United States: CFTC Proposes Amendments To Swap Data Reporting Regulations

Last Updated: May 14 2019
Article by Robert Zwirb

Most Read Contributor in United States, April 2019

As a part of its comprehensive review of swap data reporting regulations, the CFTC approved a proposal intended to improve "the quality of swap data" and the swap data repository (SDR) operations and governance. This is the first action the CFTC has implemented pursuant to its "Roadmap to Achieve High Quality Swaps Data" (the "Roadmap").

The CFTC proposed amendments to CFTC parts 23, 43, 45 and 49. The proposal would:

  • establish policies and procedures for SDRs to verify the accuracy of swap data with both counterparties to a swap;
  • improve requirements for reporting counterparties concerning swap data accuracy pursuant to those SDR procedures;
  • enhance SDR operational requirements to improve oversight; and
  • "streamline the requirements for SDRs."

CFTC Chair J. Christopher Giancarlo stated that this proposal would improve the effectiveness of the Dodd-Frank swap reporting rules. In particular, he criticized the current rules as having "lacked technological detail and specification," and stated that the proposed changes would "update the requirements for SDRs and swap counterparties to verify the accuracy and completeness of swap data reported to SDRs." Mr. Giancarlo said that a further review of post-crisis reforms is to come. However, Commissioner Rostin Behnam warned that the agency should demonstrate restraint, saying: "we should be mindful that our role is not to bend too easily to unsupported claims of burden or complexity."

Commission Dawn Stump, who supported the request for comment, noted that the rulemaking should be delayed until further amendments to improving swaps data reporting under the Roadmap are also proposed. Among her concerns, Ms. Stump stated that the proposal:

  • does not have enough detail to generate the necessary public feedback;
  • contains "questionable policy choices";
  • lacks regulatory harmonization with the SEC; and
  • levies disproportionate burden upon SDRs, reporting counterparties and end-users.

Comments on the proposal must be submitted within 75 days following publication in the Federal Register.

Commentary / Bob Zwirb

Given the bipartisan composition of the Commission, it is to be expected that policy differences will occasionally surface, even on matters as pedestrian and "unglamorous" (to paraphrase Commissioner Berkovitz) as swap data reporting. But the philosophical differences between two of the Commissioners here are especially stark.

On the one hand, Commissioner Behnam views the proposed changes as merely "a part of the Commission's ongoing duties to regularly review its Regulations to increase efficiencies and avoid unintended consequences," and warns against "re-interpreting statutory provisions with a somewhat flippant regard for their underlying purpose and rationales in order to lessen the burdens that are rarely substantiated by anything more than a call for change." As an example, Mr. Behnam cites the proposed obligation of CCOs to take "reasonable steps" to resolve conflicts of interest within an SDR, complaining that this change will "dilute" the current requirement to actually "resolve" such conflicts. As he has done in the past, Mr. Behnam draws a line in the sand against "any roll backs of Dodd-Frank initiatives."

By contrast, Commissioner Stump expresses her opposition to the imposition of "immense additional burdens on swap data repositories and all types of reporting counterparties . . . without commensurate streamlining of regulatory obligations in the rest of the Commission's swap data reporting rule set," and voices her discomfort with "the lack of details and nebulous description of certain obligations in many parts of the Proposal."

Speaking of "roadmaps," Commissioner Stump's "statement of concurrence" provides a robust roadmap for assessing the costs and benefits of the Proposal. Highlights include her statement that "[t]he proposed rules are often amorphous, lacking specificity"; that they impose "significant, albeit wholly undefined, obligations on SDRs"; that their "extensive list of undefined, open-ended tasks . . . represent a meaningful burden"; and that they "would appear to render SDRs an arm of the Commission's enforcement program" notwithstanding the fact that SDRs are not self-regulatory organizations. And these represent only a small sample of her critical remarks. Her lengthy statement - which reads more like a statement of dissent than a concurrence - also appears to represent an intramural departure on certain issues from her Republican colleague, Chair Giancarlo.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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