Final Rules on Data Reporting and Recordkeeping for Historical Swaps, Including Currently Outstanding Swaps, Issued by CFTC | Practical Law

Final Rules on Data Reporting and Recordkeeping for Historical Swaps, Including Currently Outstanding Swaps, Issued by CFTC | Practical Law

The CFTC issued final rules establishing data reporting and recordkeeping requirements for pre-enactment and transition swaps, referred to collectively as historical swaps, under the Dodd-Frank Act. These include all currently outstanding swaps and swaps currently being entered into.

Final Rules on Data Reporting and Recordkeeping for Historical Swaps, Including Currently Outstanding Swaps, Issued by CFTC

by PLC Finance
Published on 30 May 2012 • USA (National/Federal)
The CFTC issued final rules establishing data reporting and recordkeeping requirements for pre-enactment and transition swaps, referred to collectively as historical swaps, under the Dodd-Frank Act. These include all currently outstanding swaps and swaps currently being entered into.
On May 18, 2012, the CFTC issued final rules under Title VII of the Dodd-Frank Act establishing reporting and recordkeeping requirements for swaps entered into:
  • Before July 21, 2010, the enactment date of the Dodd-Frank Act. These swaps are referred to as pre-enactment swaps.
  • On or after the enactment date but before the applicable compliance dates set out in the final rules. These swaps are referred to as transition swaps.
Reporting and recordkeeping requirements for pre-enactment swaps and transition swaps, together known as historical swaps, are more limited in scope than the corresponding requirements for non-historical swaps (see Legal Update, Final Rules on Swap Data Reporting and Recordkeeping Requirements under Dodd-Frank Issued by CFTC). Historical swaps include all currently outstanding swaps and swaps currently being entered into.
It is noteworthy that while the CFTC is charged under Title VII with regulating only non-security-based swaps, the final historical swap data reporting rules, as well as all other final CFTC swap data reporting rules, appear to require data reporting for all swaps regardless of whether or not they are designated as security-based swaps or non-security-based swaps, and the rules do not mention "non-security-based" swaps specifically.
Data reporting and recordkeeping rules for security-based swaps have been proposed but not yet finalized by the SEC (see SEC Proposes Rules on Security-Based Swap Reporting and Data Repositories Under the Dodd-Frank Act).

Historical Swap Data Reporting

Under the final rules, if a historical swap did not expire or terminate as of April 25, 2011, the parties to the historical swap must make an initial data report (IDR) on the applicable compliance date either:
  • Electronically to a swap data repository (SDR) that accepts data for swaps of that "asset class" (see below for list of swap asset classes under the rules).
  • To the CFTC if no SDR for swaps of the asset class in question is available.
The asset classes under the final rules mirror the swap asset classes in the final Dodd-Frank non-historical swap data reporting rules. These are:
  • Credit swaps.
  • Equity swaps.
  • Foreign exchange transactions other than cross-currency swaps.
  • Interest rate swaps, including cross-currency swaps.
  • "Other" commodity swaps (commodity swaps not covered by any of the other asset class categories listed above.
The IDR must contain:
  • All of the minimum primary economic terms (PET) data specified in Appendix 1 of the final rules (beginning on page 116) that were in the possession of the reporting counterparty on or after April 25, 2011.
  • The legal entity identifier (LEI) of the reporting counterparty.
  • The following additional identifiers:
    • the internal counterparty identifier or legal entity identifier used by the reporting counterparty to identify the non-reporting counterparty; and
    • the internal transaction identifier used by the reporting counterparty to identify the swap.
The information required in the IDR must be reported to an SDR on the applicable compliance date but may be reported before that date if the SDR accepting swaps in the asset class in question is prepared to accept the report.
Parties to multi-asset historical swaps must report all required data to a single SDR that accepts swaps in the primary asset class of the swap. A multi-asset swap is a swap that combines more than one of the asset classes listed above.
Parties to each mixed historical swap must report all required data to an SDR registered with the CFTC and to a security-based SDR registered with the SEC. This requirement may be satisfied by reporting the mixed swap to an SDR or security-based SDR registered with both the CFTC and the SEC. A "mixed" swap is a swap that contains elements of both a security-based swap and a non-security-based swap.

Data Reporting for Expired or Terminated Historical Swaps

If a historical swap expired or was terminated before April 25, 2011:
  • Reporting counterparties to such pre-enactment swaps must provide to the SDR or to the CFTC if no SDR for swaps in that asset class is available, on the applicable compliance date, the information related to the transaction terms possessed by the party as of October 14, 2010, in any format selected by the reporting counterparty.
  • Reporting counterparties to such transition swaps must provide to the SDR or to the CFTC if no SDR for swaps in that asset class is available, the information related to the transaction terms possessed by the party as of December 17, 2010, in any format selected by the reporting counterparty.

Continuation Data Reporting for Historical Swaps

Data reporting requirements for historical swaps that have not expired or been terminated continue throughout the term of the swap and correspond to the CFTC's final data reporting rules for non-historical swaps (see Legal Update, Final Rules on Swap Data Reporting and Recordkeeping Requirements under Dodd-Frank Issued by CFTC and the final rules published in the Federal Register on January 13, 2012), with the exception that when a counterparty reports changes to minimum PET, it must report only changes to the minimum PET in the final rules on historical swaps rather than the minimum PET in the final rules on non-historical swaps.
Swap continuation data reporting is not required for historical swaps that were in existence on or after April 25, 2011 but which have been cleared by a derivatives clearing organization (DCO) (a swap clearinghouse registered with the CFTC). Any required continuation data reports must be made to the same SDR to which the initial data report was made or to its successor in the event that it ceases operations. Reporting counterparties may use third-party service providers to provide the necessary reports, but retain primary responsibility for compliance with the reporting requirements.

Which Party Must Report Swap Data?

The determination of which counterparty must report historical swap data is made as follows:
  • If only one counterparty is an SD under Dodd-Frank, the SD is the reporting counterparty.
  • If neither party is an SD and only one counterparty is an MSP under Dodd-Frank, the MSP is the reporting counterparty.
  • If neither counterparty is an SD or MSP and only one counterparty is a financial entity, as defined in Section 2(h)(7)(C) of the Commodity Exchange Act (CEA), the counterparty that is a financial entity is the reporting counterparty. However, if neither counterparty is an SD or MSP and only one counterparty is a US person, that counterparty is the reporting counterparty.
  • If both counterparties are the same type of entity, the counterparties must decide which counterparty is the reporting counterparty.
For historical swaps in existence on the applicable compliance date for the rules (see Compliance Dates), the determination of which party must report the historical swap data is made on the applicable compliance date, regardless of whether the counterparties to the swap on that date were the original counterparties to the historical swap.
For historical swaps no longer in existence on the applicable compliance date but which require reporting, the determination of which party must report the historical swap data is made on the date of its expiration or termination, regardless of whether or not they were the original counterparties to the historical swap. The exception to this is that the determination of a counterparty's status as an SD or MSP is to be made as of the applicable compliance date.
If a reporting counterparty ceases to be a counterparty to a historical swap due to an assignment or novation, the new reporting counterparty is selected as follows:
  • If only one counterparty is an SD, the SD is the reporting counterparty.
  • If neither party is an SD and only one counterparty is an MSP, the MSP is the reporting counterparty.
  • If neither counterparty is an SD or MSP and only one counterparty is a US person, that counterparty is the reporting counterparty.
  • In all other cases, unless otherwise agreed by the counterparties, the counterparty that replaced the previous reporting counterparty is the reporting counterparty.

Historical Swap Data Recordkeeping

The final rules require counterparties to historical swaps that were not expired or terminated as of April 25, 2011 to retain, during the term of the swap and for five years after its termination or expiration:
  • Minimum PET that were in each counterparty's possession on or after April 25, 2011, such as information relating to the identity of the parties, the effective and expiration dates of the swap, as well as its price and currency denomination, as detailed in Appendix 1 of the final rules (beginning on page 116).
  • Certain PET of the swap based on the swap's asset class, as detailed in Appendix 1 of the final rules (beginning on page 116).
  • The executed transaction confirmation for the swap, if in the counterparty's possession any time on or after April 25, 2011.
  • Any master agreement, such as an ISDA Master Agreement, governing the swap that is in the counterparty's possession any time on or after April 25, 2011, and all modifications or amendments to that agreement.
  • Any credit support agreement, such as an ISDA Credit Support Annex, or other agreement having the same function as a credit support agreement governing the swap that is in the counterparty's possession any time on or after April 25, 2011 and all modifications or amendments to that agreement.
  • All records required by Section 45.2 of the CFTC's final data reporting rules for non-historical swaps, to the extent they are created by or become available to the counterparty on or after the applicable compliance date for the historical swap data reporting rules. For more information on the records required under this section, see Legal Update, Final Rules on Swap Data Reporting and Recordkeeping Requirements under Dodd-Frank Issued by CFTC and the final rules published in the Federal Register on January 13, 2012.
Counterparties that are SDs or MSPs must keep electronic records unless their paper records were originally created and are exclusively maintained in paper form. Records retained by SDs and MSPs must be retained during the existence of the swap and for two years thereafter. These records must be readily accessible during the existence of the swap and must be retrievable within three business days during the remainder of the period during which they must be retained.
Non-SD and non-MSP counterparties may keep records in either paper or electronic form provided they are retrievable and information is reportable as required. Records retained by non-SD and non-MSP counterparties must be retrievable within five business days.
If a historical swap expired or was terminated before April 25, 2011:
  • Counterparties to such pre-enactment swaps must keep information and documents related to the transaction terms that were in the possession of the party on or after October 14, 2010, in any format selected by the counterparty.
  • Counterparties to such transition swaps must keep information and documents related to the transaction terms that were in the possession of the party on or after December 17, 2010, in any format selected by the counterparty.
Counterparties to these swaps must keep these records during the term of the swap and for five years after its termination or expiration. These records must be retrievable by the counterparty within five business days.
All records are subject to inspection upon request by the CFTC (or its authorized regulator), the US Department of Justice or the SEC in the format specified in Section 46.2(e) of the final rules.

Compliance Dates

The final rules phase in compliance dates based on both the asset class (type) of the swap and the type of counterparty, using the same compliance dates specified in the CFTC's final non-historical swap data reporting and recordkeeping rules.
Counterparties that are SDs and MSPs must be in full compliance with the final rules with respect to their historical credit swaps and historical interest rate swaps on the later of:
  • July 16, 2012.
  • 60 days after publication in the Federal Register of the later of:
    • the CFTC's final rule defining the term "swap"; and
    • the CFTC's final rule defining the terms "swap dealer" and "major swap participant."
Because the final rules establishing the definitions of the terms "swap dealer" and "major swap participant" under Dodd-Frank (see Legal Update, Final Rules Defining "Swap Dealer" and "Major Swap Participant" under Dodd-Frank Issued by Regulators) were already published in the Federal Register (May 23, 2012), the final historical swap data reporting rules will become effective for the credit swaps and historical interest rate swaps of SDs and MSPs 60 days after publication in the Federal Register of final rules defining the term "swap" under Dodd-Frank.
SDs and MSPs must be in full compliance with the final rules with respect to their historical equity swaps, historical foreign exchange swaps and historical commodity swaps that are not covered by any of the other asset classes on or before 90 days after the compliance date for historical credit swaps and historical interest rate swaps.
Counterparties that are not SDs or MSPs must be in full compliance with the final rules with respect to all of their historical swaps on or before 90 days after the compliance date applicable to historical equity swaps, historical foreign exchange swaps and historical commodity swaps that are not covered by any of the other asset classes of SDs and MSPs.
To learn more about the CFTC's regulation of swaps under the Dodd-Frank Act, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives.