• CFTC Finalizes Rules for Reporting Regimes and Recordkeeping
  • January 3, 2012 | Authors: Brian C. Harms; John J. Leonti
  • Law Firms: Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - New York Office
  • The U.S. Commodity Futures Trading Commission (CFTC) recently voted, unanimously, to adopt final rules creating two new reporting regimes for the swap transactions and recordkeeping obligations of swap market participants. These final rules are applicable to all entities in the swaps market, whether end-users, swap dealers or major swap participants. Certain designated reporting parties to a swap transaction will be required to report certain information for all swap transactions to which they are a party. In some instances, the reporting will be done by a third party to the transaction, such as the derivatives clearing house or execution facility, and, in other instances, the reporting obligations will be the responsibility of the swap counterparties. 

    The two final rules provide for (1) the real-time reporting and public dissemination of swap transactions and pricing data (the "Real-Time Reporting Final Rule"), and (2) the swap data recordkeeping and reporting requirements (the "Recordkeeping and Reporting Final Rule"). Although both rules provide for the reporting of swap information, the Real-Time Reporting Final Rule focuses on preserving the confidentiality of the identity of the transaction's participants, increasing market transparency and enhancing price discovery. The Recordkeeping and Reporting Final Rule ensures that complete data concerning swaps is available to regulators.

    Real-Time Reporting

    The Real-Time Reporting Final Rule will make swap transaction and pricing data available to the public in real-time. Generally, parties to a "publicly reportable swap transaction" are responsible for reporting certain data to the appropriate swap data repository (SDR) "as soon as technologically practicable after the swap has been executed," with the execution occurring simultaneously with, or immediately following, the affirmation of the swap. A swap has been "executed" when there is an agreement by the parties (whether orally, in writing, electronically, or otherwise) to the terms of a swap that legally binds the parties to such swap terms under applicable law. Affirmation is the process by which parties to a swap verify that they agree on, at a minimum, the primary economic terms of a swap. The specific timing of "as soon as technologically practicable" may differ based on the type of market participant responsible for reporting. 

    Although the Real-Time Reporting Final Rule adopted the earlier proposed rule, substantially as proposed, the CFTC noted that the Real-Time Reporting Final Rule only addresses the public reporting of swap transactions under four of the five asset classes (i.e., interest rate, credit, equity and foreign exchange). The real-time reporting of swaps in the "other commodity" asset class will be addressed in a future CFTC rulemaking. The final rule also removed all recordkeeping requirements related to real-time reporting, with the exception of requirements related to timestamps.

    Recordkeeping and Reporting

    The Recordkeeping and Reporting Final Rule calls for electronic reporting to an SDR of swap data related to (1) the creation of the swap, and (2) the continuation of the swap over its existence until its final termination or expiration. Generally, the swap creation data will require the reporting of all primary economic terms and confirmation data for a swap. After this initial report, the swap continuation data must be reported over the life of the swap. The reporting of swap continuation data requires the reporting of certain events related to changes to primary economic terms and all valuation data.

    For recordkeeping purposes, most swap market participants are required to keep records throughout the existence of a swap and for five years following termination of the swap. SDRs must keep records throughout the existence of the swap and for fifteen years following termination of the swap.

    Phased-In Compliance and Reporting Party

    Both final rules were unanimously adopted by the CFTC, substantially as originally proposed, during the proposed rulemaking process. To assist market participants in learning the new reporting and recordkeeping regulations, both final rules provide distinct phased-in compliance dates for market participants and similar designated hierarchies to determine which party to a swap transaction is the reporting party. The party that will make the appropriate report under either final rule can change based on whether a swap is cleared, executed on swap execution facility or designated contract market, or whether or not a counterparty to the swap is a registered swap entity. Although the final rules typically identify the reporting party in all instances, in those transactions between two end-users, an independent agreement as to which party will report the appropriate information may be required.