimes in
order to delay public dissemination of swap transaction and pricing
data.
---------------------------------------------------------------------------
In addition to minor technical changes, the Commission is deleting
the reference to closing ``on an ad hoc basis'' with regard to
``special closing hours.'' Instead, Sec. 43.3(f)(1) refers only to
``closing hours.'' These changes allow SDRs to properly maintain their
systems while also providing advance notice of scheduled downtime to
market participants and the public.
During these downtimes, SDRs must hold the data for public
dissemination in queue and release the information with the appropriate
execution timestamp upon re-opening. Any downtime by an SDR should be
publicly announced, with adequate notice to the market, and should
occur at a time when there is anticipated low market activity, which
may vary based on asset class. Further, the Commission strongly
encourages SDRs to adopt redundant systems to allow public reporting
during closing hours.
The Commission intends to ensure that SDRs will provide market
participants and the public with sufficient notice of closing hours. To
that end, the Commission is adopting new Sec. 43.3(f)(3) to provide
that: ``A
[[Page 1205]]
registered SDR shall comply with the requirements under part 40 of the
Commission's regulations in setting closing hours and shall provide
advance notice of its closing hours to market participants and the
public.''
The Commission previously has deemed policies such as trading hours
to be ``rules'' as that term is defined in Sec. 40.1(i) of the
Commission's regulations.\205\ Accordingly, an SDR is required under
part 40 to self-certify its rules, including the establishment and
modification of trading hours.\206\ The self-certification process
under Sec. 40.6 includes posting notice on the SDR's Web site.\207\
However, compliance with the part 40 provisions alone may not suffice
to meet the notice requirement under Sec. 43.3(f)(3), which requires
an SDR to provide reasonable advance notice to participants and the
public of its closing hours.\208\
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\205\ Section 40.1(i) includes in the definition of ``rule''
both ``stated policy'' and ``terms and conditions.'' Further, Sec.
40.1(j)(1)(iv) defines ``terms and conditions'' to include trading
hours. 76 FR 44776 at 44791 (July 27, 2011).
\206\ Section 40.4(b)(3) provides that changes in trading hours
may be implemented without prior approval of the Commission, as long
as such changes have been submitted for self-certification as
required under the procedures of Sec. 40.6(a). See 76 FR 44776,
44793 (July 27, 2011).
\207\ The Commission's part 40 regulations include a process by
which registered entities may certify rules or rule amendments that
establish standards for responding to an emergency.
\208\ For example, an SDR could provide notices to its
participants or publicize its closing hours in a conspicuous place
on its Web site.
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8. Acceptance of Data During Closing Hours (Sec. 43.3(g))
Proposed Sec. 43.3(h) required that an SDR have the capability to
receive and hold in queue information regarding ``reportable swap
transactions'' during special closing hours. Consistent with comments
addressing hours of operation, the Commission is adopting Sec. 43.3(g)
and adding Sec. Sec. 43.3(g)(1) and (2) to an SDR's responsibilities
to accept data during closing hours.\209\
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\209\ As previously noted, the Commission is not required to
provide schedule closing times for SDRs.
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The Commission is adopting Sec. 43.3(g)(1) to clarify that an SDR
must publicly disseminate the data that it has held in queue during
closing hours promptly upon reopening after closing hours. The
Commission anticipates that there may be circumstances in which an SDR
is unable to receive and/or hold swap transaction and pricing data in
queue during downtime. To ensure that market participants and the
public receive timely notice of any failure to hold data in queue, the
Commission is adding Sec. 43.3(g)(2) which requires the SDR, upon
reopening, to issue notice that it has resumed normal operations in
such cases where data was not held in queue. The Commission believes
that such notice should be provided for all market participants. Such
notice must state that the SDR resumed normal operations but was
unable, while closed or for some other reason, to receive and hold in
queue such transaction information. Further, Sec. 43.3(g)(2) requires
that upon receiving such notice, any SEFs, DCMs or reporting parties
whose data was so ``lost'' shall re-report the data to the SDR
immediately.\210\
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\210\ In addition to these changes, the Commission has made
minor technical and conforming changes to this section. For example,
proposed Sec. 43.3(g) (``Hours of Operation'') is renumbered as
Sec. 43.3(f) in the final rules; proposed Sec. 43.3(h)
(``Acceptance of data during special hours) is redesignated as Sec.
43.3(g).
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9. Timestamp Requirements (Sec. 43.3(h))
Proposed Sec. 43.3(i) required that all data related to a
``reportable swap transaction'' be maintained for a period of not less
than five years following the time at which the transaction data is
publicly disseminated pursuant to part 43. Specifically, proposed Sec.
43.3(i)(1) required that SEFs and DCMs retain all swap transaction
information received from reporting parties for the purposes of public
dissemination, including block trade and large notional swap data. As
proposed, Sec. 43.3(i)(2) directed that SDs and MSPs retain swap
transaction and pricing information in accordance with proposed part 43
and proposed part 23.
The Commission received seven comments from various interested
parties, including industry associations and a potential SDR, with
respect to proposed Sec. 43.3(i).\211\ Two commenters asserted that
recordkeeping standards should be coordinated internally between
Commission rulemakings as well as externally with the SEC and
international regulators.\212\ Some commenters focused on perceived
burdens to end-users, asserting that that the costs and burdens of
recordkeeping for end-users would be very high for less-
technologically-sophisticated end-users, and that further clarification
is necessary with respect to the precise data that should be retained
by end-users.\213\ One commenter recommended that this clarification
should be written in clear, easy-to-understand terms, and that the
final rules should provide for a ``CFTC-lite'' regulatory scheme for
commercial end-users.\214\
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\211\ See, e.g., CL-FSR.
\212\ See CL-WFE; CL-Working Group of Commercial Energy Firms.
\213\ See CL-Working Group of Commercial Energy Firms; CL-
NFPEEU.
\214\ See CL-NFPEEU.
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A commenter stated that Sec. 1.31 of the Commission's regulations
is outdated and should not be applied to the proposed recordkeeping
rules under this part.\215\ This commenter further recommended that
data retention should be triggered by the execution of the swap
transaction, as proposed in the part 45 rules, and not upon public
dissemination.\216\
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\215\ See CL-Working Group of Commercial Energy Firms.
\216\ See id.; See also 75 FR 76574.
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The Commission does not believe that Sec. 1.31 of the Commission's
regulations is outdated and inappropriate to the proposed recordkeeping
rules. On the contrary, Sec. 1.31 provides that books and records be
kept for a period of five years from the date such records are created.
In addition, this section provides that records must be readily
accessible during the first two years of the five year period. Adopting
proposed Sec. 43.3(i) would duplicate the existing recordkeeping
requirements of Sec. 1.31. \217\ Further, in response to other
commenters, the Commission does not believe that a ``CFTC-lite''
regulatory scheme for commercial end-users is contemplated by the Dodd-
Frank Act.
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\217\ In addition, registered entities are also subject to the
swap recordkeeping provisions of proposed Sec. 45.2. Proposed Sec.
45.2 sets forth the swap transaction records that shall be kept by
all parties subject to the Commission's jurisdiction and the manner
and form in which such records should be kept, including relevant
timeframes for retention and access.
---------------------------------------------------------------------------
The Commission also disagrees that data retention should be
triggered by termination of the publicly reportable swap transaction.
Real-time data will have been publicly disseminated upon affirmation
and there would be no requirement to maintain the data in the interim
period. However, the Commission does see merit in the comment that
real-time data should be retained for an appropriate period from the
date of the price-forming event to allow re-publication of historic
price data and support the error correction process.\218\ Proposed
Sec. 45.2(c) explicitly states that all records required to be kept
for a swap shall be kept ``from the date of the creation of the swap
through the life of the swap and for a period of at least five years
from the final termination of the swap, in a form and manner acceptable
to the Commission.'' Therefore, as required by Sec. 1.31 and proposed
part 45, real-time swap transaction and pricing data will be
[[Page 1206]]
retained for a period of five years after the termination of the swap.
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\218\ See CL-DTCC.
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After considering comments and the recordkeeping requirements in
both the Commission's existing regulations and proposed part 45 rules,
the Commission has determined to limit the recordkeeping requirements
in part 43 to timestamps. The Commission agrees that the recordkeeping
and data retention requirements should be coordinated between CFTC
rulemakings, particularly the data recordkeeping and reporting rules.
The Commission believes that the recordkeeping provision in proposed
Sec. 43.3(i) is duplicative of recordkeeping requirements found in
other proposed Commission regulations (e.g., proposed part 45 and
proposed part 23 recordkeeping requirements) and is therefore not
adopting proposed Sec. 43.3(i). The Commission believes that
eliminating this provision addresses commenters' concerns relating to
the cost burden of maintaining data beyond the data retained in the
ordinary course of business and eliminates duplicative recordkeeping
requirements.
The Commission believes that there is a need for SEFs, DCMs, SDRs,
SDs and MSPs to record and maintain certain timestamps regarding the
transmission and dissemination of real-time swap transaction and
pricing data.
The Commission's proposed block trading rules included a
requirement in Sec. 43.5(f) that SEFs and DCMs timestamp swap
transaction and pricing data with the date and the time to the nearest
second. Additionally, and as discussed with respect to appendix A to
part 43 below, the Commission proposed that an ``execution timestamp''
be publicly disseminated for all ``reportable swap transactions.'' As
discussed above, the Commission has determined not to adopt the
proposed rules establishing appropriate minimum size for block trades
at this time; proposed Sec. 43.5(f) has been redesignated as Sec.
43.3(h) (``Timestamp Requirements''). As proposed, Sec. 43.5(f)(1) and
appendix A to part 43 required SEFs and DCMs to timestamp swap
transaction and pricing data with the date and time to the nearest
second.
The Commission received two comments objecting to the timestamp
reporting requirement as unreasonable and inconsistent with current
market practice. One commenter also suggested that the value derived by
moving the industry to Coordinate Universal Time (``UTC'') appears
minimal when compared to the costs involved.\219\ The Commission
recognizes that reporting the timestamp to the second is not current
industry practice in some asset classes and may incur some
technological and cost challenges. However, a timestamp to the second
is necessary both for audit trail and enforcement purposes and to
provide market participants and the public with sufficient information
to re-create a trading day. The Commission will also use the timestamps
described in Sec. 43.3(h) to determine whether swaps are being
reported ``as soon as technologically practicable'' and to compare the
speed at which similar market participants report swap transaction and
pricing data to an SDR for public dissemination. Additionally, the
Commission will be able to determine how quickly SDRs are publicly
disseminating the information that they receive for public
dissemination.
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\219\ See CL-ISDA/SIFMA.
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The execution timestamp, described in appendix A to part 43, is
critical for SDRs in determining when to publicly disseminate swap
transaction and pricing data that is subject to a time delay pursuant
to Sec. 43.5. Different market participants and different types of
execution may be assigned different time delays, so the execution
timestamp that is publicly disseminated will be an important aid in
following the order of execution of transactions within a particular
market.
Notwithstanding potential costs to the industry, the Commission
believes that movement to UTC will facilitate the ability for market
participants and the public to harmonize swap transactions across the
global market. The Commission notes that use of UTC in the part 43
rules refers only to the execution timestamp that is publicly
disseminated. Consistency across the global swaps market will better
enhance price discovery, and the Commission believes that requiring UTC
will allow market participants and reporting parties to recreate the
order of trades, provide consistency across all publicly disseminated
swap transaction and pricing data and reduce the need for market
participants to convert different transaction times to understand the
order of trades in a particular market.
For the reasons discussed above, the Commission is adopting the
timestamp requirements as proposed in Sec. 43.5(f), with certain
modifications, as Sec. 43.3(h). First, the Commission has clarified
that the timestamps in Sec. 43.3(h) are in addition to the execution
times in appendix A to part 43. Further, the Commission is not limiting
these timestamp requirements to block trades and large notional off-
facility swaps, as in the Proposing Release, but rather is requiring
such timestamps for all publicly reportable swap transactions. The
Commission has also made conforming changes to proposed Sec.
43.5(f)(1)-(3) which are reflected in Sec. 43.3(h)(1), (2) and
(4).\220\ In Sec. 43.3(h)(1)(i), the Commission has changed the term
``reporting party'' to ``swap counterparty'' since block trades must be
reported pursuant to the rules of a SEF or DCM.\221\
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\220\ The conforming changes to these sections include changing
the phrases ``a swap market and a registered swap data repository''
to ``a registered swap execution facility or designated contract
market''; ``real-time disseminator'' to ``registered swap data
repository''; and ``swap market or reporting party'' to ``registered
swap execution facility, designated contract market or reporting
party'' to more accurately reflect the terms as defined in Sec.
43.2.
\221\ The circumstance described in Sec. 43.3(h)(1)(i) may
occur when a block trade is executed away from a SEF or DCM, but
pursuant to the rules of a SEF or DCM. The SEF or DCM would need to
record a timestamp of when it received such data from a swap
counterparty pursuant to its rules.
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The Commission has added Sec. 43.3(h)(3) and (4) to require that
SDs and MSPs record and maintain for a period of at least five years a
timestamp reflecting when data is sent to an SDR for public
dissemination.\222\
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\222\ The Commission anticipates that the timestamp requirements
in Sec. 43.3(h)(3) would likely apply only in the case of off-
facility swaps and price-forming continuation data in which the SD
or MSP is the reporting party.
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The commenters' concerns with respect to the costs and burdens of
recordkeeping on end-users also have merit. Accordingly, the Commission
has determined that, other than the timestamp requirements of Sec.
43.3(h), no additional recordkeeping burdens will be placed upon end-
users under part 43.
The Commission agrees that the recordkeeping requirements should be
harmonized with the SEC. Many registered entities, SDs and MSPs will be
dually registered with the Commission and the SEC, and they will comply
with the agency regime that has more robust recordkeeping standards.
Finally, the Commission acknowledges that coordination with
international regulators will also be necessary in their rulemaking
processes and commits that it will continue to do so.
10. Fees Charged by SDRs (Sec. 43.3(i))
The Commission interprets CEA sections 2(a)(13) and 21 to require
that SDRs ensure open and equal access to their data collection
services for the purpose of real-time reporting. Consistent with this
interpretation, the Commission proposed in Sec. 43.3(j) that fees
charged by a real-time disseminator to reporting parties, SEFs or DCMs
should be equitable and non-discriminatory, and that volume
[[Page 1207]]
discounts for data collection shall not be offered, unless available to
all reporting parties.
The Commission received ten comments related to fees charged by an
SDR for their public dissemination services. A market data vendor
suggested that the Commission permit SDRs to employ the sell-side-pays
model, or alternatively, a structure that requires only the reporting
party to pay SDR fees.\223\ Another commenter criticized proposed Sec.
43.3(j) for permitting volume discounts; \224\ while others urged that
the Commission monitor what is ``fair and reasonable.'' \225\ A
commenter recommended that the Commission clarify that nothing in its
rules is intended to impose or imply any limit on the ability of market
participants--including parties to the transaction, SEFs and DCOs--to
use and/or commercialize data they create or receive in connection with
the execution or reporting of swap data, so long as it is consistent
with their confidentiality obligations.\226\ Two commenters stated that
the final rules should clarify that ownership of data is retained by
the counterparties to the swap and does not transfer to a SEF, DCM or
SDR.\227\ Another requested clarification that market participants may
use and/or commercialize real-time swap transaction and pricing
data.\228\ Finally, several commenters stated that SDRs should not
charge reporting parties since they will receive fees from the sale of
such data to the public.\229\
---------------------------------------------------------------------------
\223\ See CL-MarkitSERV.
\224\ See CL-Better Markets.
\225\ See CL-BlackRock; CL-MarkitSERV.
\226\ See CL-Tradeweb.
\227\ See CL-Markit; CL-DTCC.
\228\ See CL-Tradeweb.
\229\ See CL-Working Group of Commercial Energy Firms.
---------------------------------------------------------------------------
A commenter stated that it currently provides data to the public
free of charge and expects to continue to do so when satisfying its
part 43 obligations.\230\ Another commenter urged that SDRs be allowed
to charge commercially reasonable fees to disseminate data, because
otherwise there would be no incentive to improve systems to the
detriment of transparency.\231\ A commenter urged that the Commission
monitor the fee setting of entities under its jurisdiction to ensure
that fees are fair and reasonable and do not favor any class of
participant at the expense of others.\232\ Some commenters suggested
that the fees collected by SDRs relating to public dissemination of
swap transaction and pricing data should be redistributed to reporting
parties; \233\ other commenters stated that such fees should be
remitted to the Commission to offset the costs of implementing the
Dodd-Frank Act. \234\
---------------------------------------------------------------------------
\230\ See CL-DTCC.
\231\ See CL-ICE.
\232\ See CL-BlackRock.
\233\ See CL-Tradeweb.
\234\ See CL-Working Group of Commercial Energy Firms.
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The Commission emphasizes that section 727 of the Dodd-Frank Act
explicitly requires public dissemination of such data. The Commission
believes that implicit in this mandate is the requirement that the data
be made available to the public at no cost. On the other hand, however,
the Commission believes it is reasonable to permit an SDR that publicly
disseminates swap transaction and pricing data to charge fair and
reasonable fees to providers of swap transaction and pricing data to
offset the costs associated with public dissemination of those data.
Further, nothing in these rules would prohibit SDRs responsible for the
public dissemination of real-time swap data from making commercial use
of such data subsequent to public dissemination of those data.\235\
---------------------------------------------------------------------------
\235\ Section 49.17(g) of the Commission's regulations governs
the commercial use by SDRs of both core regulatory data and real-
time publicly reported data; Sec. 49.17(g)(3) explicitly prohibits
the commercialization by SDRs of publicly disseminated swap
transaction and pricing data prior to the public dissemination of
such data pursuant to part 43.
---------------------------------------------------------------------------
With regard to specific fee arrangements, the Commission believes
such matters are business decisions best left to the parties. Further,
the Commission believes that issues of data ownership are outside the
scope of this rulemaking.
For these reasons, the Commission is adopting proposed Sec.
43.3(j) with minor technical amendments \236\ and additional language
to clarify that volume-based discounts offered to any reporting party
must be made available to all reporting parties.
---------------------------------------------------------------------------
\236\ The Commission notes that the rule has been redesignated
as Sec. 43.3(i).
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D. Section 43.4--Swap Transaction and Pricing Data To Be Publicly-
Disseminated in Real-Time
1. In General (Sec. 43.4(a))
Proposed Sec. 43.4(a) provided that swap transaction information
must be reported to a real-time disseminator so that the real-time
disseminator could publish swap transaction and pricing data in
accordance with part 43. As explained more fully in the discussion of
Sec. 43.3(b), the Commission has concluded that third party service
providers should not be used for public dissemination and that instead
real-time swap transaction and pricing data should be reported to SDRs
for public dissemination. Accordingly, Sec. 43.4(a) is amended to
eliminate the reference to ``real-time disseminator'' and replace it
with ``registered swap data repository'' and to remove the phrase ``and
format requirements.''
2. Public Dissemination of Data Fields (Sec. 43.4(b))
The Commission is adopting this section as proposed, with minor
conforming changes.\237\
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\237\ One commenter recognized that Sec. 43.4(b) does not
require the public dissemination of any counterparty-identifying
information. See CL-MFA.
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3. Additional Swap Information (Sec. 43.4(c))
The Commission is adopting this section as proposed, with minor
technical and conforming changes. For example, ``match'' is changed to
``compare'' and the phrase ``that accepts and publicly disseminates
swap transaction and pricing data in real-time on a transactional or
aggregate basis'' is removed from the end of the text.
4. Amendments to Data Fields (Proposed Sec. 43.4(d))
Two commenters questioned the Commission's authority to summarily
modify the data fields described in appendix A to proposed part 43
without the opportunity for notice and comment.\238\ One commenter
indicated that any changes to data fields should not include the
publication of identifying information.\239\
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\238\ See CL-MFA; CL-ABC/CIEBA.
\239\ See CL-MFA.
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The Commission agrees that any changes to the data fields should
reflect careful consideration and should not result in the publication
of identifying information. Accordingly, the Commission is not adopting
proposed Sec. 43.4(d) (``Amendments to data fields'').\240\
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\240\ Proposed Sec. 43.4(d) stated that the ``Commission may
determine from time to time to amend the data fields described in
appendix A to this part.''
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5. Anonymity of the Parties to a Publicly Reportable Swap Transaction
(Sec. 43.4(d))
CEA section 2(a)(13)(E)(i) requires the Commission to protect the
identities of counterparties to mandatorily cleared swaps, swaps
excepted from the mandatory clearing requirement and voluntarily
cleared swaps.\241\ Similarly,
[[Page 1208]]
CEA section 2(a)(13)(C)(iii) requires that the Commission's rules
maintain the confidentiality of business transactions and market
positions of the counterparties to an uncleared swap.\242\
---------------------------------------------------------------------------
\241\ As noted, Congress required that such rules ``ensure that
the public reporting of swap transaction and pricing data does not
disclose the names or identities of the parties to the
transactions.'' See Statement of Sen. Blanche Lincoln supra note 15.
\242\ Such provision does not cover swaps that are determined to
be required to be cleared but are not cleared.
---------------------------------------------------------------------------
Proposed Sec. 43.4(e)(1) prohibited the public dissemination of
real-time swap transaction and pricing data that would identify or
facilitate the identification of a party to a swap and further
specified that an SDR may not publicly report such data in a manner
that discloses or otherwise facilitates the identification of a party
to a swap. Proposed Sec. 43.4(e)(2) directed that a SEF, DCM or
reporting party must provide an SDR with a specific description of the
underlying asset and tenor of a swap. Proposed Sec. 43.4(e)(2) further
provided that ``this description must be general enough to provide
anonymity but specific enough to provide for a meaningful understanding
of the economic characteristics of the swap.'' Proposed Sec. 43.4(i)
established a rounding convention for all swaps, including a ``notional
cap'' providing that if the notional size of a swap is greater than
$250 million, only ``$250+'' would be publicly disseminated.\243\
---------------------------------------------------------------------------
\243\ Given the importance of protecting the identities of the
parties to a swap and the business transactions and market positions
of market participants, and pursuant to its authority under CEA
section 2(a)(13)(B), the Commission in adopting part 43 has
considered the protection of the anonymity for all swaps, both
cleared and uncleared.
---------------------------------------------------------------------------
The Commission recognized that the public dissemination of the
underlying asset and tenor of a swap executed off-facility with a
specific underlying asset may be more susceptible to an inference as to
the identity, business transactions or market positions of the parties
to the swap, particularly in the ``other commodity'' asset class.\244\
In contrast, the Commission acknowledged that swaps executed on or
pursuant to the rules of a SEF or DCM would likely not be subject to
the same disclosure risk.\245\ To avoid the former result and comply
with the statutory mandate, the Commission determined that a more
general description than the specific underlying asset and tenor should
be publicly disseminated.\246\ The Commission provided an example in
the Proposing Release of how such a standard could be applied, but did
not propose specific guidelines because it recognized that SEFs or DCMs
may differ and that new types of swaps may emerge.\247\ Proposed Sec.
43.4(e)(2) made clear that its requirement was separate from the
requirement that a reporting party report swap data to an SDR pursuant
to CEA section 2(a)(13)(G).\248\
---------------------------------------------------------------------------
\244\ Real-Time NPRM supra note 6, at 76150--76151.
\245\ Real-Time NPRM supra note 6, at 76151.
\246\ Id.
\247\ See Real-Time NPRM supra note 6.
\248\ Real-Time NPRM supra note 6, at 76174.
---------------------------------------------------------------------------
As proposed in Sec. 43.4(e)(2), the standard that swap data be
``general enough to provide anonymity but specific enough to provide
for a meaningful understanding of the economic characteristics of the
swap'' applied to all swaps. However, in the preamble to the Proposing
Release, the Commission recognized that SEFs or DCMs differ and sought
to clarify that the standard would be applied differently depending on
asset class and place of execution. Even if the specific underlying
asset and tenor of a swap executed on or pursuant to the rules of a SEF
or DCM were publicly disseminated, it would be difficult for market
participants to ascertain the identity, business transactions or market
positions of the counterparties. Swaps executed on or pursuant to the
rules of a SEF or DCM would generally lack the kind of customization
that would permit reverse engineering; therefore, identities, business
transactions and market positions and of counterparties could not be
inferred from the underlying asset and tenor.
The Commission received 25 comments addressing anonymity in the
public dissemination of swap transaction and pricing data. The
commenters included industry associations representing financial market
participants; potential SDs; end-users (both financial and non-
financial); potential SDRs; an asset manager; and a data vendor to the
OTC derivatives industry. Some commenters expressed a general concern
that the provisions in the Proposing Release would not sufficiently
protect the anonymity of the market participants. Within this group,
some commenters believed that anonymity would not be sufficiently
protected by the proposed provisions because of the structure of the
swap (i.e., bilateral swap where at least one counterparty is an end-
user; bespoke transaction; \249\ uncleared bespoke transaction).\250\
Others argued that anonymity would be compromised because of the
underlying asset (i.e., energy products); \251\ still others focused on
the liquidity in the market.\252\ In addition to general concerns, one
commenter asserted that the information that would be publicly
disseminated under the proposed rule would fail to enhance price
discovery, and thus its disclosure would not further the statutory
purpose embodied in CEA section 2(a)(13)(B).\253\
---------------------------------------------------------------------------
\249\ See CL-Coalition of Energy End-Users.
\250\ See CL-FHLBanks.
\251\ See CL-Dominion; CL-ATA; and CL-EMUS.
\252\ See CL-MS; CL-EMUS; CL-Argus.
\253\ See CL-Dominion.
---------------------------------------------------------------------------
One commenter stated that the anonymity provisions of proposed
Sec. 43.4(e)(2) should be applied to all asset classes and to all
swaps, regardless of whether the swap is executed on or pursuant to the
rules of a SEF or DCM or off-facility.\254\ Another requested that the
Commission clarify in the final rule ``that the information required to
be publicly disseminated cannot identify the participants to a swap or
provide information specific to the participants.'' \255\
---------------------------------------------------------------------------
\254\ See CL-Coalition of Derivatives End-Users. The commenter
stated that often, after a bond is issued to raise debt in the
capital markets, the issuer will enter into an interest rate swap to
hedge the interest rate risk.
\255\ CL-ISDA/SIFMA at 15.
---------------------------------------------------------------------------
One commenter asserted that whether a swap is liquid enough to
clear at a DCO is not determinative of whether the swap exists in a
liquid market.\256\ The commenter stated that cleared swaps may exist
in illiquid markets and the real-time reporting of such swap
transaction and pricing data may both negatively impact the price, and
disclose the identity, business transactions or market positions of one
or more counterparties.\257\ The same commenter suggested that the
Commission define an ``illiquid market'' and require that swaps traded
in such markets receive special treatment for purposes of public
dissemination.\258\ Similarly, commenters suggested that the Commission
begin phasing in real-time public reporting with more liquid contracts
and phase in less liquid contracts as it gains more information on
markets with less liquidity.\259\
---------------------------------------------------------------------------
\256\ See CL-MS.
\257\ The commenter stated that a market in which products that
are illiquid are cleared exists for high-yield single name CDS. The
Commission notes, however that such single name CDS are not under
the Commission's jurisdiction. CL-MS at 3, fn. 4.
\258\ See CL-MS.
\259\ See CL-MS; CL-Barclays.
---------------------------------------------------------------------------
A common belief expressed by many commenters is that special
accommodations should be made for off-facility swaps based upon an
underlying physical commodity because of the increased risk that the
identities of the parties and their business transactions or market
positions may be revealed.\260\ Some commenters focused on the illiquid
markets that exist for
[[Page 1209]]
some swaps that fall within the ``other commodity'' asset class with
specific pricing points or delivery points, grade level or tenor,
specifically for swaps with an underlying asset in the energy space
(e.g., natural gas, electricity, jet fuel, etc.).\261\ The commenters
explained these markets are very illiquid with few transactions and/or
few market participants. They argued that trades executed in illiquid
markets are more susceptible to reverse engineering, thereby increasing
the likelihood that the counterparties' identities, business
transactions or market positions could be discovered.\262\
---------------------------------------------------------------------------
\260\ See CL-ISDA/SIFMA.
\261\ See CL-ATA; and CL-Barclays.
\262\ See CL-Dominion.
---------------------------------------------------------------------------
One commenter suggested that the Commission ``allow for an
exclusion [from the requirements of part 43] for any transaction
between either two end-users or an end-user and a regulated entity with
respect to any class of swaps that does not serve a significant price
discovery function.'' \263\ The commenter stated that in such
situations, particularly when the entity is hedging an energy asset,
the public dissemination of the swap transaction and pricing data would
serve no price discovery function and may reveal the identity of the
end-user, depending on whether the underlying asset is in an illiquid
market with few market participants.\264\ Another commenter stated that
the Commission should ensure anonymity by not requiring the public
dissemination of swap transaction and pricing data for any bespoke off-
facility swaps.\265\ Similarly, a commenter suggested the Commission
should not require the public dissemination of any swap which falls
under CEA section 2(a)(13)(C)(iii) and any end-user swaps under CEA
section 2(a)(13)(C)(i) that are clearable but not cleared, until the
Commission determines that these swaps are ``significant price
discovery'' swaps as set forth in Section 737 of the Dodd-Frank
Act.\266\ This commenter believed that given the Commission's anonymity
provisions, the public dissemination of the underlying asset would not
be specific enough to enhance price discovery.
---------------------------------------------------------------------------
\263\ Id. at 7.
\264\ See id.
\265\ See CL-Working Group of Commercial Energy Firms. As stated
above in section II.A.1. (``Scope'') discussion, the Commission has
determined that Section 2(a)(13)(C) requires all swaps to be
publicly reported.
\266\ See CL-Dominion.
---------------------------------------------------------------------------
Some commenters suggested that, to ensure anonymity, the Commission
should limit the amount of data or the data fields that are publicly
disseminated.\267\ In this regard, one commenter observed that ``[i]f
the list of data fields is extensive [and carries with it substantial
implementation costs], yet not complete enough that pricing of
instruments can be reproduced easily, then end-users would bear the
implementation costs without the commensurate benefit of enhanced price
discovery.'' \268\ The commenter emphasized the importance of
dissemination of the data fields that allow market participants to
deduce the material incentives that SDs or MSPs have in connection with
a particular swap.\269\ Another commenter noted that credit support
arrangements are often privately negotiated; to ensure the
confidentiality of the business transactions of the counterparties to
an uncleared, bespoke swap with a credit support arrangement, a
``credit'' data field should not be publicly disseminated.\270\
Commenters suggested that for swaps with a specific delivery or pricing
point, a broad geographic region should be publicly disseminated rather
than a specific location.\271\
---------------------------------------------------------------------------
\267\ See CL-Coalition of Energy End-Users; CL-Working Group of
Commercial Energy Firms.
\268\ CL-Coalition of Derivatives End-Users at 8.
\269\ See id.
\270\ See CL-Working Group of Commercial Energy Firms. In the
Proposing Release, the Commission asked about whether
creditworthiness of counterparty should be publicly disseminated.
Real-Time NPRM supra note 6, at 76158. See also infra discussion in
section II.F. (``Appendix A to Part 43 (``Data Fields for Public
Dissemination'')'').
\271\ Id.; See also CL-Argus.
---------------------------------------------------------------------------
One commenter stated that the ``Tenor'' data field should allow
parties to report using a tenor ladder, rather than the month and year,
to protect the anonymity of the parties.\272\ However, another
commenter suggested that tenor should be reported according to the
current market convention for a particular swap instrument.\273\
Another commenter suggested a contrary approach: Because the tenor of a
swap is a primary economic term, the specific tenor of the swap should
be reported.\274\
---------------------------------------------------------------------------
\272\ ``[T]he trade data should be mapped to a tenor ladder for
public dissemination with longer dated products mapping to one-year
or two-year, for example, rather than specific month and year.'' CL-
GFXD at 11.
\273\ See CL-Working Group of Commercial Energy Firms. The
commenter provided an example that because energy products tend to
trade in seasonal strips except for short tenors, it may be
beneficial to report seasonal strips rather than month for such
transactions.
\274\ See CL-ISDA/SIFMA. The commenter stated: ``The Commission
requests comment on whether date information for swaps should be
rounded to the nearest tenor/month. Many swaps meet specific
requirements for end-users. To limit or manipulate data elements
that are part of the Primary Economic Terms in order to allow trades
with differing terms to be aggregated will reduce post trade
transparency. We recommend that this proposal not be implemented.''
Id. at 15.
---------------------------------------------------------------------------
Many commenters questioned how the Commission intended to enforce
the provisions of proposed Sec. 43,2(e)(2).\275\ Several commenters
believed the proposed standard lacked clarity in terms of its
application and requested additional guidance.\276\ These commenters
noted that the Proposing Release placed the burden to provide the
requisite description of the swap on the reporting party and requested
that the Commission adopt explicit guidelines as to what data should
(and should not) be reported to an SDR for purposes of public
dissemination. Several other commenters believed that the
confidentiality provisions of proposed Sec. 43.2(e)--which includes
the rounding convention and notional cap--would not adequately protect
the counterparties, particularly when at least one party to the swap
was an end-user or when there was an illiquid market for the swap.\277\
---------------------------------------------------------------------------
\275\ See CL-ABC/CIEBA; CL-MFA; and CL-ISDA/SIFMA.
\276\ Id.
\277\ See, e.g., CL-Dominion; CL-Encana; CL-FHLBanks; CL-
Coalition for Derivatives End-Users; CL-Argus; and Meeting with
NFPEEU (January 19, 2011).
---------------------------------------------------------------------------
Consistent with its statutory mandate, the Commission is requiring
real-time reporting that will enhance price discovery while ensuring
the anonymity of the swap counterparties and the confidentiality of
business transactions and market positions. The Commission agrees that
the Proposing Release did not provide sufficient certainty as to what
data was required to be reported by the reporting party to the swap.
Accordingly, in adopting Sec. 43.4(d), the Commission is not requiring
the reporting party, SEF or DCM, to apply the ``general enough but
specific enough'' standard in proposed Sec. 43.4(e)(2). Rather, Sec.
43.4(d)(2) requires that the actual underlying asset be reported and
publicly disseminated for all swaps in the interest rate, credit,
foreign exchange and equity asset classes (``financial swaps'') and for
those swaps described in Sec. 43.4(d)(4) with respect to the ``other
commodity'' asset class.
As discussed above, one commenter urged that the final rule make
clear that publicly disseminated data cannot identify the participants
to the swap or information specific to the participants. The Commission
believes that proposed Sec. 43.4(e)(1) adequately addresses this
concern. Accordingly, Sec. 43.4(d)(1) incorporates the rule text of
proposed
[[Page 1210]]
Sec. 43.4(e)(1) with non-substantive clarifying changes.\278\
---------------------------------------------------------------------------
\278\ Due to the deletion of proposed Sec. 43.4(d), the
anonymity provisions in proposed Sec. 43.4(e) are being moved to
final Sec. 43.4(d). Final Sec. 43.4(d)(1) states that ``[s]wap
transaction and pricing data that is publicly disseminated in real-
time may not disclose the identities of the parties to the swap or
otherwise facilitate the identification of a party to a swap. A
registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time may not
publicly disseminate such data in a manner that discloses or
otherwise facilitates the identification of a party to a swap.''
---------------------------------------------------------------------------
As adopted, Sec. 43.4(d)(2) requires that reporting parties, SEFs
and DCMs report the actual description of the underlying assets and
tenor to the SDR.\279\ The SDR must then publicly disseminate the swap
transaction and pricing data related to the swap pursuant to appendix A
to part 43. The SDR is responsible for applying the appropriate time
delay, rounding convention, and notional cap prior to the public
dissemination of the swap transaction and pricing data. Section 43.4(d)
eliminates the need for the reporting party to report a generalized
description of the underlying asset to the SDR. Further, the Commission
anticipates that reporting parties will utilize the data connections
that will be required to report regulatory data to an SDR, as described
in proposed part 45, and that requiring additional fields may create
confusion. However, although reporting parties may use the same data
stream for reporting regulatory data and real-time data, Sec.
43.4(d)(2) clarifies the intent of the Proposing Release: The reporting
requirements for SEFs, DCMs and reporting parties for real-time
reporting purposes are separate from the requirement to report to an
SDR for regulatory reporting purposes.\280\
---------------------------------------------------------------------------
\279\ Sections 43.4(d)(2)-(4) replace proposed Sec. 43.4(e)(2).
\280\ Certain clarifying language was added to the provision
found in proposed Sec. 43.4(e)(2).
---------------------------------------------------------------------------
In response to commenters who contended that swaps involving end-
users should be treated differently to protect anonymity, the
Commission acknowledges that end-users may enter bespoke or customized
swaps more often than non-end-users. The Commission nonetheless
believes it is unnecessary to differentiate by swap counterparties in
promulgating a rule to protect anonymity.\281\ Rather, as explained
below, it is more appropriate to focus on the asset class, the
liquidity of certain types of swaps and the execution venue (i.e., SEF,
DCM, off-facility) in determining whether a specific description of the
underlying asset should be publicly disseminated.\282\ In response to
commenters who claimed that the public dissemination of swap
transaction and pricing data for certain swaps entered into by end-
users serves no price discovery function, the Commission disagrees;
there is price discovery value in publicly disseminating all arm's-
length transactions. Publicly disseminating such data will provide
market participants and the public with a clearer understanding of the
depth of a particular market, the frequency of trading in the market
and the pricing of transactions with the same or similar underlying
assets.
---------------------------------------------------------------------------
\281\ Further, the statute requires that all swaps, including
bespoke swaps, be publicly disseminated so long as the identity,
business transactions and market positions of the parties to the
swap are not disclosed. See CEA sections 2(a)(13)(C) and
2(a)(13)(E)(i).
\282\ In determining the appropriate time delay, the Commission
also focuses on asset class and place of execution.
---------------------------------------------------------------------------
With respect to financial swaps, the Commission has considered
comments and discussions with market participants, and does not believe
that disclosure of information relating to the underlying asset,
reference price or index will compromise anonymity. Financial swaps do
not have underlying assets with specific delivery or pricing points
(such as swaps with underlying physical commodities). Further, the
liquidity to hedge such financial swaps, either in the swaps markets or
in alternative markets (i.e., futures, cash markets, etc.), reduces
concerns that the public dissemination of such swap transaction and
pricing data pursuant to part 43 will reveal specific information about
market participants.
One commenter asserted that the public dissemination of an interest
rate swap in connection with a bond issuance could identify the end-
user to the swap.\283\ This commenter contended that because bond
issuances are a matter of public record, real-time reporting would
enable market participants to identify the end-user to the swap by
matching the terms of the swap with the bond issuance that is being
hedged. In the circumstance described by the commenter, the hedge of
interest rate risk after a bond issuance is a routine transaction that
market participants expect. The Commission believes that there is
sufficient liquidity in the interest rate, credit, equity and foreign
exchange asset classes to protect the anonymity of market participants
in such asset classes. Further, in the Commission's view, the rounding
convention and notional caps provided in Sec. Sec. 43.4(g) and (h)
will help to protect the counterparties' identities, business
transactions and market positions for all swaps, regardless of asset
class. Therefore, the Commission believes that the public dissemination
of the full information relating to financial swaps, such as swaps
executed in connection with a bond issuance, will enhance price
discovery and will not compromise the anonymity of market participants.
---------------------------------------------------------------------------
\283\ See CL-Coalition for Derivatives End-Users.
---------------------------------------------------------------------------
Accordingly, Sec. 43.4(d)(3), as adopted, requires that the actual
underlying asset and tenor be publicly disseminated for all swaps in
the interest rate, credit, foreign exchange and equity asset classes,
regardless of whether a swap is executed on or pursuant to the rules of
a SEF or DCM or is an off-facility swap. The rounding convention and
notional caps provide sufficient protection to ensure the anonymity of
the identities, business transactions and market positions of market
participants with respect to financial swaps.
Some commenters asserted that to protect the identities of the
counterparties, the actual tenor of the swap should not be publicly
disseminated (i.e., use of a tenor ladder or use of current market
convention). The Commission has considered the implications of publicly
disseminating the various data fields on disclosing the anonymity,
business transactions and market positions of swap counterparties. As
further explained in the discussion of appendix A to part 43, the
Commission is clarifying the data fields in order to protect the
identities, business transactions and market positions of market
participants while enhancing price discovery to market participants and
the public. The Commission agrees with the commenter who stated that
the tenor of a financial swap is a primary economic term of the swap.
Because the tenor is material to the pricing of a swap, the Commission
is requiring that the actual tenor for all swaps be publicly
disseminated.\284\
---------------------------------------------------------------------------
\284\ See infra discussion in section II.F. (``Appendix A to
Part 43 (``Data Fields for Public Dissemination'')'').
---------------------------------------------------------------------------
The Commission agrees that there are bespoke, off-facility
transactions in which the underlying asset is a physical commodity;
these transactions carry a significantly increased likelihood that the
public dissemination of the underlying asset may disclose the identity,
business transactions or market positions of a counterparty. Several
commenters focused on the lack of liquidity in certain ``other
commodity'' markets, expressing the view that the public dissemination
of the underlying asset or delivery point would reveal information
about market participants.
[[Page 1211]]
Commenters' concerns about illiquid swaps in the ``other commodity''
asset class may be valid; however, the Commission believes that for
certain bilateral ``other commodity'' swaps, adequate liquidity exists
such that the counterparty's identity, business transactions and market
positions will not be disclosed by the public dissemination of such
swap transaction and pricing data.\285\
---------------------------------------------------------------------------
\285\ Additionally, one commenter urged that the fact that a
swap may be cleared is not determinative of whether a swap is
trading in an ``illiquid'' market. See CL-MS. The Commission
believes that the interim time delays described in Sec. 43.5(c)
adequately address this commenter's concerns, and the Commission
intends to further address this comment in the block trade re-
proposal.
---------------------------------------------------------------------------
As discussed above, commenters recommended phasing in public
reporting and dissemination based on liquidity, and the Commission
agrees that, given the anonymity concerns, such an approach is
appropriate. The Commission is phasing in the public dissemination
requirements for ``other commodity'' swaps, as discussed directly
below.
As adopted, Sec. Sec. 43.4(d)(4)(ii)(A) and (B) provide that for
any publicly reportable swap transaction in the ``other commodity''
asset class that references any of the 28 ``Enumerated Physical
Commodity Contracts'' including ``other commodity'' swaps that are
economically-related to such contracts,\286\ the actual underlying
physical commodity or referenced price or index must be publicly
disseminated by the SDR, regardless of execution method. Additionally,
the Commission believes that the public dissemination of any swap that
references Brent Crude Oil (ICE) (and any swaps that are economically-
related thereto) must reference the actual underlying asset, regardless
of execution method.
---------------------------------------------------------------------------
\286\ Similar contracts are described in the Position Limits
final rulemaking. See 76 FR 71626 (final rule available at http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2011-28809a.pdf, last visited Nov. 30, 2011).
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The 28 Enumerated Physical Commodity Contracts have been identified
by the Commission as (i) having high levels of open interest and
significant cash flow; and (ii) serving as a reference price for a
significant number of cash market transactions.\287\ These 28
Enumerated Physical Commodity Contracts are identical to those that
will have federally-administered limits imposed on them by the
Commission's part 151 rules (Position Limits) generally covering
contracts based on the agricultural, metals and energy commodities.
Additionally, using the same criteria enumerated above, the Commission
is requiring that any swap that references Brent Crude Oil (ICE), or
economically-related to Brent Crude Oil (ICE), be reported and publicly
disseminated by an SDR.\288\ The Commission has determined that these
contracts and economically related contracts have sufficient liquidity
to ensure that the public dissemination of swap transaction and pricing
data for swaps based on these reference assets poses little risk of
disclosing identities of parties, business transactions or market
positions.
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\287\ The 28 Enumerated Physical Commodity Contracts are: ICE
Futures U.S. Cocoa, ICE Futures U.S. Coffee C, Chicago Board of
Trade Corn, ICE Futures U.S. Cotton No. 2, ICE Futures U.S. FCOJ-A,
Chicago Mercantile Exchange Live Cattle, Chicago Board of Trade
Oats, Chicago Board of Trade Rough Rice, Chicago Board of Trade
Soybeans, Chicago Board of Trade Soybean Meal, Chicago Board of
Trade Soybean Oil, ICE Futures U.S. Sugar No. 11, ICE Futures U.S.
Sugar No. 16, Chicago Board of Trade Wheat, Minneapolis Grain
Exchange Hard Red Spring Wheat, Kansas City Board of Trade Hard
Winter Wheat, Chicago Mercantile Exchange Class III Milk, Chicago
Mercantile Exchange Feeder Cattle, Chicago Mercantile Exchange Lean
Hogs, Commodity Exchange, Inc. Copper, New York Mercantile Exchange
Palladium, New York Mercantile Exchange Platinum, Commodity
Exchange, Inc. Gold, Commodity Exchange, Inc. Silver, New York
Mercantile Exchange Light Sweet Crude Oil, New York Mercantile
Exchange New York Harbor Gasoline Blendstock, New York Mercantile
Exchange Henry Hub Natural Gas, New York Mercantile Exchange New
York Harbor Heating Oil.
\288\ The 28 Enumerated Physical Commodity Contracts are traded
on U.S. DCMs, while Brent Crude Oil (ICE) futures contracts are
primarily traded in Europe. Nonetheless, Commission has determined
that swaps that utilize a reference price based on Brent Crude Oil
(ICE) futures have sufficient trading activity such that public
dissemination of the actual underlying asset would not disclose the
identities of counterparties or the business transactions and market
positions of any person.
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Appendix B to part 43 (``Enumerated Physical Commodity Contracts
and Other Contracts'') lists the 28 Enumerated Physical Commodity
Contracts and Other Contracts (i.e., Brent Crude Oil (ICE)) for which
the actual underlying asset must be publicly disseminated. For the
purposes of part 43, swaps are economically related, as described in
Sec. 43.4(d)(4)(ii)(B), if such contract utilizes as its sole floating
reference price the prices generated directly or indirectly \289\ from
the price of a single contract described in appendix B to part 43.
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\289\ An ``indirect'' price link to an Enumerated Physical
Commodity Contract or an Other Contract described in appendix B to
part 43 includes situations where the swap reference price is linked
to prices of a cash-settled contract described in appendix B to part
43 that itself is cash-settled based on a physical-delivery
settlement price to such contract.
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For all off-facility swaps that reference an underlying asset(s) in
the ``other commodity'' asset class which are not listed on appendix B
to part 43, the Commission intends to propose special accommodations
for the public dissemination of transaction and pricing data in a
future Commission release to be published for comment in the Federal
Register. Until such time as the Commission adopts these special
accommodations, those off-facility swaps not listed in appendix B to
part 43 will not be required to comply with the real-time reporting and
public dissemination requirements under this part. However, such swaps
will be subject to the regulatory reporting requirements, described in
proposed part 45, when adopted.\290\ The Commission believes that the
phasing in of these illiquid, off-facility swaps in the ``other
commodity'' asset class addresses commenters' concerns that public
dissemination of such information would disclose the identities of the
parties, market positions or business transactions.\291\
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\290\ See 75 FR 76574.
\291\ As one commenter noted: ``A strict set of real-time
reporting rules could apply to all ``benchmark'' instruments that
have significant price-discovery functions, while non-benchmark
instruments could fall under a different set of real-time reporting
requirements. In so doing, the Commission would achieve the majority
of the price-discovery benefits without the danger of damaging the
market structure for the non-benchmark transactions that do not have
a meaningful price discovery function.'' CL-Coalition for
Derivatives End-Users at 4.
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The Commission is not persuaded by commenters' concerns that public
disclosure of ``other commodity'' swaps executed on or pursuant to the
rules of a SEF or DCM could disclose the identities of the parties.
Parties will execute swaps on or pursuant to the rules of a SEF or DCM
because either (i) the swap is subject to the trade execution mandate
of CEA section 2(h)(8) and therefore must be traded on a SEF or DCM; or
(ii) the swap is not subject to the trade execution mandate but the
parties voluntarily execute the swap on or pursuant to the rules of a
SEF or DCM.\292\ When counterparties voluntarily execute on or pursuant
to the rules of a SEF or DCM, the parties' choice to execute such swap
evidences their belief that the market is sufficiently liquid and has a
sufficient number of participants that the identity of the parties
cannot be reverse engineered; thus counterparties' business
transactions or market positions would not be discernible.\293\
[[Page 1212]]
The Commission believes that by voluntarily executing a swap on a SEF
or DCM, the swap counterparties are already consenting to price
transparency, regardless of the manner in which such transaction is
executed. If the parties believed that their identities, market
positions and business transactions could be exposed, they may choose
to enter into an off-facility swap. Accordingly, the Commission is
adopting Sec. 43.4(d)(4)(ii)(C) which requires that the actual
underlying physical commodity or referenced price or index must be
publicly disseminated by an SDR for any swap that is executed on or
pursuant to the rules of a SEF or DCM.\294\
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\292\ The Commission notes that a swap which is voluntarily
executed on or pursuant the rules of a SEF or DCM may or may not be
cleared at a DCO.
\293\ To the extent that counterparties avail themselves to the
rules of a SEF or DCM, they will typically choose to do for the
purpose of taking advantage of the liquidity of the SEF or DCM.
\294\ Section 43.4(d)(4)(ii)(C) includes the public
dissemination of the actual underlying physical commodity or
referenced price or index for all swaps executed on a SEF or DCM,
not just those that are made available for trading, and any block
trades executed pursuant to the rules of a SEF or DCM.
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The Commission's Proposing Release did not address the manner in
which a basis swap should be publicly disseminated and the Commission
received no comments addressing the issue. Basis swaps are swaps that
are cash-settled based on the difference in pricing of the same (or
substantially the same) commodity at different delivery points. Since
the parties to a basis swap price the difference between the same (or
substantially the same) commodity in two different locations and not
the underlying commodity itself, the Commission has not yet determined
how such swaps that reference commodities with specific delivery points
should be publicly disseminated. Accordingly, for this initial phase in
period, the Commission is not requiring the public dissemination of
basis swaps when such swap is not executed on or pursuant to the rules
of a SEF or DCM and when at least one leg is not based on one of the 28
Enumerated Physical Commodity Contracts or Other Contracts listed in
appendix B to part 43.
The Commission agrees that the Proposing Release did not provide
adequate certainty as to the reporting requirements applicable to the
reporting party to the swap. Accordingly, as described above, Sec.
43.4 does not require the reporting party to a swap or a SEF or DCM to
apply a standard which would ensure that transaction data would remain
anonymous. Section 43.4(d)(2) provides that for all swaps, the
reporting party must report the actual underlying asset and tenor to an
SDR. The SDR is responsible for applying the appropriate time delay,
rounding convention and notional cap prior to the public dissemination
of the swap transaction and pricing data. Furthermore, if the
underlying asset of the swap reported is an ``other commodity'' which
does not reference one of the Enumerated Physical Commodity Contracts
or Other Contracts described in appendix B to part 43, and is not
economically related to one of the 28 Enumerated Physical Commodity
Contracts or Other Contracts, the SDR which receives such data shall
not publicly disseminate such swap's transaction and pricing data at
this time.
6. Unique Product Identifier (Sec. 43.4(e))
Proposed Sec. 43.4(f) provided that if a unique product identifier
is developed that sufficiently describes one or more data fields as set
forth in appendix A to part 43, then the unique product identifier may
be used in lieu of the data fields that it describes. An SDR could
determine whether to publicly disseminate the UPI and may ask reporting
parties, SEFs and DCMs to provide the UPI as part of the swap
transaction and pricing data that must be reported to the SDR for
public dissemination.
Several commenters questioned this provision. One commenter stated
that multiple unique identifiers could be assigned by different
regulators to the same financial entity for the products traded by such
entity, unnecessarily creating compliance burdens, operational
difficulties, and opportunities for confusion.\295\ Another contended
that any rule regarding product identifiers should require that they be
made available on a ``commercially reasonable basis.'' \296\ Yet
another stated that unique product identifiers should be in place
before real-time public reporting begins.\297\ The commenter argued
that it would be expensive to begin real-time public reporting without
unique product identifiers and then have to change systems to account
for new unique product identifiers.
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\295\ See CL-ICI.
\296\ See CL-MarkitSERV.
\297\ See Meeting with Credit Suisse (April 15, 2011).
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The Commission acknowledges that multiple unique identifiers could
be assigned by different regulators to the same financial entity but
notes as well that the industry, the Commission and prudential
regulators are currently working to develop unique product identifiers
for the industry.\298\ The Commission continues to work with other
regulators and market participants to provide support during the
development process for unique product identifiers. However, discussion
of the assignment process for unique product identifiers is outside the
scope of this rulemaking and the Commission does not find it
appropriate to make compliance with the part 43 rules contingent upon
the existence of unique product identifiers.
---------------------------------------------------------------------------
\298\ The Technology Advisory Committee Subcommittee on Data
Standards is one such group that is working to develop unique
product identifiers.
---------------------------------------------------------------------------
For the reasons discussed above, the Commission has determined that
no substantial modifications are necessary to proposed Sec. 43.4(f).
The Commission has made only technical and conforming changes to Sec.
43.4(f). For example, the section was renumbered as Sec. 43.4(e), and
the ``43'' was inserted after ``of this part.''
7. Reporting of Notional or Principal Amounts to a Registered Swap Data
Repository (Sec. 43.4(f))
The information related to the ``price-forming continuation data''
that must be publicly disseminated is included in the definition for
``publicly reportable swap transaction.'' Accordingly, because such
provision is redundant, the Commission is not adopting proposed Sec.
43.4(g).
8. Public Dissemination of Rounded Notional or Principal Amounts (Sec.
43.4(g))
Proposed Sec. 43.4(i) established a rounding convention for the
public dissemination of all swaps, as follows:
The notional or principal amount data fields described in
appendix A to this part shall be publicly disseminated as follows:
(1) If the notional or principal amount is less than 1 million,
round to nearest 100 thousand;
(2) If the notional or principal amount is less than 50 million
but greater than 1 million, round to the nearest million;
(3) If the notional or principal amount is less than 100 million
but greater than 50 million, round to nearest 5 million;
(4) If the notional or principal amount is less than 250 million
but greater than 100 million, round to the nearest 10 million;
(5) If the notional or principal amount is greater than 250
million, round to ``250+.
Several commenters supported the rounding convention as an
effective way to protect the anonymity of swap counterparties and
recognized that rounding would provide a degree of protection against
the front-running of larger transactions.\299\ Some commenters
contended that because markets vary, so too should the
[[Page 1213]]
rounding convention and notional caps in order to account for the
differences in trade sizes and liquidities in different markets.\300\
These commenters asserted that these considerations would ensure that
material information is not disclosed.\301\
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\299\ See CL-Coalition for Derivatives End-Users; CL-WMBAA; and
CL-MFA.
\300\ See CL-WMBAA; CL-MFA; CL-MetLife; and CL-ISDA/SIFMA.
\301\ Id. If market participants in an illiquid market know that
a large swap has been executed, they may be able to identify at
least one counterparty, as well as certain market positions or
business transactions.
---------------------------------------------------------------------------
One commenter supported the use of a rounding convention but did
not believe the Proposing Release considered the particularity of
specific categories of swaps.\302\ The commenter suggested that the
Commission adopt a more nuanced and granular rounding convention that
recognizes that various categories of swaps and their markets.\303\
Another commenter argued that the Proposing Release's perceived failure
to consider the liquidity, type and tenor of swaps would lead to
increased costs for market participants who transact in bespoke swaps
in illiquid markets.\304\ This commenter further stated that SDs'
concerns about the front-running of large transactions would cause them
to include an additional premium in their swaps pricing, which
ultimately would lead to increased costs of hedging in illiquid
markets, and that such costs would, in turn, be passed on to end-users.
In contrast, one commenter argued that a rounding convention should not
be used and that the notional or principal amounts for all swaps should
be publicly disseminated.\305\
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\302\ See CL-Coalition for Derivatives End-Users.
\303\ Id.
\304\ See CL-ABC/CIEBA.
\305\ See CL-Chris Barnard.
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The Commission believes that the actual notional or principal
amount should be reported to an SDR by reporting parties, SEFs and
DCMs. Accordingly, the Commission is adopting Sec. 43.4(f), to assign
responsibilities to reporting parties, SEFs and DCMs for reporting the
notional or principal amount of a swap to an SDR. As adopted, Sec.
43.4(f)(1) and (2) are similar to the provisions in proposed Sec.
43.4(h)(1) and (2); however, certain conforming and clarifying changes
have been made to these rules in light of changes to other provisions
of the part 43 regulations.\306\
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\306\ Similarly, proposed part 45 requires that the actual
notional or principal amount be reported for the purposes of
regulatory reporting to registered swap data repositories.
---------------------------------------------------------------------------
The Commission agrees that the rounding convention should be more
nuanced to take into account the various types of swaps in different
asset classes. However, the Commission does not believe it is necessary
to have a different rounding convention for each asset class and sub-
asset class. Rather, as explained below, the Commission is adopting
different notional caps based on asset class as defined in Sec. 43.2
and is separating the notional caps from the rounding convention.\307\
The rounding convention is intended to protect the anonymity of swap
counterparties. In addition, the rounding convention, combined with the
notional caps discussed below and adopted in Sec. 43.4(h), will
inhibit parties who may seek to front-run a swap transaction,
especially for large swap transactions.
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\307\ The term ``asset class'' is defined in Sec. 43.2 and
discussed in section II.B.2. (``Defined Terms'').
---------------------------------------------------------------------------
The Commission does not believe the actual notional or principal
amounts should be publicly disseminated. The public dissemination of
the exact notional or principal amount presents a risk that
confidential information would be disclosed in violation of CEA section
2(a)(13). In the Adopting Release, the Commission has revised its
proposed rounding convention to adopt a more granular rounding
convention in Sec. 43.4(g). This rounding convention will apply to all
swaps and should be read in conjunction with the notional caps provided
in Sec. 43.4(h), which are asset class specific.\308\ The Commission
believes that even with the rounding convention, price discovery will
be enhanced, as market participants and the public will gain an
understanding of the sizes of swaps in particular asset classes while
the identities of the parties, market positions and business
transactions are protected.
---------------------------------------------------------------------------
\308\ Section 43.4(g) provides:
``Rounding of notional or principal amount. The notional or
principal amount data fields, as described in appendix A to this
part, shall be rounded as follows:
(1) If the notional or principal amount is less than 1,000,
round to nearest five, but in no case shall a publicly disseminated
notional or principal amount be less than five;
(2) If the notional or principal amount is less than 10 thousand
but equal to or greater than 1 thousand, round to nearest 1 hundred;
(3) If the notional or principal amount is less than 100
thousand but equal to or greater than 10 thousand, round to nearest
1 thousand;
(4) If the notional or principal amount is less than 1 million
but equal to or greater than 100 thousand, round to nearest 10
thousand;
(5) If the notional or principal amount is less than 100 million
but equal to or greater than 1 million, round to the nearest 1
million;
(6) If the notional or principal amount is less than 500 million
but equal to or greater than 100 million, round to the nearest 10
million;
(7) If the notional or principal amount is less than 1 billion
but equal to or greater than 500 million, round to the nearest 50
million;
(8) If the notional or principal amount is less than 100 billion
but equal to or greater than 1 billion, round to the nearest 1
billion;
(9) If the notional or principal amount is greater than 100
billion, round to the nearest 50 billion.''
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9. Public Dissemination Caps on Notional or Principal Amounts (Sec.
43.4(h))
Proposed Sec. 43.4(h)(2)(i) established a cap on the public
dissemination of notional or principal amounts that were embedded in
the proposed rounding convention. The notional caps in the Proposing
Release provided that, for all swaps, regardless of asset class or
place of execution, ``[i]f the notional or principal amount is greater
than 250 million, round to `250+''' for public dissemination
purposes.\309\ The Commission proposed the notional cap to ensure the
anonymity of the parties to a large swap and maintain the
confidentiality of business transactions and market positions.
---------------------------------------------------------------------------
\309\ Real-Time NPRM supra note 6, at 76174.
---------------------------------------------------------------------------
The majority of comments addressing notional caps supported their
use. Many commenters suggested modifications to the Proposing Release
based on the belief that notional caps should be more granular to
account for the differences in tenor, asset class, types of swaps and
liquidity of different markets.\310\
---------------------------------------------------------------------------
\310\ See CL-ABC/CIEBA. (``For instance, an interest rate swap
with a 2 year duration may be highly liquid and thus the threshold
of $250 million as the highest rounding threshold might be
appropriate. However, an interest rate swap with a 35 year duration
may be off-market and illiquid, and typical trades may be
significantly less than $250 million, and as such, a lower rounding
threshold would be appropriate.''). Id. at 9. See also CL-ISDA/
SIFMA; CL-MetLife.
---------------------------------------------------------------------------
Many commenters criticized the proposed cap of $250 million as too
high and contended that the Commission failed to consider market
liquidity, duration and type of swap. One commenter stated that the
notional cap was sufficient to permit the most liquid interest rate
derivative products to be executed in very large sizes and to enable
dealers to offset risk, confident that the market does not know the
actual size of the transaction.\311\ Another believed that the proposed
notional cap unfairly disadvantaged the natural hedgers in the
marketplace. These market participants may have specific portfolio
needs that require trading swaps with longer tenors, which are less
standardized and are more illiquid.\312\
---------------------------------------------------------------------------
\311\ See CL-Coalition of Derivatives End-Users.
\312\ See CL-SIFMA AMG (``For instance, for a low duration,
plain vanilla, highly liquid swap, $250 million as the highest
rounding threshold might be appropriate. For a higher duration, less
standardized and more illiquid swap, a large trade is typically
significantly less than $250 million in notional amount, and a much
lower rounding threshold would be appropriate.''). Id. at 5.
---------------------------------------------------------------------------
Others suggested that the Commission set the notional cap at the
[[Page 1214]]
predetermined, appropriate minimum block trade size.\313\ Several
commenters agreed that the Commission should use FINRA's Trade
Reporting and Compliance Engine (``TRACE'') framework to establish caps
for public dissemination of the notional or principal amounts of
swaps.\314\ One commenter believed that a TRACE-like approach, whereby
full trade information is provided to regulators and publicly
disseminated within a size range, would sufficiently protect
counterparty anonymity and preserve liquidity and price competition in
the markets.\315\ Another commenter opined that the use of a TRACE-type
volume dissemination cap would ensure end-users have sufficient sources
of liquidity.\316\ Another wrote that if the Commission extended the
TRACE masking framework to swaps, the masking thresholds for plain
vanilla fixed-floating interest rate swaps would be: $8 Million for 2
year interest rate swaps; $3 million for 5 year interest rate swaps;
and $1 million for 10-year and 30-year interest rate swaps.\317\
However, this commenter recognized these notional caps were extremely
low and suggested, as an alternative, that the Commission set the
notional cap at the social size (as defined in proposed Sec.
43.2(x)).\318\
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\313\ See CL-UBS; CL-SDMA; and CL-WMBAA.
\314\ See Real-Time NPRM supra note 6, at 76161; CL-WMBAA.
\315\ See CL-WMBAA.
\316\ See CL-ISDA/SIFMA.
\317\ See CL-JPM. The commenter calculated the suggested masking
thresholds by ``computing how much market risk is represented by the
TRACE masking thresholds and using those numbers to map the masking
thresholds into other asset classes.'' Id. at 13. This commenter
also suggested that the Commission should set masking levels near
the level that represents the dividing line between retail and
institutional trades.
\318\ Id. In the Proposing Release, ``social size'' was defined
to mean ``the greatest of the mode, median and mean transaction
sizes for a particular swap contract or swap instrument, as commonly
observed in the marketplace.'' Real-Time NPRM supra note 6, at
76172.
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One commenter recommended that the Commission create a tiered
system for different categories of swaps.\319\ This commenter suggested
the following notional cap thresholds for interest rate swaps: $250
Million for swaps with 0-2 year tenors; $200 million for swaps with 2-5
year tenors; $100 million for swaps with 6-10 year tenors; $75 million
for interest rate swaps with 11-20 year tenors; and $50 million for
swaps with tenors over 20 years.\320\ The commenter also suggested
three to five year tenor buckets and differentiating between high yield
and investment grade for credit index swaps.\321\
---------------------------------------------------------------------------
\319\ See CL-PIMCO.
\320\ Id.
\321\ See Meeting with PIMCO (February 4, 2011).
---------------------------------------------------------------------------
Another commenter advocated that notional amounts for commodity
swaps be reported and disseminated by units of measure (e.g., MMBtus
for gas, MWh for power, etc.) rather than in dollar amounts.\322\ This
commenter asserted that the sizes of commodity trades are typically
smaller than interest rate swap trades, and therefore the notional cap
should be smaller to take into account this difference.\323\
---------------------------------------------------------------------------
\322\ See CL-ISDA/SIFMA.
\323\ Id.
---------------------------------------------------------------------------
One commenter suggested that the Commission could require end of
day reporting of swap notional size to regulators until an appropriate
minimum block size can be appropriately set, provided that all trades
above a certain notional threshold would be reported as ``$X or
above.'' This commenter recommended that the Commission revisit the
threshold amounts periodically and that the effects on market liquidity
be studied.\324\
---------------------------------------------------------------------------
\324\ See CL-FIA/FSF/ISDA/SIFMA.
---------------------------------------------------------------------------
Another commenter believed the Commission should set notional caps
(embedded in the rounding convention) only after the Commission has had
the opportunity to analyze data from an SDR.\325\ Two commenters
objected to the Commission's proposal to use notional caps on the
ground that failure to report the actual notional or principal amount
would result in underreporting and would fail to enhance price
discovery.\326\ Another, citing the substantial volume of trading in
the FX markets, suggested that the Commission set a notional floor
threshold of $1 million whereby all FX swaps which are smaller than the
threshold would not be reported.\327\
---------------------------------------------------------------------------
\325\ See CL-ABC/CIEBA.
\326\ See CL-Chris Barnard; CL-SDMA.
\327\ See CL-GFXD.
---------------------------------------------------------------------------
A commenter stated that accurate aggregate trade volumes by
instrument should be computed and disseminated by the end of the day,
independent of the choice of masking threshold, and that un-masked
trade-by-trade notional amounts should eventually be disseminated after
the application of both the masking rule and timing delays in order to
facilitate analysis of market trends by market participants and
academics.\328\
---------------------------------------------------------------------------
\328\ See CL-JPM.
---------------------------------------------------------------------------
The Commission agrees with many of the comments and has, for some
asset classes, adjusted the notional caps to take into account the
differences between various types of swaps.\329\ In Sec. 43.4(h), the
Commission proposed notional caps for public dissemination purposes.
The Commission agrees that a ``one-size-fits-all'' notional cap was
inappropriate, and accordingly has established notional caps according
to each asset class. Additionally, the Commission extracted the
notional caps from the rounding convention and made it a stand-alone
section in the final rule to provide the flexibility to adjust the
notional caps--as the Commission may determine is appropriate or when
an appropriate minimum block size is determined--without having to also
change the rounding convention.
---------------------------------------------------------------------------
\329\ The Commission notes that many comments discussed ``block
trades'' as being the only trades which would be able to avail
themselves of the notional cap. The Commission did not intend the
notional cap to be available only to swaps which would be considered
``block trades'' under the proposed rule, but rather intended that
the notional cap be available to all swaps which were greater than a
notional or principal amount of $250 MM.
---------------------------------------------------------------------------
The notional caps provided in Sec. 43.4(h) will apply until an
appropriate minimum block size is established for a particular group of
swaps. However, when an appropriate minimum block size is established
for a particular asset class, the notional cap will be adjusted to
align with the appropriate minimum block size.\330\ The Commission also
agrees with commenters that the appropriate minimum block size should
have a direct relationship to the notional cap. The Commission believes
that the notional cap for a publicly reportable swap transaction should
never be less than the appropriate minimum block size for such swap.
---------------------------------------------------------------------------
\330\ The Commission's block trade re-proposal will address the
notional caps as they align with the appropriate minimum block
sizes.
---------------------------------------------------------------------------
The Commission has provided notional caps because it believes that
market participants' anonymity should be protected during the period
before appropriate minimum block trade sizes are established as well as
after the establishment of appropriate minimum block sizes. The
notional caps should be read in conjunction with the rounding
convention of Sec. 43.4(g) and the publicly reportable data fields
provided in appendix A to part 43. The Commission believes that the
notional caps, the rounding convention and the data fields required to
be publicly disseminated will adequately protect counterparties'
identities, business transactions and market positions. The Commission
further believes that the public dissemination of the capped notional
amount, as opposed to the actual notional or principal amount, will
help to prevent front-running of very large trades. In turn, the
Commission expects
[[Page 1215]]
that the public dissemination of a notional cap for large trades will
not adversely impact market liquidity because market participants will
not have to exit the market over concerns that they will be unable to
adequately offset their risk without being front run.\331\
---------------------------------------------------------------------------
\331\ Commenters' concerns about front running are substantially
mitigated by the time delays for public dissemination. See Time
Delays discussion and Sec. 43.5.
---------------------------------------------------------------------------
The Commission has considered the specific examples and data
provided by the commenters for interest rate swaps and agrees that
interest rate swaps with different tenors should be provided with
different notional caps. The differences take into account the fact
that interest rate swaps with longer-dated tenors tend to have smaller
notional amounts than those with shorter dated tenors. The difference
in notional amounts between longer tenor interest rate swaps (e.g., 30
year) and shorter dated interest rate swaps (e.g., three months) can be
attributed to the risk exposure that counterparties are willing to
assume for such swaps. Because market participants are willing to
assume larger notional sizes based on the duration-adjusted risk of the
swap, large trade sizes are more frequently executed for interest rate
swaps with a short tenor, as compared to those interest rate swaps with
a longer tenor. Therefore, the Commission believes that the notional
cap for short term interest rate swaps should be greater than the
notional cap for interest rate swaps with longer tenors.
Accordingly, the Commission is providing the following ``interim''
notional caps until such time as an appropriate minimum block size is
established. These notional caps are required to be applied by an SDR
prior to the public dissemination of the swap transaction and pricing
data.\332\
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\332\ As discussed above, pursuant to Sec. 43.3(f)(1) and (2),
reporting parties, SEFs and DCMs are required to send the actual
notional or principal amount of a publicly reportable swap
transaction to a SDR. The SDR is then responsible for publicly
disseminating the rounded (and capped, if applicable) amount.
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For Short Term (0-2 year (including 2 year)) interest
swaps: $250 MM;
For Intermediate Term (2-10 year (including 10 year))
interest rate swaps: $100 MM; and
For Long Term (Greater than 10 year): $75 MM.
For credit swaps (broad-based group or index), pursuant to Sec.
43.4(h)(2), the Commission considered specific examples provided by the
commenters in establishing the notional caps for credit index swaps. In
the Commission's view, the proposed cap of $250 MM was too high as an
interim cap for credit swaps. The Commission recognizes that while
certain credit indices may trade at larger notional values than other
indices, one cap for the asset class is appropriate for an interim
notional cap. Accordingly, the Commission is setting the notional cap
for all credit swaps (broad-based group or index) at $100 MM.
The Commission is retaining the $250 MM notional cap for both the
equity (broad-based group or index) and FX asset classes. The
Commission is confident that a $250 MM notional cap, along with the
rounding convention discussed above, will sufficiently protect the
anonymity, business transactions and market positions of the
counterparties who engage in trades of a large size in these
markets.\333\
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\333\ No commenters addressed this proposal with respect to
notional caps for the equity and FX asset classes.
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The Commission agrees that the notional cap for commodity swaps
should be lower than for other swaps and is setting the interim
notional cap for ``other commodities'' at $25 MM. The Commission made
this determination after reviewing block trade sizes for various
commodities in the futures markets, exchange of futures for swaps
(``EFS'') data on futures, and net position change data in
futures.\334\ The Commission believes that setting the interim notional
cap at such a low notional or principal amount will allow traders
entering into very large swaps in the various ``other commodity''
markets a sufficient opportunity to hedge a swap transaction in the
market, and will protect the identities, business transactions and
market positions of those counterparties who enter into large commodity
swaps.
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\334\ See Sec. 43.4(h)(5).
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For the ``other commodity'' asset class, the Commission agrees that
``other commodity'' swaps are typically smaller than interest rate
swaps. However, the Commission does not agree that it is appropriate to
determine the notional cap according to units for each particular
``other commodity;'' such a rule is unnecessarily complicated and will
lead to inconsistency across the various types of commodities and
across all asset classes. Thus, the Commission believes that, at this
time, the notional cap should be expressed as a dollar amount that will
apply to all ``other commodities'' and not by different units of
measurement (e.g., barrels, MWh, etc.). The Commission anticipates that
a determination of whether a swap is capped will depend on whether the
price of the underlying commodity as multiplied by the number of units
is above the notional cap. Further, the Commission anticipates that the
publicly disseminated information for a particular underlying asset may
be in units that are adjusted based on the $25 MM cap described below.
For example, if crude oil is priced at $100 a barrel and two parties
enter into a swap with a notional value of 260,000 barrels, the SDR may
publicly disseminate ``$25 MM+'' or may publicly disseminate ``250,000
bbl+.''
E. Section 43.5--Time Delays for Public Dissemination of Swap
Transaction and Pricing Data
CEA section 2(a)(13)(E)(iii) provides that, with respect to cleared
swaps, the rule promulgated by the Commission shall contain provisions
``to specify the appropriate time delay for reporting large notional
swap transactions (block trades) to the public.'' In exercising its
authority under CEA section 2(a)(13)(B) to ``make swap transaction and
pricing data available to the public in such form and at such times as
the Commission determines appropriate to enhance price discovery,'' the
Commission is authorized to prescribe rules reflecting those provisions
in CEA section 2(a)(13)(E)(iii) for uncleared swap transactions
described in CEA sections 2(a)(13)(C)(iii) and (iv). Consistent with
the Commission's statutory obligations, proposed Sec. 43.5(k)(1)
specified that the time delay for the public dissemination of swap
transaction and pricing data for a block trade or large notional swap
shall commence at the time of execution of such block trade or large
notional swap.\335\
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\335\ Proposed Sec. 43.2(l) defined the term ``large notional
swap.'' This term has been modified in final Sec. 43.2 to be called
``large notional off-facility swap.'' Accordingly, all references to
``large notional swap'' shall be interchangeable with the term
``large notional off-facility swap'' for the purposes of this final
rule.
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Proposed Sec. 43.5(k)(2) set the time delay for public reporting
of standardized block trades and large notional swaps \336\ at 15
minutes from the time of execution. The Proposing Release did not
provide specific time delays for customized large notional off-facility
swaps. Instead, proposed Sec. 43.5(k)(3) provided that public
dissemination of ``customized'' large notional swaps would be subject
to a time delay that may be prescribed by the Commission. The
Commission also noted in the preamble to the Proposing Release a
presumption that large notional swaps in the equity, credit,
[[Page 1216]]
foreign exchange and interest rate asset classes (i.e., financial
swaps) would be subject to the same 15 minute time delay proposed for
block trades. The Commission solicited comments addressing whether 15
minutes would be an appropriate time delay for large notional swaps in
the ``other commodity'' asset class, but acknowledged that longer time
delays for the ``other commodity'' asset class may be appropriate.\337\
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\336\ For example, those swaps that fall under CEA section
2(a)(13)(C)(i) and (iv)--swaps subject to the mandatory clearing
requirement or otherwise required to be cleared.
\337\ The Commission asked specific questions regarding time
delays for large notional off-facility swaps. See Real-Time NPRM
supra note 6, at 76167.
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Twenty-three commenters expressed the view that the time delays for
publicly disseminating block trades and large notional off-facility
swaps should be longer than those described in the Proposing Release.
The commenters recommended several alternatives for various types of
swaps. Specifically, commenters recommended a range of time delays for
public dissemination of block trades and large notional off-facility
swaps, including end-of-day, 24 hours, T+1, T+2 for large notional
swaps,\338\ a minimum of four hours and 180 days.\339\ One commenter
recommended beginning with a time delay for block trades of 75 minutes
and then decreasing the time delay to between 15 minutes and 45
minutes.\340\ The approach described by this commenter would be similar
to the method for reducing time delays utilized by TRACE. The same
commenter recommended that the time delay for large notional swaps
should be at least 24 hours.\341\ Five commenters advised the
Commission to adopt tiered time delays based on average daily trading
volume or appropriate minimum block size.\342\ One recommended that the
time delay should be set at the lesser of time it takes a dealer to
cover its risk and 24 hours after execution.\343\ Another commenter
recommended that illiquid trades be allowed to report weekly; the same
commenter recommended that the Commission conduct an exhaustive study
of illiquid bilateral contracts before deciding on an appropriate time
delay.\344\
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\338\ See supra note 97.
\339\ See CL-BlackRock; CL-Coalition for Derivatives End-Users;
CL-Chesapeake Energy; CL-PIMCO; CL-SIFMA AMG; CL-ATA; CL-Freddie
Mac; CL-ICI; CL-Vanguard; CL-Working Group of Commercial Energy End-
users; CL-MFA; CL-MetLife; CL-Fannie Mae; CL-Jackson; CL-Eris; and
CL-Encana.
\340\ See CL-FHLBanks.
\341\ The Commission notes that although these commenters are
suggesting time delays for block trades and large notional off-
facility swaps, the Commission is not considering appropriate
minimum block sizes in this Adopting Release.
\342\ See CL-JPM; CL-WMBAA; CL-Barclays; CL-MetLife; and CL-GS.
\343\ See CL-ATA.
\344\ See CL-MS.
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A commenter recommended that the time delay for financial swaps
should be one minute or, alternatively, that there should be no delay.
This commenter argued that a time delay must be directly related to the
market in which the block trade or large notional swap is
executed.\345\
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\345\ See CL-Better Markets.
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Several commenters cautioned that the Commission needs more data
before it can set time delays for block trades and large notional
swaps.\346\ For example, one commenter noted that there is currently
insufficient trading data available on which to base the determinations
for block trades and public dissemination delays.\347\ This commenter
suggested waiting until SDRs have collected the relevant data for the
Commission to analyze.
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\346\ See, e.g., CL-JPM; CL-Barclays; CL-Coalition for
Derivatives End-Users; CL-FHLBanks; CL-ISDA/SIFMA; CL-SIFMA AMG; CL-
Freddie Mac; CL-GFXD; CL-ABC/CIEBA; CL-ATA; CL-Cleary; CL-ICI; and
CL-MFA.
\347\ See CL-SIFMA AMG.
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In its Proposing Release, the Commission solicited comments on the
appropriate time delays for ``customized'' large notional swaps,
particularly for commodity swaps with physical underlying assets.
Several commenters stated that different markets should have different
time delays for public dissemination of block trades and large notional
swaps. Specifically, one commenter stated that time delays should be
based on asset class, two commenters advised that longer time delays
are appropriate for swaps with underlying physical risk (e.g., large
notional customized commodities trades); two commenters argued that
reporting should be tailored for illiquid markets; and one commenter
stated that time delays should be tailored within the foreign exchange
asset class.\348\ Another commenter stated that time delays should
initially be based on current market practices.\349\
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\348\ See CL-ATA; CL-Barclays; CL-MS; CL-GFXD; CL-ISDA/SIFMA;
and CL-BlackRock.
\349\ See CL-Committee on Capital Markets Regulation.
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One commenter contended that time delays should not be based on the
method of execution or market participant and that a 15 minute time
delay is adequate.\350\ This commenter expressed concern that the voice
or hybrid systems would be allowed a longer delay over their electronic
competitors and recommended that there be one universal time delay.
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\350\ See CL-SDMA.
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A commenter argued that smaller transactions in illiquid markets
should be handled similarly to block trades with respect to time
delay.\351\ This commenter stated that, in illiquid markets, the
notional or principal size of a swap may be lower and therefore may not
qualify as a block trade or large notional swap. The commenter further
explained that time delays for swaps with lower notional or principal
amounts in illiquid markets may be just as important as the time delays
for very large trades in more liquid markets.
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\351\ See CL-ATA.
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Commenters addressed harmonization between the CFTC and SEC time
delay provisions. Some of these commenters asserted that the failure to
harmonize the two Commissions' rules could create arbitrage
opportunities.\352\ One commenter asserted that differences in market
structure for swaps and SBS, particularly with regard to end-user
participation in the commodity swap markets, should be reflected in the
rules.\353\
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\352\ See, e.g., CL-Tradeweb; CL-CME; CL-Markit.
\353\ See CL-NFPEEU.
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After considering the comments discussed above, the Commission is
adopting Sec. 43.5 to address time delays for the public dissemination
of swap data as described below. As adopted, Sec. 43.5 incorporates
the language from proposed Sec. 43.5(k)(1) and replaces the language
in proposed Sec. 43.5(k)(2) and (3) in order to address commenters'
concerns and recommendations and to clarify the time delays for public
dissemination of real-time data in consideration of the type of market
participant, method of execution and asset class. Additionally, Sec.
43.5 adopts interim time delays for all swaps until such time as
appropriate minimum block sizes are finalized in a forthcoming
Commission release.
One commenter indicated that SEFs and DCMs should have the
technological capability to electronically report the data fields
described in proposed part 45.\354\ To ensure consistency and reduce
reporting costs to market participants, the Commission has coordinated
the time delays in this rule with the timeframes for regulatory
reporting in the proposed part 45 (``Swap Data Recordkeeping and
[[Page 1217]]
Reporting Requirements'') rules.\355\ The Commission anticipates that
reporting parties may use one data reporting stream for both regulatory
and real-time reporting to reduce costs and optimize efficiency.\356\
Accordingly, Sec. 43.5, as adopted, harmonizes the time delays between
the two regulatory requirements.
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\354\ See CL-Tradeweb. The Commission notes that, since the data
that is being required to be publicly disseminated under part 43 and
reported for regulatory purposes (as described in proposed part 45)
are substantially similar, the ability for SEFs and DCMs to report
the data fields required for regulatory purposes indicates that SEFs
and DCMs should be able to report the data to an SDR that is
required for public dissemination under part 43.
\355\ See 75 FR 76574.
\356\ However, the Commission notes that although the same data
stream for reporting may be utilized by reporting parties, SEFs and
DCMs, real-time data for public dissemination and regulatory data
required to be sent to an SDR are viewed as separate regulatory
requirements.
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The Commission has added Sec. 43.5(b) to clarify the SDR's
responsibilities to publicly disseminate swap transaction and pricing
data that is subject to a time delay. Section 43.5(b) provides that,
with respect to any time delay that is associated with a particular
swap, the SDR shall publicly disseminate the swap transaction and
pricing data upon the precise expiration of the time delay specified in
Sec. 43.5 and as further described in appendix C to part 43 (``Time
Delays for Public Dissemination''). The time delay period is measured
from the time of execution of the swap transaction; in this regard, all
publicly reportable swap transactions are required to have an execution
timestamp. An SDR must hold the data for public dissemination for the
precise amount of time specified in Sec. 43.5, as measured from the
execution timestamp.\357\ For any publicly reportable swap transaction
that is not subject to a time delay pursuant to Sec. 43.5 or that is
received by an SDR after a time delay has expired, such publicly
reportable swap transactions shall be publicly disseminated by the SDR
``as soon as technologically practicable'' after the SDR receives the
swap transaction and pricing data.
---------------------------------------------------------------------------
\357\ Appendix A to part 43 describes the ``execution
timestamp'' requirement for public dissemination. See discussion,
infra.
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One commenter recommended that the Commission require end of day
reporting of aggregate trade volumes in order to facilitate analysis of
market trends by market participants and the academic community.\358\
Several other commenters recommended that the Commission phase in the
real-time public reporting of swap transaction and pricing data.\359\
The Commission acknowledges the commenter's concern that certain swaps
in illiquid markets may have small notional sizes, but may still need a
time delay. In response, the Commission in adopting Sec. 43.5(c) which
provides interim time delays for all swaps, not just block trades and
large notional off-facility swaps, but only to the extent that such
swaps do not have an appropriate minimum block size.\360\ As previously
discussed, the Commission intends to address appropriate minimum block
sizes in its block trade re-proposal. Accordingly, it is possible that
compliance with part 43 may be required before the establishment of
appropriate minimum block sizes for certain asset classes and/or
groupings of swaps within an asset class. In order to address this
situation, Sec. 43.5(c) allows all swaps that do not have established
appropriate minimum block sizes to utilize the time delays set forth in
final Sec. 43.5(d)-(h). As appropriate minimum block sizes are
established for a particular category of swap, all swaps in such
category that are below the appropriate minimum block size must be
publicly disseminated ``as soon as technologically practicable'' after
execution.\361\ Those swaps that are at or above the appropriate
minimum block size will continue to receive the time delays set forth
in Sec. 43.5(d)-(h).
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\358\ See CL-JPM.
\359\ See comments relating to Implementation and Phase in
discussed in section IV (``Effectiveness/Implementation and Interim
Period'') below.
\360\ In addition to the initial temporary time delays for all
swaps without appropriate minimum block sizes, as provided in final
Sec. 43.5(c), Sec. 43.4(g) and (h) provide a rounding convention
and caps on the public dissemination of notional or principal
amounts to be applied to all swaps in order to help protect
counterparties' anonymity and the parties' ability to hedge very
large transactions. See discussion above.
\361\ The Commission recognizes that the establishment of
appropriate minimum block sizes may be an ongoing process. Swaps
that do not have appropriate minimum block sizes would continue to
receive time delays pursuant to Sec. 43.5(c), however once a swap
has an appropriate minimum block size, only block trades and large
notional off-facility swaps will receive the time delays Sec. 43.5.
---------------------------------------------------------------------------
In response to commenters' arguments that the time delays for
public dissemination of block trades and large notional off-facility
swaps should be longer than 15 minutes, the Commission is phasing in
the time delays for public dissemination. The Commission recognizes
that it may take time for SEFs, DCMs and SDRs to ensure that the
appropriate technology is in place; and market participants may need
some phase in time to modify trading strategies to accommodate the new
real-time public reporting rules. Thus, the Commission believes that
providing longer time delays for public dissemination during the first
year or years of real-time reporting will enable market participants to
perfect and develop technology and to adjust hedging and trading
strategies in connection with the introduction post-trade
transparency.\362\
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\362\ TRACE, which introduced post-trade transparency into the
corporate bond market, followed a similar approach by reducing the
amount of time delay for public dissemination over time. See CL-JPM.
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As adopted, Sec. 43.5(d) describes the time delays for the public
dissemination of swap transaction and pricing data relating to block
trades executed pursuant to the rules of a SEF or DCM. With respect to
such swaps, the Commission is imposing an initial time delay of 30
minutes for the one year beginning on the compliance date \363\ (``Year
1'') and a 15-minute delay beginning on the first anniversary of the
compliance date. These time delays will be assigned to all block trades
executed pursuant to the rules of a SEF or DCM regardless of asset
class or whether such trade was made available for trading on the SEF
or DCM. The Commission believes that SEFs and DCMs will have the
technology available to ensure compliance to report data to SDRs within
the time delays for public dissemination described in this
section.\364\
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\363\ Compliance dates are described below in section III
(``Effectiveness/Implementation and Interim Period'').
\364\ See CL-Tradeweb.
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Further, until the Commission establishes an appropriate minimum
block size for a swap or group of swaps, the time delays set forth in
Sec. 43.5(d) shall apply to all swaps executed on or pursuant to the
rules of a SEF or DCM that do not have an appropriate minimum block
size (including swaps that are not made available for trading on the
SEF or DCM, but are executed on or pursuant to the rules of a SEF or
DCM), so that all such swaps will be subject to a 30 minute time delay
for public dissemination for Year 1 and a 15 minute time delay
beginning on the first anniversary of the compliance date, as described
in Sec. 43.5(c)(2). When an appropriate minimum block size is set for
a swap or group of swaps, and such swap is executed on or pursuant to
the rules of a SEF or DCM, swap transactions that fall below the
appropriate minimum block size are required to be publicly disseminated
``as soon as technologically practicable'' and only block trades would
be subject to a 30- or 15-minute time delay.\365\ The
[[Page 1218]]
Commission believes that parties that choose to execute on or pursuant
to the rules of a SEF or DCM consent to such price transparency; \366\
therefore shorter time delays for public dissemination (i.e., post-
trade transparency) are appropriate as compared to certain off-facility
swaps.
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\365\ To the extent that an appropriate minimum block trade size
is established after the compliance date of the rule, the time
delays for the block trades (and large notional off-facility swaps,
as described immediately below) would be reduced after the one year
period expires. For example, if the compliance date for an interest
rate swap is July 1, 2012 and an appropriate minimum block size for
interest rate swaps is effective on September 15, 2012, from June 1,
2012--September 14, 2012, all swaps in the interest rate asset class
would receive the time delays for ``Year 1.'' From September 15,
2012--June 30, 2013 only block trades and large notional off-
facility swaps in the interest rate asset class will receive the
time delays described under ``Year 1,'' while any swap in the
interest rate asset class that is not a block trade or large
notional off-facility swap must be reported and publicly
disseminated ``as soon as technologically practicable.'' In this
example, beginning on July 1, 2013 block trades and large notional
off-facility swaps in interest rates will receive the time delay
described for beginning on the first or second anniversary
(depending on the type of execution and market participants) and
non-block trades/non-large notional off-facility swaps in the
interest rate asset class would be required to be reported and
publicly disseminated ``as soon as technologically practicable''
after execution.
\366\ The price transparency with respect to SEFs and DCMs may
be in the form of pre-trade price transparency (depending on the
execution method) and post-trade price transparency (through sharing
swap execution data with those that have trading privileges on the
SEF or DCM).
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The Commission agrees that swaps in less liquid markets, as well as
large notional off-facility swaps, may be subject to longer time
delays, while shorter time delays are appropriate for swaps in more
liquid markets. Swaps in the ``other commodity'' asset class and swaps
in which non-SDs/non-MSPs are counterparties tend to be less liquid
(particularly when such parties are end-users) and may require
additional time to offset risk. The Commission also believes that large
notional off-facility swaps that are subject to the mandatory clearing
requirement (i.e., swaps that are not executed on or pursuant to the
rules of a SEF or DCM but are required to be cleared pursuant to CEA
section 2(h)(1) and Commission action) will tend to be more liquid than
other large notional off-facility swaps.\367\
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\367\ Such large notional off-facility swaps will only be
executed when there is an exception to the mandatory clearing
requirement and to the trade execution mandate.
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For large notional off-facility swaps subject to the mandatory
clearing requirement, the Commission believes that a distinction should
be made between different classes of reporting parties for the purposes
of time delays for public dissemination.\368\ Large notional off-
facility swaps that are subject to mandatory clearing and that have at
least one SD or MSP as a counterparty, should have the same time delays
as block trades executed pursuant to the rules of a SEF or DCM. The
Commission believes that SDs and MSPs will have the ability to report
real-time data to SDRs within the time delay periods. Further, the
Commission believes that a difference in the time delay between swaps
executed off-facility that are subject to the mandatory clearing
requirement and those executed on or pursuant to the rules a SEF or DCM
could discourage SDs and MSPs from executing such swaps on or pursuant
to the rules of a trading platform, which would inhibit the enhancement
of price discovery.
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\368\ Additionally, the Commission believes that off-facility
swaps that are excepted from the mandatory clearing requirement
pursuant to CEA section 2(h)(7) and those swaps that are determined
to be required to be cleared under CEA section 2(h)(2) but are not
cleared should not be included.
---------------------------------------------------------------------------
As adopted, Sec. 43.5(e) provides time delays for large notional
off-facility swaps that are subject to the mandatory clearing
requirement. Section 43.5(e)(1) provides that the time delays in Sec.
43.5(e) do not apply to (i) off-facility swaps that are excepted from
the mandatory clearing requirement in accordance with CEA section
2(h)(7) and the Commission's regulations; and (ii) those swaps that are
subject to the clearing mandate under CEA section 2(h)(2) but which are
not cleared.\369\ The swaps that are not covered by Sec. 43.5(e) are
subject to the longer time delays described in final Sec. 43.5(f)-(h).
---------------------------------------------------------------------------
\369\ The description of these two scenarios is derived from the
language in CEA Section 2(a)(13)(C).
---------------------------------------------------------------------------
Section 43.5(e)(2) applies to large notional off-facility swaps
that are subject to the mandatory clearing requirement, in which at
least one party to such swap is an SD or MSP. Real-time data relating
to such swaps shall be subject to a time delay for public dissemination
of 30 minutes for the first year beginning on the compliance date.
Section 43.5(e)(2)(B) specifies that the time delay shall be reduced to
15 minutes beginning on the first anniversary of the compliance date of
part 43. These time delays correspond to the time delays established in
Sec. 43.5(d) for block trades. The Commission believes that SDs and
MSPs will have the technology to ensure these swaps are reported to an
SDR prior to the expiration of the time delays for public
dissemination.\370\
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\370\ Accordingly, the Commission has sought to substantially
align the time delays for public dissemination with the timeframes
for regulatory reporting.
---------------------------------------------------------------------------
With respect to large notional off-facility swaps subject to the
clearing mandate in which neither party is an SD or MSP, such swaps
will receive a longer time delay for public dissemination than those
swaps in which an SD or MSP is a counterparty. The Commission believes
that reporting parties that are not SDs or MSPs and that do not invoke
the end-user exception pursuant to CEA section 2(h)(7) and Commission
regulations,\371\ may not have the same level of infrastructure or
reporting technology as SDs and MSPs. Large notional off-facility swaps
that are subject to the mandatory clearing requirement will tend to be
liquid and generally should be reported sooner than those not subject
to the mandatory clearing requirement. Making such swap transaction and
pricing data available to market participants quickly and efficiently
will enhance price discovery in these markets, while the longer time
delays for public dissemination in less liquid markets will provide
market participants with a longer period in which to hedge the risk
associated with their liquid large notional off-facility swaps.
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\371\ As mentioned above, Sec. 43.5(e)(1) excludes such swaps
from this category of time delays for public dissemination. Sec.
43.5(e)(1) also excludes swaps that are required to be cleared under
CEA section 2(h)(2) but are not cleared because no DCO is available
to clear.
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Accordingly, Sec. 43.5(e)(3), as adopted, provides longer time
delays for large notional off-facility swaps that are subject to
mandatory clearing and in which neither party is an SD or MSP.
Specifically, Sec. 43.5(e)(3)(A) provides that for Year 1, which
begins on the compliance date, such large notional off-facility swaps
shall be subject to a four hour time delay from the time of execution
to the time of public dissemination by the SDR. Section 43.5(e)(3)(B)
provides that beginning on the first anniversary of the compliance date
of part 43 and for the year following (``Year 2''), the time delay for
public dissemination will be reduced to two hours from the time of
execution; Sec. 43.5(e)(3)(C) provides that beginning on the second
anniversary of the compliance date and thereafter, the time delay for
large notional off-facility swaps will be reduced to one hour after
execution.
Additionally, Sec. 43.5(c)(3) provides that, until the Commission
establishes an appropriate minimum block size for a particular swap or
group of swaps, the time delays set forth in Sec. 43.5(e) shall apply
to publicly reportable swap transactions that do not have appropriate
minimum block sizes, with respect to (i) off-facility swaps that are
subject to the mandatory clearing requirement, excluding those off-
facility swaps that are excepted from the mandatory clearing
requirement pursuant to CEA section 2(h)(7); and (ii) those swaps that
are determined to be required to be cleared under CEA
[[Page 1219]]
section 2(h)(2) but which are not cleared. Those off-facility swaps
that are subject to (i) and (ii), immediately above, will follow the
time delay set forth in Sec. 43.5(e)(2) (i.e., 30 minutes for the year
beginning on the compliance date and 15 minutes beginning on the first
anniversary of the compliance date). Those off-facility swaps that are
subject to the mandatory clearing requirement in which neither party is
an SD or MSP will follow the time delay set forth in Sec. 43.5(e)(3)
(i.e., four hours for the year beginning on the compliance date, two
hours for the year beginning on the first anniversary of the compliance
date and one hour beginning on the second anniversary of the compliance
date). Once an appropriate minimum block size is established for a
particular swap or group of swaps, all swaps described in Sec. 43.5(e)
that are below the appropriate minimum block size shall be reported
``as soon as technologically practicable'' and only large notional off-
facility swaps shall receive the time delays for public dissemination
described in Sec. 43.5(e).
The Proposing Release stated a presumption that the time delay for
financial bilateral swaps would be shorter than the time delay for non-
financial bilateral swaps. In this regard, two commenters asserted that
commodity swaps should have longer time delays for public dissemination
than swaps in other asset classes; one stated that financial swaps
should have shorter time delays than ``other commodity'' swaps. The
Commission agrees and believes that a distinction should be made
between swaps that are in the interest rates, equity, credit and
foreign exchange asset classes (i.e., financial swaps) and swaps in the
``other commodity'' asset class, since such ``other commodity'' swaps
generally have physical commodities as the underlying asset or
reference price/index. The Commission believes a longer time delay for
the ``other commodity'' swaps is necessary because (i) such swaps
reference underlying physical commodities; and (ii) the hedging
strategies for swaps in the ``other commodity'' asset class are
generally more complex and may take longer than financial swaps (e.g.,
interest rate swaps, which can be quickly hedged in the swaps, futures
or treasury markets).
As adopted, Sec. 43.5(f) provides the time delays for public
dissemination of large notional off-facility swaps in the interest
rate, credit, foreign exchange and equity asset classes, that are not
subject to the mandatory clearing requirement (or are excepted from
such requirement pursuant to CEA section 2(h)(7)), in which at least
one party is an SD or MSP. Section 43.5(f)(1) provides that the time
delay for such large notional off-facility swaps for Year 1 shall last
for one hour following execution of such large notional off-facility
swap. However, Sec. 43.5(f)(1) includes a provision applicable to
those large notional off-facility swaps in the interest rate, credit,
foreign exchange and equity asset classes in which the non-SD/non-MSP
counterparty is not a financial entity, as defined in CEA section
2(h)(7)(C) and Commission regulations.\372\ Under this provision, for
situations where real-time swap transaction and pricing data is
received by the SDR later than one hour after the time of execution,
the SDR must publicly disseminate such data ``as soon as
technologically practicable'' after it receives such data. The purpose
of this accommodation is to align the time delays for public
dissemination with the timeframes provided in the regulatory reporting
requirements in order to reduce reporting costs to market participants
and to avoid inconsistencies between the reporting rules.\373\
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\372\ CEA section 2(h)(7)(C)(i) provides the financial entity
definition as it relates to Section 723 of the Dodd-Frank Act.
Specifically, the definition states that for the purposes of
paragraph 2(h), the term ``financial entity'' means: ``(I) a swap
dealer; (II) a security-based swap dealer; (III) a major swap
participant; (IV) a major security-based swap participant; (V) a
commodity pool; (VI) a private fund as defined in section 202(a) of
the Investment Advisers Act of 1940 (15 U.S.C. 80-b-2(a)); (VII) an
employee benefit plan as defined in paragraphs (3) and (32) of
section 3 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1002); (VIII) a person predominantly engaged in activities
that are in the business of banking, or in activities that are
financial in nature, as defined in section 4(k) of the Bank Holding
Company Act of 1956.'' Additionally, CEA section 2(h)(7)(C)(ii)
provides exclusions to the definition by stating that ``the
Commission shall consider whether to exempt small banks, savings
associations, farm credit system institutions, and credit unions,
including--(I) depository institutions with total assets of
$10,000,000,000 or less; (II) farm credit system institutions with
total assets of $10,000,000,000 or less; or credit unions with total
assets of $10,000,000,000 or less.'' CEA section 2(h)(7)(C)(iii)
further provides an important limitation to the definition of
financial entity by stating that ``such definition shall not include
an entity whose primary business is providing financing, and uses
derivatives for the purpose of hedging underlying commercial risks
related to interest rate and foreign currency exposures, 90 percent
or more of which arise from financing that facilitates the purchase
or lease of products, 90 percent or more of which are manufactured
by the parent company or another subsidiary of the parent company.''
\373\ Proposed part 45 recognizes that certain end-users may not
have an ability to verify trade information electronically which may
increase the time for the reporting party to verify the primary
economic terms and real-time data and consequently, the time for the
reporting party to report such data to an SDR pursuant to proposed
part 45. See 75 FR 76574.
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Section 43.5(f)(2) establishes a time delay for public
dissemination of such large notional off-facility swaps in the interest
rate, credit, foreign exchange and equity asset classes of 30 minutes
following the execution such swap for Year 2. Section 43.5(f)(2)
provides the same accommodation for large notional off-facility swaps
in the interest rate, credit, foreign exchange and equity asset classes
in which the non-SD/non-MSP counterparty is not a financial entity, as
defined in CEA section 2(h)(7)(C) and Commission regulations. Section
43.5(f)(3) states that beginning on the second anniversary of the
compliance date, the time delay for public dissemination for all large
notional off-facility swaps in the interest rate, credit, foreign
exchange and equity asset classes in which at least one counterparty is
an SD or MSP shall be 30 minutes, regardless of the status of any non-
SD/non-MSP counterparty.
Section 43.5(c)(4) provides that until the Commission establishes
an appropriate minimum block size for a particular swap or group of
swaps, the time delays set forth in Sec. 43.5(f) shall apply to
publicly reportable swap transactions that do not have appropriate
minimum block sizes, with respect to off-facility swaps in the interest
rate, credit, foreign exchange and equity asset classes that are not
subject to the mandatory clearing requirement, and in which at least
one counterparty is an SD or MSP. These time delays shall be one hour
for Year 1 and reduced to 30 minutes beginning on the first anniversary
of the compliance date. However, those off-facility swaps in the
interest rate, credit, foreign exchange and equity asset classes, in
which the non-SD/non-MSP counterparty is not a financial entity as
defined in CEA section 2(h)(7)(C) and Commission regulations, shall
receive the same accommodation to the time delay for public
dissemination for Year 1 and Year 2, as described in Sec. 43.5(f)(1)
and (2). Once an appropriate minimum block size is established for a
particular swap or group of swaps, all swaps described in Sec. 43.5(f)
that are below the appropriate minimum block size shall be publicly
disseminated ``as soon as technologically practicable'' and only large
notional off-facility swaps shall receive the time delays for public
dissemination described in Sec. 43.5(f).
As previously noted, the Commission believes that large notional
off-facility swaps in the ``other commodity'' asset class should
receive longer time delays for public dissemination, as it may take
longer to hedge such swap transactions involving physical underlying
assets. The Commission believes that the
[[Page 1220]]
``other commodity'' asset class will likely have more non-SDs/non-MSPs
that are excepted pursuant to CEA section 2(h)(7) (i.e., non-financial
end-users) than the other defined asset classes. Market participants
and commenters have expressed concern about the ability to hedge
physical commodity swaps and suggested that longer time delays may be
appropriate for such swaps. Accordingly, in Sec. 43.5(g), the
Commission has established longer time delays for large notional off-
facility swaps in the ``other commodity'' asset class.
Section 43.5(g) establishes the time delays for the public
dissemination of large notional off-facility swaps in the ``other
commodity'' asset class that are not subject to the mandatory clearing
requirement (or are excepted from such requirement pursuant to CEA
section 2(h)(7)), in which at least one party is an SD or MSP.
Specifically, Sec. 43.5(g)(1) provides that for Year 1, the time delay
for public dissemination is four hours following the execution of the
large notional off-facility swap. However, final Sec. 43.5(g)(1)
includes a provision similar to that in Sec. 43.5(f)(1) and (2), for
those large notional off-facility swaps in the ``other commodity''
asset class that are not subject to the mandatory clearing requirement
and in which the non-SD/non-MSP counterparty is not a financial entity
as defined in CEA section 2(h)(7)(C) and Commission regulations. For
such swaps, where the real-time swap transaction and pricing data is
received by the SDR more than four hours after execution, the SDR must
publicly disseminate such data ``as soon as technologically
practicable'' after it receives such data. As noted above with respect
to Sec. 43.5(f)(1) and (2), the purpose of the provision in Sec.
43.5(g)(1) is to align the time delays for public dissemination with
the timeframes for regulatory reporting in order to reduce reporting
costs to market participants and to avoid inconsistencies between the
reporting rules.
Section 43.5(g)(2) provides a two-hour time delay for the public
dissemination of large notional off-facility swaps in the ``other
commodity'' asset class, in which at least one party is an SD or MSP,
for Year 2. Section 43.5(g)(2) provides a similar accommodation to
Sec. 43.5(f)(1) and (2) for large notional off-facility swaps in the
``other commodity'' asset class in which the non-SD/non-MSP
counterparty is not a financial entity, as defined in CEA section
2(h)(7)(C) and Commission regulations. Section 43.5(g)(3) specifies
that the time delay for public dissemination, beginning on the second
anniversary of the compliance date, for all large notional off-facility
swaps in the ``other commodity'' asset class, in which at least one
counterparty is an SD or MSP, shall be two hours, regardless of the
status of any non-SD/non-MSP counterparty.
Section 43.5(c)(5) additionally provides that until the Commission
establishes an appropriate minimum block size for a particular swap or
group of swaps, the time delays set forth in Sec. 43.5(g) shall apply
to publicly reportable swap transactions that do not have appropriate
minimum block sizes, with respect to off-facility swaps in the ``other
commodity'' asset class that are not subject to the mandatory clearing
requirement and in which at least one counterparty is an SD or MSP.
Specifically, the time delays shall be four hours for Year 1 and two
hours beginning on the first anniversary of the compliance date.
However, those off-facility swaps in the ``other commodity'' asset
class in which the non-SD/non-MSP counterparty is not a financial
entity, as defined in CEA section 2(h)(7)(C) and Commission
regulations, shall receive the same accommodation to the time delay for
public dissemination during Year 1 and Year 2, as described in Sec.
43.5(g)(1) and (2). Once an appropriate minimum block size is
established for a particular swap or group of swaps, all swaps
described in Sec. 43.5(g) that are below the appropriate minimum block
size shall be reported ``as soon as technologically practicable'' and
only large notional off-facility swaps shall receive the time delays
for public dissemination described in Sec. 43.5(g).
Several commenters recommended that end-user to end-user large
notional swaps have longer time delays. The Commission agrees: Such
swaps tend to be customized and the reporting party for such swaps may
be less sophisticated and have less ability to leverage existing and
new technology as compared to an SD or MSP. The longer time delays for
public dissemination ensures consistency to allow the reporting party
to mitigate reporting costs by sending real-time swap data at the same
time that regulatory data is sent to an SDR.
Section 43.5(h) prescribes the time delay for the public
dissemination of large notional off-facility swaps in which neither
counterparty is an SD or MSP. Pursuant to Sec. 43.5(h)(1), for Year 1,
the time delay for public dissemination of swap transaction and pricing
data for such swaps shall be 48 business hours after execution of the
swap.\374\ Pursuant to Sec. 43.5(h)(2) the time delay for such swaps
will reduce to 36 business hours for Year 2. Finally, pursuant to Sec.
43.5(h)(3), beginning on the second anniversary of the compliance date
for part 43, the time delay for such swaps will be 24 business hours.
---------------------------------------------------------------------------
\374\ Section 43.2 defines ``business hours'' to mean
consecutive hours during on one or more business days. Section 43.2
also defines ``Business day'' to mean the twenty-four hour day, on
all days except Saturdays, Sundays and legal holidays, in the
location of the reporting party or registered entity reporting data
for the swap.
---------------------------------------------------------------------------
Additionally, Sec. 43.5(c)(6) provides that until the Commission
establishes an appropriate minimum block size for a particular swap or
group of swaps, the time delays set forth in Sec. 43.5(h) shall apply
to publicly reportable swap transactions that do not have appropriate
minimum block sizes, with respect to off-facility swaps in which
neither counterparty is an SD or MSP. Once an appropriate minimum block
size is established for a particular swap or group of swaps, all swaps
described in Sec. 43.5(h) that are below the appropriate minimum block
size shall be reported ``as soon as technologically practicable'' and
only large notional off-facility swaps shall receive the time delays
for public dissemination described in Sec. 43.5(h).
With respect to the comment that 15 minutes is a sufficient time
delay for all swaps, the Commission believes 15 minutes is a sufficient
time delay for swaps executed on or pursuant to the rules of a SEF or
DCM and those swaps subject to mandatory clearing in which at least one
party is an SD or MSP. However, the Commission has determined to phase
in time delays over a two year period and, consistent with comments
received and in order to minimize implementation costs, has adopted
Sec. 43.5(d) and (e)(2). Further, as discussed above, the Commission
believes that large notional off-facility swaps should be provided
longer time delays based on market participant and asset class.
The Commission is also adopting Sec. 43.5(c)(7), which provides
that, upon the establishment of an appropriate minimum block size for a
particular swap or category of swaps, all publicly reportable swap
transactions that are below the appropriate minimum block size shall be
publicly disseminated ``as soon as technologically practicable'' after
execution pursuant to Sec. 43.3. The Commission believes that Sec.
43.5(c)(7) clarifies that, as an appropriate minimum block size becomes
effective for a swap or group of swaps, registered entities, market
participants and swap
[[Page 1221]]
counterparties should anticipate that public dissemination of swap data
for transactions below the appropriate minimum block size will occur
significantly sooner (i.e., ``as soon as technologically practicable'')
following execution of a publicly reportable swap transaction.
With respect to the contention that shorter or no time delays are
appropriate, the Commission notes that CEA section 2(a)(13)(E)(iii)
explicitly requires the Commission to promulgate rules establishing
time delays for reporting large notional swaps (block trades). While
the Commission agrees that financial swaps should have shorter time
delays, the Commission believes that one minute--as suggested by one
commenter--is insufficient for many large trades, particularly where
transparency is being introduced into the swaps market for the first
time.\375\ As noted above, the appropriate minimum block size for swaps
will be addressed in the block trade re-proposal that will be published
for comment in the Federal Register. Until an appropriate minimum block
size is set for a swap or grouping of swaps, all such swaps will
receive time delays for public dissemination. As explained above, the
Commission is initially adopting longer time delays and is reducing
those time delays over time in an effort to allow market participants
to become accustomed to reporting and publicly disseminating, to
minimize costs to market participants and registered entities and to
ensure that market participants have adequate time to hedge their large
swap transactions.
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\375\ See CL-Better Markets.
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Several commenters advised that the Commission needs more data
before it can set appropriate minimum block sizes and time delays for
public dissemination of block trades and large notional off-facility
swaps. The Commission agrees that these concerns are valid with respect
to the determination of appropriate minimum block sizes, but does not
believe that additional data is needed for setting time delays for
public dissemination. The Commission has considered all comments
relating to the time delays for public dissemination, and as discussed
above, Sec. 43.5 takes into account the liquidity of swaps; the
ability for certain reporting parties to report to SDRs; the cost-
benefit considerations of reporting real-time swap pricing and
transaction data; the cost-benefit considerations of publicly
disseminating swap pricing and transaction data; and the statutory
mandate to provide post-trade transparency and enhance price discovery
in the swaps markets.
In its final rule, the Commission has added appendix C to part 43
to further clarify the time delays discussed in Sec. 43.5(d)-(h) as
well as the interim time delays described in Sec. 43.5(c); appendix C
to part 43 provides Tables C1-C6, each of which represent the time
delays for a particular type of swap or swaps described in Sec. 43.5.
Several commenters requested that the SEC's and the Commission's
respective public dissemination time delay rules be harmonized. The
Commission has routinely coordinated with the SEC regarding the time
delays for public dissemination of certain swap transaction and pricing
data; however, the two Commissions have jurisdiction over different
types of swaps and, as a result, a different concentration of market
participants. For example, the ``other commodity'' asset class will
tend to have significantly more non-SD/non-MSP counterparties than the
credit or equity asset classes.
By initially providing time delays for the public dissemination of
all swaps, the Commission will ensure that some public dissemination
occurs from the outset, prior to the adoption of rules for appropriate
minimum block sizes. Once the appropriate minimum block sizes for
particular swaps or swap categories are adopted, only swaps that have a
notional or principal amount at or above the appropriate minimum block
size threshold will receive a time delay for public dissemination, and
all other swaps in the asset class (or sub-asset class or grouping of
swaps) must be publicly disseminated by an SDR ``as soon as
technologically practicable.'' Providing post-trade price transparency
in the swaps markets, even if initially delayed during an interim
period, will enhance price discovery and increase transparency.
Additionally, as appropriate minimum block sizes are finalized,
transparency and price discovery in the swaps markets will be further
enhanced as swap transaction and pricing data for swaps below the
appropriate minimum block size is publicly disseminated ``as soon as
technologically practicable.''
F. Appendix A to Part 43
CEA section 2(a)(13)(B) ``authorizes the Commission to make swap
transaction and pricing data available to the public in such form and
at such times as the Commission determines appropriate to enhance price
discovery.'' Consistent with this authorization, the Commission
proposed appendix A to proposed part 43. That provision established the
appropriate form and manner in which swap transaction and pricing data
shall be publicly disseminated. Specifically, appendix A to proposed
part 43 included: (1) Data fields to be publicly disseminated; (2) a
description of the type of information to be captured in the data
fields; (3) an example of how the data fields may be reported; and (4)
the application of the data fields.
To account for the differences in publicly reportable swap
transactions among asset classes, the descriptions of the data fields
in the Proposing Release were not intended to be prescriptive; rather,
the data fields were intended to provide flexibility to report various
types of swaps while achieving consistency in the data. Further,
certain data fields described in the Proposing Release may not be
relevant to certain types of transactions; for such transactions, such
data fields would not be publicly disseminated. For example, the swap
transaction and pricing data that is publicly disseminated with respect
to an uncleared off-facility swap will likely be different than those
swaps that are executed on a SEF or DCM. Appendix A to proposed part 43
was intended to ensure that the swap transaction and pricing data that
is publicly disseminated is sufficient to give meaning to the price of
the publicly reportable swap transaction, while protecting the
anonymity of the counterparties and considering both the potential
effects of the proposal on market liquidity and the cost burden of
reporting.
The Commission requested general comments regarding all aspects of
the data fields, and asked specific questions related to specific data
field including (i) whether to add or delete data fields; (ii) effects
on market liquidity; and (iii) the appropriate format for data and
manner of public dissemination.
Twenty-six commenters addressed various issues related to the data
fields.\376\ These commenters focused on specific data fields, the
value of reporting data, the Commission's ability to modify data
fields, pricing information for customized swaps, end-user to end-user
reporting of data and harmonization with the SEC with regard to data
fields that must be publicly disseminated.
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\376\ Commenters include: FHL Banks; IPAA; IECA; MFA; Working
Group of Commercial Energy Firms; ISDA/SIFMA; ABC/CIEBA; GFXD;
Better Markets; Committee on Capital Markets Regulation; COPE;
Coalition of Energy End-Users; NFPEEU; Markit; Tradeweb; DTCC;
TriOptima; Reval; MarkitSERV; Cleary; Argus; Professor Darrell
Duffie; Coalition for Derivatives End-Users; Barclays; API; and AGA.
---------------------------------------------------------------------------
Two commenters asserted that end-users will face a greater burden
in
[[Page 1222]]
reporting the real-time data for public dissemination since end-users
only maintain trading capabilities and associated information
technology to meet their current commercial needs.\377\ These
commenters argue that the burden placed on end-users for reporting end-
user to end-user trades (i.e., neither party is an SD or MSP) is not
justified by the limited value of the data. These commenters argued
that under the Proposing Release end-users would be required to create
systems, hire additional personnel and purchase technology, which may
compel such end-users to only enter into transactions with SDs and
MSPs. According to the commenters, these requirements would hinder the
ability of end-users to manage commercial risk and increase their
costs, which they would then pass on to their consumers.
---------------------------------------------------------------------------
\377\ See CL-COPE; CL-IECA.
---------------------------------------------------------------------------
Similarly, two commenters argued that data for off-facility swaps
involving end-users do not have value for the purposes of price
discovery; in their view, the cost burdens to send the swap transaction
and pricing data for public dissemination would be substantial.\378\
They contend that off-facility end-user swaps should not be subject to
Section 727 of the Dodd-Frank Act. One commenter contended that if the
Commission were to subject off-facility end-user swaps to real-time
reporting requirements, end-users should be allowed to utilize a number
of options for compliance with the real-time reporting requirements and
only core commercial terms applicable to the swap should be
reported.\379\
---------------------------------------------------------------------------
\378\ See CL-Coalition of Energy End-Users; CL-IPAA.
\379\ See CL-Coalition of Energy End-Users.
---------------------------------------------------------------------------
Two additional commenters similarly argued that until certain other
definitions are finalized (e.g., swap, SD, MSP, non-financial
commodity), it is premature to comment on the data fields described in
appendix A with respect to energy commodity swaps.\380\
---------------------------------------------------------------------------
\380\ See CL-NFPEEU; CL-Coalition of Energy End-Users.
---------------------------------------------------------------------------
One commenter argued that the Commission should follow the approach
taken by the SEC in its proposal to allow SDRs to define the relevant
fields based on general guidelines so that real-time reporting can be
flexible enough to track market trends.\381\ Another commenter
expressed concern that the SDR may not have sufficient knowledge to
identify all information in its possession and could inadvertently
disclose the identity of a swap counterparty; the commenter therefore
requested more guidance on what should and what should not be publicly
disseminated.\382\
---------------------------------------------------------------------------
\381\ See CL-MarkitSERV.
\382\ See CL-ABC/CIEBA.
---------------------------------------------------------------------------
Three commenters asserted that credit terms should not be publicly
disseminated. One of these commenters contended that the public
dissemination of such terms could cause confusion, while the other
commenters wrote that public dissemination could have a negative impact
since market participants could determine a counterparty's view on the
creditworthiness of another counterparty.\383\
---------------------------------------------------------------------------
\383\ See CL-Coalition for Derivatives End-Users; CL-Working
Group of Commercial Energy Firms; and CL-ISDA/SIFMA.
---------------------------------------------------------------------------
Three commenters argued that the public dissemination of an
indication that a swap is bespoke could confuse the market since all of
the other terms of the bespoke swap that make up the price would not be
publicly disseminated.\384\ The commenters stated that since the public
dissemination of bespoke swaps does not enhance price discovery, such
swap transaction and pricing data should not be required to be
reported. One commenter suggested that condition flags may be needed in
the swaps markets to provide indications of established
conventions.\385\
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\384\ See CL-DTCC; CL-FHLBanks; and CL-Reval.
\385\ See CL-MarkitSERV.
---------------------------------------------------------------------------
Several commenters addressed specific data fields set forth in
appendix A to proposed part 43. The comments on these specific data
fields are summarized as follows:
Additional Price Notation--One commenter indicated that
the ``Additional Price Notation'' field should not be publicly
disseminated since it will provide information on one party's
creditworthiness to another party.\386\ Another commenter argued that
the ``Additional Price Notation'' data field is likely to have little
application for most commodity transactions and that it will be
challenging to compute and populate such field in real-time.\387\
Another commenter stated that the pricing and separate display of an
``Additional Price Notation'' data field could make the price of
publicly reported swaps more meaningful; however, the commenter
cautioned that the implementation of a standardized approach for
calculating the amount in the ``Additional Price Notation'' data field
would be challenging, would take time and could confuse the market if
parties took different approaches toward calculating this data
field.\388\
---------------------------------------------------------------------------
\386\ See CL-ISDA/SIFMA. The ISDA and SIFMA joint comment letter
further argued that bilaterally executed trades may contain a
premium over market which would also need to be excluded from public
dissemination to prevent the price from being misinterpreted by
market observers.
\387\ See CL-Working Group of Commercial Energy Firms.
\388\ See CL-MarkitSERV.
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Tenor--Three commenters responded to the Commission's
request for specific comment regarding whether date information (i.e.,
tenor information) should be rounded to the nearest month.\389\ One of
the commenters stated that in illiquid markets, the rounding of tenor
would be necessary to protect anonymity of parties to a trade. The
commenter further suggested that with respect to illiquid foreign
exchange markets, the tenor could map to one or two years, rather than
to a specific month and year. Another commenter argued that public
dissemination should follow market conventions for reporting. Yet
another commenter stated that by not reporting the actual tenor of the
swap, one of the primary economic terms of the swap would be
manipulated and would therefore reduce post-trade price transparency.
---------------------------------------------------------------------------
\389\ See CL-Working Group of Commercial Energy Firms; CL-GFXD;
and CL-ISDA/SIFMA.
---------------------------------------------------------------------------
Timestamp--Commenters argued that requiring that the
timestamp be reported to the second is not reasonable and not
consistent with current market practice.\390\ One commenter argued that
the value derived of moving the industry to UTC appears minimal when
compared to the costs involved.\391\
---------------------------------------------------------------------------
\390\ See, e.g., CL-ISDA/SIFMA; CL-Working Group of Commercial
Energy Firms.
\391\ See CL-ISDA/SIFMA.
---------------------------------------------------------------------------
Notional Amount--One commenter stated that reporting the
notional amount in total dollar value for commodities provides little
value in terms of price discovery value in the market.\392\ Therefore,
the commenter recommended that the reporting of notional quantity in
the units of the underlying quantity would provide more relevant
information. Similarly, another commenter suggested that since there is
not a universal definition of notional amount, the Commission should
provide guidelines on how to publicly disseminate notional amount
similar to the guidelines provided by the Federal Reserve Bank of New
York (``FRBNY'').\393\ Another commenter
[[Page 1223]]
argued that the notional amount field should not be publicly
disseminated for non-standardized swaps.\394\
---------------------------------------------------------------------------
\392\ See CL-Working Group of Commercial Energy Firms.
\393\ See CL-ISDA/SIFMA. The FRBNY's guidelines are included
under ``Line Item Instructions for Derivatives and Off-Balance Sheet
Items Schedule HC-L'' in the Board of Governors of the Federal
Reserve System's ``Instructions for Preparation of Consolidated
Financial Statements for Bank Holding Companies Reporting Form FR Y-
9C,'' available at http://www.federalreserve.gov/reportforms/forms/FR_Y-9C20110630_i.pdf (last visited Nov. 9, 2011).
\394\ See CL-MFA.
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Indication of Other Price Affecting Terms--One commenter
argued that this field, which applies only to non-standardized or
bespoke ``reportable swap transactions,'' should be deleted and only
price and volume should be required, if anything, for bespoke swaps.
The commenter further argued that there would be little price discovery
value in reporting this field.\395\ Another commenter suggested that
the Commission require that certain condition flags be publicly
disseminated with respect to bespoke transactions that would provide
market participants and the public with more information about the
bespoke swap.\396\
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\395\ See CL-Working Group of Commercial Energy Firms.
\396\ See Meeting with Markit (June 26, 2011).
---------------------------------------------------------------------------
Price-Forming Continuation Data--Commenters stated that
novations and partial novations should not be ``reportable swap
transactions'' since they do not have a material impact on the primary
economic terms of the transaction.\397\
---------------------------------------------------------------------------
\397\ See Meeting with Barclays (January 24, 2011); CL-Working
Group of Commercial Energy Firms.
---------------------------------------------------------------------------
Contract Type--One commenter suggested that the ``Contract
Type'' data field be modified to delete ``options'' (to the extent the
Commission is referring to physical options) and ``forwards'' given
that the Commission has no jurisdiction over physical
transactions.\398\
---------------------------------------------------------------------------
\398\ See CL-Working Group of Commercial Energy Firms.
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One commenter emphasized the importance of maintaining flexibility
in the data fields described in appendix A to proposed part 43, which
may mean that no information at all may be reported for certain
fields.\399\ In contrast, another commenter recommended that the data
elements be made more specific to provide clarity and avoid the risk of
inconsistencies when specifying the data elements.\400\ Four commenters
recommended that a standardized data format be required for the
reporting and public dissemination of swap transaction and pricing
data. These four commenters argued that a single data format would
maximize efficient and cost-effective access to the information by the
greatest number of users.\401\
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\399\ See CL-GFXD.
\400\ See CL-ISDA/SIFMA.
\401\ See CL-Barclays; CL-DTCC; CL-TriOptima; and CL-Better
Markets.
---------------------------------------------------------------------------
Several commenters also requested that the Commission and the SEC
harmonize the data fields that are required to be publicly disseminated
so that there can be an accurate depiction of prices within the same
asset classes.\402\
---------------------------------------------------------------------------
\402\ See CL-ISDA/SIFMA; CL-DTCC; CL-Committee on Capital
Markets Regulation; and CL-MarkitSERV.
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The Commission received comments discussing the ``Swap Instrument''
data field. The Commission is not including this data field in appendix
A to part 43, as it intends to address this concept in the block trade
re-proposal. Additionally, one commenter interpreted that Table A2
would only relate to embedded options and as a result the primary
economic terms for options were not covered by appendix A to part
43.\403\
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\403\ See CL-GFXD.
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After considering the comments, the Commission has determined to
adopt appendix A to proposed part 43 as described below.
The Commission agrees with concerns expressed by some commenters
regarding the costs and burdens that end-users will face in reporting
the data fields described in appendix A to proposed part 43.
Accordingly, the Commission is adopting data fields in appendix A to
part 43 that provide sufficient flexibility for reporting both
standardized and bespoke swap transactions in all asset classes. While
the Commission recognizes that there will be costs associated with
reporting the data fields described in appendix A to part 43, the
Commission does not believe that a distinction should be made for swaps
in which an end-user is a reporting party. The Commission believes that
swaps with similar characteristics must have the same standards for
public dissemination, regardless of the type of reporting party, so
that identical data fields will be publicly disseminated for similar
swaps. Such consistency in public dissemination will provide market
participants and the public with uniform public reporting and enhanced
transparency and price discovery. To the extent that non-SD/non-MSPs
are reporting parties, these parties may use industry solutions, such
as third-party reporting agents or web-based data reporting, to assist
in reporting such swap transaction and pricing data to an SDR.\404\ The
Commission believes that industry solutions, combined with the longer
initial time delays for public dissemination,\405\ the flexibility of
the data fields and the flexibility of the meaning of ``as soon as
technologically practicable'' \406\ will mitigate the costs that may be
incurred by non-SD/non-MSP reporting parties.
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\404\ The Commission notes that CEA section 2(a)(13)(F)
explicitly permits that agents to the parties to a swap may report
swap transaction and pricing information: ``Parties to a swap
(including agents of the parties to a swap) shall be responsible for
reporting swap transaction information to the appropriate registered
entity in a timely manner as may be prescribed by the Commission.''
See supra Sec. 43.3 discussion, which discusses the use of third
parties for reporting and public dissemination.
\405\ See supra discussion in section II.E (``Section 43.5--Time
Delays for Public Dissemination of Swap Transaction and Pricing
Data'').
\406\ See supra discussion in section II.B.2 (``Defined
Terms'').
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The Commission disagrees with commenters that stated that off-
facility end-user swaps should not be publicly disseminated or
alternatively should be permitted to report less information than the
data fields required in appendix A to part 43. As noted in the previous
discussion related to the scope of part 43,\407\ the Commission
interprets CEA section 2(a)(13)(C) to cover all swap transactions,
including bespoke swaps. The Commission nonetheless recognizes that
there are differences among various types of swap transactions based on
asset class and whether a swap is subject to mandatory clearing,
standardized or bespoke. As further discussed below, the Commission
believes that the reporting of swap transaction and pricing data for
bespoke transactions, including off-facility end-user transactions,
enhances price discovery by bringing transparency to the market.
Requiring that certain data fields be reported--such as ``Indication of
Other Price Affecting Term'' and ``Additional Price Notation''--adds
value to the swap transaction and pricing data that is publicly
disseminated without compromising the anonymity of the swap
counterparties. It is possible that some of the data fields listed in
Tables A1 and A2 in appendix A to part 43 may not be relevant to the
terms of a particular publicly reportable swap transaction and
therefore need not be publicly disseminated. However, to the extent
that a data field for a particular swap is a relevant term of the
publicly reportable swap transaction, the reporting party, SEF or DCM
must provide the SDR with sufficient information to publicly
disseminate such swap transaction and pricing data.
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\407\ See supra discussion in section II.A, regarding the scope
of part 43.
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The Commission notes that the data fields described in appendix A
to part 43 only reflect data that is to be publicly disseminated by an
SDR. The Commission has added introductory language to appendix A to
part 43 to clarify that reporting parties, SEFs and
[[Page 1224]]
DCMs must report to an SDR ``as soon as technologically practicable''
after execution of the publicly reportable swap transaction, the swap
transaction and pricing data that is needed to publicly disseminate the
relevant data fields described in Tables A1 and A2.
The Commission acknowledges the comment that it is premature to
comment on the data fields described in appendix A to proposed part 43
since certain definitions have not been finalized; however, the
Commission disagrees that the absence of such definitions would
preclude an interested party from commenting on the data fields in
appendix A to proposed part 43. Further, in response to similar
comments, the Commission previously re-opened the comment period for
the Proposing Release so that market participants and interested
parties would have an opportunity to comment after seeing the entire
mosaic of proposed rules.\408\ The Commission did not receive any
additional comments on the proposed data fields during the re-opened
comment period.
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\408\ See Commission, Reopening and Extension of Comment Periods
for Rulemakings Implementing the Dodd-Frank Wall Street Reform and
Consumer Protection Act, 76 FR 25274 (May 4, 2011).
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The Commission sees merit in the suggestion that SDRs have
discretion to determine how to publicly disseminate data fields. As
discussed, Sec. 43.3(a) requires that all swap transaction and pricing
data be reported by reporting parties, SEFs and DCMs to an SDR for
public dissemination. Accordingly, the Commission anticipates that the
SDRs will have discretion to publicly disseminate the swap transaction
and pricing data in a form and manner that covers all of the
information described in appendix A to part 43. The introductory
language to appendix A to part 43 now makes clear that the form and
manner in which an SDR publicly disseminates information should be
consistent for swaps within a particular asset class. Such consistency
will better enable market participants to compare prices for swaps
within the same asset class. The data fields listed in appendix A to
part 43 are intended to be informative and flexible to accommodate all
types of publicly reportable swap transactions. Additionally, appendix
A to part 43 provides examples of how each data element may be publicly
disseminated. These examples are not meant to be prescriptive and may
not be applicable to certain types of swaps. The Commission believes
that part 43 and appendix A to part 43 provide sufficient guidance to
SDRs regarding information that should and should not be publicly
disseminated. With respect to the public dissemination of swap
transaction and pricing data related to certain off-facility swaps in
the ``other commodity'' asset class, the Commission intends to provide
further guidance in its block trade re-proposal.\409\
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\409\ See supra discussion in section II.D.5 (``Anonymity of
Parties to a Publicly Reportable Swap Transaction (Sec. 43.4(d)'').
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The Commission agrees with commenters that separate data fields
that represent creditworthiness should not be publicly disseminated.
The Commission does not agree, however, that reporting the value of
creditworthiness as part of the ``Additional Price Notation'' data
field, as stated in the Proposing Release, will disclose the business
transactions or market positions of any person. Creditworthiness is one
of several factors that would comprise the amount set forth in the
``Additional Price Notation'' field. In the description of the
``Additional Price Notation'' data field in the Proposing Release, the
Commission stated that the field should include any premiums associated
with, among other things, margin, collateral and independent amounts.
To clarify, the actual amounts of variation margin and initial margin
would not be included in this field; rather, any premiums associated
with the presence of collateral that are factored into the price of the
publicly reportable swap transaction would be included. The Commission
believes that an indication whether an uncleared swap is collateralized
should be publicly disseminated to provide greater meaning to the price
of the swap in lieu of a separate field for creditworthiness. The
Commission is therefore requiring that the margin, collateral and
independent amount terms be reported as a separate field entitled
``Indication of Collateralization.'' The ``Indication of
Collateralization'' field is only required for uncleared swaps, as,
unlike cleared swaps, uncleared swaps have collateral arrangements. The
inclusion of the ``Indication of Collateralization'' data field in the
final rule requires that reporting parties for uncleared swaps must
provide the SDR with the appropriate information so that the SDR can
publicly disseminate one of four descriptions of the terms of the swap
relating to the collateral arrangement for such swap. The four
descriptions to be publicly disseminated are as follows:
(1) ``Uncollateralized''--An uncleared swap shall be described as
``Uncollateralized'' when there is no credit arrangement between the
parties to the swap or when the agreement between the parties states
that no collateral (neither initial margin nor variation margin) is to
be posted at any time.
(2) ``Partially Collateralized''--An uncleared swap shall be
described as ``Partially Collateralized'' when the agreement between
the parties states that both parties will regularly post variation
margin. The word ``regularly'' is used to exclude situations where the
parties may set a threshold amount(s) that is so high that one or both
parties will rarely post variation margin, if at all.
(3) ``One-way Collateralized''--An uncleared swap shall be
described as ``One-way Collateralized'' when the agreement between the
parties states that only one party to such swap agrees to post initial
margin, regularly post variation margin or both with respect to the
swap. The word ``regularly'' is used to exclude situations where the
parties may set a threshold amount(s) that is so high that one or both
parties will rarely post variation margin, if at all.
(4) ``Fully Collateralized''--An uncleared swap shall be described
as ``Fully Collateralized'' when the agreement between the parties
states that initial margin must be posted and variation margin must
regularly be posted by both parties. The word ``regularly'' is used to
exclude situations where the parties may set a threshold amount(s) that
is so high that one or both parties will rarely post variation margin,
if at all.
The Commission does not agree that the public dissemination of
bespoke swaps will confuse the market or fail to enhance price
discovery. The public dissemination of bespoke swaps provides the
public with the full scope of publicly reportable swap transactions
that are being transacted in an asset class, which will inform market
participants and the public of market depth and the execution of swaps
with similar underlying assets. In the Commission's opinion, the
designation of such swaps as ``bespoke'' in the ``Indication of Other
Price Affecting Term'' data field (and the ``Additional Price
Notation'' and ``Indication of Collateralization'' data fields) will
provide information that enhances price discovery. While the Commission
agrees with the comment that condition flags may provide greater
clarity to the market as to the pricing of a bespoke swap, such
indications may also disclose the identities, business transactions
and/or market positions of the parties. Further, the Commission
believes that the ``Additional Price Notation,'' ``Indication of
[[Page 1225]]
Collateralization'' and the ``Indication of Other Price Affecting
Term'' data fields will provide sufficient information to the market to
enhance price discovery with respect to these types of publicly
reportable swap transactions.
The Commission is modifying or adding certain data fields in
response to comments received.
Additional Price Notation--The Commission believes that
the Additional Price Notation field will not disclose the
creditworthiness of the counterparty as one commenter suggested. This
data field provides a single number that accounts for the combined
premiums associated with the publicly reportable swap transaction. The
actual content of what constitutes this number will not be publicly
disseminated. As discussed earlier, the references to margin,
collateral and independent amount are being replaced in the description
of this field with the term ``presence of collateral.'' Additionally,
the description of this data field in the final rule makes clear that
``counterparty credit risk'' would be included as part of the number.
With respect to the comment that the Additional Price Notation field
will have little application to commodity transactions, the final rule
provides that to the extent that this data field does not apply, the
data field would not need to be publicly disseminated.
The Commission does not anticipate that computing this field should
be difficult, even for transactions in the ``other commodity'' asset
class. The price of the swap should be known and the premium or spread
is generally negotiated outside of the actual price of the swap. The
Commission believes that the comment that a standardized approach for
calculating the amount in the Additional Price Notation field would be
challenging to achieve has merit. The Commission acknowledges that this
field may be calculated slightly differently in different asset
classes, by different swap counterparties, and even within the same
asset class. Notwithstanding these potential discrepancies in the
calculation of the ``Additional Price Notation'' data field, the
Commission believes that breaking out the premiums for a swap would
enhance price discovery and allow for better comparison for all swaps
within an asset class--both platform executed swaps and off-facility
swaps.
Tenor--In response to comments regarding whether tenor
should be reported as month and year, the Commission agrees with the
commenter who stated that to not report the exact tenor of a swap would
essentially mean not reporting a primary economic term of the swap. To
not require the exact end date of swap would detract from the meaning
of the price and therefore the Commission is requiring that the actual
end date be required to be publicly disseminated for all swaps. The
field that was called ``Tenor'' in the Proposing Release will be called
``End Date'' and the time between the ``Effective or Start Date'' and
the ``End Date'' will provide market participants and the public with
the exact tenor of the swap. Similarly, the ``Option Expiration Date''
field should be reported as an actual date and not the month and year,
as described in the Proposing Release.
Execution Timestamp--While the Commission understands that
the reporting of the timestamp to the second is a shift from the
standard practice in the previous OTC derivatives market, the
Commission does not believe that this historical practice is persuasive
on the point of whether swaps under the new regulatory regime
established by the Dodd-Frank Act should receive execution timestamps
to the second. A timestamp to the second is necessary for both audit
trail and enforcement purposes, as well as to allow market participants
and the public an opportunity to re-create a trading day. Different
market participants and different types of execution may receive
different time delays, so the timestamp will become critical in
determining the order of execution of transactions within a particular
market. The Commission will also use the timestamps to determine
whether swaps are being reported by reporting parties, SEFs and DCMs
``as soon as technologically practicable'' and to compare the speed at
which similar market participants report swap transaction and pricing
data to an SDR for public dissemination. Additionally, the Commission
can use the timestamp to determine how quickly SDRs are publicly
disseminating the information that they receive for public
dissemination. Further, SDRs will use the Execution Timestamp to
measure the time delays for public dissemination to be applied to
publicly reportable swap transactions, as described in Sec. 43.5 and
appendix C to part 43.
A commenter suggested that the benefit of moving the industry to
UTC appears minimal when compared to the costs involved. The Commission
believes that consistency across the global swaps market is important
and requiring public dissemination in UTC will allow market
participants and reporting parties to re-create the order of trades and
will reduce the need for market participants to convert different times
to understand the order of trades in a particular market.\410\ Further,
the appendix A to part 43 combines the ``Execution Date'' field to be
included in the ``Execution Timestamp'' field so that both a time and
date will be publicly disseminated to assist market participants and
the public with understanding the trading of publicly reportable swap
transactions.
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\410\ The use of UTC with regard to part 43 only refers to the
execution timestamps that are publicly disseminated; reporting
parties, SEFs and DCMs can agree to report different timestamps to
the SDR that can then convert the time to UTC for public
dissemination.
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Notional or Principal Amount--The Commission agrees with
the comment that the notional quantity should be reported and publicly
disseminated in the units of the underlying quantity, as it would
provide more relevant information to enhance price discovery. The
Commission, however, does not believe that the Commission needs to
provide guidelines on how to publicly disseminate the notional or
principal amount. The Commission believes that the SDR should have the
discretion on how to publicly disseminate the notional amounts for
certain types of commodity transactions that are traded in units. The
Commission does not agree with the comment that the notional amount
should not be disseminated for non-standardized swaps, as such public
dissemination will enhance price discovery and provide information on
market depth. The final rules provide for the rounding of the notional
or principal amount as well as caps on the public dissemination of
notional or principal amounts.\411\ Accordingly, the data fields in
appendix A to part 43 indicate that it is the ``Rounded Notional or
Principal Amount'' that is to be publicly disseminated.
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\411\ See Sec. 43.4(g) and (h).
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Indication of Other Price Affecting Term--One commenter
argued that the ``Indication of Other Price Affecting Term'' data field
should not be reported and only price and volume information should be
reported for bespoke ``reportable swap transactions.'' The Commission
intends that this data field will merely serve as an indication that a
swap is not standardized (i.e., bespoke). The Commission believes that
such indication will provide market participants and the public with an
opportunity to more easily discern the differences in prices of bespoke
swaps with those swaps that are standardized (e.g., executed on a SEF
or DCM and subject to the clearing mandate). An indication of other
price affecting terms will allow market participants and the
[[Page 1226]]
public to look to other fields such as ``Indication of
Collateralization,'' ``Additional Price Notation'' and ``Day Count
Convention'' to better understand the price of the swap. The Commission
has deleted the reference to common material price affecting terms to
avoid confusion and has added a description under the example to
indicate that the field should be utilized if there is a material price
affecting term that is not otherwise publicly disseminated.
Price-Forming Continuation Data--The Commission agrees
that novations and partial novations should not be publicly reportable
swap transactions, but only to the extent that such swaps do not have a
material effect on the price of the swap. To the extent there is any
price effect from the novation (e.g., payments associated with the
novation, changes to material terms of the swap, etc.), such novations
would be publicly reportable swap transactions and an indication of the
type of price forming continuation data would need to be publicly
disseminated pursuant to part 43. The final rule clarifies the types of
transactions that may be included in the price forming continuation
data field to match with the types of transactions in the definition of
publicly reportable swap transaction.\412\
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\412\ See entry for ``price forming continuation data'' in Table
A1 (``Data Fields and Suggested Form and Order for Real-Time Public
Reporting of Swap Transaction and Pricing Data'') in appendix A to
this part. See Real-Time NPRM supra note 6, at 76179. Such price-
forming continuation data may include: terminations, assignments,
novations, exchanges, transfers, amendments and conveyances of
extinguishing of rights that change the price of the swap.
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Contract Type--In response to the comment that options and
forwards should be deleted to the extent they relate to physical
transactions, the Commission does not believe that any action is
necessary regarding the data field. The extent to which certain
products fall under the Commission's jurisdiction will be defined in
another Commission rulemaking. To that end, the list is meant to be
illustrative and to ensure that all publicly reportable swap
transactions would be included to the extent that they are under the
Commission's jurisdiction.
In response to the comment that Table A2 only applies to embedded
options, the Commission notes that Table A2 applies to options,
swaptions and embedded options; the Commission has added clarifying
language to the description.\413\
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\413\ The Commission notes that the title of Table A2 in the
Proposing Release was ``Additional real-time public reporting data
fields for options, swaptions and swaps with embedded options.''
Real-Time NPRM supra note 6, at 76181.
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It is the Commission's intent to ensure harmonization between the
data fields in appendix A to proposed part 43 and the data fields
required to be reported to an SDR for regulatory purposes. In light of
the changes to proposed Sec. 43.3 that require reporting to an SDR,
which in turn must publicly disseminate the data fields described in
appendix A to part 43, the Commission believes that reporting parties,
SEFs and DCMs may report the data elements for real-time reporting and
regulatory reporting in the same data stream. Accordingly, it is
important that the data fields for both the real-time and regulatory
reporting requirements work together. Further, certain changes to the
final rules make the public dissemination of additional data fields
important to provide market participants and the public with an
understanding of the swap. For these reasons, the Commission is adding
to appendix A the following data fields that were not included in the
Proposing Release:
Indication of End-User Exception--Given the other changes
in the final rules regarding the time delays for public dissemination,
such indication is necessary to provide market participants and the
public with information as to why such swap received a time delay for
public dissemination as compared to other swaps with substantially
similar terms. Additionally, such information would be required to be
reported pursuant to the regulatory reporting requirements described in
proposed part 45, thus reducing the cost for reporting parties to
provide such information.\414\
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\414\ See 75 FR 76574.
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Day Count Convention--The day count convention is a
description of how interest accrues over time and is a material term
that is necessary for pricing certain swaps. Common day count
convention methods include the 30/360 method and the Actual method. The
day count convention is necessary to be publicly disseminated so that
the public can better understand the price and the terms for how to
value the swap.
Settlement Currency--The settlement currency is a
necessary data field for foreign exchange transactions that physically
settle. To the extent that such transactions are subject to the real-
time reporting requirements of part 43, this field should be publicly
disseminated to give meaning to the price of a publicly reportable swap
transaction. The field would be required to be reported pursuant to the
regulatory reporting requirements in proposed part 45, thus reducing
the cost for reporting parties to provide such information.\415\
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\415\ Id.
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All other data fields in appendix A to part 43 that are not
discussed above are adopted as proposed with certain clarifying or
conforming changes and certain changes to ensure that the language in
the description is not unduly prescriptive. Some of the conforming or
clarifying changes include matching changes to definitions and section
numbers, describing the examples with a parenthetical and clarifying
certain names of fields (e.g., ``Notional or principal amount 1'' has
been changed to ``Rounded notional or principal amount 1'' since only
the rounded notional amount will be publicly disseminated, and changed
the name of ``Start Date'' to ``Effective or Start Date'' for clarity).
Additionally, the Commission has removed certain language from the
descriptions of the data fields that might have been construed as
prescriptive. For example, the final rule removed ``[s]uch letter
convention may be reported as follows: D (daily), W (weekly), M
(monthly), Y (yearly)'' from the payment frequency data fields to make
clear that payment frequency may be publicly disseminated in a
different manner as long as an SDR is consistent in the way that data
fields are publicly disseminated. With respect to the ``Execution
Venue'' data field, the Commission has made clear that the actual SEF
or DCM name need not be reported. Further, the Commission has modified
the ``Price Notation'' field to clarify that this field indicates the
price (and not the premium), and the language relating to netting to a
present value of zero at execution was removed since it might not be
true in all cases.
The Commission has also added clarification to the examples
described for each data element. These examples are meant to provide
guidance with respect to the public dissemination of swap transaction
and pricing data.
In response to commenters who recommended that the Commission
harmonize the data fields with the SEC, the Commission notes that it
has consulted with the SEC regarding the data fields for public
dissemination. The Commission believes that the data fields described
in appendix A to part 43 are sufficiently flexible to cover swaps in
all asset classes. The Commission has determined that the data elements
described in Tables A1 and A2 of appendix A to part 43 are necessary to
enhance price discovery.
[[Page 1227]]
III. Effectiveness/Implementation and Interim Period
In its Proposing Release the Commission solicited responses to
specific questions regarding the implementation of real-time public
reporting, including whether (i) different reporting parties should
have different implementation timeframes; (ii) different types of
execution should have different reporting phase in timeframes; (iii)
different asset classes, markets, or contracts should have different
timeframes; and (iv) public dissemination of block trades should be
implemented according to a different schedule than non-block trades.
The Commission received responsive comments from 47 market
participants, including SDs, non-financial end-users, financial end-
users, industry groups/associations, asset managers, trading platforms
and data vendors.\416\ Commenters discussed the following issues
relating to implementation: (1) Timing for real-time reporting vis-a-
vis other rules; (2) a phase in approach based on liquidity/
standardization/asset class; (3) harmonization with the SEC and foreign
regulators; (4) implementation schedules; (5) a testing phase; (6)
technology challenges; (7) comparison to TRACE phase in; (8) large
notional swaps/customized swaps; (9) end-users should be phased in
last; and (10) re-proposal and re-open comment period.
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\416\ The Commission received comments specifically addressing
the implementation of part 43 and additionally received general
implementation comments in response to the Public Roundtable
Discussion on Dodd-Frank Implementation.
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Twenty-seven comments supported a phase in approach with regard to
real-time reporting requirements for the rules set forth in the
Proposing Release. Commenters' proposed approaches to phasing in the
rules varied in timing and scope. One commenter further suggested that
a phase in be adopted similar to that proposed in the SD/MSP
Recordkeeping NPRM.\417\ Five commenters recommended that in
implementing the part 43 rules the Commission follow the manner in
which FINRA phased in TRACE; \418\ some supported a testing phase in
period during which compliance would not be required.\419\ These
commenters further suggested that such a phase in period would provide
an opportunity to both address anticipated technology challenges and
allow parties to become familiar with the reporting process. Other
comments advised the Commission to subject more liquid/standardized
contracts to public real-time reporting first and phase in less liquid
contracts later.\420\ Still others recommended beginning with reporting
of more advanced asset classes with established infrastructure for
reporting (e.g., credit) or by entity/market participants.\421\ In
addition, commenters stated that real-time reporting for large notional
swaps should be phased in.\422\
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\417\ See CL-ISDA/SIFMA.
\418\ See CL-ISDA/SIFMA; CL-DTCC; CL-GFXD; CL-WMBAA; and CL-
Cleary.
\419\ See CL-Barclays; CL-Committee on Capital Markets
Regulation; CL-DTCC; CL-Cleary; and CL-Working Group of Commercial
Energy Firms.
\420\ See CL-UBS; CL-Barclays; and CL-DTCC.
\421\ See CL-Barclays; CL-AIMA; and CL-MarkitSERV.
\422\ See CL-JPM; CL-MS.
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Twenty-six commenters contended that the Commission must first
collect and analyze data per the Commission's data recordkeeping and
reporting and SDR registration rules, before adopting final rules
addressing certain aspects of the block trade rules (e.g., calculations
and time delay).\423\ Consistent with this approach, four commenters
asserted that the entire rulemaking should be re-proposed after the
Commission has had the opportunity to review and analyze the data
collected by SDRs. One commenter requested that the Commission wait
until it publishes the standardized computer-readable algorithmic study
before developing real-time reporting rules.\424\ One commenter urged
the Commission to re-propose this rule, and all other rules
establishing the new framework for swaps regulation, in the order in
which they will be implemented--preferably starting with data gathering
in order to capture most effectively the appropriate products and
market participants. This commenter recommended a minimum sixty-day
comment period for each of the re-proposed rules. While this process
would delay implementation by some months, the commenter believed that
the desire for an accelerated and/or premature regulatory certainty
should not outweigh the need for comprehensive consideration of the
market impact and potential market disruptions prior to finalizing the
regulatory requirements.\425\
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\423\ Commenters include: Barclays; GS; UBS; Cleary; Freddie
Mac; FHL Banks; MFA; GFXD; ISDA/SIFMA; Better Markets; ABC/CIEBA;
SIFMA AMG; WMBAA; Coalition for Derivatives End-Users; FIA/SIFMA/
ISDA/FSR; AII; Vanguard; MarkitSERV; JPM; ATA; MFA; WMBAA; Vanguard;
MS; and SIFMA AMG.
\424\ See CL-Cleary.
\425\ See CL-ABA. As discussed throughout this Adopting Release,
the Commission has determined not to adopt certain rules relating to
block trades and other off-facility swaps in the ``other commodity''
asset class in this Adopting Release.
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Several commenters stated that the Commission should adopt an
implementation timeline similar to those of other federal regulators,
including the SEC.\426\ One commenter observed that inconsistencies
between the Commissions' proposals would, if adopted, significantly
complicate implementation.\427\ Two additional commenters recommended
that the Commissions harmonize their phase in approaches.\428\
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\426\ See CL-MFA; CL-UBS; CL-Reval; and Meeting with Markit
(Jan. 13, 2011).
\427\ See CL-Cleary.
\428\ See CL-Commodity Markets Council; and CL-MarkitSERV.
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The Commission received comments from several commenters that
recommended specific implementation schedules for the Commission's
consideration.\429\
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\429\ See CL-DTCC; CL-ABC-CIEBA; and CL-Working Group of
Commercial Energy Firms.
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One of these comments supported re-proposing the rule after data
are collected.\430\ As discussed throughout this Adopting Release, the
Commission has determined not to adopt certain aspects of the block
trade rules pending further collection and analysis of data.
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\430\ See CL-ABC/CIEBA.
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One commenter stated that the Commission's implementation period
and process should be broadly consistent with the proposed European
implementation; in its view such consistency would foster consistency
across regions and minimize regulatory arbitrage.\431\
---------------------------------------------------------------------------
\431\ See CL-MarkitSERV.
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The Commission also received several comments asserting that end-
user swap data reporting should be delayed. For example, one of these
commenters commented that non-bank SDs and end-users should be able to
establish information technology systems related to business process
for approximately one year before reporting is required.\432\ Another
commenter stated that end-users should not begin reporting until an SDR
has been registered and the systems between the SDR and end-user can be
set up and tested.\433\ Other comments contended that end-users should
be phased in last.\434\
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\432\ See CL-Working Group of Commercial Energy Firms.
\433\ See CL-Dominion.
\434\ See CL-Dominion; CL-DTCC; and CL-Working Group of
Commercial Energy Firms.
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A number of other commenters responded, directly or indirectly, to
the Commission's decision to reopen the comment periods for all Dodd-
Frank Act rulemakings and specific request for comment on the order in
which the Commission should consider final rulemakings under the Dodd-
Frank
[[Page 1228]]
Act.\435\ Six commenters challenged the sequencing and timing of the
Proposing Release in relation to the publication of the final entity
and/or product definitions rulemakings published after the Proposing
Release. These commenters contended that the Commission's failure to
sequence the proposals deprived them of the opportunity for meaningful,
informed comment on the Proposing Release; they suggested that the
Commission extend the comment periods on all rulemakings.
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\435\ See CL-ABA; CL-ABC/CIEBA; CL-COPE; CL-Citadel; CL-DC
Energy; CL-BP; CL-Alice; CL-FHLBanks; CL-Cleary; CL-GFXD; CL-NFPEEU;
CL-Working Group of Commercial Energy Firms; CL-FIA/FSR/IIB/IRI/
ISDA/SIFMA/Chamber; and Meeting with Citi, MS and JPM (May 17,
2011).
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Consistent with section 754 of the Dodd-Frank Act, part 43 of the
Commission's Regulation will be effective on March 9, 2012 (``Effective
Date''). In that regard, however, the Commission wishes to emphasize
that implementation or compliance dates for various regulatory
requirements in part 43 are contingent upon the adoption and effective
dates of other, related, regulatory provisions and definitions. In
consideration of these contingencies and in response to commenters, the
Commission is adopting a three-phase schedule for compliance with part
43, along with several new procedures.
Compliance Date 1
On the first compliance date (``Compliance Date 1''), all SEFs,
DCMs, SDs and MSPs will be required to comply with all part 43
requirements with respect to publicly reportable swap transactions in
the interest rate and credit asset classes, including reporting such
transactions to an SDR pursuant to the rules of part 43. On Compliance
Date 1, all publicly reportable swap transactions in the interest rate
and credit asset classes that are either (1) executed on or pursuant to
the rules of a SEF or DCM, or (2) ``off-facility swaps'' in which at
least one party to the swap is an SD or MSP (collectively, ``Compliance
Date 1 transactions''), must be reported to an SDR for public
dissemination, pursuant to part 43. In addition, on Compliance Date 1,
all SDRs for the interest rate and credit asset classes will be
required to accept and publicly disseminate real-time swap transaction
and pricing data for the Compliance Date 1 transactions pursuant to
part 43 and appendix A to part 43. With respect to swaps in the
interest rate and credit asset classes that are executed on or pursuant
to the rules of a SEF or DCM, Compliance Date 1 will be the date that
is the later of (1) July 16, 2012, or (2) 60 calendar days after the
publication in the Federal Register of Commission regulations defining
the term ``swap'' pursuant to sections 721 and 712(d)(1) of the Dodd-
Frank Act. With respect to swaps in the interest rate and credit asset
classes that are not executed on or pursuant to the rules of a SEF or
DCM and that have at least one party that is an SD or MSP, Compliance
Date 1 will be the date that is the later of (1) July 16, 2012 of this
Adopting Release in the Federal Register, or (2) 60 calendar days after
the publication in the Federal Register of the last Commission
regulations defining the terms ``swap,'' ``swap dealer'' and ``major
swap participant'' pursuant to sections 721 and 712(d)(1) of the Dodd-
Frank Act.
Compliance Date 2
On the second compliance date (``Compliance Date 2''), all SEFs,
DCMs, SDs and MSPs will be required to comply with all part 43
requirements with respect to publicly reportable swap transactions in
the foreign exchange, equity and ``other commodity'' asset classes,
including reporting such transactions to an SDR pursuant to the rules
of part 43. On Compliance Date 2, all publicly reportable swap
transactions in the foreign exchange, equity and ``other commodity''
asset classes that are either (1) executed on or pursuant to the rules
of a SEF or DCM, or (2) off-facility swaps in which at least one party
to the swap is an SD or MSP (collectively, ``Compliance Date 2
transactions''), must be reported to an SDR for public dissemination,
pursuant to part 43. Consequently, on Compliance Date 2, all SDRs for
the interest rate, credit, equity, foreign exchange and ``other
commodity'' asset classes will be required to accept and publicly
disseminate the Compliance Date 2 transactions pursuant to part 43.
Compliance Date 2 shall begin 90 calendar days after the commencement
of Compliance Date 1.
Compliance Date 3
On the third compliance date (``Compliance Date 3'') all publicly
reportable swap transactions in all asset classes will be required to
comply with all part 43 requirements. Compliance Date 3 will require,
among other part 43 requirements, the reporting and public
dissemination of all publicly reportable swap transactions in all asset
classes by all SEFs, DCMs and reporting parties, including reporting
parties that are non-SDs or non-MSPs. Compliance Date 3 shall begin 90
calendar days after the commencement of Compliance Date 2.
If no SDR for a particular asset class is registered or
provisionally registered at the commencement of one or more compliance
dates, compliance for swaps in such asset class shall not be required
until registration or provisional registration of an SDR occurs in the
asset class. Reporting parties, SEFs and DCMs may share and publicly
disseminate swap transaction and pricing data without restriction until
an SDR is registered or provisionally registered in an asset class.
Further, the Commission notes that the compliance dates relating to the
implementation of part 43 are not contingent on the publication of
Commission regulations implementing Section 733 of the Dodd Frank Act
relating to registration and compliance with core principles for SEFs.
In addition to the compliance dates, the Commission is adopting a
number of phasing procedures in response to commenters' concerns. As
discussed above, the Commission expects to re-propose for comment a
rulemaking to address the appropriate minimum block size criteria and
determination. Consequently, until such time as an appropriate minimum
block size is established for particular swaps, the Commission is
providing initial time delays for all swaps subject to the reporting
requirement in Sec. 43.5. Further, the Commission will be phasing in
the time delays over time so that market participants can adjust
hedging strategies and secure the technology or make arrangements
necessary to comply with part 43. The Commission has provided longer
time delays for the ``other commodity'' asset class, since such parties
using such swaps tend to follow more complex hedging strategies to lay
off risk. In response to comments regarding end-users, the Commission
is providing longer time delays for public dissemination of swaps in
which a non-SD/non-MSP is the reporting party since such parties may
not have the technology available to report swap transaction and
pricing data. Additionally, the Commission expects to address in the
block trade re-proposal the reporting of publicly reportable swap
transactions in the ``other commodity'' asset class that are not
executed on or pursuant to a SEF or DCM and that do not reference one
of the contracts listed in appendix B to part 43 or a swap that is
economically related to such contracts. Until rules regarding such
``other commodity'' swaps are adopted, such swaps will not be subject
to the real-time reporting requirements of part 43.
[[Page 1229]]
IV. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') imposes certain requirements
on federal agencies in connection with their conducting or sponsoring
any collection of information as defined by the PRA.\436\ This final
rulemaking contains information collection requirements. An agency may
not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number issued by the Office of Management and Budget (``OMB''). The
Commission submitted its proposing release and supporting documentation
to OMB for review, and requested that OMB approve, and assign a new
control number for, the collections of information covered by the
Proposing Release, both in an information collection request associated
with this rulemaking and the part 49 rulemaking that would establish
requirements for SDRs. The Commission invited the public and other
federal agencies to comment on any aspect of the information collection
requirements discussed in the Proposing Release.
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\436\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
The Commission received comments from two interested parties on its
burden estimates or on other aspects of the information collection
requirements contained in its Proposing Release. One commenter asserted
that the actual burden imposed on end-users to report swap data was
significantly higher than the Proposing Release's estimate, and
suggested that the actual burden would be several orders of magnitude
higher than the Commission estimated.\437\ This same commenter said
that the Commission failed to estimate the financial impact that would
be imposed on the swap industry because of this rule, particularly
those costs associated with end-users.\438\ Another commenter stated
that when promulgating rules and estimating costs, the Commission
should take into consideration ``issues of scale in participants and
volumes.'' \439\
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\437\ See CL-Dominion.
\438\ Id.; The Commission notes that its estimates regarding the
costs related to ``collections of information'' required by the
Proposing Release can be found in the supporting statement and form
83-I posted on the Office of Management and Budget's Web site, which
can be found at http://www.reginfo.gov/public/do/PRAMain. The
revised supporting statement and form 83-I can be found at the same
Web site.
\439\ See CL-GXFD.
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OMB issued a notice of action providing that the Commission should
examine the comments received and submit a revised supporting
statement, including ``a description of how the agency has responded to
any public comment on the [information collection request], including
comments on maximizing the practical utility of the collection and
minimizing the burden.'' \440\
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\440\ CL-OMB Notice of Action (received 04/01/11).
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The title for the collection of information under part 43 is
``Real-Time Public Reporting of Swap Transaction Data.'' OMB has
assigned OMB control number 3038-0070 to this collection of
information, but OMB is withholding its approval of this collection of
information pending the submission of the revised supporting statement.
The Commission has revised some of its assumptions and estimates as a
result of changes in the requirements imposed by part 43 and after
considering the comments received. The revised estimates are being
submitted to OMB and can be found in the updated form 83-I and
supporting statement, which can be found at http://www.reginfo.gov/public/do/PRAMain.
The Proposing Release described the new collections of information
in terms of four broad categories of requirements: Reporting, public
dissemination, recordkeeping and determining appropriate minimum block
size. As further described below, the Commission revised some of its
estimates regarding the reporting, public dissemination and
recordkeeping estimates from the Proposing Release. The Commission
notes that part 43 does not require an SDR to determine an appropriate
minimum block size.\441\ Additionally, part 43 no longer permits a SEF,
DCM or reporting party to report swap transaction and pricing data to a
third-party service provider for purposes of satisfying the public
dissemination obligations under part 43 (i.e., all real-time swap data
must be reported to an SDR for public dissemination).
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\441\ Rules related to block trades and large notional off-
facility swaps will be addressed in a separate rulemaking.
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A. Burden Estimates for Reporting Requirements
The Commission estimated in the Proposing Release that annual
hourly burdens for SEFs and DCMs to report swap transaction and pricing
data to a real-time disseminator would be approximately 2,080 hours per
SEF and DCM. In addition, the Commission anticipated there would be 40
SEFs and 17 DCMs who may be required to report pursuant to part 43's
obligations.\442\
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\442\ At the time of the Proposing Release there were 17 DCMs;
there are now 18 DCMs.
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For those swaps executed off-facility, the Proposing Release
estimated the reporting burdens associated with SDs and MSPs to be
approximately 2,080 annual burden hours. In the Proposing Release, the
Commission took ``a conservative approach'' to calculating the burden
hours for this information collection by estimating that as many as 250
SDs and 50 MSPs would register.\443\ Since publication of the Proposing
Release in November 2010, the Commission has had ample opportunity to
meet with industry participants and trade groups, to discuss
extensively the universe of potential registrants with the National
Futures Association (``NFA''), and to review public market information
about dealers active in the market and certain trade groups. Over time,
and as the Commission has gathered more information on the swaps market
and its participants, the estimated number of SDs and MSPs has
decreased. In its FY 2012 budget drafted in February 2011, the
Commission estimated that 140 SDs might register with the
Commission.\444\ After recently receiving additional specific
information from NFA on the regulatory program it is developing for SDs
and MSPs,\445\ however, the Commission believes that approximately 125
Swaps Entities, including only a handful of MSPs, will register.
Therefore, the information collection's proposed total burden hour
estimate of 624,000 burden hours for SDs and MSPs will decrease to
260,000 burden hours, assuming there are 125 respondents and no
adjustments to the response times for the registration forms.
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\443\ 75 FR 76169.
\444\ CFTC, President's Budget and Performance Plan Fiscal Year
2012 (Feb. 2011), p. 13-14, available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/cftcbudget2012.pdf. The
estimated 140 SDs includes ``[a]pproximately 80 global and regional
banks currently known to offer swaps in the United States;''
``[a]pproximately 40 non-bank swap dealers currently offering
commodity and other swaps;'' and ``[a]pproximately 20 new potential
market makers that wish to become swap dealers.'' Id.
\445\ Letter from Thomas W. Sexton, Senior Vice President and
General Counsel, NFA to Gary Barnett, Director, Division of Swap
Dealer and Intermediary Oversight, CFTC (Oct. 20, 2011) (NFA Cost
Estimates Letter).
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When an off-facility swap is executed and neither an SD nor MSP is
a counterparty (e.g., an end-user to end-user swap), the reporting
responsibility would fall on one of the end-users to the swap.\446\ For
that reason, the Commission estimated that the total number of swap
end-users that would be required to report their swap
[[Page 1230]]
transaction and pricing data would be 1,500 entities or persons.\447\
The Commission estimated that swap end-users (i.e., non-SD/non-MSPs)
would expend four (4) annual burden hours per reporting party or
person, for a total of 6,000 aggregate annual burden hours.\448\
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\446\ Part 43 no longer uses the term end-user, but uses the
term ``non-SD/non-MSP'' to represent a reporting party who is not an
SD or MSP.
\447\ In the Proposing Release, the Commission requested comment
on the number of swap end-users that would be required to report
their swap transaction and pricing data pursuant to proposed Section
43.3. The Commission estimated that there would be a total of 30,000
swap market participants and that 1,500 of those participants would
engage in end-user-to-end-user swap transactions (5% of 30,000)
requiring at least one of those participants to report such swap
transaction and pricing data.
\448\ This estimate included the expectation that end users who
participate in end-user-to-end-user swaps will contract with other
entities to report the swap transaction and pricing data to an SDR
or third-party service provider.
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In the Proposing Release, the Commission assumed that end-users who
would be required to report pursuant to part 43 would contract with a
third party to satisfy their obligations. However, as one commenter
indicated, some end-users may choose not to contract with a third
party, but will build infrastructure and hire personnel for purposes of
reporting swap transaction and pricing data to an SDR.\449\
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\449\ See CL-Dominion.
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After consideration of the comments received and further
discussions with the Commission's technology experts, the Commission is
retaining its estimates related to SEFs, DCMs, SDs and MSPs reporting
burdens, but is revising its estimates as they relate to non-SDs/non-
MSPs reporting burdens. The Commission cannot estimate with precision
the number of non-SDs/non-MSPs that will be obligated to report under
this rule, how many will conduct their own reporting or contract with a
third party, or how many transactions they will have to report.
Moreover, there will be significant deviations in reporting burdens on
a reporting party-by-reporting party basis, based upon the type and
transactional activity of each individual reporting party.
Consequently, of the estimated 30,000 non-SDs/non-MSPs who will
transact in the swaps markets, the Commission is estimating that only
1,000 non-SDs/non-MSPs will be required to report in a year.\450\ Of
those 1,000 non-SDs/non-MSPs, the Commission continues to believe a
majority, estimated now at 75%, will contract with third parties to
satisfy their reporting obligations. For those non-SDs/non-MSPs who are
required to report swap transaction and pricing data to an SDR and
contract with a third party, the Commission estimates that such non-
SDs/non-MSPs will expend 22 annual burden hours per reporting party or
entity for reporting errors and omissions. Thus, the Commission
estimates that 750 non-SDs/non-MSPs that will contract with a third
party will expend a total of 16,500 aggregate annual burden hours
complying with the reporting requirements.\451\
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\450\ This is a change from the Proposing Release which
estimated that 1,500 end-users (5% of 30,000) would be required to
report swap transaction and pricing data to an SDR or third-party
service provider.
\451\ Non-SDs/non-MSPs reporting parties that contract with a
third party to report swap transaction and pricing data to an SDR
may still be required to submit corrected data to a SEF, DCM or SDR
when they become aware of an error or omission.
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Conversely, for the 250 non-SDs/non-MSPs that the Commission
estimates will not contract with a third party, the Commission
estimates such non-SDs/non-MSPs will expend 676 annual burden hours per
reporting party or entity, for a total of 169,000 aggregate annual
burden hours.
B. Burden Estimates for Public Dissemination Requirements
Proposed Sec. 43.3 required an SDR to publish, through an
electronic medium, swap transaction and pricing data received from
reporting parties as soon as technologically practicable, unless such
publicly reportable swap transaction is subject to a time delay.
Moreover, SDRs would be required to receive and publicly disseminate
real-time swap transaction and pricing data at all times, 24-hours a
day. The Commission estimated that there would be approximately 15
SDRs.\452\ In its Proposing Release, the Commission estimated that
compliance with the public dissemination requirements would cause an
SDR to expend 6,900 annual burden hours, resulting in estimated
aggregate annual burden hours of 103,500 for all SDRs. The Commission
received no comments on its proposed public dissemination estimates,
and the Commission is not revising them.
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\452\ Because the Commission has not regulated the swap market,
the Commission was unable to collect data relevant to the Proposing
Release's estimates. For that reason, the Commission requested
comment on these estimates.
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C. Burden Estimates for Recordkeeping Requirements
Under proposed Sec. 43.3(i), SEFs and DCMs (an estimated 57
entities or persons),\453\ SDRs (an estimated 15 entities or persons)
and reporting parties would be required to retain all data relating to
a reportable swap transaction for a period of not less than five years
following the time at which such reportable swap transaction is
publicly disseminated in real-time. With respect to SEFs, DCMs and
real-time disseminators, the Commission estimated in the Proposing
Release that the proposed recordkeeping requirement would be 250 annual
burden hours per SEF, DCM and SDR. The Commission anticipated that
1,500 swap end-users would be reporting parties for the purposes of
this part of the Commission's regulations. Since the Commission
anticipated that there would be lower levels of activity relating to
the requirement for swap end-users, the Commission estimated that there
would be two (2) annual burden hours per swap end-user.
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\453\ See supra note 442.
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Commenters on the substantive aspects of the proposed rulemaking
argued that these recordkeeping requirements were duplicative of
existing Commission regulations and provisions of other proposed
rulemakings. In consequence, these recordkeeping requirements have been
omitted from the final rulemaking, and thus the Commission will be
withdrawing the burden estimates associated with them.
The only remaining recordkeeping requirements retained from the
Proposal Release are the timestamping requirements in Sec. 43.3(h).
Specifically, timestamps will be required for all publicly reportable
swap transactions and must be applied by SEFs, DCMs, SDRs, SDs and
MSPs. Non-SDs/non-MSPs who are required to report will not be obligated
to comply with the timestamping requirements. Accordingly, the
Commission is revising downward the estimated burden associated with
recordkeeping.
For the estimated 57 SEFs and DCMs who must comply with the
timestamping requirements with respect to receipt of certain swap
transactions and transmission of all transactions, which the Commission
expects will be conducted electronically, the Commission estimates 25
annual burden hours per entity, which accounts for any system
programming that may be required and periodic maintenance, for an
aggregate of 1,425 annual burden hours. For the estimated 300 SDs and
MSPs who must comply with the timestamping requirements only on
transmission, which the Commission also expects to be conducted
electronically, the Commission estimates that such entities will expend
20 annual burden hours per entity, for an aggregate of 6,000 annual
burden hours. Finally, for the estimated 15 SDRs who must comply with
the
[[Page 1231]]
timestamping requirements on the receipt of transaction data as well as
on its public dissemination, the Commission estimates that such
entities will have 76 annual burden hours per entity, for an aggregate
of 1140 annual burden hours.
D. Cost Burden
In addition to the hour burdens identified above, reporting
parties, SEFs or DCMs where swaps are executed, and SDRs that must
accept and ensure the public dissemination of real-time swap
transaction and pricing data in their selected asset class will incur
cost burdens in connection with reporting, public dissemination and
recordkeeping obligations.\454\ The direct, quantifiable costs imposed
on reporting parties, SEFs and DCMs will take the forms of (i) non-
recurring expenditures in technology and personnel; and (ii) recurring
expenses associated with systems maintenance, support, and compliance.
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\454\ SDRs may pass on costs of public dissemination through
equitable and non-discriminatory fees to the real-time reporting
market participants. See Sec. 43.3(i).
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Although the Commission is retaining the cost burden estimates
described in connection with the Proposing Release in substantial part,
after reviewing comments received and consulting with market
participants, the Commission has revised some of these estimates.\455\
Specifically, the Commission has revised its wage rate calculation from
the wage rate used to calculate cost burdens in the Proposing
Release.\456\ Additionally, the Commission has revised its cost burden
estimates with respect to non-SD/non-MSP reporting parties. With
respect to the cost burden estimates related to such non-SD/non-MSP
reporting parties, the Commission has assumed a non-financial end-user
lacking the technical capability and other infrastructure to comply
with the part 43 requirements as the reference point for its cost
burden estimates--in other words, a new market entrant with no prior
swaps market participation or infrastructure. Further, the Commission
has revised its estimates with respect to recordkeeping requirements,
since part 43 now only requires recordkeeping with respect to
timestamps. SDs, MSPs, non-SDs/non-MSPs, SEFs, DCMs and SDRs will incur
initial and recurring costs, including capital and start-up costs
related to reporting and public dissemination of swap transaction and
pricing data pursuant to part 43. The Commission did not receive
comments regarding the cost burden estimates for initial non-recurring
costs for reporting with respect to SDs, MSPs, SEFs, DCMs and SDRs. The
Commission is therefore retaining its estimates that the initial non-
recurring costs for each SD, MSP, SD, SEF and DCM to be $300,000;
however, the Commission has estimated that, annualized over a useful
life of 6 years, and accounting for the total operational cost per year
associated with these initial non-recurring costs, the annual total
cost of these initial non-recurring costs will be $200,000.\457\
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\455\ As the Commission noted in the Proposing Release, the
supporting statement submitted in connection with the proposal may
be obtained by visiting RegInfor.gov. See Real-Time NPRM supra note
6, at 76170.
\456\ In so doing, the Commission at times has utilized wage
rate estimates based on salary information for the securities
industry compiled by the Securities Industry and Financial Markets
Association (``SIFMA''). These wage estimates are derived from an
industry-wide survey of participants and thus reflect an average
across entities; the Commission notes that the actual costs for any
individual company or sector may vary from the average.
The Commission estimated the dollar costs of hourly burdens for
each type of professional using the following calculations:
[(2009 salary + bonus) * (salary growth per professional type,
2009-2010)] = Estimated 2010 total annual compensation.] The most
recent data provided by the SIFMA report describe the 2009 total
compensation (salary + bonus) by professional type, the growth in
base salary from 2009 to 2010 for each professional type, and the
2010 base salary for each professional type; thus, the Commission
estimated the 2010 total compensation for each professional type,
but, in the absence of similarly granular data on salary growth or
compensation from 2010 to 2011 and beyond, did not estimate dollar
costs beyond 2010.
[(Estimated 2010 total annual compensation)/(1,800 annual work
hours)] = Hourly wage per professional type.]
[Hourly wage) * (Adjustment factor for overhead and other
benefits, which the Commission has estimated to be 1.3)] = Adjusted
hourly wage per professional type.]
[(Adjusted hourly wage) * (Estimated hour burden for
compliance)] = Dollar cost of compliance for each hour burden
estimate per professional type.]
The sum of each of these calculations for all professional types
involved in compliance with a given element of part 43 represents
the total cost for each reporting party, SD/MSP, SEF, DCM or SDR, as
applicable to that element of part 43.
\457\ The capital and start-up costs for part 43's reporting
requirements for high activity respondents is estimated as 5% of the
entity's estimated average total capital and start-up cost of $6
million.
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With respect to non-SDs/non-MSPs, the Commission estimates that the
initial non-recurring costs for its reference point, a non-financial
end-user that does not contract with a third party to report swap data
(``non-financial end-user''), will likely consist of (i) developing an
internal Order Management System (``OMS'') capable of capturing all
relevant swap data in real-time; (ii) establishing connectivity with an
SDR that accepts data; (iii) developing written policies and procedures
to ensure compliance with part 43; and (iv) compliance with error
correction procedures. Based on comments received and meetings with
market participants, the Commission estimates that many non-financial
end-users will likely engage in swap transactions in only one asset
class.\458\ Accordingly, for purposes of estimating relevant cost
burdens, the Commission estimates that a non-financial end-user will
establish connectivity with one SDR.\459\ The Commission estimates that
the total initial non-recurring costs to each non-financial end-user to
be $56,369.\460\ Further, if non-SDs/non-MSPs utilize a third party to
assist in reporting real-time swap transaction and pricing data to an
SDR, the Commission estimates the initial non-recurring costs per non-
SD/non-MSP to be $2,063.
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\458\ See, e.g., CL-NFPEEU.
\459\ Depending on the number of swap asset classes in which a
reporting party transacts (or that a SEF or DCM lists), and the
number of SDRs that accept the resulting swap transaction and
pricing data in such asset class, multiple connections to different
SDRs may be necessary or desirable. As the regulatory structure
develops and the swap markets evolve, the average number of SDR
connections established and maintained by each reporting party,
registered SEF and DCM may be different and fluid.
\460\ The aggregate estimate represents the sum total of the
following initial non-recurring costs: [$26,689 for 355 personnel
hours to develop an internal order management system] + [$12,824 for
172 burden hours to establish connectivity with an SDR] + [$14,793
for 180 burden hours to develop written policies and procedures to
comply with reporting requirements of part 43] + [$2,063 for 26
burden hours to establish a program for reporting errors and
omissions] = $56,369.
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The recurring cost burden estimates with respect to reporting and
public dissemination of real-time swap transaction and pricing data
have been revised from the estimates provided in connection with the
Proposing Release, with respect to SDRs, SDs, MSPs, SEFs, DCMs and non-
SDs/non-MSPs. The revisions to the cost burden estimate for recurring
costs associated with reporting and public dissemination for SDRs have
been adjusted to take into account the changes to the wage rate
calculation. Accordingly, the Commission estimates the aggregate annual
recurring costs for reporting and public dissemination for SDRs to be
$23,255,210.\461\
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\461\ This estimate is the aggregate annual cost burden for 15
SDRs, including the costs for burden hours, operational costs and
annualized capital and start-up costs.
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The Commission has also revised its cost burden estimate for
recurring costs for SEFs, DCMs, SDs and MSPs with respect to reporting
and public dissemination. These estimates have been revised to take
into account changes in the estimates for the number of entities, as
well as changes to the wage rate calculation. Accordingly, the
[[Page 1232]]
Commission estimates the aggregate annual recurring costs for reporting
and public dissemination for SEFs to be $17,245,242.\462\ Additionally,
the Commission estimates the aggregate annual recurring costs for
reporting and public dissemination for DCMs to be $7,760,359.\463\
Further, the Commission estimates the aggregate annual recurring costs
for reporting and public dissemination for SDs/MSPs to be
$28,891,383.\464\
---------------------------------------------------------------------------
\462\ This estimate is the aggregate annual cost burden for 40
SEFs, including $100,000 per DCM to maintain connectivity to an SDR,
costs for burden hours, operational costs and annualized capital and
start-up costs.
\463\ This estimate is the aggregate annual cost burden for 18
DCMs, including $100,000 per DCM to maintain connectivity to an SDR,
costs for burden hours, operational costs and annualized capital and
start-up costs. The number of DCMs was changed from 17 to 18 to
reflect the designation of an additional contract market since the
publication of the NPRM in the Federal Register. As of December 13,
2011. See http://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=TradingOrganizations&implicit=true&type=DCM&CustomColumnDisplay=TTTTTTTT.
\464\ This estimate is the aggregate annual cost burden for 125
SDs/MSPs, including $100,000 per SD/MSP to maintain connectivity to
an SDR, costs for burden hours, operational costs and annualized
capital and start-up costs.
---------------------------------------------------------------------------
With respect to non-SDs/non-MSPs, the Commission estimates that the
recurring cost burdens for a non-financial end-user will likely consist
of (i) capturing swap transaction and pricing data in a manner
sufficient to comply with part 43; (ii) maintaining connectivity to an
SDR; (iii) maintaining compliance and operational support programs; and
(iv) reporting of errors and omissions. The Commission estimates the
aggregate annual recurring costs for reporting and public dissemination
for a non-financial end-user to be $45,159,000.\465\ Further, if non-
SDs/non-MSPs utilize a third party to assist in reporting real-time
swap transaction and pricing data to an SDR, the Commission estimates
the aggregate annual recurring costs for reporting and public
dissemination for such non-SD/non-MSP reporting parties to be
$2,056,500.\466\
---------------------------------------------------------------------------
\465\ The cost burden estimate represents the aggregate
recurring costs relating to reporting and public dissemination for
250 non-SDs/non-MSPs that do not utilize third parties at a total
estimated cost of $180,636 per non-SD/non-MSP. The estimated cost
per non-SD/non-MSP represents the sum total of [$27,943 for 436
burden hours for capturing swap transaction and pricing data] +
[$13,747 for 218 burden hours for maintenance of compliance and
operational support programs] + [$1,366 for 22 burden hours to
report errors and omissions] + [$100,000 to maintain connectivity to
an SDR] + [$28,185 for operational costs] + [$9,395 for annualized
capital and start up costs].
\466\ This cost burden estimate represents the aggregate
recurring costs relating for reporting and public dissemination
requirements for 750 non-SDs/non-MSPs that utilize a third party for
reporting requirements pursuant to part 43. The Commission
recognizes that these costs may vary based on the level of swap
activity by a non-SD/non-MSP.
---------------------------------------------------------------------------
In addition to the costs burdens associated with reporting and
public dissemination, part 43 imposes costs on SDRs, SDs, MSPs, SEFs
and DCMs with respect to recordkeeping.\467\ These estimated cost
burdens have been adjusted downward from the estimates associated with
the Proposing Release since the part 43 rules only require
recordkeeping in connection with timestamps. The Commission estimates
the total aggregate non-recurring and recurring costs for recordkeeping
as follows:\468\ $93,855 for SDRs; $328,000 for SDs/MSPs; $157,440 for
SEFs; and $70,848 for DCMs.
---------------------------------------------------------------------------
\467\ Non-SDs/non-MSPs do not have any recordkeeping obligations
pursuant to part 43.
\468\ The Commission estimates 15 SDRs, 125 SDs/MSPs, 40 SEFs
and 18 DCMs.
---------------------------------------------------------------------------
Accordingly, the estimated aggregate cost burden for all market
participants to comply with part 43 is $150,017,837.00.\469\
---------------------------------------------------------------------------
\469\ $150,017,837.00 (total) = $23,349,065 (SDRs) + $54,219,383
(SDs and MSPs) + $17,402,682. (SEFs) + $7,831,207. (DCMs) +
$45,159,000 (RP Non-SD/non-MSP) + $2,056,500 (RP non-SD/non-MSP that
contracts with a third party).
---------------------------------------------------------------------------
For further information relating to the revised cost burden
estimates, please refer to the updated form 83-I and supporting
statement submitted to OMB, which can be found at http://www.reginfo.gov/public/do/PRAMain.
V. Cost-Benefit Considerations
A. Introduction
The swaps markets, which have grown exponentially in recent years,
are now an integral part of the nation's financial system. As the
financial crisis of 2008 demonstrated, the absence of transparency in
the swaps markets can pose systemic risk to this system.\470\ In part,
the Dodd-Frank Act seeks to promote the financial stability of the
United States by improving financial system accountability and
transparency. More specifically, Title VII of the Dodd-Frank Act
directs the Commission to promulgate regulations to increase swaps
markets' transparency and thereby reduce the potential for counterparty
and systemic risk.\471\
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\470\ As the U.S. Senate Committee on Banking, Housing, and
Urban Affairs explained concerning the 2008 financial crisis:
Information on prices and quantities [in ``over-the-counter,''
or ``OTC,'' derivatives contracts] is opaque. This can lead to
inefficient pricing and risk assessment for derivatives users and
leave regulators ill-informed about risks building up throughout the
financial system. Lack of transparency in the massive OTC market
intensified systemic fears during the crisis about interrelated
derivatives exposures from counterparty risk. These counterparty
risk concerns played an important role in freezing up credit markets
around the failures of Bear Stearns, AIG, and Lehman Brothers.
S. Rep. No. 111-176, at 30 (2010). More specifically with
respect to credit default swaps (``CDSs''), the Government
Accountability Office found that ``comprehensive and consistent data
on the overall market have not been readily available,'' that
``authoritative information about the actual size of the CDS market
is generally not available,'' and that regulators currently are
unable ``to monitor activities across the market.'' Government
Accountability Office, Systemic Risk: Regulatory Oversight and
Recent Initiatives to Address Risk Posed by Credit Default Swaps,
GAO-09-397T (March 2009) at 2, 5, 27.
\471\ See Congressional Research Service Report for Congress,
The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title
VII, Derivatives, by Mark Jickling and Kathleen Ann Ruane (August
30, 2010); Dep't of the Treasury, Financial Regulatory Reform: A New
Foundation: Rebuilding Financial Supervision and Regulation 1 (June
17, 2009) at 47-48.
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Transaction reporting is a fundamental component of the
legislation's objective to reduce risk, increase transparency, and
promote market integrity within the financial system generally, and the
swaps market in particular. Title VII designates the Commission to
oversee the swaps markets and develop appropriate regulations.
Specifically, section 727 of the Dodd-Frank Act amends the Commodity
Exchange Act by inserting new section 2(a)(13), which requires that
swap transaction and pricing data be made publicly available. The Dodd-
Frank Act specifies that swap price and volume data be reported to the
public as soon as technologically practicable after the swap has been
executed, i.e., real-time public reporting, and at the same time
requires that public dissemination not identify the participants to the
swap transaction.\472\
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\472\ CEA section 2(a)(13)(B) authorizes the Commission to
``make swap transaction and pricing data available to the public in
such form and at such times as the Commission determines appropriate
to enhance price discovery.'' CEA sections 2(a)(13)(C) and (E)
authorize and require the Commission ``to provide by rule for the
public availability of swap transaction and pricing data.'' These
provisions specify that the rules shall, with respect to the swaps
that are subject to the clearing mandate (or excepted from such
mandate pursuant to CEA section 2(h)(7)) or that are voluntarily
cleared, provide for the ``real-time public reporting'' of such
transactions in a manner that: (1) Preserves swap counterparty
anonymity; (2) takes into account whether the public dissemination
will materially reduce market liquidity; and (3) specifies the
appropriate criteria and time delays for reporting large notional
swaps (block trades). With respect to certain uncleared swaps, CEA
section 2(a)(13)(C)(iii) requires that the rules require real-time
public reporting for such transactions in a manner that does not
disclose the business transactions and market positions or any
person. CEA section 2(a)(13)(A) defines ``real-time public
reporting'' as ``to report data relating to a swap transaction,
including price and volume, as soon as technologically practicable
after the time at which the swap transaction has been executed.'' In
addition, section 721(b) of the Dodd-Frank Act authorizes the
Commission to define certain terms added to the CEA by the Dodd-
Frank Act, including the term ``as soon as technologically
practicable.''
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[[Page 1233]]
In promulgating part 43 of its regulations, the Commission
implements Congress' mandate that swap transaction and pricing data be
made available to the public in real-time. Together, the statute and
Commission's rules promote transparency and enhance price discovery
while protecting the anonymity of market participants.\473\ Part 43
achieves the statutory objectives of transparency and enhanced price
discovery by, inter alia, requiring that market participants ultimately
report swap transaction and pricing data to an SDR \474\ and by
requiring SDRs to ensure the public dissemination of such data in real
time.\475\ The Commission expects that the increased transparency
achieved by the increased availability of pricing information will
enhance the price discovery process and improve financial market
systemic risk management. In the sections that follow, the Commission
considers the costs and benefits of part 43 as required by CEA section
15(a).
---------------------------------------------------------------------------
\473\ Part 43 covers all swaps under the Commission's
jurisdiction (i.e., interest rate, foreign exchange, equity, credit
and ``other commodity''), cleared and uncleared, regardless of the
method of execution (e.g., executed on a SEF, DCM or bilaterally
negotiated).
\474\ Section 43.3(a)(1) states that for purposes of part 43, a
``registered swap data repository'' shall include swap data
repositories that are provisionally registered pursuant to the
Commission's part 49 rules.
\475\ Section 43.4 and appendix A to part 43 specify the data an
SDR is required to publicly disseminate. Consistent with its
obligations under the statute, the Commission considered whether the
public dissemination of such data would compromise the anonymity of
the parties to a swap, or would disclose the business transactions
and market positions of any party to an uncleared swap.
---------------------------------------------------------------------------
1. Background
CEA section 15(a) requires the Commission to consider the costs and
benefits of its actions in light of five broad areas of market and
public concern: (1) Protection of market participants and the public;
(2) efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations.\476\ The Commission, in its
discretion, may give greater weight to any one of the five enumerated
areas and may determine that, notwithstanding costs, a particular rule
protects the public interest.
---------------------------------------------------------------------------
\476\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
To the extent that these new rules reflect the statutory
requirements of the Dodd-Frank Act, they will not create costs and
benefits beyond those mandated by Congress in passing the legislation.
However, the rules may generate costs and benefits attributable to the
Commission's determinations regarding implementation of the Dodd-Frank
Act's statutory requirements. Moreover, as this rulemaking is a
reporting rule, many of the costs of the rulemaking are associated with
collections of information. The Commission is obligated to estimate the
burden of and provide supporting statements for any collections of
information it seeks to establish under considerations contained in the
PRA, 44 U.S.C. 3501 et seq., and to seek approval of those requirements
from the OMB. Therefore, the estimated burden and support for the
collections of information in this this rulemaking, as well as the
consideration of comments thereto, are discussed in the PRA section of
this rulemaking and the information collection requests filed with OMB
as required by that statute. Otherwise, the costs and benefits of the
Commission's determinations are considered in light of the five factors
set forth in CEA section 15(a).
To aid in fulfilling its statutory responsibility to consider the
costs and benefits of its proposed rules, the Commission sought comment
on its proposed rulemaking for a period of 60 days, and specifically
requested that commenters submit any data or other information
quantifying or qualifying the costs and benefits of the proposal with
their comment letters. The Commission received approximately 60
comments addressing the costs and benefit considerations of the
proposed rule, which addressed primarily regulatory alternatives and
the costs associated with the proposed information collection
requirements, which are covered in the PRA section of this rulemaking
and in the supporting statements that were filed and will be filed with
OMB, as required under that statute. Nevertheless, wherever reasonably
feasible, the Commission has endeavored to quantify the costs and
benefits of the final rules, and did so in the proposed rule to the
extent that the costs of the rulemaking were related to collections of
information for which the Commission must account under the PRA. In a
number of instances, however, it is not reasonably feasible to
quantify, particularly with regard to the benefits of the final rules.
Where quantification is not feasible, the Commission has considered the
costs and benefits of the final rule in qualitative terms.
In the paragraphs the follow, the Commission, after explaining its
cost estimation methodology, discusses the economic effects of part 43
along the two major drivers of the costs and benefits of the
rulemaking: (1) Reporting and public dissemination; and (2)
recordkeeping and timestamping.
2. Cost Estimation Methodology
The Commission recognizes that the costs of complying with part 43
are largely attributable to reporting, the costs for which are covered
in the Commission's PRA analysis, as required by that statute. With
respect specifically to SDRs, the Commission has estimated their
incremental costs to comply with the real-time reporting and public
dissemination requirements of this rulemaking above the base operating
costs reflected in a separate rulemaking and the PRA analysis
associated with it.\477\ The Commission expects SDRs to recover these
incremental costs in the form of fees assessed on reporting parties,
SEFs and DCMs for use of the SDRs' public dissemination services.\478\
---------------------------------------------------------------------------
\477\ See SDR Final Rule. 76 FR 54538 at 54572.
\478\ Section 43.3(i) authorizes an SDR to charge fees to
persons reporting the real-time data, so long as such fees are
equitable and non-discriminatory.
---------------------------------------------------------------------------
B. Reporting and Public Dissemination Requirements of Part 43
CEA section 2(a)(13)(F) provides the Commission with the authority
to determine the reporting requirements for parties to a swap.
Consistent with this authority, Sec. 43.3(a)(2) provides that a
reporting party satisfies its obligation to report real-time swap
transaction and pricing data when it executes a swap on or pursuant to
the rules of a SEF or DCM. In turn, Sec. 43.3(b)(1) requires SEFs and
DCMs to report data related to publicly reportable swap transactions to
an SDR for public dissemination. For ``off-facility swaps,''\479\ Sec.
43.3(a)(3) establishes a protocol for determining counterparty
responsibility to report real-time swap transaction and pricing data to
an SDR.\480\ Further, Sec. 43.3(c)(2) specifies that an SDR must
accept and publicly disseminate swap transaction and pricing data in
real-time for all swaps in its selected asset class, unless otherwise
prescribed by the Commission.\481\ Thus, depending on the place of
execution and the counterparties to a swap, the reporting obligation
may fall on a SEF, DCM, SD, MSP, or a non-SD/non-MSP.
---------------------------------------------------------------------------
\479\ The term ``off-facility swap'' is defined in Sec. 43.2.
\480\ Such responsible counterparty would be the ``reporting
party,'' as defined in Sec. 43.2.
\481\ See discussion regarding Sec. 43.3(c)(2).
---------------------------------------------------------------------------
CEA section 2(a)(13)(D) provides that ``[t]he Commission may
require registered entities to publicly disseminate the swap
transaction and pricing data required to be reported under this
paragraph.'' Pursuant to this authority, the Commission is adopting
[[Page 1234]]
rules requiring an SDR to ensure the public dissemination of all swap
transaction and pricing data it accepts pursuant to part 43.
Specifically, Sec. 43.3(b)(2) requires an SDR to ensure that swap
transaction and pricing data for all publicly reportable swap
transactions within an asset class are publicly disseminated as soon as
technologically practicable, unless the transaction is subject to a
time delay described in Sec. 43.5. In addition, Sec. 43.4(b)
prescribes the manner in which an SDR must publicly disseminate the
data to comply with part 43.\482\
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\482\ Section 43.4(b) provides ``Any registered swap data
repository that accepts and publicly disseminates swap transaction
and pricing data in real-time shall publicly disseminate the
information described in appendix A to this part.''
---------------------------------------------------------------------------
1. Benefits of the Reporting and Public Dissemination Requirements
The Commission anticipates that part 43 will generate several
overarching, if presently unquantifiable, benefits to swaps market
participants and the public generally. These include: Improvements in
market quality; price discovery; improved risk management; economies of
scale and greater efficiencies; and improved regulatory oversight.
The Commission believes these benefits, made possible by the public
dissemination of comprehensive and timely swap transaction data, will
accrue to market participants in a number of ways:
Enhanced price discovery made possible by the
comprehensive and timely swap transaction data that the part 43
requires be reported and publicly disseminated.
Enhanced ability to manage risk as a result of the greater
visibility into swap market risk pricing, made possible by the
comprehensive and timely swap transaction data that the part 43
requires be reported and publicly disseminated.
Enhanced swap market price competition made possible by
the comprehensive and timely swap transaction data that the part 43
requires be reported and publicly disseminated.\483\
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\483\ Congress recognized the competitive pricing benefit of
real-time information in the related context of swap exchange
trading. See S.Rep. No. 111-176, at 34 (2010) (```the relative
opaqueness of the OTC market implies that bid/ask spreads are in
many cases not being set as competitive as they would be on
exchanges''') (quoting Stanford University Professor Darrel Duffie).
---------------------------------------------------------------------------
Market price transparency provides a check against SDs or
other market participants trading at noncompetitive prices; provides
post-trade information market participants may use to negotiate lower
transaction costs; and facilitates price competition between swap
dealers.
More robust risk monitoring and management capabilities as
a result of the systems required under part 43 which, concurrent with
real-time reporting capability, will monitor the participant's current
swap market position.
New tools to process transactions at a lower expense per
transaction attributable to the systems required under part 43. These
tools will enable participants to handle increased volumes of swaps
with less marginal expense, or existing volumes of swaps with greater
efficiency.
Furthers the development of internationally recognized
standards for the financial services industry by utilizing UTC.
Transaction reporting and public dissemination under part 43 also
benefits the public generally by supporting the Commission's
supervisory function over the swaps market, as well as the broader
supervisory responsibilities of U.S. financial regulators to protect
against financial market systemic risk. Real-time public reporting
provides a means for the Commission to gain a better understanding of
the swaps market--including the pricing patterns of certain
commodities. The public dissemination of swap transaction and pricing
data will further enable the Commission, market participants and the
public to observe the effects of transparency on the swaps markets.
Public dissemination of swap transaction and pricing data will
enhance the Commission's ability to detect anomalies in the market. For
example, the availability of such data in real-time will help
Commission monitor the markets subject to its jurisdiction.
Transparency facilitated by real-time transaction reporting also
will help provide a check against a reoccurrence of the type of
systemic risk build-up that occurred in 2008, when ``the market
permitted enormous exposure to risk to grow out of the sight of
regulators and other traders [and d]erivatives exposures that could not
be readily quantified exacerbated panic and uncertainty about the true
financial condition of other market participants, contributing to the
freezing of credit markets.'' \484\
---------------------------------------------------------------------------
\484\ Congressional Research Service Report for Congress, The
Dodd-Frank Wall Street Reform and Consumer Protection Act: Title
VII, Derivatives, by Mark Jickling and Kathleen Ann Ruane (August
30, 2010).
---------------------------------------------------------------------------
While the Commission believes that part 43 will yield significant
benefits to the public and swaps market participants, the Commission
acknowledges that the final rules will entail costs. As discussed more
fully below, the Commission is mindful of the costs of its rules and
has carefully considered comments regarding the same. To the extent
possible and consistent with the statutory and regulatory objectives of
this rulemaking, the Commission has incorporated comments presenting
cost-mitigating alternatives.
2. Costs of the Reporting and Public Dissemination Requirements
The Commission has not identified quantifiable costs of data
collection that are not associated with an information collection
subject to the PRA. These costs therefore have been accounted for in
the PRA section of this rulemaking and the information collection
requests filed with OMB, as required by the PRA.
3. Reporting and Public Dissemination: Consideration of Studies,
Alternatives and Cost-Mitigation
i. Studies
Several commenters cited economic or academic studies in their
comment letters or submitted studies relating to the introduction of
transparency resulting from the public reporting of trade data.\485\
The comments and studies generally discussed the effects of
transparency on liquidity and the costs to market participants.
---------------------------------------------------------------------------
\485\ At least six commenters cited at least 13 studies by
institutional, academic and industry professionals. See, e.g., CL-
JPM; CL-Better Markets; CL-ATA; CL-FINRA; CL-Cleary; and CL-ISDA/
SIFMA.
---------------------------------------------------------------------------
None of these studies explicitly address the issue of market
transparency as it pertains to the real-time public dissemination of
swap transaction and pricing data and as adopted in part 43. Five of
the studies cited by commenters addressed issues that were tangential
to the issue of market transparency as it relates to part 43, since
they did not analyze the effects of market transparency directly. One
study identified, and differentiated among, a number of related
concepts of market quality that fall under the umbrella of
``liquidity.'' \486\ One commenter analogized the benefits of
transparency to the financial sector and the reticence of market
participants to acknowledge those benefits to the energy and industrial
sector of the early 1970s, citing a study that addressed the
[[Page 1235]]
benefits of environmental regulation to the energy and industrial
sectors.\487\ One cited study addressed the manner in which airlines
use jet fuel swaps to hedge risk.\488\ Another addressed the impacts of
high-frequency trading on the marketplace, which the commenter cited in
a discussion of high frequency and algorithmic trading.\489\ Another
commenter cited a study that addressed differences in reporting
obligations in domestic and foreign jurisdictions when discussing the
real-time public reporting of cross-border transactions.\490\ The
remaining studies cited by commenters addressed the general effects of
transparency on the marketplace.
---------------------------------------------------------------------------
\486\ See Kyle, Albert S., Continuous Auctions and Insider
Trading, Econometrica 53, no. 6 (1985): 1315-1335. This study is
also cited in Bessembinder et al. (2008). See infra note 497. See
also, CL-JPM.
\487\ See Porter, Michael E., and Claas van der Linde, Green and
Competitive: Ending the Stalemate, Harvard Business Review 73, no. 5
(1995): 120-134. See also CL-Better Markets.
\488\ See Cobbs, Richard, and Alex Wolf, Jet Fuel Hedging
Strategies: Options Available for Airlines and a Survey of Industry
Practices (2004). See also CL-ATA.
\489\ See Kirilenko, Andrei, Kyle, Albert S., Samadi, Mehrdad,
and Tugkan Tuzun, The Flash Crash: The Impact of High Frequency
Trading on an Electronic Market (2011). See also CL-Better Markets.
\490\ See CFTC staff, Derivatives Reform: Comparison of Title
VII of the Dodd-Frank Act to International Legislation (2010). See
also CL-Cleary.
---------------------------------------------------------------------------
One commenter \491\ cited five studies that addressed the benefits
of the introduction of transparency through the Transaction Reporting
and Compliance Engine (``TRACE'') system, which provides the real-time
transaction reporting and public dissemination in the corporate bond
market.\492\ Acknowledged differences between the swaps market and the
corporate bond market notwithstanding, the Commission believes that to
the extent the study discusses the benefits of transparency in the
corporate bond market, such benefits may be relevant to the discussion
of transparency in the swaps market. One study of TRACE cited by the
commenter suggests that, according to transaction data, the transaction
costs of bonds fell following the introduction of transparency to the
corporate bond market.\493\ Another study suggests that the
implementation of TRACE played a part along with other factors in
reducing the dispersion of the valuation of corporate bonds.\494\ The
commenter cited another study that suggests that post-trade
transparency alone, while less beneficial than the full transparency
(pre-trade and post-trade) offered by exchanges, could serve as a
partial substitute for the price transparency offered by exchanges.
This study further stated that the implementation of a TRACE-like price
reporting system could ``offer substantial improvements in market
efficiency'' for many actively-traded derivative products.\495\
---------------------------------------------------------------------------
\491\ See CL-FINRA.
\492\ TRACE enables real-time reporting and public dissemination
in the corporate bond market. Currently, TRACE requires public
dissemination to occur within 15 minutes of the time of execution
for most trades. Congress was cognizant of TRACE in passing the
Dodd-Frank Act. See S. Rep. No. 111-176, at 34 (2010) (```empirical
evidence appearing in the academic literature has not given much
support''' to claims of resistant bond dealers that ```more price
transparency would reduce the incentives of dealers to make markets
and in the end reduce market liquidity''') (quoting Stanford
University Professor Darrell Duffie).
\493\ See Edwards, Amy K., Harris, Lawrence E., and Michael S.
Piwowar, Corporate Bond Market Transaction Costs and Transparency,
The Journal of Finance 62, no. 3 (2007): 1421-1451.
\494\ See Cici. Gjergji, Gibson, Scott, and John J. Merrick,
Working Paper, Missing the Marks? Dispersion in Corporate Bond
Valuations Across Mutual Funds (2010).
\495\ See Duffie, Darrell, Li, Ada, and Theo Lubke, Federal
Reserve Bank of New York Staff Reports, Policy Perspectives on OTC
Derivatives Market Infrastructure (2010).
---------------------------------------------------------------------------
Another study implied that the implementation of TRACE had either
no effect or a positive effect on liquidity for BBB corporate bonds,
and that spreads on newly transparent bonds declined relative to bonds
that did not experience a change in transparency. The study further
implied that additional transparency is not associated with greater
trading volume.\496\
---------------------------------------------------------------------------
\496\ See Goldstein, Michael A., Hotchkiss, Edith S., and Erik
R. Sirri, Transparency and liquidity: A controlled experiment on
corporate bonds, The Review of Financial Studies 20, no. 2 (2007):
235-273.
---------------------------------------------------------------------------
Another study discussing TRACE indicated that TRACE presented a
number of important benefits to the corporate bond marketplace.\497\ As
the authors note:
---------------------------------------------------------------------------
\497\ See Hendrik Bessembinder, William Maxwell, and Kumar
Venkataraman, Market transparency, liquidity externalities, and
institutional trading costs in corporate bonds, Journal of Financial
Economics 82 (2006): 251-288. See also, CL-Cleary, CL-FINRA, CL-
ISDA/SIFMA, and CL-JPM.
The results * * * are important because they verify that market
design, and in particular decisions as to whether to make the market
transparent to the public, have first-order effects on the costs
that customers pay to complete trades. Further, since the sample
employed * * * consists of institutional trades, these results
indicate that public trade reporting is important not only to
relatively unsophisticated small traders, but also to professional
investors who make multi-million dollar transactions.\498\
---------------------------------------------------------------------------
\498\ Id. at 284.
In examining the effects of introducing transparency through TRACE,
the same authors identify a ``remarkable'' average decrease in
execution costs of 50% for TRACE-eligible bonds.\499\ Bessembinder et
al. state that the magnitude of that estimate, which reflects the
impact of implementing transparency in the corporate bond market
through TRACE, ``emphasizes the potential economic importance of
designing market mechanisms optimally.'' \500\ Indeed, it is entirely
plausible that, should a similar savings effect be realized in the
swaps markets as a result of real-time public reporting required under
part 43, such savings would ultimately be passed on to the end-users of
the swaps.
---------------------------------------------------------------------------
\499\ The study indicates that this can be extrapolated by
calculating a trading cost reduction of approximately $1 billion
across the entire market for TRACE-eligible bonds.
\500\ Bessembinder et al. at 283.
---------------------------------------------------------------------------
Bessembinder et al. further identify a decrease of 20% in the
execution costs of non-TRACE-eligible bonds. The authors state that
this ``likely reflects a liquidity externality by which better pricing
information regarding a subset of bonds improves valuation and
execution cost monitoring for related bonds.'' \501\ The Commission
believes it is entirely plausible that a similar savings effect could
be realized in the swaps markets as a result of part 43's requirements.
Improved pricing information for standardized swaps could improve the
pricing of swaps, and thus reduce the transaction costs of non-
standardized swaps whose prices could be sufficiently and reliably
correlated with the prices of the standardized swaps by market
participants.
---------------------------------------------------------------------------
\501\ Id.
---------------------------------------------------------------------------
In a subsequent work,\502\ Bessembinder and Maxwell acknowledge
that liquidity can refer to a number of related but distinct concepts,
but the literature regarding TRACE's effects on the corporate bond
market have focused primarily on a single one of these concepts:
Customers' trading costs.\503\ The study states that ``the cost of
trading corporate bonds decreased [following the introduction of
TRACE], but so did the quality and quantity of the services formerly
provided by bond dealers.'' \504\ One commenter also stated that this
study suggests that the implementation of TRACE reduced the market
depth available to institutional customers.\505\
---------------------------------------------------------------------------
\502\ See Bessembinder, Hendrik and Maxwell, William F.,
Transparency and the Corporate Bond Market, Journal of Economic
Perspectives, 22, no. 2 (2008): 217-234.
\503\ As one commenter noted, ``most studies of TRACE have
focused only on its effect on spreads (particularly in smaller
transaction sizes) and have not examined its effect on either market
depth or resiliency, particularly in the case of large-sized
transactions.'' CL-Cleary. See also supra note 492.
\504\ Bessembinder and Maxwell at 232.
\505\ See CL-JPM.
---------------------------------------------------------------------------
Bessembinder et al. state that ``consistent with the reasoning that
market makers earned economic rents in
[[Page 1236]]
the opaque market, or that the costs of market making are lower in the
more transparent environment,'' trading costs were reduced for large
institutional traders after the implementation of TRACE.\506\ With
regard to the economic rents earned by market makers in the ``opaque
market,'' the authors' findings imply that in an opaque marketplace,
dealers are able to extract economic rents from customers, especially
less-informed customers, and that these rents are reduced after the
introduction of transparency because customers are able to view more
pricing information. In addition, the study suggests that introducing
transparency could improve the ability of dealers to share risks, which
may result in a decrease in inventory carry costs, translating into
reduced costs of trading for customers.
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\506\ Bessembinder et al. at 283.
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The Commission anticipates that, just as trading costs were reduced
in the corporate bond market following the implementation of TRACE, the
requirements of part 43 will similarly result in reduced trading costs
and increased efficiency in the swaps market.
ii. Alternatives and Cost Mitigation
In response to the Commission's Proposing Release, several
commenters presented reasonable alternatives. The Commission carefully
considered--and where reasonable, adopted--those in an effort to reduce
the burden of its regulations while achieving the desired regulatory
objective. Other alternatives presented, however, were not accepted
because, in the Commission's judgment they would not have achieved the
regulatory objectives discussed throughout this rulemaking.
The comments and alternatives presented can be classified along
several broad themes: (1) Who reports; (2) what is (and is not) to be
reported; (3) when the data is to be reported and made public; (4) how
the data is to be reported (i.e., data fields); and (5) phasing of
compliance. These categories are discussed in the paragraphs that
follow.
Who Reports
Commenters requested that the Commission allow parties to negotiate
independently who will report rather than follow the reporting
hierarchy for off-facility swaps discussed in the Proposing
Release.\507\ The Commission accepted this alternative and as adopted
Sec. 43.3(a)(3) permits independent negotiation between counterparties
of off-facility swaps to determine the reporting party for such swap.
The Commission anticipates that the party with the most cost-effective
means for reporting will take that role.
---------------------------------------------------------------------------
\507\ See CL-FSR.
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The reporting protocol established in Sec. 43.3(a)(3), which
requires the SD to report an off-facility swap with a non-SD
counterparty when the reporting responsibility is not negotiated, is
also cost-mitigating.\508\ Section 43.3(a)(2) requires that for any
swap executed on or pursuant to the rules\509\ of a SEF or DCM, the SEF
or DCM--not the transacting party--must report the transaction and
pricing data to an SDR for public dissemination.\510\ The Commission
anticipates that SEFs and DCMs, as part of their registration and
ongoing compliance requirements, will be required to have the
technological capability to transmit real-time swap transaction and
pricing data to SDRs, thus reducing the costs of transmission for
persons that execute publicly reportable swap transactions on the SEF
or DCM. The Commission further anticipates that SDs and MSPs will be
more capable than financial and non-financial end-users of implementing
the necessary infrastructure and personnel to comply with part 43, thus
reducing the costs of reporting amongst the parties to the transaction.
---------------------------------------------------------------------------
\508\ As one commenter noted: ``[D]ue to their commercial
interests, technological know-how and business relationships, swap
dealers and MSPs are more appropriate reporting counterparties than
U.S. end-users and are just as, if not more, capable of complying
with reporting obligations. * * * In addition, swap dealers and MSPs
will be best positioned to develop at the lowest cost the
technological infrastructure or relationships with third-party
service providers necessary to meet the reporting obligation.'' CL-
SIFMA AMG at 2.
\509\ Swaps executed ``pursuant to the rules'' of a SEF or DCM
would include block trades.
\510\ See CL-Tradeweb.
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To further reduce the financial burden of complying with part 43,
particularly for end-users, the Commission is allowing reporting
parties to contract with a third party--including a DCO that clears the
swap--to report the data to an SDR. The Commission recognizes that the
use of a third party service provider will likely result in costs to
the reporting party. However, the Commission anticipates that the costs
to the reporting party will be less burdensome than those that would be
incurred by certain non-SD/non-MSP counterparties to establish
infrastructure and hire personnel to comply with the part 43 real-time
reporting requirements. The Commission does not agree, however, that
reporting for all swaps should be required to be processed through a
SEF or DCM. Rather, the Commission believes it more efficient to allow
flexibility for those capable of directly reporting real-time swap
transaction and pricing data to an SDR.
The proposed rule permitted public dissemination to occur through
either an SDR or a third-party service provider.\511\ The Commission
received several comments regarding this aspect of its proposal: Some
commenters agreed with the Proposing Release and others thought it
would be more appropriate to permit only registered entities to
publicly disseminate swap data. One commenter stated that because many
DCOs already have the necessary infrastructure and will establish
connectivity with SEFs and DCMs, the Commission should require that
public dissemination occur through DCOs.\512\ There is nothing in part
43 that would prevent a DCO from registering as an SDR\513\ and
ensuring that swap transaction and pricing data is publicly
disseminated, or from operating as a third party; however, the
Commission is not requiring that such dissemination occur through DCOs.
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\511\ See Proposed Sec. 43.4(a). 75 FR 76174.
\512\ See CL-CME.
\513\ See CEA section 21(a)(1)(B), added by section 728 of the
Dodd-Frank Act: ``A derivatives clearing organization may register
as a swap data repository.''
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What Is (and Is Not) To Be Reported
Commenters expressed concern that the costs of reporting swaps
between affiliates would be high.\514\ Many of these same commenters
asserted that the benefits to reporting swaps between affiliates are
minimal or non-existent.\515\ Others contended that the public
dissemination of swaps between affiliates would distort, rather than
enhance, price discovery.\516\ To address these concerns, and as
discussed previously in sections II.A.2 and II.B.2 of this Adopting
Release, the Commission's definition of ``publicly reportable swap
transaction'' does not, at this time, include certain swaps that are
not arm's length transactions.\517\ The Commission further clarified in
an example that internal swaps\518\ between
[[Page 1237]]
wholly-owned subsidiaries of the same parent entity and portfolio
compression exercises are not subject to part 43 because they fail to
meet the definition of ``publicly reportable swap transaction.'' \519\
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\514\ See CL-Cleary.
\515\ Id.
\516\ See CL-Shell.
\517\ See supra section II.B.2 for a discussion of definition of
``publicly reportable swap transaction'' in Sec. 43.2 and section
II.A.1 for a discussion of Sec. 43.1.
\518\ As discussed and referenced in this rule, internal swaps
between wholly-owned subsidiaries of the same parent entity may
include back-to-back swap transactions which are a combination of
two or more swap transactions between or among affiliates to help
manage the risks associated with a market-facing swap transaction.
In general, a back-to-back swap transaction effectively transfers
the risks associated with a market-facing swap transaction to an
affiliate that was not an original party to such transaction. Back-
to-back swap transactions may occur in a number of different ways.
For example, an affiliate immediately may enter into a mirror swap
transaction with its affiliate on the same terms as the marketing-
facing swap transaction. By way of further example, a market-facing
affiliate may enter into multiple transactions with affiliates that
are not at arm's length in order to transfer the risks associated
with an arm's length, market-facing transaction.
\519\ See CL-TriOptima. The definition of ``publicly reportable
swap transaction'' also states that portfolio compression exercises
would be excluded from the definition. The Commission agrees with
those commenters who asserted the reporting of portfolio compression
exercises would be costly without the public dissemination of such
swap transaction and pricing data enhancing price discovery.
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When the Data Is To Be Reported and Made Public
Section 43.5 provides the time delays for public dissemination of
swap transactions and pricing data for (i) publicly reportable swap
transactions that have notional or principal amounts that are equal to
or greater than the appropriate minimum block sizes for such swaps; and
(ii) publicly reportable swap transactions that do not have established
appropriate minimum block sizes. The Commission anticipates there will
be technology costs associated with ensuring that the correct time
delay is applied to a swap that is publicly disseminated by the SDR,
including the cost to an SDR in holding swap data until the appropriate
time delay expires and costs associated with adjusting the time delay
in accordance with Sec. 43.5. In an effort to mitigate these costs,
the Commission is phasing in the time delays for public dissemination.
These time delays will reduce the potential for lost market liquidity
by providing market participants adequate time to hedge prior to public
dissemination. The Commission believes the phasing in of shorter time
delays will support post-trade transparency in the swaps markets and
will preserve market liquidity while enabling market participants to
adjust trading strategies.
Commenters offered numerous suggestions with respect to time delays
for particular asset classes.\520\ However, the Commission does not
believe that the direct costs associated with the various suggestions
would be quantitatively significant (i.e., all the suggested time
delays would require technological systems and operating systems). The
Commission chose the time delays and phase in schedule adopted herein
because it finds the approach reasonable in ensuring that all relevant
swap data is eventually publicly disseminated, while minimizing the
burden on the industry at the outset.
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\520\ See section II.E. (``Section 43.5--Time Delays for Public
Dissemination of Swap Transaction and Pricing Data'').
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How the Data Is To Be Reported (i.e., Coordinate Universal Time and
Data Fields)
Commenters suggested that the value derived from moving the
industry to Coordinate Universal Time (``UTC'') appears minimal when
compared to the costs involved.\521\ Notwithstanding the comments
regarding costs of requiring UTC, the Commission anticipates that the
move to UTC will better facilitate the efficient dissemination of
pricing data by eliminating the need to conduct time conversions. The
Commission notes that use of UTC in the part 43 rules refers only to
the execution timestamp that is publicly disseminated.\522\ Consistency
across the global swaps market is an important goal, and the Commission
believes that requiring UTC will allow market participants and
reporting parties to recreate the order of trades, reduce fragmentation
and reduce the need for market participants to convert different
transaction times to understand the order of trades in a particular
market.
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\521\ See CL-ISDA/SIFMA.
\522\ Reporting parties, SEFs and DCMs may agree to report
different timestamps to the SDR or to record different timestamps
pursuant to Sec. 43.3(i).
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Commenters requested that the data fields required to be reported
for off-facility swaps pursuant to part 43 be the same data fields that
end-users typically record in their spreadsheets or trade capture
systems.\523\ The Commission believes all the applicable data fields
listed in Appendix A to part 43 are necessary to enhance price
discovery by giving context and meaning to the price and volume
information required to be publicly disseminated. The data recorded in
end-user spreadsheets and trade capture systems typically are not
sufficiently comprehensive for purposes of providing enhanced price
discovery. However, the Commission has reduced the costs of reporting
by coordinating the data fields in Appendix A to part 43 with those
data fields that are expected to be required in part 45 for regulatory
reporting. This coordination is expected to reduce costs by allowing
reporting parties, SEFs and DCMs to send one set of data to an SDR for
the purpose of satisfying the requirements of both rules.
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\523\ See, e.g., CL-Coalition of Energy End-Users.
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Phasing of Compliance
In response to commenters' requests for a phased in implementation
of the part 43 real-time reporting requirements,\524\ the Commission is
adopting a three-phase schedule for compliance with part 43, in
addition to several other phase in procedures, including the phasing in
of time delays for public dissemination. The compliance schedule and
additional phase in procedures will ensure efficient compliance with
part 43 while considering the costs of implementation to market
participants, registered entities and the public. In developing the
part 43 compliance schedule and time delays for public dissemination,
the Commission considered the different market characteristics of swap
products and asset classes, differences in market participants and
available technology and infrastructure. Accordingly, the Commission
provides less developed markets and less sophisticated market
participants longer lead time for compliance and public dissemination.
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\524\ See supra section III. (``Effectiveness/Implementation and
Interim Period'').
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C. Reporting and Public Dissemination in Light of CEA Section 15(a)
As noted above, CEA section 15(a) directs the Commission to
consider particular criteria in evaluating the costs and benefits of a
particular Commission action. These are considered below.
1. Protection of Market Participants and the Public
The reporting and public dissemination requirements described in
part 43 will provide transparency and enhanced price discovery in the
swaps market. The Commission anticipates that the increase in
transparency will lead to greater competition for swap market
participants' business and will increase liquidity in the swaps
markets. Accordingly, the Commission anticipates that compliance by
market participants and registered entities with part 43's reporting
and public dissemination requirements will lower the cost of
commodities, goods and services to American businesses. This, in turn,
will support the overall economy and the general public.
In deciding the manner in which to facilitate real-time reporting,
the Commission was cognizant of how the current swap market operates.
Thus, for example, the reporting requirements remain flexible to
account for differences among market participants, including
differences based on asset class, sophistication of swap
[[Page 1238]]
counterparties and differences based on the methods of execution.
Section 43.2 provides a flexible definition of ``as soon as
technologically practicable'' that would enable certain market
participants, such as non-financial end-users, longer time periods for
the reporting of swap transaction and pricing data to an SDR as
compared to reporting parties with greater technological reporting
capabilities (e.g., swap dealers). Further, the definition of ``as soon
as technologically practicable'' aims to ensure that similarly situated
market participants are subject to the same standards.
The Commission believes that certain swaps in the ``other
commodity'' asset class require further analysis before requiring
public dissemination of such swaps. Therefore, Sec. 43.4(d) does not
subject certain swaps in the ``other commodity'' asset class to part 43
requirements at this time.\525\
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\525\ The Commission has indicated that it will address the
public dissemination of such ``other commodity'' swaps in a
forthcoming Commission release.
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The Commission also believes that the rounding convention and
notional caps that an SDR must apply on the publicly disseminated
notional or principal amount will enable market participants to
effectively hedge risk without disclosing the actual size of the trade
to the market. Such provisions will further protect the identities of
parties, business transactions and market positions of market
participants. Additionally, the Commission is providing time delays in
Sec. 43.5 which will protect market participants by enabling them to
enter into swaps with limited concern about other market participants
trading ahead of such information.
The definition of ``publicly reportable swap transaction'' in Sec.
43.2 does not require that certain swaps that are not executed at arm's
length be reported to an SDR for public dissemination. The Commission
believes that public dissemination of swaps between affiliates may
reveal the identities of the parties or disclose information about the
business transactions or market positions of market participants. By
not requiring the reporting and public dissemination of such
transactions, the Commission is further protecting market participants
who may engage in swaps between affiliates.
The Commission also believes that the data fields in appendix A to
part 43 will provide market participants and the public with the
ability to analyze the data for similar swaps while adequately
protecting the identities of market participants. The data fields do
not require identifying information to be publicly disseminated and the
Commission believes that the ``Additional Price Notation,''
``Indication of Other Price Affecting Term'' and ``Indication of
Collateralization'' data fields, among others, will enable market
participants and the public to more easily compare bespoke transactions
to standardized transactions thereby enhancing the usefulness of such
data for market participants and the public.
2. Efficiency, Competitiveness and Financial Integrity of Markets \526\
---------------------------------------------------------------------------
\526\ The Commission has identified no impact to the financial
integrity of futures markets from part 43 in its consideration of
CEA section 15(a)(2)(B). Although by its terms CEA section
15(a)(2)(B).applies to futures, not swaps, the Commission finds this
factor useful in analyzing the costs and benefits of swaps
regulations as well.
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The Commission believes that part 43 promotes market efficiency in
a number of respects, including:
Reduced trading cost potential. As discussed above, the
Commission anticipates that, similar to the reduction in corporate bond
market trading costs following the implementation of TRACE, the
requirements of part 43 will likely result in reduced trading costs and
the lowering of economic rents earned by dealers in swaps markets.
Straight-through processing. Sections 43.3(a)(2) and
43.3(b)(1) establish a streamlined, straight-through process for SEFs
and DCMs to utilize their technological expertise and ability to report
swap transaction and pricing data ``as soon as technologically
practicable'' to an SDR. The Commission believes this is the more
efficient approach compared to alternatives that would interpose an
intermediary in the data reporting chain.\527\
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\527\ However, as the Commission has noted previously, nothing
would prevent a SEF or DCM from contracting with a third party to
assist with reporting the real-time swap transaction and pricing
data to an SDR.
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Assignment of off-facility swap reporting responsibilities
to the presumptively more capable party. Section 43.3(a)(3) establishes
a protocol that assigns greater reporting responsibility to
counterparty categories presumed to possess greater technological
capabilities and resources as a result of their likely greater swap
transaction volume. For example, unless otherwise agreed to by the swap
counterparties, SDs (and MSPs) are required to serve as the reporting
party for off-facility swaps. The Commission believes responsibility
assignment on this basis increases the potential to realize reporting
scale economies.
Choice of SDRs for real-time data dissemination. The
Commission believes that Sec. 43.3(a)(1)'s designation of SDRs to
receive real-time swap transaction and pricing data ``as soon as
technologically practicable'' for public dissemination also promotes
potential scale economy efficiencies. Under the proposed part 45 rules,
reporting parties, SEFs and DCMs must transmit a separate set of data
to SDRs for regulatory reporting purposes. Accordingly, Sec.
43.3(a)(1) may accommodate SEFs' and DCMs' ability to utilize
technology and connections with an SDR for both real-time and
regulatory reporting purposes.
Reduction of data fragmentation. The Commission believes
that exercise of its authority under CEA section 2(a)(13)(D) to
designate SDRs as the public disseminators of real-time reported swap
transaction and pricing data will reduce fragmentation of swap data
available to the public. Greater data consistency, in turn, will
facilitate the ability of market participants, and the public
generally, to efficiently access, interpret, and compile a complete
data set.
The Commission believes that part 43 promotes market
competitiveness in a number of respects:
Reduction of data fragmentation. As noted above, the
Commission believes that exercise of its CEA section 2(a)(13)(D)
authority to designate SDRs as the public disseminators of real-time
reported swap transaction and pricing data will reduce fragmentation of
swap data available to the public. Greater data consistency, in turn,
should guard against information asymmetries that market participants
with superior knowledge of, or access to, might arbitrage for
competitive advantage.
Front running prevention via SDR continuous receipt
requirements. Sections 43.3(f) and (g) require that SDRs be able to
accept real-time swap transaction and pricing data for public
dissemination at all times, including during closing hours.
Specifically, Sec. 43.3(g) provides that during closing hours real-
time swap transaction and pricing data that is accepted by an SDR be
held in queue. As a result, these provisions enable continuous
reporting of real-time swap transaction and pricing data by reporting
parties, SEFs and DCMs, notwithstanding reporting party or registered
entity location and time zone. In so doing, the Commission believes the
rules promote swaps market competitiveness by foreclosing avenues for
market participants to arbitrage reporting by execution location for
competitive advantage.
[[Page 1239]]
Time delay regime that protects market liquidity and
prevents front-running. The Commission believes that the time delay
regime established in Sec. 43.5 will enhance the competitiveness of
swap markets by protecting market liquidity until appropriate minimum
block sizes are adopted. Such time delays, which initially apply until
a swap or group of swaps has an appropriate minimum block size, reduce
the risk of large notional trade data being exposed to the market
before the trade can be adequately hedged (e.g., front-running or
trading ahead).\528\
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\528\ See supra, section II.E (``Time Delays for Public
Dissemination of Swap Transaction and Pricing Data'').
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The Commission believes that part 43 promotes market integrity in a
number of respects:
Error correction. Section 43.3(e) provides reporting
parties and SDRs with a clear process for addressing errors in real-
time swap transaction and pricing data. These provisions will foster
financial market integrity by ensuring that incorrectly disseminated
swap transaction and pricing data is canceled and/or corrected.
Further, this section gives the Commission enforcement powers,
enhancing the Commission's ability to police market integrity.
Time delay phase in to prevent front-running. The
Commission believes that the phase in regime for time delays prescribed
in Sec. 43.5, discussed above, will counter the possibility for front-
running large block trades before they can be adequately hedged.
SDR tools to ensure data accuracy. Section 43.4(c) enables
SDRs to ensure that they receive the data necessary to process and
publicly disseminate the data fields described in appendix A to part
43. Section 43.4(c) provides that SDRs can ask reporting parties for
additional data to ensure the accuracy of the real-time data (compared
to regulatory data) as well as to ensure that the data is being
reported in a timely manner. Such provisions will improve the integrity
of the real-time reporting process by allowing SDRs an additional
opportunity to ensure the accuracy of the data they received for public
dissemination purposes.
3. Price Discovery
The Commission believes generally that swaps market price discovery
will be enhanced by making useful, accurate swaps transaction price and
volume data available to market participants and the public within the
shortest time frame possible. The Commission further believes that the
reporting and public dissemination requirements of part 43, working in
concert, promote the goal of swaps market price discovery enhancement.
The components that contribute to the attainment of this goal are
described below.
The provisions in part 43, reflecting the mandate of CEA
section 2(a)(13)(A),\529\ generally require that reporting of real-time
data by reporting parties--SEFs and DCMs and public dissemination by
SDRs--occur ``as soon as technologically practicable.'' The Commission
believes that this approach means that swap transaction and pricing
data is to be publicly disseminated at the fastest rate allowable given
a market participant's technological capability.
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\529\ That is: ``real-time public reporting means to report data
relating to a swap transaction, including price and volume, as soon
as technologically practicable after the time at which the swap
transaction has been executed.''
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The error correction provisions of Sec. 43.3(e) assign
swap counterparties and registered entities responsibility to correct
erroneous or omitted swap data and require the public dissemination of
cancellations and corrections to errors and omissions. These provisions
will help ensure the accuracy of swap transaction and pricing data,
thereby increasing the data's price discovery value to market
participants and the public. Absent this provision, uncorrected
erroneous data could distort price discovery.
Appendix A to part 43 specifies the data fields an SDR
must use in public dissemination, and what each data field represents.
The Commission believes that the values assigned to the data fields are
appropriately tailored to facilitate price transparency and inform
price discovery. Moreover, data field consistency will enhance price
discovery by ensuring the integrity of the price and volume reflected
in a particular reported asset class.
The definition of ``publicly reportable swap transaction''
in Sec. 43.2 does not, at this time, require the public dissemination
of swaps that are not executed at arm's length. Accordingly, certain
swaps between affiliates of a corporate group and portfolio compression
exercises are not subject to part 43. The Commission believes that not
requiring such transactions to be publicly disseminated precludes the
public dissemination of transaction and pricing data that could
misinform the market and create an inaccurate appearance of market
depth.
Swap transaction and pricing data is to be publicly
disseminated in a consistent, usable and machine-readable electronic
format that allows the data to be downloaded, saved and analyzed, as
described in Sec. 43.3(d)(1).
SDRs are required pursuant to Sec. 43.3(f) to
continuously accept and publicly disseminate swap transaction and
pricing data (with the exception of certain closing hours). The
Commission believes this requirement enhances the breadth of the swap
data available and the speed at which such data is available to market
participants and the public.
The requirements of Sec. Sec. 43.4(d)(3) and (4), require
the public dissemination of data that identifies the underlying asset
for the transaction, except with respect to certain swaps in the
``other commodity'' asset class where dissemination could compromise
anonymity.
The rounding convention and the caps on the publicly
disseminated notional or principal amounts provided for in Sec. Sec.
43.4(g) and (h) allow for price discovery for market participants and
the public while protecting swap counterparty anonymity.
4. Sound Risk Management Practices
The Commission believes that the enhanced price discovery afforded
by reporting and public dissemination of swap transaction and pricing
data will better enable market participants to measure risk.
Accordingly, because market participants will be better able to manage
their risk at an entity level, risk will be better managed. Allowing
market participants and the public to measure risk will reduce the risk
of another financial crisis.
Additionally, the Commission is not requiring that portfolio
compression exercises, which market participants use for risk
management purposes, be subject to part 43 at this time. In so doing,
the Commission is attempting to tailor real-time public dissemination
requirements to accommodate, rather than chill, prudent risk management
by market participants.
Finally, commenters asserted that the costs of risk management to
end-users may increase if data relating to large sized trades is
publicly disseminated to the market before swap counterparties have an
opportunity to hedge a publicly reportable swap transaction.\530\ The
Commission believes that the provisions in Sec. 43.5 provide for
adequate time delays for public dissemination of swap transaction and
pricing data, providing end-users and other market participants the
latitude necessary to manage their risks.
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\530\ See, e.g., CL-Chesapeake; CL-ATA.
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[[Page 1240]]
5. Other Public Interest Considerations
The Commission does not believe that the public dissemination
requirements of part 43 discussed above will have a material effect on
public interest considerations other than those previously identified.
D. Recordkeeping and Timestamping Requirements of Part 43
Proposed Sec. 43.3(i) provided recordkeeping requirements for data
related to part 43, including a general provision that all data
relating to a ``reportable swap transaction'' shall be maintained for a
period of not less than five years after public dissemination of such
swap. The provision also provided specific provision for the retention
of data by a SEF or DCM and a provision for the retention of data by an
SD or MSP. Further, proposed Sec. 43.5(f) provided timestamp
requirements for block trades and large notional swaps, which included
a requirement to maintain records of all timestamps. Upon consideration
of the comments received and as discussed elsewhere in this rulemaking,
the utility of the Commission's existing regulations in achieving the
regulatory objective proposed, and the recordkeeping requirements
proposed elsewhere, including part 45, the Commission significantly
limited the recordkeeping requirements of proposed Part 43. The only
recordkeeping requirements imposed will be the timestamping
requirements as described in Sec. 43.3(h).
Section 43.3(h) timestamps are required for all publicly reportable
swap transactions and must be applied by SEFs and DCMs, SDRs, and
registrants (SDs and MSPs). In consideration of a commenter's concerns
regarding the costs to end-users to comply with any recordkeeping
requirements, Sec. 43.3(h) is not applicable to non-SDs/MSPs.\531\
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\531\ In other words, when an end-user has a reporting
obligation because it engaged in an off-facility swap, the end-user
is not required to timestamp the data pursuant to Sec. 43.3(h).
However, the execution timestamps in appendix A to part 43 must be
performed.
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The Commission received multiple comments addressing the
timestamping requirements of proposed Sec. 43.5(f). As proposed, the
timestamping requirements would have applied only to swaps considered
``block trades.'' However, the Commission believes that there is a need
for SEFs, DCMs, SDRs SDs and MSPs to record and maintain certain
timestamps regarding the transmission and dissemination of all real-
time swap transaction and pricing data,\532\ notwithstanding that
proposed Sec. 43.5(f)'s timestamping requirement is inconsistent with
current industry practice.
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\532\ This is swap transaction and pricing data associated with
``publicly reportable swap transactions.''
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1. Benefits of the Recordkeeping and Timestamping Requirements
The Commission believes a timestamp remains necessary for two
reasons: (1) It establishes an audit trail that serves enforcement
purposes; and (2) it allows market participants and the public to re-
create the trading day, thereby enhancing price discovery. Accordingly,
the Commission is adopting in Sec. 43.3(h) timestamp requirements for
all reportable swap transactions. However, in response to commenters'
concerns about the costs of timestamping and retaining records for non-
SDs/MSPs, the Commission is not requiring non-SDs/non-MSPs who engage
in an off-facility swap to retain similar timestamp.\533\ The
Commission believes that requiring non-SDs/MSPs to retain any timestamp
other than the execution timestamp would be unduly burdensome to those
parties.
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\533\ However, end-users must still submit a timestamp of the
execution time if they are the reporting party to a swap.
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2. Costs of the Recordkeeping and Timestamping Requirements
The Commission has not identified quantifiable costs of
timestamping that are not associated with an information collection
subject to the PRA. These costs therefore have been accounted for in
the PRA section of this rulemaking and the information collection
requests filed with OMB, as required by the PRA.
E. Recordkeeping and Timestamping Requirements in Light of CEA Section
15(a)
1. Protection of Market Participants and the Public
The Commission believes that the timestamp requirement of Sec.
43.3(h) will enable the Commission to ensure that reporting parties,
SEFs and DCMs are reporting and that SDRs are publicly disseminating
swap transaction and pricing data ``as soon as technologically
practicable.'' Absent a timestamp requirement, the Commission would be
unable to create an audit trail to identify potential inadequacies in
reporting and public dissemination. The Commission's oversight to
ensure that similarly situated SD, MSPs, SEFs and DCMs are reporting in
the same timeframes, and that SDRs are publicly disseminating in the
same manner, is essential to protecting market participants and the
public.
2. Efficiency, Competitiveness and Financial Integrity of Markets \534\
---------------------------------------------------------------------------
\534\ See supra, note 526.
---------------------------------------------------------------------------
The Commission believes that the requirement to maintain timestamps
will enable it to ensure the integrity of the data being disseminated.
This in turn promotes the operational efficiency, competitiveness, and
integrity of the swaps market to which the data pertains. Further, it
provides a basis for the Commission to perform audit trail and
compliance reviews with respect to SDs, MSPs, SEFs, DCMs and SDRs, thus
bolstering the positive market benefits.
3. Price Discovery
The Commission believes that the requirement to maintain timestamps
will promote price discovery in an important way. By providing a means
for the Commission to ensure that SDs, MSPs, SEFs, DCMs and SDRs are
reporting and publicly disseminating swap transaction and pricing data
``as soon as technologically practicable,'' timestamp information will
promote price discovery because non-compliance will be readily
detectable through timestamps and may be an effective enforcement tool
in an enforcement action.
4. Sound Risk Management Practices
The Commission believes that the requirement for SDs, MSPs, SEFs,
DCMs and SDRs to maintain the timestamps described in Sec. 43.3(h)
will become part of these entities' risk management policies and
procedures in an effort to ensure compliance with the part 43 rules.
5. Other Public Interest Considerations
The Commission does not believe that the timestamp recordkeeping
requirements of part 43 discussed above will have a material effect on
public interest considerations other than those identified above.
VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires Federal agencies
to consider the impact of its rules on ``small entities.'' \535\ A
regulatory flexibility analysis or certification typically is required
for ``any rule for which the agency publishes a general notice of
proposed rulemaking pursuant to'' the notice-and-comment provisions of
the Administrative Procedure Act, 5 U.S.C. 553(b).\536\
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\535\ 5 U.S.C. 601 et seq.
\536\ 5 U.S.C. 601(2), 603, 604 and 605.
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[[Page 1241]]
With respect to the proposed real-time public reporting rule, the
Commission provided in its RFA statement that the proposed rule would
have a direct effect on numerous entities, specifically DCMs, SDRs,
SEFs, SDs, MSPs, and certain single end-users.\537\ In the proposal,
the Chairman, on behalf of the Commission, certified that the
rulemaking would not have a significant economic effect on a
substantial number of small entities. Comments on that certification
were sought.
---------------------------------------------------------------------------
\537\ See 75 FR at 76170.
---------------------------------------------------------------------------
In the Proposing Release, the Commission then provided that it
previously had established that certain entities subject to its
jurisdiction are not small entities for purposes of the RFA. Because of
the central role they play in the regulatory scheme concerning futures
trading, the importance of futures trading in the national economy, and
the financial requirements needed to comply with the regulatory
requirements imposed on them under the CEA, DCMs have long been
determined not to be not small entities.\538\
---------------------------------------------------------------------------
\538\ Id.
---------------------------------------------------------------------------
The Commission also provided that certain entities that would be
subject to the proposed rule--namely SDRs, SEFs, SDs, and MSPs--are
entities for which the Commission had not previously made a size
determination for RFA purposes. It proposed that these entities should
not be considered to be small entities based upon their size and other
characteristics.\539\
---------------------------------------------------------------------------
\539\ Id.
---------------------------------------------------------------------------
Finally, the Commission recognized that the proposed rule could
have an economic effect on certain single end users, in particular
those end users that enter into swap transactions with another end-
user. Unlike the other parties to which the proposed rulemaking would
apply, these end users are not subject to designation or registration
with or to comprehensive regulation by the Commission. The Commission
recognized that some of these end users may be small entities.
Notwithstanding that some small entities may be subject to the
real-time reporting rules, the determination to certify pursuant to
section 605(b) of the RFA that the proposed rule would not have a
significant economic effect on a substantial number of small entities
was based upon the nature of the reporting hierarchy that was set forth
in the proposal. The proposed rule was structured so that most swaps
that are expected to be executed by an end user would not be required
to be reported by the end user, but rather by a party that is subject
to Commission registration and regulation.
The reporting obligations primarily would fall on the trading
facility on which an end-user executes a swap or, in the case of a swap
executed ``off-facility'' with an SD or MSP, on the SD or MSP. Under
the proposed rules, end users would only be required to report swaps
that are executed ``off-facility'' with another end user, and in such
circumstances, only one of the end users subject to the transaction
would be required to report.
The Commission received one comment respecting its RFA
certification. An association of not-for-profit electric end users
provided that its membership includes small entities as that term is
defined in the RFA.\540\ The association commented that the Commission
should conduct a regulatory flexibility analysis for each of its
rulemakings individually, as well as a regulatory flexibility analysis
for all of its rulemakings on a cumulative basis. The association
supported its comment by providing that ``[e]ach of the complex and
interrelated regulations currently being proposed by the Commission has
both an individual, and a cumulative, effect on such small entities.''
---------------------------------------------------------------------------
\540\ See CL-NFPEUU.
---------------------------------------------------------------------------
Though the association asserted that some of its members are small,
it did not provide any factual support to indicate that the proposed
real-time reporting rule would have a significant economic effect on a
substantial number of small entities, contrary to the Commission's
certification. Nonetheless, in light of the association's comments, the
Commission has given further consideration to the reporting hierarchy
that was proposed.
Critically, as noted above, the reporting hierarchy was established
in order to ensure that any end users that may be required to comply
with these real-time reporting rules would only have to do so with
respect to transactions that are not conducted on or pursuant to the
rules of a DCM or SEF or with a counterparty that is registered with
and regulated by the Commission. Moreover, as the CEA as amended by the
Dodd-Frank Act provides, most of the end users who will transact with
each other ``off-facility'', are not expected to be small entities.
Section 2(e) of the CEA was amended to provide that ``it shall be
unlawful for any person, other than an eligible contract participant,
to enter into a swap unless the swap is entered into on, or subject to
the rules of [a regulated trading venue].'' \541\ Eligible Contract
Participants (``ECPs'') were first defined in section 1a(12) of the CEA
in the Commodity Futures Modernization Act (``CFMA'') in 2000, creating
a category of individuals and entities that Congress determined to be
sufficiently sophisticated in financial matters that they should be
permitted to trade over-the-counter swaps without the protection of
federal regulation.\542\ In the Dodd-Frank Act, Congress made two
changes to the statutory ECP definition, both of which increased the
thresholds to qualify as an ECP, making it harder for some entities and
individuals to qualify.\543\ Thus, only entities that reach a
significant level of financial resources or sophistication are eligible
to transact in swaps ``off-facility.''
---------------------------------------------------------------------------
\541\ 7 U.S.C. 2(e).
\542\ See ``Report of the President's Working Group on Financial
Markets'' (Nov. 1999) at 16 (recommending that ``sophisticated
counterparties that use OTC derivatives simply do not require the
same protections under the CEA as those required by retail
investors''); H.R. Rep. No. 106-711 pt. 1, at 28 (2000) (Committee
on Agriculture reporting that the CFMA ``implements the PWG
recommendations,'' including the exclusion for ``bilateral swap
agreements entered into by eligible parties (large and/or
sophisticated) and done on a principal-to-principal basis)); and
H.R. Rep. No. 106-711 pt. 2, at 212 (2000) (statement of
Representative John J. LaFalce, providing that the ``rationale * * *
is that swaps can be complex instruments requiring a variety of
protections for financially unsophisticated consumers [and] come in
a great variety of tailored obligations, some of which might,
indeed, be so complex as to be inappropriate for all but the most
seasoned of investors'').
\543\ Compare section 1a(12) of the CEA, 7 U.S.C. 1a(12) (2009),
with sections 721(a)(1) and (9) of the Dodd-Frank Act, respectively
redesignating section 1a(12) as section 1a(18) and increasing
thresholds for certain categories of ECP.
---------------------------------------------------------------------------
We understand from the association's comments that some of their
members who qualify as ECPs under the CEA have been determined to be
``small entities'' by the SBA. A member will be an SBA small entity if
its total electric output for the preceding fiscal year did not exceed
four million megawatt hours. Notwithstanding that some members that are
ECPs may fall within the SBA small entity determination, the Commission
understands this to be an anomaly. As a general rule, there are few
small entities that will be eligible to transact in swaps ``off-
facility'' under the CEA in light of the financial resource and
sophistication thresholds established in the ECP definition.
Accordingly, for the reasons stated in the proposal and foregoing
discussion in response to the comments received from the association,
the Commission continues to believe that the rulemaking will not have a
significant impact on a substantial number of small entities.
Therefore, the Chairman, on behalf of the Commission, hereby certifies,
pursuant to 5 U.S.C. 605(b), that the
[[Page 1242]]
real-time reporting requirements being adopted herein will not have a
significant economic impact on a substantial number of small entities.
VII. List of Commenters
1. Markit
2. Asset Management Group of the Securities Industry and Financial
Markets Association (``SIFMA AMG'')
3. Managed Funds Association (``MFA'')
4. Lawrence Schultz
5. The Energy Authority
6. Argus Media, Inc. (``Argus'')
7. Professor Darrell Duffie, Stanford University (``Darrell Duffie'')
8. Chesapeake Energy Corporation (``Chesapeake'')
9. Members of Congress of the United States (House Committee on
Financial Services--Congressman Spencer Bachus and Congressman Frank
Lucas) (``Members of Congress'')
10. Barclays Bank PLC, BNP Paribas S.A., Deutsche Bank AG, Royal Bank
of Canada, The Royal Bank of Scotland Group PLC, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, UBS AG (`` Seven Foreign Headquartered Banks'')
11. J.P. Morgan (``JPM'')
12. Gibson Dunn on behalf of the Coalition for Derivatives End-Users
(``Coalition for Derivatives End-Users'')
13. Committee on Capital Markets Regulation
14. Goldman Sachs & Co. (``GS'')
15. Not-For-Profit Energy End-User Coalition (``NFPEEU'')
16. Barclays Capital, Inc. (``Barclays'')
17. Air Transport Association (``ATA'')
18. Pacific Investment Management Company, LLC (``PIMCO'')
19. Committee on the Investment of Employee Benefit Assets & American
Benefits Council (``ABC/CIEBA'')
20. Commodity Markets Council (``CMC'')
21. Better Markets, Inc. (``Better Markets'')
22. Investment Company Institute (``ICI'')
23. Intercontinental Exchange, Inc. (``ICE'')
24. MarkitSERV
25. Coalition of Physical Energy Companies (``COPE'')
26. International Options Markets Association/World Federation of
Exchanges (``WFE/IOMA'')
27. UBS Securities LLC (``UBS'')
28. Global Foreign Exchange Division of Association for Financial
Markets in Europe (``AFME''), the Securities Industry and Financial
Markets Association (``SIFMA'') and the Asia Securities Industry and
Financial Markets Association (``ASIFMA'') (collectively, ``GFXD'')
29. Edison Electrical Institute (``EEI'')
30. Encana Marketing (USA) Inc. (``Encana'')
31. LCH.Clearnet Group Limited (``LCH.Clearnet'')
32. CME Group, Inc. (``CME'')
33. Tradeweb Markets LLC (``Tradeweb'')
34. Coalition of Energy End-Users
35. Federal National Mortgage Association (``FNMA'')
36. Reval.com, Inc. (``Reval'')
37. Independent Petroleum Association of America (``IPAA'')
38. PCS Nitrogen Fertilizer, L.P. (``PCS Nitrogen'')
39. International Swaps and Derivatives Association & Securities
Industry and Financial Markets Association (``ISDA/SIFMA'')
40. International Energy Credit Association (``IE Credit Association'')
41. Morgan Stanley (``MS'')
42. Hunton & Williams LLP on behalf of the Working Group of Commercial
Energy Firms (``Working Group of Commercial Energy Firms'')
43. Freddie Mac
44. Financial Services Roundtable (``FSR'')
45. Vanguard
46. TriOptima
47. BlackRock, Inc. (``BlackRock'')
48. Dominion Resources, Inc. (``Dominion'')
49. Sadis & Goldberg LLP (``Sadis & Goldberg'')
50. Metlife, Inc. (``Metlife'')
51. Federal Home Loan Banks (``FHLBanks'')
52. Wholesale Markets Brokers' Association, Americas (``WMBAA'')
53. Depository Trust & Clearing Corporation (``DTCC'')
54. Cleary Gottlieb on behalf of Bank of America Merrill Lynch, BNP
Paribas, Citi; Credit Agricole Corporate and Investment Bank; Credit
Suisse Securities (USA), Deutsche Bank AG, Morgan Stanley, Nomura
Securities International, In., PNC Bank, National Association,
Soci[eacute]t[eacute] G[eacute]n[eacute]rale, UBS Securities LLC, Wells
Fargo & Company (``Cleary'')
55. Barclays Bank PLC; BNP Paribas S.A.; Credit Suisse AG; Deutsche
Bank AG; HSBC; Nomura Securities International, Inc.; Rabobank
Nederland; Royal Bank of Canada; The Royal Bank of Scotland Group PLC;
Soci[eacute]t[eacute] G[eacute]n[eacute]rale; The Toronto-Dominion
Bank; UBS AG (``12 Foreign Headquartered Financial Institutions'')
56. Financial Industry Regulatory Authority (``FINRA'')
57. Soci[eacute]t[eacute] G[eacute]n[eacute]rale (``Soc Gen'')
58. European Parliament Rapporteur for the Regulation on OTC
Derivatives, Central Counterparties and Trade Repositories
59. European Industry Representatives (Credit Suisse, Deutsche Bank,
Citi, JP Morgan, Barclays, Goldman Sachs, UBS)
60. Rabobank Nederland
61. Insurance Groups (American Council of Life Insurers, Genworth,
Manulife, John Hancock Life, New York Life, Northwestern Mutual,
Prudential, MetLife, Allstate Life) (``Insurance Groups'')
62. Fidelity Investments & Vanguard
63. Credit Suisse
64. ISDA & Kalorama Partners
65. ISDA
66. National Rural Electric Cooperative Association, American Public
Power Association, Large Public Power Council, Edison Electric
Institute, Electric Power Supply Association
67. Futures Industry Association, Financial Services Forum,
International Swaps and Derivatives Association, Securities Industry
and Financial Markets Association (``FIA/FSF/ISDA/SIFMA'')
68. The Bank of Tokyo-Mitsubishi UFJ, Ltd.; Mizuho Corporate Bank,
Ltd.; Sumitomo Mitsui Banking Corporation (``Japanese Banks'')
69. NextEra Energy, Inc. (``NextEra'')
70. Chris Barnard
71. Citi, Morgan Stanley, JP Morgan
72. BP
73. Industrial Energy Consumers of America (``IE Consumers of
America'')
74. Alice Corporation (``Alice'')
75. Futures Industry Association, The Financial Services Roundtable,
Institute of International Bankers, Insured Retirement Institute,
International Swaps and Derivatives Association, Securities Industry
and Financial Markets Association, U.S. Chamber of Commerce (``FIA/FSR/
IIB/IRI/ISDA/SIFMA/Chamber'')
76. Association of Institutional Investors (``AII'')
77. American Gas Association (``AGA'')
78. Natural Gas Exchange, Inc. (``NGX'')
79. Shell Trading (US) Company & Shell Energy North America (``Shell'')
80. American Petroleum Institute (``API'')
81. Swaps & Derivatives Market Association (``SDMA'')
82. Jackson National Life Insurance (``Jackson'')
83. Eris Exchange, LLC (``Eris'')
84. Citadel LLC (``Citadel'')
[[Page 1243]]
85. American Bankers Association & ABA Securities Association (``ABA/
ABASA'')
86. DC Energy, LLC (``DC Energy'')
87. The Alternative Investment Management Association Ltd (``AIMA'')
88. FXall
List of Subjects in 17 CFR Part 43
Real-time public reporting; Block trades; Large notional off-
facility swaps; Reporting and recordkeeping requirements.
In consideration of the foregoing, and pursuant to the authority in
the Commodity Exchange Act, as amended, and in particular Section
2(a)(13) of the Act, the Commission hereby adopts an amendment to
Chapter I of Title 17 of the Code of Federal Regulations by adding part
43 to read as follows:
PART 43--REAL-TIME PUBLIC REPORTING
Sec.
43.1 Purpose, scope, and rules of construction.
43.2 Definitions.
43.3 Method and timing for real-time public reporting.
43.4 Swap transaction and pricing data to be publicly disseminated
in real-time.
43.5 Time delays for public dissemination of swap transaction and
pricing data.
43.6 [Reserved]
Appendix A to Part 43--Data Fields for Public Dissemination
Appendix B to Part 43--Enumerated Physical Commodity Contracts and
Other Contracts
Appendix C to Part 43--Time Delays for Public Dissemination
Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Title
VII of the Wall Street Reform and Consumer Protection Act, Pub. L.
111-203, 124 Stat. 1376 (2010).
Sec. 43.1 Purpose, scope, and rules of construction.
(a) Purpose. This part implements rules relating to the reporting
and public dissemination of certain swap transaction and pricing data
to enhance transparency and price discovery pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, Pub. L. 111-
203, 124 Stat. 1376 (2010).
(b)(1) Scope. The provisions of this part shall apply to all swaps
as defined in Section 1a(47) of the Act and any implementing
regulations thereunder, including:
(i) Swaps subject to the mandatory clearing requirement described
in Section 2(h)(1) of the Act, including those swaps that are excepted
from the requirement pursuant to Section 2(h)(7) of the Act;
(ii) Swaps that are not subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act, but are cleared at
a registered derivatives clearing organization;
(iii) Swaps that are not cleared at a registered derivatives
clearing organization and are reported to a registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time; and
(iv) Swaps that are required to be cleared under Section 2(h)(2) of
the Act, but are not cleared.
(2) This part also shall apply to registered entities as defined in
the Act, as well as to parties to a swap including swap dealers, major
swap participants and U.S.-based market participants in a manner as the
Commission may determine.
(c) Rules of construction. The examples in this part and in
appendix A to this part are not exclusive. Compliance with a particular
example or application of a sample clause, to the extent applicable,
shall constitute compliance with the particular portion of the rule to
which the example relates.
(d) Severability. If any provision of this part, or the application
thereof to any person or circumstance, is held invalid, such invalidity
shall not affect other provisions or application of such provision to
other persons or circumstances which can be given effect without the
invalid provision or application.
Sec. 43.2 Definitions.
As used in this part:
Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1 et
seq.
Affirmation means the process by which parties to a swap verify
(orally, in writing, electronically or otherwise) that they agree on
the primary economic terms of a swap (but not necessarily all terms of
the swap). Affirmation may constitute ``execution'' of the swap or may
provide evidence of execution of the swap, but does not constitute
confirmation (or confirmation by affirmation) of the swap.
Appropriate minimum block size means the minimum notional or
principal amount for a category of swaps that qualifies a swap within
such category as a block trade or large notional off-facility swap.
As soon as technologically practicable means as soon as possible,
taking into consideration the prevalence, implementation and use of
technology by comparable market participants.
Asset class means a broad category of commodities including,
without limitation, any ``excluded commodity'' as defined in Section
1a(19) of the Act, with common characteristics underlying a swap. The
asset classes include interest rate, foreign exchange, credit, equity,
other commodity and such other asset classes as may be determined by
the Commission.
Block trade means a publicly reportable swap transaction that:
(1) Involves a swap that is listed on a registered swap execution
facility or designated contract market;
(2) Occurs away from the registered swap execution facility's or
designated contract market's trading system or platform and is executed
pursuant to the registered swap execution facility's or designated
contract market's rules and procedures;
(3) Has a notional or principal amount at or above the appropriate
minimum block size applicable to such swap; and
(4) Is reported subject to the rules and procedures of the
registered swap execution facility or designated contract market and
the rules described in this part, including the appropriate time delay
requirements set forth in Sec. 43.5 of this part.
Business day means the twenty-four hour day, on all days except
Saturdays, Sundays and legal holidays, in the location of the reporting
party or registered entity reporting data for the swap.
Business hours means the consecutive hours of one or more
consecutive business days.
Confirmation means the consummation (electronic or otherwise) of
legally binding documentation (electronic or otherwise) that
memorializes the agreement of the parties to all terms of a swap. A
confirmation shall be in writing (electronic or otherwise) and shall
legally supersede any previous agreement (electronic or otherwise)
relating to the swap.
Confirmation by affirmation means the process by which one party to
a swap acknowledges its assent to the complete swap terms submitted by
the other party to the swap. If the parties to a swap are using a
confirmation service vendor, complete swap terms may be submitted
electronically by a party to such vendor's platform and the other party
may affirm such terms on such platform.
Embedded option means any right, but not an obligation, provided to
one party of a swap by the other party to the swap that provides the
party holding the option with the ability to change any one or more of
the economic terms of the swap as those terms previously were
established at confirmation (or were in effect on the start date).
[[Page 1244]]
Executed means the completion of the execution process.
Execution means an agreement by the parties (whether orally, in
writing, electronically, or otherwise) to the terms of a swap that
legally binds the parties to such swap terms under applicable law.
Execution occurs simultaneous with or immediately following the
affirmation of the swap.
Large notional off-facility swap means an off-facility swap that
has a notional or principal amount at or above the appropriate minimum
block size applicable to such publicly reportable swap transaction and
is not a block trade as defined in Sec. 43.2 of the Commission's
regulations.
Novation means the process by which a party to a swap transfers all
of its rights, liabilities, duties and obligations under the swap to a
new legal party other than the counterparty to the swap. The transferee
accepts all of the transferor's rights, liabilities, duties and
obligations under the swap. A novation is valid as long as the
transferor and the remaining party to the swap are given notice, and
the transferor, transferee and remaining party to the swap consent to
the transfer.
Off-facility swap means any publicly reportable swap transaction
that is not executed on or pursuant to the rules of a registered swap
execution facility or designated contract market.
Other commodity means any commodity that is not categorized in the
other asset classes as may be determined by the Commission.
Public dissemination and publicly disseminate means to publish and
make available swap transaction and pricing data in a non-
discriminatory manner, through the Internet or other electronic data
feed that is widely published and in machine-readable electronic
format.
Publicly reportable swap transaction means:
(1) Unless otherwise provided in this part--
(i) Any executed swap that is an arm's-length transaction between
two parties that results in a corresponding change in the market risk
position between the two parties; or
(ii) Any termination, assignment, novation, exchange, transfer,
amendment, conveyance, or extinguishing of rights or obligations of a
swap that changes the pricing of the swap.
(2) Examples of executed swaps that do not fall within the
definition of publicly reportable swap may include:
(i) Internal swaps between one-hundred percent owned subsidiaries
of the same parent entity; and
(ii) Portfolio compression exercises.
(3) These examples represent swaps that are not at arm's length and
thus are not publicly reportable swap transactions, notwithstanding
that they do result in a corresponding change in the market risk
position between two parties.
Real-time public reporting means the reporting of data relating to
a swap transaction, including price and volume, as soon as
technologically practicable after the time at which the swap
transaction has been executed.
Remaining party means a party to a swap that consents to a
transferor's transfer by novation of all of the transferor's rights,
liabilities, duties and obligations under such swap to a transferee.
Reporting party means the party to a swap with the duty to report a
publicly reportable swap transaction in accordance with this part and
section 2(a)(13)(F) of the Act.
Transferee means a party to a swap that accepts, by way of
novation, all of a transferor's rights, liabilities, duties and
obligations under such swap with respect to a remaining party.
Transferor means a party to a swap that transfers, by way of
novation, all of its rights, liabilities, duties and obligations under
such swap, with respect to a remaining party, to a transferee.
Unique product identifier means a unique identification of a
particular level of the taxonomy of the product in an asset class or
sub-asset class in question, as further described in Sec. 43.4(f) and
appendix A to this part. Such unique product identifier may combine the
information from one or more of the data fields described in appendix
A.
Widely published means to publish and make available through
electronic means in a manner that is freely available and readily
accessible to the public.
Sec. 43.3 Method and timing for real-time public reporting.
(a) Responsibilities of parties to a swap to report swap
transaction and pricing data in real-time--(1) In general. A reporting
party shall report any publicly reportable swap transaction to a
registered swap data repository as soon as technologically practicable
after such publicly reportable swap transaction is executed. For
purposes of this part, a registered swap data repository includes any
swap data repository provisionally registered with the Commission
pursuant to part 49 of this chapter.
(2) Swaps executed on or pursuant to the rules of a registered swap
execution facility or designated contract market. A party to a publicly
reportable swap transaction shall satisfy its reporting requirement
under this section by executing a publicly reportable swap transaction
on or pursuant to the rules of a registered swap execution facility or
designated contract market.
(3) Off-facility swaps. All off-facility swaps shall be reported by
the reporting party as soon as technologically practicable following
execution, to a registered swap data repository for the appropriate
asset class in accordance with the rules set forth in this part. Unless
otherwise agreed to by the parties prior to the execution of the
publicly reportable swap transaction, the following persons shall be
reporting parties for off-facility swaps:
(i) If only one party is a swap dealer or major swap participant,
then the swap dealer or major swap participant shall be the reporting
party;
(ii) If one party is a swap dealer and the other party is a major
swap participant, then the swap dealer shall be the reporting party;
(iii) If both parties are swap dealers, then the swap dealers shall
designate which party shall be the reporting party;
(iv) If both parties are major swap participants, then the major
swap participants shall designate which party shall be the reporting
party;
(v) If neither party is a swap dealer or a major swap participant,
then the parties shall designate which party (or its agent) shall be
the reporting party.
(b) Public dissemination of swap transaction and pricing data--(1)
Publicly reportable swap transactions executed on or pursuant to the
rules of a registered swap execution facility or designated contract
market. A registered swap execution facility or designated contract
market shall satisfy the requirements of this subparagraph by
transmitting swap transaction and pricing data to a registered swap
data repository, as soon as technologically practicable after the
publicly reportable swap transaction has been executed on or pursuant
to the rules of such trading platform or facility.
(2) Public dissemination of swap transaction and pricing data by
registered swap data repositories. A registered swap data repository
shall ensure that swap transaction and pricing data is publicly
disseminated, as soon as technologically practicable after such data is
received from a registered swap execution facility, designated contract
market or reporting party, unless such publicly reportable swap
transaction is subject to a time delay described in Sec. 43.5 of this
part, in which case the publicly reportable swap
[[Page 1245]]
transaction shall be publicly disseminated in the manner described in
Sec. 43.5.
(3) Prohibitions on disclosure of data. (i) If there is a
registered swap data repository for an asset class, a registered swap
execution facility or designated contract market shall not disclose
swap transaction and pricing data relating to publicly reportable swap
transactions in such asset class, prior to the public dissemination of
such data by a registered swap data repository unless:
(A) Such disclosure is made no earlier than the transmittal of such
data to a registered swap data repository for public dissemination;
(B) Such disclosure is only made to market participants on such
registered swap execution facility or designated contract market;
(C) Market participants are provided advance notice of such
disclosure; and
(D) Any such disclosure by the registered swap execution facility
or designated contract market is non-discriminatory.
(ii) If there is a registered swap data repository for an asset
class, a swap dealer or major swap participant shall not disclose swap
transaction and pricing data relating to publicly reportable swap
transactions in such asset class, prior to the public dissemination of
such data by a registered swap data repository unless:
(A) Such disclosure is made no earlier than the transmittal of such
data to a registered swap data repository for public dissemination;
(B) Such disclosure is only made to the customer base of such swap
dealer or major swap participant, including parties who maintain
accounts with or have been swap counterparties with such swap dealer or
major swap participant;
(C) Swap counterparties are provided advance notice of such
disclosure; and
(D) Any such disclosure by the swap dealer or major swap
participant is non-discriminatory.
(c) Requirements for registered swap data repositories in providing
the public dissemination of swap transaction and pricing data in real-
time--(1) Compliance with 17 CFR part 49. Any registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time shall comply with part 49 of this chapter and
shall publicly disseminate swap transaction and pricing data in
accordance with this part as soon as technologically practicable upon
receipt of such data, except as otherwise provided in this part.
(2) Acceptance and public dissemination of all swaps in an asset
class. Any registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time for swaps
in its selected asset class shall accept and publicly disseminate swap
transaction and pricing data in real-time for all publicly reportable
swap transactions within such asset class, unless otherwise prescribed
by the Commission.
(3) Annual independent review. Any registered swap data repository
that accepts and publicly disseminates swap transaction and pricing
data in real-time shall perform, on an annual basis, an independent
review in accordance with established audit procedures and standards of
the registered swap data repository's security and other system
controls for the purposes of ensuring compliance with the requirements
in this part.
(d) Availability of swap transaction and pricing data to the
public. (1) Registered swap data repositories shall publicly
disseminate swap transaction and pricing data in a consistent, usable
and machine-readable electronic format that allows the data to be
downloaded, saved and analyzed.
(2) Data that is publicly disseminated pursuant to this part shall
be available from an Internet Web site in a format that is freely
available and readily accessible to the public.
(3) Registered swap data repositories shall provide to the
Commission a hyperlink to the Internet Web site where publicly
disseminated swap transaction and pricing data can be accessed by the
public.
(e) Errors or omissions--(1) In general. Any errors or omissions in
swap transaction and pricing data that were publicly disseminated in
real-time shall be corrected or cancelled in the following manner:
(i) If a party to the swap becomes aware of an error or omission in
the swap transaction and pricing data reported with respect to such
swap, such party shall promptly notify the other party of the error
and/or correction.
(ii) If a reporting party to a swap becomes aware of an error or
omission in the swap transaction or pricing data which it reported to a
registered swap data repository or which was reported by a registered
swap execution facility or designated contract market with respect to
such swap, either through its own initiative or through notice by the
other party to the swap, the reporting party shall promptly submit
corrected data to the same registered swap execution facility,
designated contract market or registered swap data repository.
(iii) If the registered swap execution facility or designated
contract market becomes aware of an error or omission in the swap
transaction or pricing data reported with respect to such swap, or
receives notification from the reporting party, the registered swap
execution facility or designated contract market shall promptly submit
corrected data to the same registered swap data repository.
(iv) Any registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time shall
publicly disseminate any cancellations or corrections to such data, as
soon as technologically practicable after receipt or discovery of any
such cancellation or correction.
(2) Improper cancellation or correction. Reporting parties,
registered swap execution facilities, designated contract markets and
registered swap data repositories shall not submit or agree to submit a
cancellation or correction for the purpose of re-reporting swap
transaction and pricing data in order to gain or extend a delay in
public dissemination of accurate swap transaction or pricing data or to
otherwise evade the reporting requirements in this part.
(3) Cancellation. A registered swap data repository shall cancel
any incorrect data that had been publicly disseminated by publicly
disseminating a cancellation of such data, as soon as technologically
practicable, in the manner described in appendix A to this part.
(4) Correction. A registered swap data repository shall correct any
incorrect data that had been publicly disseminated by publicly
disseminating a cancellation of the incorrect swap transaction and
pricing data and then publicly disseminating the correct data, as soon
as technologically practicable, in the manner described in appendix A
to this part.
(f) Hours of operation of registered swap data repositories. Unless
otherwise provided in this subsection, a registered swap data
repository shall have systems in place to continuously receive and
publicly disseminate swap transaction and pricing data in real-time
pursuant to this part.
(1) A registered swap data repository may declare closing hours to
perform system maintenance.
(2) A registered swap data repository shall, to the extent
reasonably possible, avoid scheduling closing hours when, in its
estimation, the U.S. market and major foreign markets are most active.
[[Page 1246]]
(3) A registered swap data repository shall comply with the
requirements under part 40 of this chapter in setting closing hours and
shall provide advance notice of its closing hours to market
participants and the public.
(g) Acceptance of data during closing hours. During closing hours,
a registered swap data repository shall have the capability to receive
and hold in queue any data regarding publicly reportable swap
transactions pursuant to this part.
(1) Upon any reopening after closing hours, a registered swap data
repository shall promptly and publicly disseminate the swap transaction
and pricing data of swaps held in queue, in accordance with the
requirements of this part.
(2) If at any time during closing hours a registered swap data
repository is unable to receive and hold in queue swap transaction and
pricing data pursuant to this part, then the registered swap data
repository shall immediately upon reopening issue notice that it has
resumed normal operations. Any registered swap execution facility,
designated contract market or reporting party that is obligated under
this section to report data to the registered swap data repository
shall report the data to the registered swap data repository
immediately after receiving such notice.
(h) Timestamp requirements. In addition to the execution timestamp
described in appendix A to this part, registered entities, swap dealers
and major swap participants shall have the following timestamp
requirements with respect to real-time public reporting of swap
transaction and pricing data for all publicly reportable swap
transactions:
(1) A registered swap execution facility or designated contract
market shall timestamp swap transaction and pricing data relating to a
publicly reportable swap transaction with the date and time, to the
nearest second of when such registered swap execution facility or
designated contract market:
(i) Receives data from a swap counterparty (if applicable); and
(ii) Transmits such data to a registered swap data repository for
public dissemination.
(2) A registered swap data repository shall timestamp swap
transaction and pricing data relating to a publicly reportable swap
transaction with the date and time, to the nearest second when such
registered swap data repository:
(i) Receives data from a registered swap execution facility,
designated contract market or reporting party; and
(ii) Publicly disseminates such data.
(3) A swap dealer or major swap participant shall timestamp swap
transaction and pricing data relating to an off-facility swap with the
date and time, to the nearest second when such swap dealer or major
swap participant transmits such data to a registered swap data
repository for public dissemination.
(4) Records of all timestamps required by this subsection shall be
maintained for a period of at least five years from the execution of
the publicly reportable swap transaction.
(i) Fees. Any fees or charges assessed on a reporting party,
registered swap execution facility or designated contract market by a
registered swap data repository that accepts and publicly disseminates
swap transaction and pricing data in real-time for the collection of
such data shall be equitable and non-discriminatory. If such registered
swap data repository allows a fee discount based on the volume of data
reported to it for public dissemination, then such discount shall be
made available to all reporting parties, registered swap execution
facilities and designated contract markets in an equitable and non-
discriminatory manner.
Sec. 43.4 Swap transaction and pricing data to be publicly
disseminated in real-time.
(a) In general. Swap transaction and pricing information shall be
reported to a registered swap data repository so that the registered
swap data repository can publicly disseminate swap transaction and
pricing data in real-time in accordance with this part, including the
manner described in this section and appendix A to this part.
(b) Public dissemination of data fields. Any registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time shall publicly disseminate the information
described in appendix A to this part, as applicable, for any publicly
reportable swap transaction.
(c) Additional swap information. A registered swap data repository
that accepts and publicly disseminates swap transaction and pricing
data in real-time may require reporting parties, registered swap
execution facilities and designated contract markets to report to such
registered swap data repository, such information that is necessary to
compare the swap transaction and pricing data that was publicly
disseminated in real-time to the data reported to a registered swap
data repository pursuant to Section 2(a)(13)(G) of the Act or to
confirm that parties to a swap have reported in a timely manner
pursuant to Sec. 43.3 of this part. Such additional information shall
not be publicly disseminated by the registered swap data repository.
(d) Anonymity of the parties to a publicly reportable swap
transaction--(1) In general. Swap transaction and pricing data that is
publicly disseminated in real-time shall not disclose the identities of
the parties to the swap or otherwise facilitate the identification of a
party to a swap. A registered swap data repository that accepts and
publicly disseminates swap transaction and pricing data in real-time
shall not publicly disseminate such data in a manner that discloses or
otherwise facilitates the identification of a party to a swap.
(2) Actual product description reported to registered swap data
repository. Reporting parties, registered swap execution facilities and
designated contract markets shall provide a registered swap data
repository with swap transaction and pricing data that includes an
actual description of the underlying asset(s). This requirement is
separate from the requirement that a reporting party, registered swap
execution facility or designated contract market shall report swap data
to a registered swap data repository pursuant to Section 2(a)(13)(G) of
the Act and the Commission's regulations.
(3) Public dissemination of the actual description of underlying
asset(s). Notwithstanding the anonymity protection for certain swaps in
the other commodity asset class in Sec. 43.4(d)(4)(ii), a registered
swap data repository shall publicly disseminate the actual underlying
asset(s) of all publicly reportable swap transactions in the interest
rate, credit, equity and foreign exchange asset classes.
(4) Public dissemination of the underlying asset(s) for certain
swaps in the other commodity asset class. A registered swap data
repository shall publicly disseminate swap transaction and pricing data
in the other commodity asset class as described in this subsection.
(i) A registered swap data repository shall publicly disseminate
swap transaction and pricing data for publicly reportable swap
transactions in the other commodity asset class in the manner described
in Sec. 43.4(d)(4)(ii).
(ii) The actual underlying asset(s) shall be publicly disseminated
for the following publicly reportable swap transactions in the other
commodity asset class:
(A) Any publicly reportable swap transaction that references one of
the contracts described in appendix B to this part;
(B) Any publicly reportable swap transaction that is economically
related
[[Page 1247]]
to one of the contracts described in appendix B to this part; and
(C) Any publicly reportable swap transaction executed on or
pursuant to the rules of a registered swap execution facility or
designated contract market.
(e) Unique product identifier. If a unique product identifier is
developed that sufficiently describes one or more of the swap
transaction and pricing data fields for real-time reporting described
in appendix A to this part, then such unique product identifier may be
publicly disseminated in lieu of the data fields that it describes.
(f) Reporting of notional or principal amounts to a registered swap
data repository--(1) Off-facility swaps. The reporting party shall
report the actual notional or principal amount of any off-facility swap
to a registered swap data repository that accepts and publicly
disseminates such data pursuant to part 43.
(2) Swaps executed on or pursuant to the rules of a registered swap
execution facility or designated contract market. (i) A registered swap
execution facility or designated contract market shall transmit the
actual notional or principal amount for all swaps executed on or
pursuant to the rules of such registered swap execution facility or
designated contract market, to a registered swap data repository that
accepts swaps in the asset class.
(ii) The actual notional or principal amount for any block trade
executed pursuant to the rules of a registered swap execution facility
or designated contract market shall be reported to the registered swap
execution facility or designated contract market pursuant to the rules
of the registered swap execution facility or designated contract
market.
(g) Public dissemination of rounded notional or principal amounts.
The notional or principal amount of a publicly reportable swap
transaction, as described in appendix A to this part, shall be rounded
and publicly disseminated by a registered swap data repository as
follows:
(1) If the notional or principal amount is less than one thousand,
round to nearest five, but in no case shall a publicly disseminated
notional or principal amount be less than five;
(2) If the notional or principal amount is less than ten thousand
but equal to or greater than one thousand, round to nearest one
hundred;
(3) If the notional or principal amount is less than 100 thousand
but equal to or greater than ten thousand, round to nearest one
thousand;
(4) If the notional or principal amount is less than one million
but equal to or greater than 100 thousand, round to nearest ten
thousand;
(5) If the notional or principal amount is less than 100 million
but equal to or greater than one million, round to the nearest one
million;
(6) If the notional or principal amount is less than 500 million
but equal to or greater than 100 million, round to the nearest ten
million;
(7) If the notional or principal amount is less than one billion
but equal to or greater than 500 million, round to the nearest 50
million;
(8) If the notional or principal amount is less than 100 billion
but equal to or greater than one billion, round to the nearest one
billion;
(9) If the notional or principal amount is greater than 100
billion, round to the nearest 50 billion.
(h) Public dissemination caps on notional or principal amounts. The
rounded notional or principal amount that is publicly disseminated for
a publicly reportable swap transaction shall be capped in a manner that
adjusts in accordance with the appropriate minimum block size that
corresponds to such publicly reportable swap transaction. If there is
no appropriate minimum block size applicable to a publicly reportable
swap transaction, then the cap on the notional or principal amount that
is publicly disseminated shall be applied in the following manner:
(1) Interest rate swaps. (i) The publicly disseminated notional or
principal amount for an interest rate swap subject to the rules in this
part with a tenor greater than zero up to and including two years shall
be capped at USD 250 million.
(ii) The publicly disseminated notional or principal amount for an
interest rate swap subject to the rules in this part with a tenor
greater than two years up to and including ten years shall be capped at
USD 100 million.
(iii) The publicly disseminated notional or principal amount for an
interest rate swap subject to the rules in this part with a tenor
greater than ten years shall be capped at USD 75 million.
(2) Credit swaps. The publicly disseminated notional or principal
amount for a credit swap subject to the rules in this part shall be
capped at USD 100 million.
(3) Equity swaps. The publicly disseminated notional or principal
amount for an equity swap subject to the rules in this part shall be
capped at USD 250 million.
(4) Foreign exchange swaps. The publicly disseminated notional or
principal amount for a foreign exchange swap subject to the rules in
this part shall be capped at USD 250 million.
(5) Other commodity swaps. The publicly disseminated notional or
principal amount for any other commodity swap subject to the rules in
this part shall be capped at USD 25 million.
Sec. 43.5 Time delays for public dissemination of swap transaction
and pricing data.
(a) In general. The time delay for the real-time public reporting
of a block trade or large notional off-facility swap begins upon
execution, as defined in Sec. 43.2 of this part. It is the
responsibility of the registered swap data repository that accepts and
publicly disseminates swap transaction and pricing data in real-time to
ensure that the block trade or large notional off-facility swap
transaction and pricing data is publicly disseminated pursuant to this
part upon the expiration of the appropriate time delay described in
Sec. 43.5(d) through (h).
(b) Public dissemination of publicly reportable swap transactions
subject to a time delay. A registered swap data repository shall
publicly disseminate swap transaction and pricing data that is subject
to a time delay pursuant to this paragraph, as follows:
(1) No later than the prescribed time delay period described in
this paragraph;
(2) No sooner than the prescribed time delay period described in
this paragraph; and
(3) Precisely upon the expiration of the time delay period
described in this paragraph.
(c) Interim time delay--(1) In general. The public dissemination of
swap transaction and pricing data relating to any publicly reportable
swap transaction shall receive the same time delays for block trades
and large notional off-facility swaps, as described in this subsection,
until such time as an appropriate minimum block size is established
with respect to such publicly reportable swap transaction.
(2) Swaps executed on or pursuant to the rules of a registered swap
execution facility or designated contract market. Any publicly
reportable swap transaction that does not have an appropriate minimum
block size and that is executed on or pursuant to the rules of a
registered swap execution facility or designated contract market shall
follow the time delays set forth in Sec. 43.5(d) until such time that
an appropriate minimum block size is established for such publicly
reportable swap transaction.
(3) Off-facility swaps subject to the mandatory clearing
requirement. Any
[[Page 1248]]
off-facility swap that does not have an appropriate minimum block size
and that is subject to the mandatory clearing requirement described in
Section 2(h)(1) of the Act and Commission regulations, with the
exception of those off-facility swaps that are either excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act
and Commission regulations or that are required to be cleared under
Section 2(h)(2) of the Act and Commission regulations but are not
cleared, shall follow the time delays set forth in Sec. 43.5(e) until
such time that an appropriate minimum block size is established for
such off-facility swap.
(4) Off-facility swaps in the interest rate, credit, foreign
exchange and equity asset classes not subject to the mandatory clearing
requirement with at least one swap dealer or major swap participant
counterparty. Any off-facility swap in the interest rate, credit,
foreign exchange or equity asset classes, where at least one party is a
swap dealer or major swap participant, that is not subject to the
mandatory clearing requirement or is excepted from such mandatory
clearing requirement and that does not have an appropriate minimum
block size shall follow the time delays set forth in Sec. 43.5(f)
until such time that an appropriate minimum block size is established
for such off-facility swap.
(5) Off-facility swaps in the other commodity asset class not
subject to the mandatory clearing requirement with at least one swap
dealer or major swap participant counterparty. Any off-facility swap in
the other commodity asset class, where at least one party is a swap
dealer or major swap participant, that is not subject to the mandatory
clearing requirement or is excepted from such mandatory clearing
requirement and that does not have an appropriate minimum block size
shall follow the time delays set forth in Sec. 43.5(g) until such time
that an appropriate minimum block size is established for such off-
facility swap.
(6) Off-facility swaps in all asset classes not subject to the
mandatory clearing requirement in which neither counterparty is a swap
dealer or major swap participant. Any off-facility swap, in all asset
classes, where neither party is a swap dealer or major swap
participant, that is not subject to the mandatory clearing requirement
or is excepted from such mandatory clearing requirement and that does
not have an appropriate minimum block size shall follow the time delays
set forth in Sec. 43.5(h) until such time that an appropriate minimum
block size is established for such off-facility swap.
(7) Time delays for public dissemination upon establishment of an
appropriate minimum block size. After an appropriate minimum block size
is established for a particular swap or category of swaps, all publicly
reportable swap transactions that are below the appropriate minimum
block size shall be publicly disseminated as soon as technologically
practicable after execution pursuant to Sec. 43.3 of this part.
(d) Time delay for block trades executed pursuant to the rules of a
registered swap execution facility or designated contract market. Any
block trade that is executed pursuant to the rules of a registered swap
execution facility or designated contract market shall receive a time
delay in the public dissemination of swap transaction and pricing data
as follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination
of swap transaction and pricing data for all publicly reportable swap
transactions described in Sec. 43.5(d) shall be 30 minutes immediately
after execution of such publicly reportable swap transaction.
(2) Time delay after Year 1. Beginning on the first anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all publicly
reportable swap transactions described in Sec. 43.5(d) shall be 15
minutes immediately after execution of such publicly reportable swap
transaction.
(e) Time delay for large notional off-facility swaps subject to the
mandatory clearing requirement--(1) In general. This subsection shall
not apply to off-facility swaps that are excepted from the mandatory
clearing requirement pursuant to Section 2(h)(7) of the Act and
Commission regulations, and this subsection shall not apply to those
swaps that are required to be cleared under Section 2(h)(2) of the Act
and Commission regulations but are not cleared.
(2) Swaps subject to the mandatory clearing requirement where at
least one party is a swap dealer or major swap participant. Any large
notional off-facility swap that is subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act and Commission
regulations, in which at least one party is a swap dealer or major swap
participant, shall receive a time delay as follows:
(i) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination
of swap transaction and pricing data for all swaps described in Sec.
43.5(e)(2) shall be 30 minutes immediately after execution of such
swap.
(ii) Time delay after Year 1. Beginning on the first anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(e)(2) shall be 15 minutes immediately after
execution of such swap.
(3) Swaps subject to the mandatory clearing requirement where
neither party is a swap dealer or major swap participant. Any large
notional off-facility swap that is subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act and Commission
regulations, in which neither party is a swap dealer or major swap
participant, shall receive a time delay as follows:
(i) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination
of swap transaction and pricing data for all swaps described in Sec.
43.5(e)(3) shall be four hours immediately after execution of such
swap.
(ii) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(e)(3) shall be two hours immediately after
execution of such swap.
(iii) Time delay after Year 2. Beginning on the second anniversary
of the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(e)(3) shall be one hour immediately after
execution of such swap.
(f) Time delay for large notional off-facility swaps in the
interest rate, credit, foreign exchange or equity asset classes not
subject to the mandatory clearing requirement with at least one swap
dealer or major swap participant counterparty. Any large notional off-
facility swap in the interest rate, credit, foreign exchange or equity
asset classes where at least one party is a swap dealer or major swap
participant, that is not subject to the mandatory clearing requirement
or is excepted from such mandatory clearing requirement, shall receive
a time delay in the public dissemination of swap transaction and
pricing data as follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination
of swap transaction and pricing data for all swaps described in Sec.
43.5(f) shall be one hour immediately
[[Page 1249]]
after execution of such swap; however, any large notional off-facility
swap in the interest rate, credit, foreign exchange or equity asset
classes in which one party is not a swap dealer or major swap
participant and such party is not a financial entity as defined in
Section 2(h)(7)(C) of the Act and Commission regulations, shall receive
a time delay of one hour immediately after execution of such swap; or
if such swap transaction or pricing data is received by the registered
swap data repository later than one hour immediately after execution,
the registered swap data repository shall publicly disseminate such
data as soon as technologically practicable after the data is received.
(2) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(f) shall be 30 minutes immediately after
execution of such swap; however, any large notional off-facility swap
in the interest rate, credit, foreign exchange or equity asset classes
in which one party is not a swap dealer or major swap participant and
such party is not a financial entity as defined in Section 2(h)(7)(C)
of the Act and Commission regulations, shall receive a time delay of 30
minutes immediately after execution of such swap; or if such swap
transaction or pricing data is received by the registered swap data
repository later than 30 minutes immediately after execution, the
registered swap data repository shall publicly disseminate such data as
soon as technologically practicable after the data is received.
(3) Time delay after Year 2. Beginning on the second anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(f) shall be 30 minutes immediately after
execution of such swap.
(g) Time delay for large notional off-facility swaps in the other
commodity asset class not subject to the mandatory clearing requirement
with at least one swap dealer or major swap participant counterparty.
Any large notional off-facility swap in the other commodity asset class
where at least one party is a swap dealer or major swap participant,
that is not subject to the mandatory clearing requirement or is exempt
from such mandatory clearing requirement, shall receive a time delay in
the public dissemination of swap transaction and pricing data as
follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination
of swap transaction and pricing data for all swaps described in Sec.
43.5(g) shall be four hours immediately after execution of such swap;
however, any large notional off-facility swap in the other commodity
asset class in which only one party is not a swap dealer or major swap
participant and such party is not a financial entity as defined in
Section 2(h)(7)(C) of the Act and Commission regulations, shall receive
a time delay of four hours immediately after execution of such swap, or
if such swap transaction or pricing data is received by the registered
swap data repository later than four hours immediately after execution
of such swap, the registered swap data repository shall publicly
disseminate such data as soon as technologically practicable after the
data is received.
(2) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(g) shall be two hours immediately after
execution of such swap; however, any large notional off-facility swap
in the other commodity asset class in which only one party is not a
swap dealer or major swap participant and such party is not a financial
entity as defined in Section 2(h)(7)(C) of the Act and Commission
regulations, shall receive a time delay of two hours immediately after
execution of such swap, or if such swap transaction or pricing data is
received by the registered swap data repository later than two hours
immediately after execution, the registered swap data repository shall
publicly disseminate such data as soon as technologically practicable
after the data is received.
(3) Time delay after Year 2. Beginning on the second anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(g) shall be two hours after the execution of
such swap.
(h) Time delay for large notional off-facility swaps in all asset
classes not subject to the mandatory clearing requirement in which
neither counterparty is a swap dealer or a major swap participant. Any
large notional off-facility swap in which neither party is a swap
dealer or a major swap participant, which is not subject to the
mandatory clearing requirement or is exempt from such mandatory
clearing requirement, shall receive a time delay in the public
dissemination of swap transaction and pricing data as follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination
of swap transaction and pricing data for all swaps described in Sec.
43.5(h) shall be 48 business hours immediately after execution of such
swap.
(2) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(h) shall be 36 business hours immediately after
the execution of such swap.
(3) Time delay after Year 2. Beginning on the second anniversary of
the compliance date of this part, the time delay for public
dissemination transaction and pricing data for all swaps described in
Sec. 43.5(h) shall be 24 business hours immediately after the
execution of such swap.
Sec. 43.6 [Reserved]
Appendix A to Part 43--Data Fields for Public Dissemination
The data fields described in Table A1 and Table A2, to the extent
applicable for a particular publicly reportable swap transaction, shall
be publicly disseminated pursuant to part 43. Table A1 and Table A2
provide guidance for compliance with the reporting and public
dissemination of each data field. Reporting parties, registered swap
execution facilities and designated contract markets shall report swap
transaction and pricing data necessary to publicly disseminate such
data, pursuant to part 43 and this appendix A to part 43, to a
registered swap data repository as soon as technologically practicable
after execution of the publicly reportable swap transaction. A
registered swap data repository shall publicly disseminate the
information in Table A1 and A2 in a consistent form and manner for
swaps within the same asset class.
BILLING CODE 6351-01-P
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BILLING CODE 6351-01-C
Appendix B to Part 43--Enumerated Physical Commodity Contracts and
Other Contracts
Enumerated Physical Commodity Contracts
Agriculture
ICE Futures U.S. Cocoa
ICE Futures U.S. Coffee C
Chicago Board of Trade Corn
ICE Futures U.S. Cotton No. 2
ICE Futures U.S. FCOJ-A
Chicago Mercantile Exchange Live Cattle
Chicago Board of Trade Oats
Chicago Board of Trade Rough Rice
Chicago Board of Trade Soybeans
Chicago Board of Trade Soybean Meal
Chicago Board of Trade Soybean Oil
ICE Futures U.S. Sugar No. 11
ICE Futures U.S. Sugar No. 16
Chicago Board of Trade Wheat
Minneapolis Grain Exchange Hard Red Spring Wheat
Kansas City Board of Trade Hard Winter Wheat
Chicago Mercantile Exchange Class III Milk
Chicago Mercantile Exchange Feeder Cattle
Chicago Mercantile Exchange Lean Hogs
Metals
Commodity Exchange, Inc. Copper
New York Mercantile Exchange Palladium
New York Mercantile Exchange Platinum
Commodity Exchange, Inc. Gold
Commodity Exchange, Inc. Silver
Energy
New York Mercantile Exchange Light Sweet Crude Oil
New York Mercantile Exchange New York Harbor Gasoline Blendstock
New York Mercantile Exchange Henry Hub Natural Gas
[[Page 1264]]
New York Mercantile Exchange New York Harbor Heating Oil
Other Contracts
Brent Crude Oil (ICE)
Appendix C to Part 43--Time Delays for Public Dissemination
The tables below provide clarification of the time delays for
public dissemination set forth in Sec. 43.5. The first row of each
table describes the asset classes to which each chart applies. The
column entitled ``Yearly Phase-In'' indicates the periods beginning
on the compliance date of this part and beginning on the anniversary
of the compliance date thereafter. The column entitled ``Time Delay
for Public Dissemination'' indicates the precise length of time
delay, starting upon execution, for the public dissemination of such
swap transaction and pricing data by a registered swap data
repository.
Table C1. Block Trades Executed on or Pursuant to the Rules of a
Registered Swap Execution Facility or Designated Contract Market
(Illustrating Sec. Sec. 43.5(d)(1) and (d)(2))
Table C1 also designates the interim time delays for swaps
described in Sec. 43.5(c)(2).
All Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 30 minutes.
After Year 1..................................................... 15 minutes.
----------------------------------------------------------------------------------------------------------------
Table C2. Large Notional Off-Facility Swaps Subject to the
Mandatory Clearing Requirement With at Least One Swap Dealer or
Major Swap Participant Counterparty (Illustrating Sec. Sec.
43.5(e)(2)(A) and (e)(2)(B))
Table C2 excludes off-facility swaps that are excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the
Act and Commission regulations and those off-facility swaps that are
required to be cleared under Section 2(h)(2) of the Act and
Commission regulations but are not cleared.
Table C2 also designates the interim time delays for swaps
described in Sec. 43.5(c)(3).
All Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 30 minutes.
After Year 1..................................................... 15 minutes.
----------------------------------------------------------------------------------------------------------------
Table C3. Large Notional Off-Facility Swaps Subject to the
Mandatory Clearing Requirement in Which Neither Counterparty Is a
Swap Dealer or Major Swap Participant (Illustrating Sec. Sec.
43.5(e)(3)(A), (e)(3)(B), and (e)(3)(C))
Table C3 excludes off-facility swaps that are excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the
Act and Commission regulations and those swaps that are required to
be cleared under Section 2(h)(2) of the Act and Commission
regulations but are not cleared.
Table C3 also designates the interim time delays for swaps
described in Sec. 43.5(c)(3).
All Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 4 hours.
Year 2........................................................... 2 hours.
After Year 2..................................................... 1 hour.
----------------------------------------------------------------------------------------------------------------
Table C4. Large Notional Off-Facility Swaps Not Subject to the
Mandatory Clearing Requirement With at Least One Swap Dealer or
Major Swap Participant Counterparty (Illustrating Sec. Sec.
43.5(f)(1), (f)(2) and (f)(3))
Table C4 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are exempt from
such mandatory clearing requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations.
Table C4 also designates the interim time delays for swaps
described in Sec. 43.5(c)(4).
Interest Rates, Credit, Foreign Exchange, Equity Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 1 hour.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then one hour
immediately after execution; or if received
later than one hour by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
Year 2........................................................... 30 minutes.
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However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then 30 minutes
immediately after execution; or if received
later than 30 minutes by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
After Year 2..................................................... 30 minutes.
----------------------------------------------------------------------------------------------------------------
Table C5. Large Notional Off-Facility Swaps Not Subject to the
Mandatory Clearing Requirement With at Least One Swap Dealer or
Major Swap Participant Counterparty (Illustrating Sec. Sec.
43.5(g)(1), (g)(2), and (g)(3))
Table C5 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are excepted from
such mandatory clearing requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations.
Table C5 also designates the interim time delays for swaps
described in Sec. 43.5(c)(5).
Other Commodity Asset Class
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 4 hours.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then four hours
immediately after execution; or if received
later than four hours by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
Year 2........................................................... 2 hours.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then two hours
immediately after execution; or if received
later than two hours by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
After Year 2..................................................... 2 hours.
----------------------------------------------------------------------------------------------------------------
Table C6. Large Notional Off-Facility Swaps Not Subject to the
Mandatory Clearing Requirement in Which Neither Counterparty Is a
Swap Dealer or Major Swap Participant (Illustrating Sec. Sec.
43.5(h)(1), (h)(2) and (h)(3))
Table C6 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are exempt from
such mandatory clearing requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations.
Table C6 also designates the interim time delays for swaps
described in Sec. 43.5(c)(6).
All Asset Classes
------------------------------------------------------------------------
Time delay for
Yearly phase-in public dissemination
------------------------------------------------------------------------
Year 1............................................ 48 business hours.
Year 2............................................ 36 business hours.
After Year 2...................................... 24 business hours.
------------------------------------------------------------------------
Issued in Washington, DC, on December 20, 2011, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations
Appendices to Real-Time Public Reporting of Swap Transaction Data--
Commission Voting Summary and Statements of Commissioners
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Sommers,
Chilton, O'Malia and Wetjen voted in the affirmative; no Commissioner
voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rule to implement a real-time, public reporting
regime for swaps. This rule fulfills Congress' direction under the
Dodd-Frank Wall Street Reform and Consumer Protection Act to bring
public transparency to the entire swaps market for both cleared and
uncleared swaps. This rule will give the public critical information on
the pricing of transactions--similar to what has been working for
decades in the securities and futures markets.
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Real-time reporting introduces post-trade transparency to the swaps
market, which lowers costs for market participants and consumers.
In response to commenters, the final rule provides for the phasing
in of compliance dates and time delays based on market participant,
place of execution and underlying asset. As directed by Congress, the
final rule protects the anonymity of counterparties to a swap and takes
into account the effect of the rule on market liquidity.
[FR Doc. 2011-33173 Filed 1-6-12; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: January 9, 2012
See Also:
