In September, the Commodity Futures Trading Commission (CFTC) published their finalised rules to improve swap data reporting regulation. Expected to go into effect within the next 18 to 30 months, the new rules cover updates to part 43, 45 and 49 of the swap reporting regulation.
According to the CFTC, the goal of the update is to improve the data quality of the report submissions and provide the commission with the ability to better monitor the over the counter swaps market for risks.
In this month’s Cappitech Compliance Corner, we take a look at changes coming to Part 45 of the regulation. Of the different parts of the swap regulation, Part 45 currently requires the most information to be reported. For those unfamiliar with US reporting, Part 45 is similar to that of other T+1 derivative reporting regimes such as European Market Infrastructure Regulation (EMIR) in the EU and over-the-counter (OTC) derivative reporting in Singapore and Australia.
Format changes
In addition to field-specific changes, the CFTC update creates a few new high-level changes to the regulation. Currently, Part 45 is composed of primary economic terms (PET) and confirmation data. This is being replaced with a single report called ‘Swap Creation Data’.
Also changing is the timeliness of reports to a T+1 format where 1 equals end of business day following the transaction. Non-financial firms received additional reprieve with their reports required in T+2.
What are the new fields?
As part of the update, the CFTC published a proposed new Appendix 1 of data fields to Part 45 with their final comments.
The approved version will replace the current Appendix 1 information required by the regulation. The new Appendix is divided into 14 sections and includes 128 proposed fields.
The final appendix to be published in the future by the CFTC will include additional product identifier fields which weren’t finalized yes as well as remove a number of fields that were deemed unnecessary following consultation feedback.
Overall, many of the changes take into account the critical data elements (CDE) Technical Guidance published by the Bank for International Settlements (BIS) and OICU-IOSCO in 2018, global standards being accepted by other similar reporting regimes and information already being collected by swap data repositories (SDR).
Taking a look at some of the fields that are changing:
Action type
The terminology of lifecycle events is being adopted to be similar with that required by the European Securities and Markets Authority (ESMA) and will now include new, modify, correct, error, terminate, revive, transfer out, valuation, and collateral as accepted formats.
Notional amount
The CFTC added a new field of notional amount schedule. This will allow for referencing scheduled changes in the notional amount of swap during the duration of the contract.
Packages
Despite some pushback from market participants, the CFTC decided to add fields related to package swaps where multiple transactions are packaged together as a single unit and price.
According to the CFTC, the package fields are important for monitoring the impacts of prices on individual products that may not be identified when a swap is reported as a sum of its parts.
Payments/fields/product
A few small format changes were applied but overall data is consistent with information SDRs are currently receiving.
Settlement
Being added are final settlement date, settlement currency and settlement location. The first two additional fields align the regulation with similar data collected in other derivative reporting regimes. The latter location field was recommended by the the Global Financial Markets Association (GFMA) exchange division and International Swaps and Derivatives Association (ISDA)-Securities Industry and Financial Markets Association (SIFMA) groups to assist with providing more information relating to trades with offshore currencies.
Transaction-related
The big change here is the inclusion of a unique trade identifier (UTI) field. The UTI is aimed at aligning transaction identifiers with the format used by ESMA and virtually every other similar global derivative reporting regulation.
Transfer
The CFTC added a new field called ‘new SDR identifier’. This field is used to identify when an existing report is being transferred for reporting to a different SDR.
Valuations
Despite pushback from a number of groups answering the CFTC’s consultation paper, being added are six new valuation fields. They are last floating reference value, last floating reference reset date, valuation amount, valuation currency, valuation method, and valuation timestamp. According to the CFTC, the rationale behind including these fields is that they comply with standards from the CDE Technical Guidance and are also currently supported fields by SDRs.
Collateral and margins
According to the CFTC, gathering collateral and margin data of swap transactions is a key part of the Part 45 update. This was seen with new fields being added around initial and variation margin collected and posted between counterparties.
Some of the fields currently exist in other regimes such as EMIR with the CFTC explaining that “when other jurisdictions implement the CDE Technical Guidance, sharing this information with other regulators will permit regulators to create a global picture of swaps risk”.
