The National Futures Association ("NFA") issued a reminder to swap dealers ("SDs") regarding their obligation to report swap valuation disputes.
The NFA emphasized that a reportable swap valuation dispute involving two SD counterparties requires each SD to submit a separate dispute notice with the NFA. If the NFA receives a dispute notice from only one SD going forward, the NFA will provide certain limited information to the non-reporting SD regarding the dispute (e.g., the filing SD's name, dispute reportable date, dispute type and disputed amount). Through this process, the NFA intends to find deficiencies in the non-reporting SD's swap valuation dispute submission process.
Commentary / Nihal Patel
The two-party notice requirement stands in contrast to nearly all other CFTC requirements on reporting swap transaction data, where parties agree as to who will be the "reporting counterparty." See, e.g., CFTC Reg. 45.8(d). The NFA did not explain its reasoning in the original interpretive notice. As previously observed, from a process perspective, the NFA requirement has never been fully considered.
In a cross-border context, the NFA never explained how its rule applies. If the NFA is looking to Reg. 23.502, it would make sense for the reporting requirement to be applied as the CFTC applies CFTC Rule 23.502 (i.e., as a "Transaction-Level Requirement" that does not apply to transactions between two non-U.S. entities), or, given that the dispute requirement also applies to margin disputes, as the CFTC (or prudential regulators) applies its margin requirements to cross-border transactions. But market participants have no clear guidance on this point. NFA should remedy this deficiency in light of CFTC Chairman Giancarlo's recent call for re-examining how the U.S. swap regulatory rules apply across borders.
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