Final Rules on Real-time Public Reporting of Swap Transaction and Pricing Data under Dodd-Frank Issued by CFTC | Practical Law

Final Rules on Real-time Public Reporting of Swap Transaction and Pricing Data under Dodd-Frank Issued by CFTC | Practical Law

The CFTC adopted final Dodd-Frank rules on real-time public reporting of non-security-based swap transaction and pricing data to registered swap data repositories (SDRs).

Final Rules on Real-time Public Reporting of Swap Transaction and Pricing Data under Dodd-Frank Issued by CFTC

by PLC Finance
Published on 21 Dec 2011 • USA (National/Federal)
The CFTC adopted final Dodd-Frank rules on real-time public reporting of non-security-based swap transaction and pricing data to registered swap data repositories (SDRs).
On December 20, 2011, the CFTC adopted final Dodd-Frank rules on the real-time public reporting of non-security-based swap transaction and pricing data. The rules are designed to make swap transaction and pricing data publicly available in real time, which under the rules means "as soon as technologically practicable" for most swaps. The parties to certain large notional swaps will have a maximum of 30 minutes after execution to report data for those swaps for public to dissemination. This timeframe will be reduced to 15 minutes on the first anniversary of the applicable compliance date.
For the purposes of the final rules, execution occurs simultaneously with or immediately following the affirmation of a swap. Execution is defined as an agreement by the parties to the terms of a swap that legally binds the parties to the terms under applicable law.
All swap transaction and pricing data will be required to be reported to the appropriate registered swap data repository (SDR), regardless of whether the swap is executed on a regulated trading platform or bilaterally. SDRs must ensure the public dissemination of data relating to all publicly reportable swap transactions.
The rules specify the following reporting obligations:
  • Swap execution facilities (SEFs) and designated contract markets (DCMs) must report swap data to the appropriate SDR on swaps that are executed on or by their trading systems or platform.
  • Swap dealers (SDs), major swap participants (MSPs) and US-based end users that may be otherwise exempt from Dodd-Frank swaps rules must report data to the appropriate SDR for swaps that are not executed on a registered SEF or DCM as follows:
    • if one of the parties is a SD or MSP, the SD/MSP is responsible for fulfilling the parties' reporting obligations under the rules;
    • if one of the parties is a SD and the other is a MSP, the SD is responsible for fulfilling the parties' reporting obligations under the rules;
    • if both parties are SDs, both parties are MSPs or both parties are non-SD/MSP counterparties, the parties must designate among themselves which of them will be the reporting party.
One note: Off-facility swaps (not executed on a designated contract market (DCM) or swap execution facility (SEF)) that are subject to mandatory clearing under Dodd-Frank in which neither party is an SD or MSP will initially have four hours to report swap data 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.
The rules are not clear on how these entities are to determine the appropriate SDR to which swap data must be reported. This is likely to be determined by the type of swap being entered into and the types of swaps for which a particular SDR collects data.
These rules apply to all swaps entered into after the applicable compliance date (see Compliance Dates).

Changes from Proposed Rules

The final rules in large part adopt the proposed rules that were published on December 7, 2010 (see Legal Update, CFTC Proposes Rule Requiring Real-time Public Reporting of Swap Data). However, the final rules included some noteworthy revisions to the proposed rules, including:
  • The definition of a "publicly reportable swap transaction" has changed, and now includes the following:
    • any executed swap that is an arm's length transaction between two parties and results in a corresponding change in market risk between the two parties; and
    • any termination, assignment, novation, exchange, transfer, amendment, conveyance of a swap, or the extinguishing of rights or obligations under a swap, which changes the swap's pricing.
  • Some data fields have been revised, deleted or added for clarification and to aid in price discovery. These data fields are described in Appendix A to the final rules.
  • All recordkeeping requirements that were proposed under the December 7, 2010 proposed rules have been removed, except requirements related to timestamps. Timestamps include the date and time, to the nearest second, and are required under the final rules of all publicly reported and off-facility swaps. The CFTC released a separate set of final Dodd-Frank swap recordkeeping rules on December 20, 2011 (see Legal Update, Final Rules on Swap Data Reporting and Recordkeeping Requirements Under Dodd-Frank Issued by CFTC).
  • Permitted delays for public dissemination of swap data by SDRs now differ based on how the swap is executed, what the underlying reference asset is and who the parties are.
  • Rules categorizing swaps and covering the determination of the appropriate minimum size for block trades and large notional off-facility swaps have been removed.
  • Publicly reportable swap transactions in the "other commodity" asset class that are not executed on or pursuant to a registered SEF or DCM, or listed in Appendix B to the final rules, are not covered by the final rules.

Compliance Dates

The final rules phase in compliance dates by type of swap and reporting entity:
  • SEFs and DCMs must comply with the real-time reporting requirements for publicly reportable interest rate swaps and credit swaps executed on or pursuant to the rules of a registered SEF or DCM on the later of:
    • July 16, 2012; or
    • 60 days after publication in the Federal Register of the CFTC regulations defining the term "swap."
  • Although it seems that the final rules may contain a typographical error in this section, it appears that SDs and MSPs that are parties to publicly reportable interest rate swaps or credit swaps, whether or not executed on a registered SEF or DCM, must comply with the real-time reporting requirements on the later of:
    • July 16, 2012; or
    • 60 calendar days after the publication in the Federal Register of the last CFTC regulations defining the terms "swap," "swap dealer" and "major swap participant."
All parties covered by these final rules but not included in the categories above do not have to comply with the rules until a later compliance date. For a full compliance schedule, see pages 150-153 of the final rules.

Related Swap Data Reporting Rules

For information on proposed minimum sizes (called "block sizes") for large swaps known as block trades and large notional off-facility swaps, which are subject to delayed reporting under the final real-time reporting rules, see Legal Update, CFTC Proposes Minimum Block Sizes for Large Swap Exception from Real-time Data Reporting.
These final rules were also approved by the CFTC in conjunction with a separate set of final rules covering non-security based swap data reporting and recordkeeping requirements (see Legal Update, Final Rules on Swap Data Reporting and Recordkeeping Requirements Under Dodd-Frank Issued by CFTC). In many instances, it is unclear how the rules are meant to work together, which could lead to confusion among market participants. However, both rules have the same initial compliance dates, and the CFTC is working to align timeframes and costs for both rules in order to permit a reporting entity or counterparty to fulfill both obligations by filing a single report, should the reporting entity or counterparty choose to do so.
These final real-time reporting rules are also designed to complement, but do not supersede, final rules relating to swap data reporting and recordkeeping requirements for SDs and MSPs (see Legal Update, Final Governance and Risk-management Rules for Swap Dealers and Major Swap Participants Adopted by CFTC).
Separate final rules will also be forthcoming on swap data reporting and recordkeeping for "transition" and "pre-enactment" swaps (see Legal Update, CFTC Proposes Pre-enactment and Transition Swap Recordkeeping and Reporting Rules under Dodd-Frank). Pre-enactment swaps are swaps entered into before the enactment date of Dodd-Frank (July 21, 2010). Transition swaps are swaps entered into on or after the enactment date but before Dodd-Frank swap data reporting and recordkeeping rules become effective.
For more information on these final rules, see the CFTC's fact sheet and Q&A. For more information on regulation of swaps and derivatives under the Dodd-Frank Act, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives.
For more information on SDRs and Dodd-Frank swap data reporting rules, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Swap Data Reporting Requirements.