CFTC Approves Final Rule on Swap Portfolio Reconciliation | Practical Law

CFTC Approves Final Rule on Swap Portfolio Reconciliation | Practical Law

The CFTC approved a final rule amending certain definitions relating to swap portfolio reconciliation, explicitly excluding certain data fields that are collected under Part 45 of the CFTC's regulations for reconciliation purposes.

CFTC Approves Final Rule on Swap Portfolio Reconciliation

Practical Law Legal Update w-002-2360 (Approx. 4 pages)

CFTC Approves Final Rule on Swap Portfolio Reconciliation

by Practical Law Finance
Published on 10 May 2016 • USA (National/Federal)
The CFTC approved a final rule amending certain definitions relating to swap portfolio reconciliation, explicitly excluding certain data fields that are collected under Part 45 of the CFTC's regulations for reconciliation purposes.
On May 2, 2016, the CFTC approved a final rule amending certain definitions relating to swap portfolio reconciliation, explicitly excluding certain data fields that are collected under Part 45 of the CFTC's regulations (final SDR data reporting rules).
The CFTC approved changes to the definitions of the terms "Material Terms" under CFTC Regulation 23.500(g) (17 C.F.R. § 23.500(g)) and "Portfolio Reconciliation" under CFTC Regulation 23.500(i)(1) (17 C.F.R. § 23.500(i)(1)) for swap portfolio reconciliation purposes.
On September 22, 2015, the CFTC proposed to amend Regulation 23.500(g) by excluding nine specific data fields (Proposed Excluded Data Fields) in connection with swap portfolio reconciliation, and solicited public comment on the proposed exclusions (see Legal Update: CFTC Proposes Change to "Material Terms" Definition for Swap Portfolio Reconciliation).
A comment letter was submitted by ISDA, which agreed with the CFTC's exclusion of the Proposed Excluded Data Fields, but recommended that the CFTC further expand the list to include the following 24 data fields:
  • An indication of whether the reporting counterparty is a swap dealer (SD).
  • An indication of whether the reporting party is a major swap participant (MSP).
  • If the reporting counterparty is not an SD or an MSP, an indication of whether the reporting counterparty is a financial entity as defined in Section 2(h)(7)(c) of the Commodity Exchange Act (CEA).
  • An indication of whether the reporting counterparty is a US person.
  • If the swap will be allocated. (“Allocations” are (normally) post-trade events where a party (usually an asset manager but referred to in Part 45 as the “agent”) allocates a portion of an executed swap to clients who are the “actual” counterparties to the original transaction).
  • If the swap will be allocated, or is a post-allocation swap, the legal entity identifier (LEI) of the agent.
  • An indication of whether the swap is a post-allocation swap.
  • If the swap is a post-allocation swap, the unique swap identifier of the original transaction between the reporting counterparty and the agent.
  • An indication of whether the non-reporting counterparty is an SD.
  • An indication of whether the non-reporting counterparty is an MSP.
  • If the non-reporting counterparty is not an SD or an MSP, an indication of whether the reporting counterparty is a financial entity as defined in Section 2(h)(7)(c) of the CEA.
  • An indication of whether the non-reporting counterparty is a US person.
  • An indication that the swap is a multi-asset swap.
  • For a multi-asset swap, an indication of the primary asset class.
  • For a multi-asset swap, an indication of the secondary asset class(es).
  • An indication that the swap is a mixed swap.
  • For a mixed swap reported to two non-dually-registered swap data repositories, the identity of the other SDR (if any) to which the swap is or will be reported.
  • Execution timestamp.
  • Timestamp for submission to SDR.
  • Clearing indicator.
  • Clearing venue.
  • If the swap will not be cleared, an indication of whether the clearing requirement exception in Section 2(h)(7) of the CEA was elected. For details on the clearing requirement exception, see Practice Note: The Dodd-Frank Act: The Commercial End-User Exception to the Mandatory Swap Clearing Requirement.
  • The identity of the counterparty electing the clearing requirement exception in Section 2(h)(7) of the CEA.
After considering the comments, the CFTC finalized the rule by:
  • Modifying the term "material terms" under Regulation 23.500(g) to mean "minimum primary economic terms of a swap, as defined in appendix 1 of part 45 of CFTC regulations, other than the 24 excluded data fields listed above."
  • Modifying the term "portfolio reconciliation" under 23.500(i)(1) to mean "any process by which the two parties to one or more swaps exchange the material terms of all swaps in the swap portfolio between the counterparties."
The final rule supersedes CFTC Staff Letter 13-31, which is similar but not identical to this rule (see Legal Update: CFTC Issues No-action Letters Giving Swap Dealers More Time to Comply with Dodd-Frank Rules: Portfolio Reconciliation). The final rule reduces the number of "material terms" that counterparties are required to exchange and resolve for discrepancies during portfolio reconciliations, but will not eliminate the overall portfolio reconciliation requirement itself. The CFTC believes that the rule will reduce the time burden on SDs, MSPs, and their counterparties for portfolio reconciliation.
The rule does not impact data reporting under Part 45 or any other CFTCF data reporting rules. The data fields in Appendix 1 of the final SDR rules remain unchanged for purposes of those rules. For details on the data fields that must currently be reported under the final SDR rules, see The Dodd-Frank Act: CFTC Swap Data Reporting Required Data Fields Checklist.
For information on swap portfolio reconciliation requirements under Title VII of the Dodd-Frank Act, see Practice Note, The Dodd-Frank Act: Internal Business Conduct (IBC) Rules for Swap Dealers and MSPs.