Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps

Federal RegisterJun 27, 2016

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 45

RIN 3038-AE12

Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Final rule.

SUMMARY:

The Commodity Futures Trading Commission (“Commission” or “CFTC”) is adopting final regulations relating to swap data reporting in connection with cleared swaps for swap data repositories (“SDRs”), derivatives clearing organizations (“DCOs”), designated contract markets (“DCMs”), swap execution facilities (“SEFs”), swap dealers (“SDs”), major swap participants (“MSPs”), and swap counterparties who are neither SDs nor MSPs. Commodity Exchange Act (“CEA” or “Act”) provisions relating to swap data recordkeeping and reporting were added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). These regulations adopt without change revisions to the Commission regulations as proposed in the Notice of Proposed Rulemaking (“NPRM”) issued August 31, 2015. These revisions clarify regulations to clearly delineate the swap data reporting requirements associated with each of the swaps involved in a cleared swap transaction. Additionally, these revisions leave the choice of SDR for each swap in a cleared swap transaction to the entity submitting the first report on such swap.

DATES:

This rule is effective July 27, 2016 except for the removal of § 45.4(b)(2)(ii) which is effective June 27, 2016.

Compliance Date:

The compliance date for all revisions and additions to part 45 of the Commission's regulations under this final rule is December 27, 2016. Until such date, all existing reporting obligations under part 45 (other than those contained in removed paragraph (b)(2)(ii) of § 45.4), including existing obligations on reporting continuation data on original swaps and creation and continuation data on clearing swaps, shall remain in effect.

FOR FURTHER INFORMATION CONTACT:

Daniel Bucsa, Deputy Director, Division of Market Oversight, 202-418-5435,

dbucsa@cftc.gov;

Andrew Ridenour, Special Counsel, Division of Market Oversight, 202-418-5438,

aridenour@cftc.gov;

Owen J. Kopon, Attorney-Advisor, Division of Market Oversight, 202-418-5360,

okopon@cftc.gov;

Benjamin DeMaria, Special Counsel, Division of Market Oversight, 202-418-5988,

bdemaria@cftc.gov;

Aaron Brodsky, Special Counsel, Division of Market Oversight, 202-418-5349,

abrodsky@cftc.gov;

or Esen Onur, Economist, Office of the Chief Economist, 202-418-6146,

eonur@cftc.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Introduction

B. Statutory Authority

C. Regulatory History—Final Part 45 Rulemaking

D. Consultation With Other U.S. Financial Regulators

E. Summary of Proposed Revisions and Additions to Part 45

II. Revised and New Regulations

A. Definitions—Amendments to § 45.1

B. Swap Data Reporting: Creation Data—Amendments to § 45.3

C. Swap Data Reporting: Continuation Data—Amendments to § 45.4

D. Unique Swap Identifiers—Amendments to § 45.5

E. Determination of Which Counterparty Must Report—Amendments to § 45.8

F. Reporting to a Single Swap Data Repository—Amendments to § 45.10

G. Examples of Cleared Swap Reporting Workflows Under the Adopted Revisions

H. Primary Economic Terms Data—Amendments to Appendix 1 to Part 45—Tables of Minimum Primary Economic Terms

III. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

IV. Compliance Dates

I. Background

A. Introduction

On July 21, 2010, President Obama signed into law the Dodd-Frank Act.

Title VII of the Dodd-Frank Act amended the CEA

to establish a comprehensive new regulatory framework for swaps and security-based swaps. The legislation was enacted to reduce systemic risk, increase transparency, and promote market integrity within the financial system by, among other things: Providing for the registration and comprehensive regulation of SDs and MSPs; imposing clearing and trade execution requirements on standardized derivative products; creating rigorous recordkeeping and data reporting regimes with respect to swaps, including real time reporting; and enhancing the Commission's rulemaking and enforcement authorities with respect to, among others, all registered entities, intermediaries, and swap counterparties subject to the Commission's oversight.

See

Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the Dodd-Frank Act may be accessed at

http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm.

7 U.S.C. 1,

et seq.

B. Statutory Authority

To enhance transparency, promote standardization, and reduce systemic risk, section 727 of the Dodd-Frank Act added to the CEA section 2(a)(13)(G),

which requires all swaps, whether cleared or uncleared, to be reported to SDRs.

SDRs are registered entities created by section 728 of the Dodd-Frank Act to collect and maintain data related to swap transactions as prescribed by the Commission, and to make such data available to the Commission and other regulators.

Section 21(b) of the CEA,

added by section 728 of the Dodd-Frank Act, directs the Commission to prescribe standards for swap data recordkeeping and reporting, which are to apply to both registered entities and counterparties involved with swaps,

and which are to be comparable to standards for clearing organizations in connection with their clearing of swaps.

7 U.S.C. 2(a)(13)(G).

See also

7 U.S.C. 1a(40)(E), 1a(48).

Regulations governing core principles and registration requirements for, and the duties of, SDRs are the subject of part 49 of this chapter.

7 U.S.C. 24a(b).

7 U.S.C. 24a(b)(1)(A).

7 U.S.C. 24a(b)(3).

C. Regulatory History—Final Part 45 Rulemaking

On December 20, 2011, the Commission adopted part 45 of the Commission's regulations (“Final Part 45 Rulemaking”).

Part 45 implements the requirements of section 21 of the CEA by setting forth the manner and content of reporting to SDRs, and requires electronic reporting both when a swap is initially executed, referred to as “creation” data,

and over the course

of the swap's existence, referred to as “continuation” data.

Additionally, part 45 sets forth varying reporting timeframes depending on the type of reporting, counterparty, execution, or product.

See

Swap Data Recordkeeping and Reporting Requirements, Final Rule, 77 FR 2136 (Jan. 13, 2012).

See

17 CFR 45.1 (defining “required swap creation data” as all primary economic terms data for a swap in the swap asset class in question, and all confirmation data for the swap.). “Primary economic terms data” is defined as all of the data elements necessary to fully report all of the primary economic terms of a swap in the swap asset class of the swap in question, while “confirmation data” is defined as all of the terms of a swap matched and agreed upon by the counterparties in confirming the swap.

Id.

For cleared swaps, confirmation data also

includes the internal identifiers assigned by the automated systems of the DCO to the two transactions resulting from novation to the clearing house.

Id. See also

17 CFR 45.3.

See

17 CFR 45.1 (defining “required swap continuation data” as all of the data elements that must be reported during the existence of a swap to ensure that all data concerning the swap in the swap data repository remains current and accurate, and includes all changes to the primary economic terms of the swap occurring during the existence of the swap).

See also

17 CFR 45.4.

See

17 CFR 45.3(a), 45.3(b), 45.3(c), and 45.3(d).

As part of the Commission's ongoing efforts to improve swap transaction data quality and to improve the Commission's ability to utilize the data for regulatory purposes, Commission staff has continued to evaluate issues in connection with reporting under part 45, including those related to cleared swaps in particular. To this end, Commission staff formed an interdivisional staff working group (“IDWG”) to identify, and to recommend resolutions to, reporting challenges associated with certain swaps transaction data recordkeeping and reporting provisions, including the provisions adopted in the Final Part 45 Rulemaking.

See

Press Release, CFTC to Form an Interdivisional Working Group to Review Regulatory Reporting (Jan. 21, 2014), available at

http://www.cftc.gov/PressRoom/PressReleases/pr6837-14.

Based in large part on those efforts, the Commission published a request for comment on a variety of swap data reporting and recordkeeping provisions to help determine how such provisions were being applied, and to determine whether or what clarifications or enhancements to these provisions may be appropriate (the “IDWG Request for Comment”).

One of the subjects of the IDWG Request for Comment was the reporting of cleared swaps, and, in particular, the manner in which the swap data reporting rules should address cleared swaps.

After considering the comments submitted in response to the IDWG Request for Comment relating to the reporting of cleared swaps,

the Commission issued a Notice of Proposed Rulemaking (the “NPRM”) in which it proposed changes to part 45 as they relate to the reporting of cleared swaps transactions.

In response to the NPRM, the Commission received 17 comments letters addressing its proposed revisions to part 45.

This release will address the comments received on specific aspects of the NPRM, and on specific issues raised in the IDWG Request for Comment, in connection with explaining each of the amended regulations adopted herein.

See

Review of Swap Data Recordkeeping and Reporting Requirements, Request for Comment, 79 FR 16689 (Mar. 26, 2014). The IDWG Request for Comment was referred to simply as the “Request for Comment” in the NPRM. The Commission has changed the short form citation for that document in the final release to distinguish it from the subsequent request for comment related to draft technical specifications, referenced throughout this release.

79 FR 16689, 16694.

The comment file for responses to the IDWG Request for Comment is available at

http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1484.

Commenters responding to the IDWG Request for Comment included: The American Gas Association, May 27, 2014; American Petroleum Institute, May 27, 2014; Americans for Financial Reform, May 27, 2014 (“AFR”); Australian Bankers' Association, May 27, 2014 (“ABA”); Better Markets, Inc., May 27, 2014, (“Better Markets”); B&F Capital Markets, Inc., May 27, 2014; CME Group, May 27, 2014 (“CME”); Coalition for Derivatives End-Users, May 27, 2014 (“CDEU”); Coalition of Physical Energy Companies, May 27, 2014; Commercial Energy Working Group, May 27, 2014 (“CEWG”); Commodity Markets Council, May 27, 2014 (“CMC”); The Depository Trust & Clearing Corporation, May 27, 2014 (“DTCC”); EDF Trading North America, LLC, May 27, 2014; Edison Electric Institute, May 27, 2014 (“EEI”); Financial InterGroup Holdings Ltd, May 27, 2014; Financial Services Roundtable (“FSR”), May 27, 2014; Fix Trading Community, May 27, 2014; The Global Foreign Exchange Division of the Global Financial Markets Association, May 27, 2014 (“GFMA”); HSBC, May 27, 2014; Interactive Data Corporation, May 27, 2014; ICE Trade Vault, LLC, May 27, 2014 (“ITV”); International Energy Credit Association, May 27, 2014; International Swaps and Derivatives Association, Inc., May 23, 2014 (“ISDA”); Japanese Bankers Association, May 27, 2014 (“JBA”); Just Energy Group Inc., May 27, 2014; LCH.Clearnet Group Limited, May 29, 2014 (“LCH”); Managed Funds Association, May 27, 2014 (“MFA”); Markit, May 27, 2014; Natural Gas Supply Association, May 27, 2014 (“NGSA”); NFP Electric Associations (National Rural Electric Cooperative Association, American Public Power Association, and Large Public Power Council), May 27, 2014 (“NFPEA”); OTC Clearing Hong Kong Limited, May 27, 2014 (“OTC Hong Kong”); Securities Industry and Financial Markets Association Asset Management Group, May 27, 2014 (“SIFMA”); SWIFT, May 27, 2014; Swiss Re, May 27, 2014; Thomson Reuters (SEF) LLC, May 27, 2014 (“TR SEF”); and TriOptima, May 27, 2014. Discussions of comments on reporting of cleared swaps received in response to the IDWG Request for Comment are included in the preamble to the NPRM.

See

Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps, Notice of Proposed Rulemaking, 80 FR 52544 (Aug. 31, 2015).

The comment file for responses to the NPRM is available at

http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1614.

Commenters to the NPRM included: Better Markets, October 30, 2015; CME, October 30, 2015; COPE, October 30, 2015; CEWG, October 30, 2015; CMC, October 30, 2015; DTCC, October 30, 2015; EEI/EPSA, October 30, 2015; Eurex Clearing AG (“Eurex”); FSR, October 30, 2015; ITV, October 30, 2015; ISDA, October 30, 2015; JBA, October 30, 2015; LCH, October 30, 2015; MFA and Alternative Investment Management Association (“AIMA”), October 30, 2015; Markit, October 30, 2015; and North American Derivatives Exchange, Inc., October 30, 2015 (“Nadex”).

Unless otherwise noted, references to “commenters” throughout this release refer to those who submitted comment letters to the NPRM.

The swap data reporting framework adopted in the original Final Part 45 Rulemaking was largely based on the mechanisms for the trading and execution of uncleared swaps. Under such a regime, swap data reporting was premised upon the existence of one continuous swap for reporting and data representation purposes. The Commission has since had additional opportunities to consult with industry and has observed how the part 45 regulations function in practice with respect to swaps that are cleared, including how the implementation of part 45 interacts with the implementation of part 39 of the Commission's regulations, which contains provisions applicable to DCOs.

In particular, § 39.12(b)(6) provides that upon acceptance of a swap by a DCO for clearing, that original swap is extinguished and replaced by equal and opposite swaps, with the DCO as the counterparty to each resulting swap.

The original swap that is extinguished upon acceptance for clearing is commonly referred to by market participants as the “alpha” swap and the equal and opposite swaps that replace the original swap are commonly referred to as “beta” and “gamma” swaps. The process of extinguishing the “alpha” swap and creating the “beta” and “gamma” swaps is generally referred to as a novation. The Commission has observed that certain provisions of part 45 could better accommodate the cleared swap framework set forth in § 39.12(b)(6). The new regulations in this release are intended to provide clarity to swap counterparties and registered entities of their part 45 reporting obligations with respect to the swaps involved in a cleared swap transaction. These amendments and new regulations are also intended to improve the efficiency of data collection and maintenance associated with the reporting of the

swaps involved in a cleared swap transaction.

See

17 CFR 39.12(b)(6) (requiring a DCO that clears swaps to have rules providing that, upon acceptance of a swap by the DCO for clearing: (i) The original swap is extinguished; (ii) the original swap is replaced by an equal and opposite swap between the [DCO] and each clearing member acting as principal for a house trading or acting as agent for a customer trade). The Commission reaffirmed its position regarding the composition of a cleared swap in a statement regarding Chicago Mercantile Exchange (“CME”) Rule 1001.

See

Statement of the Commission on the Approval of CME Rule 1001 (Mar. 6, 2013), at 6,

available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/statementofthecommission.pdf.

D. Consultation With Other U.S. Financial Regulators

In developing these rules, Commission staff has engaged in extensive consultations with other U.S. financial regulators, including the Securities and Exchange Commission (“SEC”), the Federal Reserve Board of Governors, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, Office of Comptroller of the Currency, and the Farm Credit Administration. As noted in the NPRM,

the Commission endeavored to harmonize the regulations in this release with the approach proposed by the SEC in its release proposing certain new rules and rule amendments to Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information (“Regulation SBSR”).

80 FR 52544, 52545-46.

See

Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR 14740 (Mar. 19, 2015).

E. Summary of Revisions and Additions to Part 45

The Commission is making revisions and additions to §§ 45.1, 45.3, 45.4, 45.5, 45.8, 45.10, and appendix 1 to part 45 in order to provide clarity to swap counterparties as well as to registered entities regarding their respective part 45 reporting obligations in connection with each of the swaps involved in a cleared swap transaction.

The Commission is adopting the following amendments, each of which is discussed in greater detail in Section II of this release:

The Commission is also amending the part 45 authority citation to replace a reference to 7 U.S.C. 24 with a reference to 7 U.S.C. 24a.

• Amendments to § 45.1 revise the definition of “derivatives clearing organization” to update a cross-reference and to clarify that the definition covers only registered DCOs. Revised § 45.1 also adds new definitions for “original swaps” and “clearing swaps.” These terms are used throughout amended part 45 to help clarify reporting obligations for the swaps involved in a cleared swap transaction.

• Amendments to § 45.3 modify and clarify DCO creation data reporting obligations for swaps that result from the clearing process; establish which entity has the obligation to choose the SDR to which creation data is reported; eliminate confirmation data reporting obligations for swaps that are intended to be submitted to a DCO for clearing at the time of execution; and make conforming changes.

• Amendments to § 45.4 modify and clarify continuation data reporting obligations for original swaps, including the obligation of a clearing DCO to report original swap terminations to the SDR to which the original swap was reported; modify and clarify the obligation to report data providing for the linking of original and clearing swaps and the original and clearing swap SDRs; remove the requirement for SD/MSP reporting counterparties to report daily valuation data for cleared swaps; and make conforming changes.

• Amendments to § 45.5 set forth a DCO's obligations to create, transmit, and use unique swap identifiers (“USIs”) to identify clearing swaps.

• Amendments to § 45.8 provide that the DCO will be the reporting counterparty for clearing swaps.

• Amendments to § 45.10 provide that all swap data for a given clearing swap, and all swap data for each clearing swap that replaces a particular original swap (and each equal and offsetting clearing swap that is created upon execution of the same transaction and that does not replace an original swap), must be reported to a single SDR. Amendments also make conforming changes.

• Amendments to appendix 1 modify certain existing primary economic term (“PET”) data fields and certain explanatory notes in the Comment sections for existing PET data fields, and add several new PET data fields to account for the clarifications provided in this release for the reporting of clearing swaps.

II. Revised and New Regulations

Throughout Section II of this release, the Commission will discuss each amendment and the related comments. The Commission is also including several examples to demonstrate how cleared swap reporting workflows would function under the new regulations.

The Commission received some general comments on the proposed amendments to part 45 relating to data quality. Better Markets was generally supportive of the proposals, and commented that the NPRM integrated many of the technical public comments on the concept release to address the small but important fixes on reporting of cleared swap transactions.

COPE was also generally supportive of the NPRM on the “guiding principal” that end-users should not be unduly burdened by the Commission's swap reporting regulations.

COPE requested that the Commission clarify that, under the proposed amendments, end-users would not have reporting obligations on swaps executed pursuant to the rules of a SEF or DCM and then cleared by a DCO.

See

Better Markets Oct. 30, 2015 Letter, at 2.

See

COPE Oct. 30, 2015 Letter, at 2.

See

COPE Oct. 30, 2015 Letter, at 2. In response to COPE's request for clarification, the Commission notes that under the final rule being adopted, a non-SD/MSP would likely have no reporting obligations on a swap executed on a SEF or DCM that is intended to be cleared at the time of execution. However, the original swap reporting counterparty as determined by the reporting hierarchy under § 45.8 could have obligations to report any amendments or modifications of PET data fields, as well as any continuation data on a swap between the execution of the swap and its acceptance for clearing, such as a novation, allocation or termination. In such circumstances, the reporting counterparty on the original swap would have a reporting obligation under either § 45.3 or § 45.4, respectively. Separately, end-users may also have obligations to correct errors or omissions discovered in swap data for which the end-user is the reporting counterparty pursuant to § 45.14(a), or to notify the reporting counterparty of such errors or omissions if the end-user is not the reporting counterparty pursuant to § 45.14(b).

A. Definitions—Amendments to § 45.1

1. Existing § 45.1

Existing § 45.1 defines “derivatives clearing organization” for purposes of part 45 by cross-referencing section 1a(9) of the CEA

and any Commission regulations implementing that section, including but not limited to § 39.5. Existing § 45.1 does not include definitions of either “original swap” or “clearing swap.”

7 U.S.C. 1a(9).

2. Proposed Amendments and Additions to § 45.1

i. “Derivatives Clearing Organization”

The Commission proposed to revise the definition of “derivatives clearing organization” in § 45.1 so that it cross-references the definition provided in § 1.3(d) of the Commission's regulations and so that it explicitly refers to a DCO registered with the Commission under section 5b(a) of the CEA.

This modification redefines a “derivatives clearing organization” for purposes of part 45 to mean a derivatives clearing organization, as defined by § 1.3(d) of this chapter, that is registered with the Commission.

7 U.S.C. 7a-1(a).

See

80 FR 52544, 52547.

ii. “Original Swap” and “Clearing Swap”

The Commission proposed to add definitions of “original swap” and “clearing swap” to part 45 so that the part 45 reporting rules will be more consistent with the regulations

applicable to DCOs set forth in § 39.12(b)(6).

See

80 FR 52544, 52547.

The Commission proposed to define “original swap” as a swap that has been accepted for clearing by a derivatives clearing organization and “clearing swap” as a swap created pursuant to the rules of a derivatives clearing organization that has a derivatives clearing organization as a counterparty, including any swap that replaces an original swap that was extinguished upon acceptance of such original swap by the derivatives clearing organization for clearing.

As noted above, while original swaps are commonly referred to as “alpha” swaps and while the equal and opposite swaps that replace the original swap are commonly referred to as “beta” and “gamma” swaps, the Commission will use the proposed defined terms “original swap” and “clearing swap” throughout this section of the release.

3. Comments

The Commission received comments on the proposed definitions from a variety of market participants. Many commenters were supportive of the proposed amendments to the definitions and the clarification that they provide. Other commenters supported clarification of the definitions, but suggested further modifications to the proposed definitions.

i. Derivatives Clearing Organization

Both ISDA and FSR commented that the proposed definition of “derivatives clearing organization” should be expanded to include derivatives clearing organizations that are exempt from registering with the Commission.

These commenters suggested that the reporting obligations should apply to the central counterparty regardless of whether that counterparty is registered with the Commission. ISDA also commented that the reporting obligations should apply to those derivatives clearing organizations that are currently in the process of registering with the Commission.

See

ISDA Oct. 30, 2015 Letter, at 2-3; FSR Oct. 30, 2015 Letter, at 5.

See

ISDA Oct. 30, 2015 Letter, at 2-3.

ii. Clearing Swap

With respect to the proposed definition of “clearing swap,” ISDA reiterated its comment that the definition should include all swaps that are cleared through registered derivatives clearing organizations as well as those that are cleared through derivatives clearing organizations that are in the process of registering or are exempt from registration.

LCH commented that the definition of clearing swap is incomplete as it may not capture cleared trades between a clearing member and its client in a principal clearing model, because the DCO is not a party to that transaction.

See Id.

at 3.

See

LCH Oct. 30, 2015 Letter, at 2.

iii. Original Swap

Regarding the definition of “original swap,” ISDA commented that it is supportive of the proposed definition and agrees that swaps submitted for clearing should be classified as original swaps.

LCH commented that the definition of original swap is sufficiently clear and complete.

ISDA requested clarification on guidance issued by the Commission's Divisions of Clearing and Risk and Market Oversight,

specifically as to whether there is an original swap associated with CDS Clearing-Related Swaps that are created through a firm or forced trade process.

EEI/EPSA sought clarification from the Commission that the definition of original swap includes both off-facility swaps that are submitted for clearing, rejected, then resubmitted and accepted for clearing, and swaps that are not intended to be cleared when executed but are cleared at some point subsequent to execution.

See

ISDA Oct. 30, 2015 Letter, at 3.

See

LCH Oct. 30, 2015 Letter, at 2.

See

CFTC Letter No. 15-51 (Sept. 18, 2015).

ISDA also commented that it is not clear whether the associated clearing swaps are publicly reportable swap transactions for Part 43 purposes.

See

ISDA Oct. 30, 2015 Letter, at 3.

See

EEI/EPSA Oct. 30, 2015 Letter, at 3.

4. Final Rule

Having reviewed all relevant comments, the Commission has determined to adopt the definitions as proposed in the NPRM. The Commission has noted the comments received from market participants on the limitation of “derivatives clearing organization” to DCOs registered with the Commission. The Commission notes that, as of the date of this release, it has granted exemptive relief to four non-U.S. central counterparties from registering as a DCO with the Commission, under section 5b(h) of the CEA, pursuant to Commission Orders (“DCO Exemptive Orders”).

The DCO Exemptive Orders include reporting obligations that are consistent with those imposed on registered DCOs under amended part 45.

Therefore, the Commission believes that it is sufficient for the obligations on derivatives clearing organizations in part 45 to apply only to registered DCOs and, as a result, the definition of “derivatives clearing organization” under amended regulation 45.1 will cover only registered DCOs, as proposed.

As of the date of this final release, the Commission has issued DCO Exemptive Orders to ASX Clear (Futures) Pty Ltd. (“ASX”), Japan Securities Clearing Corp., Korea Exchange Inc., and OTC Clear Hong Kong Ltd. (“OTC Clear”). The Commission amended ASX's DCO Exemptive Order on January 28, 2016 to require ASX to report the termination of any swap accepted for clearing by ASX to the SDR to which the original swap was reported.

The Commission also notes ISDA's comment concerning entities that are in the process of registering as a DCO. Because there is no temporary or provisional registration of DCOs, such entities should not be entering into swaps that must be reported under part 45 without full registration.

The Commission notes general support for the definition of “clearing swap.” The Commission notes that the newly-defined term “clearing swap” would include any swap to which the DCO is a counterparty, regardless of whether such swap is replacing an original swap.

While a cleared swap transaction generally comprises an original swap that is terminated upon novation and the equal and opposite swaps that replace it, the Commission is aware of certain circumstances in which a cleared swap transaction may not involve the replacement of an original swap.

Accordingly, the revised definition of “clearing swap” is intended to encompass: (1) Swaps to which the DCO is a counterparty and that replace an original swap (

i.e.,

swaps commonly known as betas and gammas) and (2) all other swaps to which the DCO is a counterparty (even if such swap does not replace an original swap).

The Commission has noted LCH's request for guidance concerning reporting clearing swaps under the principal model of clearing more commonly used outside of the United States. The Commission declines to include such guidance at this time, but would note that this issue of reporting principal versus agency model clearing swaps is under consideration as part of the Technical Specifications Request for Comment issued by the Commission's Office of Data and Technology and the Division of Market Oversight on December 22, 2015 relating to draft technical specifications for certain swap data elements (“Technical Specifications Request for Comment”).

See

Draft Technical Specifications for Certain Swap Data Elements, Request for Comment (Dec. 22, 2015), available at

http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/specificationsswapdata122215.pdf.

For example, in the preamble to the part 39 adopting release, the Commission noted that “open offer” systems are acceptable under § 39.12(b)(6), stating that: Effectively, under an open offer system there is no “original” swap between executing parties that needs to be novated; the swap that is created upon execution is between the DCO and the clearing member, acting either as principal or agent. Derivatives Clearing Organization General Provisions and Core Principles, Final Rule 76 FR 69334, 69361 (Nov. 8, 2011).

The Commission also notes the broad support for the newly-defined term “original swap.”

In addressing ISDA's request for clarification on firm or forced trades at the DCO, the Commission notes that guidance from its Divisions of Clearing and Risk and Market Oversight states that swaps arising out of a DCO's firm or forced trade process would constitute “clearing swaps.”

The Divisions' guidance also states that DCOs should be the reporting counterparty of such swaps.

See

ISDA Oct. 30, 2015 Letter, at 3; LCH Oct. 30, 2015 Letter, at 2.

CFTC Letter No. 15-51 (Sept. 18, 2015).

The proposed definition of original swap will provide clarity with respect to certain continuation data reporting requirements for such swaps by tying such obligations to a specific point in time in the life of a swap that is either intended to be submitted to a DCO for clearing at the time of execution, or that is not intended to be cleared at the time of execution but is later submitted to a DCO for clearing. The Commission notes that under the proposed definition, a swap that is submitted to a DCO for clearing can become an original swap by virtue of the DCO's acceptance of such swap for clearing, irrespective of: (1) Whether such swap is executed on or pursuant to the rules of a SEF or DCM or off-facility; (2) whether or not such swap is subject to the clearing requirement; and (3) whether such swap is intended to be cleared at the time of execution or not intended to be cleared at the time of execution, but subsequently submitted to a DCO for clearing.

See

17 CFR 39.12(b)(6). Clearing swaps would not be executed on or pursuant to the rules of a SEF or DCM as such swaps are created pursuant to the rules of a DCO.

In addressing EEI/EPSA's comment on whether the term “original swaps” would include off-facility swaps rejected and then resubmitted for clearing, or swaps not intended to be cleared at execution but subsequently submitted for clearing, the Commission notes that a swap becomes an “original swap” once it is accepted for clearing by a DCO. The definition would apply regardless of whether the swap had previously been rejected for clearing, or whether it was not intended to be cleared at the time of execution.

B. Swap Data Reporting: Creation Data—Amendments to § 45.3

1. Existing § 45.3

Regulation 45.3 requires reporting to an SDR of two types of “creation data” generated in connection with a swap's creation: “primary economic terms data” (“PET data”) and “confirmation data.” Additionally, § 45.3 governs what creation data must be reported, who must report it, and deadlines for its reporting.

The swap data reporting requirements under § 45.3 concerning both PET data and confirmation data differ for reporting counterparties and entities depending on whether the swap is executed on or pursuant to the rules of a SEF or DCM (§ 45.3(a)), is subject to mandatory clearing and executed off-facility (§ 45.3(b)), or is not subject to mandatory clearing and executed off-facility (§ 45.3(c) and (d)). Regulation 45.3 also addresses specific creation data reporting requirements in circumstances where a swap is accepted for clearing by a DCO,

including the excusal of the reporting counterparty from reporting creation data in certain circumstances.

See

17 CFR 45.3(a)(2), (b)(2), (c)(1)(ii), (c)(2)(ii), and (d)(2).

See

17 CFR 45.3(b)(1), (c)(1)(i), (c)(2)(i), and (d)(1).

2. Proposed Amendments to § 45.3

As noted above, the Commission has observed how the part 45 regulations function in practice with respect to swaps that are cleared. While CEA section 2(a)(13)(G) requires each swap (whether cleared or uncleared) to be reported to a registered SDR, the Commission believes that the interplay between the § 45.3 reporting requirements applicable to SEFs, DCMs and reporting counterparties, and the reporting requirements applicable to DCOs, should be clarified in the context of a cleared swap transaction. Accordingly, the Commission proposed several amendments to § 45.3 to better delineate the creation data reporting requirements associated with each swap involved in a cleared swap transaction.

i. Proposed Revised References to Clearing Requirement Exceptions and Exemptions

References to the end-user exception to the swap clearing requirement set forth in section 2(h)(7) of the CEA are included in existing §§ 45.3 and 45.8. Following the publication of the Final Part 45 Rulemaking, the Commission codified the end-user exception in § 50.50 and published two exemptions to the swap clearing requirement: The inter-affiliate exemption in § 50.52, and the financial cooperative exemption in § 50.51. Therefore, the Commission proposed revisions to the introductory language of § 45.3, §§ 45.3(b)-(d), and 45.8(h)(1)(vi) to reflect that exceptions to, and exemptions from, the clearing requirement are now codified in part 50 of the Commission's regulations.

See

80 FR 52544, 52548.

ii. Proposed Addition of § 45.3(e)—Clearing Swaps

Paragraphs (a)-(d) of § 45.3 govern creation data reporting in connection with swaps executed on or pursuant to the rules of a SEF or DCM and for off-facility swaps, but do not separately address creation data reporting for swaps created through the clearing process by a DCO (

i.e.,

clearing swaps). Accordingly, the Commission proposed renumbering existing paragraph (e) (Allocations) of § 45.3 as paragraph (f), and adding new paragraph (e) to § 45.3, which will exclusively govern creation data reporting requirements for clearing swaps. The Commission also proposed revising the introductory language of § 45.3 to clarify that paragraphs (a)-(d) apply to all swaps except clearing swaps, while paragraph (e) applies to clearing swaps.

The Commission did not propose to change the existing requirements for who reports creation data for those swaps that become original swaps. Creation data for such swaps will continue to be reported by the reporting counterparty, as determined pursuant to § 45.8, or by the SEF/DCM in the case of on-facility swaps.

See

80 FR 52544, 52548-49.

Under the proposed revisions to § 45.3(e), a DCO would be required as reporting counterparty under new § 45.8(i)

to report all required swap creation data for each clearing swap, either as soon as technologically practicable after an original swap is accepted by the DCO for clearing (in the event that the clearing swap replaced an original swap), or as soon as technologically practicable after execution of a clearing swap (in the event that the clearing swap does not replace an original swap). Additionally, under the proposed revisions to § 45.3(e), required swap creation data for clearing swaps must be provided to a registered SDR electronically by the DCO and must include all PET data and all confirmation data for each clearing swap.

The Commission proposed adding § 45.8(i), which establishes the DCO as the reporting counterparty for all clearing swaps. This change is discussed in greater detail in Section II.E. of this release. The Commission also proposed conforming amendments to § 45.4(b)(1) and (2) to add the phrase “as reporting counterparty” after “derivatives clearing organization” to make clear that the DCO will be the reporting counterparty for purposes of those provisions.

See

Section II.C.

As noted above, CEA section 2(a)(13)(G)

requires each swap

(whether cleared or uncleared) to be reported to a registered SDR. Proposed revisions to paragraphs (a)-(d) and new paragraph (e) of § 45.3 will thus cover creation data reporting requirements for all swaps: Revised § 45.3(a) applies to each swap executed on or pursuant to the rules of a SEF or DCM, revised § 45.3(b)-(d) applies to “all off-facility swaps,” and proposed new § 45.3(e) would apply to clearing swaps. The proposed amendments to § 45.3(a)-(d) would thus exclude clearing swaps. Under the proposed amendments to § 45.3, a SEF/DCM or counterparty other than the DCO will not have swap data reporting obligations with respect to clearing swaps. Additionally, revised § 45.3(a)-(d) will govern the creation data reporting requirements for swaps, including swaps commonly known as “alpha” swaps, regardless of whether they later become original swaps by virtue of their acceptance for clearing.

7 U.S.C. 2(a)(13)(G).

Swaps created by a DCO under § 39.12(b)(6) are a type of clearing swap as defined in this release, and thus could not be executed on or pursuant to the rules of a SEF or DCM. Additionally, a DCO would not report creation data for a swap that was executed on or pursuant to the rules of a SEF or DCM, or for an off-facility swap that is submitted to the DCO for clearing, because, under § 45.3(a)-(d), the SEF/DCM or reporting counterparty would be responsible for reporting creation data for such swaps after execution. Under the revisions to § 45.3, a DCO will not have creation data reporting obligations for swaps that are not clearing swaps. The Commission notes that the revisions to § 45.3 in this release are consistent with the prior no action relief and guidance issued by Commission staff relating to firm or forced trades at DCOs.

See

CFTC Letter No. 15-51 (Sept. 18, 2015); CFTC No-Action Letter No. 14-119 (Sept. 29, 2014).

iii. Proposed Removal of Provisions

As noted above, several provisions of existing § 45.3 impose certain creation data reporting requirements on a DCO in circumstances where a swap is accepted for clearing by a DCO. To ensure consistency with § 39.12(b)(6), the Commission proposed to remove these creation data reporting provisions (current §§ 45.3(a)(2),

(b)(2), (c)(1)(ii), (c)(2)(ii), and (d)(2)), and replacing them with new proposed § 45.3(e), as described above.

The Commission is also renumbering § 45.3(a)(1) as § 45.3(a).

See

80 FR 52544, 52548-49.

Additionally, the Commission proposed to remove portions of §§ 45.3(b)(1), (c)(1)(i), (c)(2)(i), and (d)(1).

Previously, where both a DCO and reporting counterparty had obligations under § 45.3 for reporting creation data for the same swap, the reporting counterparty would be excused from reporting creation data if the swap is accepted for clearing before any PET data is reported by the reporting counterparty. Under the proposed regulation, these excusal provisions are no longer necessary because the proposed rules require DCOs to report creation data only for clearing swaps, and not for swaps accepted for clearing (

i.e.,

original swaps).

See

80 FR 52544, 52549.

iv. Proposed Removal of Certain Confirmation Data Reporting Requirements

Existing §§ 45.3(a)-(d) requires the SEF/DCM (under § 45.3(a)) or the reporting counterparty (under §§ 45.3(b)-(d)) to report both PET and confirmation data in order to comply with creation data reporting obligations. The Commission believes that the confirmation data requirements for clearing swaps in new § 45.3(e) will provide the Commission with a sufficient representation of the confirmation data for a cleared swap transaction, because the original swap is extinguished upon acceptance for clearing and replaced by equal and opposite clearing swaps.

Accordingly, for swaps that are intended to be submitted to a DCO for clearing at the time of execution, the Commission proposed to amend §§ 45.3(a), (b), (c)(1)(iii), (c)(2)(iii), and (d)(2) to remove the existing confirmation data reporting requirements.

See

80 FR 52544, 52549-50.

v. Proposed Revisions to § 45.3(f)—Allocations

The Commission proposed renumbering existing § 45.3(e), which governs creation data reporting for swaps involving allocation, as § 45.3(f).

The Commission also proposed replacing the phrase “original swap transaction” in §§ 45.3(f)(2) and 45.8(h)(1)(vii)(D), and in the PET data tables found in appendix 1 to part 45, with “initial swap transaction” to avoid confusion with the term “original swap,” which is defined in § 45.1.

The Commission also proposed renumbering § 45.3 paragraphs (f), (g), and (h) as paragraphs (g), (h), and (i), respectively.

See

80 FR 52544, 52550.

vi. Proposed Addition of § 45.3(j): Choice of SDR

The Commission proposed adding § 45.3(j) in order to explicitly establish which entity has the obligation to choose the SDR to which the required swap creation data is reported.

New § 45.3(j) provides that: For swaps executed on or pursuant to the rules of a SEF or DCM (including swaps that may later become original swaps), the SEF or DCM has the obligation to choose the SDR; for all other swaps (including off-facility swaps and/or clearing swaps) the reporting counterparty (as determined in § 45.8) will have the obligation to choose the SDR.

See

80 FR 52544, 52550.

Regulation 45.3(j) generally reflects the language included in the preamble to the original Final Part 45 Rulemaking, which provides that the SEF or DCM would select the SDR for platform-executed swaps, and the reporting counterparty would choose the SDR for off-facility swaps.

See

77 FR 2136, 2146 (Jan. 13, 2012). Under the new rule, the DCO will have the obligation to choose the SDR for clearing swaps.

Under the proposed addition of § 45.3(j) and the proposed revisions to § 45.10,

the entity with the obligation to report the initial required swap creation data will select the SDR to which all subsequent swap creation and continuation data for that swap will be reported by choosing the SDR to which such initial required swap creation data is reported. Thereafter, all required swap creation data and all required swap continuation data for a given swap will be reported to the same SDR used by the registered entity or counterparty.

Revisions to § 45.10 are discussed in Section II.F below. As will be discussed in Section II.F below, by operation of § 45.10, DCOs will be obligated to report all required continuation data for original swaps to the registered SDR (as selected by the SEF, DCM, or reporting counterparty pursuant to proposed § 45.3(j)) to which required creation data for the swap was reported pursuant to §§ 45.3(a)-(d).

See Proposed

§ 45.10.

See also

Section II.F.2,

infra.

Finally, the Commission notes that it is aware of certain situations wherein SEFs, DCMs and reporting counterparties for off-facility swap transactions may report the part 43 data for a swap to an SDR prior to reporting the part 45 required creation data for the same swap. In such situations, the registered entity or reporting counterparty has effectively chosen the SDR for the swap prior to submitting the part 45 data, since, pursuant to revisions to § 45.10 adopted in this release, all swap data reported pursuant to parts 43 and 45 for a given swap is required to be reported to a single SDR.

For example, if a swap is executed on or pursuant to the rules of SEF A, and SEF A immediately upon execution reports the part 43 data to SDR B, prior to reporting part 45 data, SEF A has effectively chosen SDR B as the SDR for all required creation data for the swap, because revised § 45.10 requires that all part 43 and 45 swap data for a given swap must be reported to a single SDR.

Accordingly, in this example,

part 45 required creation data must be reported to SDR B.

Id.

vii. Proposed Removal of Expired Compliance Date References

The Commission proposed to remove the references to the expired compliance dates in §§ 45.3(b)(1)(i), (b)(1)(ii), (b)(2), (b)(2)(ii), (c)(1)(i)(A), (c)(1)(i)(B), (c)(2)(i)(A), (c)(2)(i)(B), (d)(1), and (d)(3), and in the introductory language to § 45.3.

These references to phase-in compliance dates are no longer necessary as they have expired.

See

80 FR 52544, 52550.

3. Comments

The Commission received a number of comments in response to its proposed revisions to § 45.3. Many of these comments focused on the proposed reporting of creation data associated with clearing swaps and related reporting obligations concerning original swaps. Other comments addressed the new choice of SDR provision set out in § 45.3(j). And, finally, some commenters discussed the new clearing swaps rules in the context of principal model clearing.

FSR requested that the Commission codify no action relief issued by the Division of Clearing and Risk and the Division of Market Oversight on April 5, 2013, providing relief to non-SD/MSPs from reporting requirements for swaps between wholly-owned affiliates.

See

FSR Oct. 30, 2015 Letter, at 5 (referencing CFTC No-Action Letter No. 13-09 (Apr. 5, 2013)). This request is beyond the scope of the NPRM and will not be addressed in this release.

i. Creation Data Reporting for Clearing Swaps

With respect to the reporting of clearing swaps, commenters generally supported the Commission's proposal to require DCOs to report creation data for clearing swaps.

FSR and CMC agreed that the DCO is in the best position to report creation data for clearing swaps.

ISDA,

DTCC, and LCH also noted support for requiring DCOs to report data for clearing swaps.

CME likewise supported the requirement for DCOs to report creation data for clearing swaps, recommending that the DCO be assigned all reporting obligations for original and clearing swaps.

Markit recommended an alternative approach whereby the reporting counterparty to the original swap would be permitted to choose whether it reports creation data for the clearing swaps, while allowing the reporting counterparty to delegate the reporting responsibilities to a DCO.

See

FSR Oct. 30, 2015 Letter, at 2; CMC Oct. 30, 2015 Letter, at 2; ISDA Oct. 30, 2015 Letter, at 4; LCH Oct. 30, 2015 Letter, at 2; DTCC Oct. 30, 2015 Letter, at 3.

See

FSR Oct. 30, 2015 Letter, at 2; CMC Oct. 30, 2015 Letter, at 2.

ISDA also commented that currently not all DCOs report clearing swaps in a consistent manner in instances where an affiliate of a clearing member enters into a swap that is subsequently cleared through its affiliated clearing member. ISDA suggested that the Commission make clear that the submission of a swap for clearing should not result in a change in the name of the counterparty that is reported to an SDR and that the report submitted by the DCO for the clearing swap has to reflect the relevant affiliate and not the clearing member as the legal counterparty to the clearing swap with the derivatives clearing organization.

See

ISDA Oct. 30, 2015 Letter, at 12. While noting this comment, the Commission declines to address this as beyond the scope of the NPRM.

See

ISDA Oct. 30, 2015 Letter, at 4; DTCC Oct. 30, 2015 Letter, at 3 (distinguishing between reporting obligations and the ability to select the SDR to which data related to clearing swaps is reported); LCH Oct. 30, 2015 Letter, at 2.

See

CME Oct. 30 2015 Letter, at 3.

See

Markit Oct. 30 2015 Letter, at 5.

LCH requested that the Commission change references to “execution of a clearing swap” in proposed § 45.3(e) to “creation of a clearing swap” in order to more clearly address compression events. LCH also suggested cross-referencing re-numbered § 45.3(f) to new § 45.3(e), to cover situations where block trades are allocated post-clearing.

See

LCH Oct. 30, 2015 Letter, at 2.

ii. Removal of Confirmation Data Reporting Requirements for Intended To Be Cleared Swaps

With respect to swaps that become original swaps, commenters were generally supportive of the Commission's proposal to eliminate the requirement for reporting confirmation data on intended to be cleared swaps.

FSR commented that the reporting of confirmation data for clearing swaps should provide sufficient confirmation data for a cleared swap transaction.

Markit, on the other hand, commented that eliminating the requirement for reporting confirmation data for swaps that are intended to be cleared, while still maintaining the requirement to report primary economic terms data, will not benefit reporting workflows and that there is little incremental cost to report confirmation data as reporting systems are set up to capture that information already.

See

FSR Oct. 30, 2015 Letter, at 3; ISDA Oct. 30, 2015 Letter, at 4; EEI/EPSA Oct. 30, 2015 Letter, at 3.

See

FSR Oct. 30, 2015 Letter, at 3.

See

Markit Oct. 30, 2015 Letter, at 2-3.

iii. Creation Data Reporting for Swaps That Become Original Swaps

While the proposed amendments to part 45, aside from the removal of the excusal provisions noted above, do not change creation data reporting requirements for swaps that become original swaps, several commenters commented on which entity should be responsible for reporting creation data for swaps that will become original swaps. Some commenters suggested that if reporting of creation data for swaps that become original swaps continues, the DCO, rather than the reporting counterparty, should be responsible for reporting the creation data for that swap.

CME commented that assigning all the reporting obligations for original and clearing swaps to the DCO is a better and simpler way to address alpha swap reporting, and would eliminate the need to reconcile original and clearing swaps across SDRs.

CMC similarly commented that DCOs are best positioned to report on swaps that they accept or reject for clearing and should assume all reporting obligations for cleared swaps, including all reporting of swaps that are intended to be cleared.

AIMA likewise suggested that if the Commission continues to require the reporting of original swaps, assigning the reporting obligations to the DCO will remove reporting burdens and the risk of data fragmentation across SDRs.

See e.g.,

CME Oct. 30, 2015 Letter, at 2-3; CMC Oct. 30, 2015 Letter, at 2-3; AIMA Oct. 30, 2015 Letter, at 6; CEWG Oct. 30, 2015 Letter, at 3.

See

CME Oct. 30, 2015 Letter, at 3.

See

CMC Oct. 30, 2015 Letter, at 2.

See

AIMA Oct. 30, 2015 Letter, at 6.

Other commenters recommended that the Commission continue requiring the reporting counterparty to report creation data for those swaps that will become original swaps.

LCH commented that the reporting counterparty should always be a party to the transaction and therefore, in the case of a swap that will become an original swap, the DCO would not be better suited than the SEF, DCM, or reporting counterparty to report the creation data.

Eurex suggested that assigning the reporting obligation of original swap creation data to the DCO may present a timeliness issue depending on when the DCO receives the necessary information from the counterparties.

ISDA likewise agreed that the obligation to report swaps that become original swaps should remain with the reporting counterparty for that swap.

See

ISDA Oct. 30, 2015 Letter, at 4; LCH Oct. 30, 2015 Letter, at 2; Eurex Oct. 30, 2015 Letter, at 4.

See

LCH Oct. 30, 2015 Letter, at 2.

See

Eurex Oct. 30, 2015 Letter, at 4.

ISDA also commented in support of the Commission's proposal to remove the provisions in § 45.3 that excused a reporting counterparty from reporting creation data for a swap accepted for clearing before the primary economic terms reporting deadline.

See

ISDA Oct. 30, 2015 Letter, at 4.

Some commenters suggested that the reporting of any creation data for swaps that will become original swaps is unnecessary.

AIMA commented that eliminating reporting for swaps that are intended to be cleared at the time of execution will significantly reduce complexity in the reporting regime and streamline the reported data.

AIMA also commented that the Commission's proposed reporting approach for original swaps will not reduce data fragmentation.

Similarly, EEI/EPSA suggested that there is little to no benefit to original swap reporting for swaps that are intended to be cleared at the time of execution and that counterparties should not be required to report any creation data for such swaps.

Other commenters, in response to the IDWG Request for Comment, supported the continued reporting of creation data for swaps that will become original swaps.

See

AIMA Oct. 30, 2015 Letter, at 2-6; EEI/EPSA Oct. 30, 2015 Letter, at 3; CEWG Oct. 30, 2015 Letter, at 2.

See

AIMA Oct. 30, 2015 Letter, at 3.

See

AIMA Oct. 30, 2015 Letter, at 4 (noting that reporting original swap creation data to one SDR and reporting clearing swap data to a different SDR may undermine data quality for the Commission's supervisory purposes).

See

EEI/EPSA Oct. 30, 2015 Letter, at 3.

See

NPRM, 80 FR 52544, 52549 at nn. 37-39 (citing DTCC May 27, 2014 Letter at 17-18; AFR May 27, 2014 Letter at 5; Markit May 27, 2014 Letter at 25; TR SEF May 27, 2014 Letter at 10).

iv. Choice of SDR Provisions

The Commission received a number of comments on its proposal regarding the selection of the SDR to which the required swap creation data should be reported. Some commenters were supportive of the Commission's proposed addition of § 45.3(j) and proposed modifications to § 45.10 relating to the choice of the SDR for a particular swap. As discussed below, other commenters suggested modifications to the Commission's proposal and changes to the manner in which the SDR is selected for a particular swap.

With respect to clearing swaps, commenters were divided as to which entity should have the ability to select the SDR. FSR, LCH, and ISDA all supported allowing the DCO to select the SDR for purposes of reporting creation data for clearing swaps, as the DCO has the sole obligation to report clearing swaps.

CME and LedgerX similarly supported the proposal to allow DCOs to select the SDR for clearing swaps.

CME supports the Commission's proposal to assign all clearing swap reporting obligations, and the right to select the SDR to which it reports, to the DCO. CME also recommended that the Commission assign all original swap reporting obligations, and associated SDR selection rights, to the DCO, which would, in CME's opinion, ensure that all data for a cleared swap transaction is housed in the same SDR, thereby avoiding data fragmentation.

See

FSR Oct. 30, 2015 Letter, at 2; LCH Oct. 30, 2015 Letter, at 2; ISDA Oct. 30, 2015 Letter, at 4.

See

CME Oct. 30, 2015 Letter, at 1-2; LedgerX Oct. 30, 2015 Letter, at 1.

See

CME Oct. 30, 2015 Letter, at 2-3.

Other commenters suggested that the reporting counterparty to the swap that becomes the original swap should select the SDR to which the clearing swaps are reported. DTCC commented that the DCO for a clearing swap should have the obligation to report the clearing swap to the SDR selected by the reporting counterparty to the swap that became the original swap, or selected by the SEF or DCM for on-facility swaps.

DTCC commented that this “single SDR approach” would be vital for providing a full audit trail and the ability to efficiently aggregate data.

DTCC also commented that allowing the DCO to select the SDR for clearing swaps creates a competition problem due to vertically integrated SDRs and DCOs.

DTCC explained that permitting a DCO to report to an affiliated SDR when the original swap data had been reported to another SDR, allows DCOs to bundle services and further entrenches DCOs' vertical integration of trade execution, clearing, and data reporting.

Markit recommended that the Commission allow the reporting counterparty to the swap that becomes the original swap to select the SDR to which the clearing swap is reported, while also allowing that reporting counterparty to delegate the selection of the swap data repository to the DCO. Markit commented that this counterparty choice approach would result in a more competitive DCO marketplace.

See

DTCC Oct. 30, 2015 Letter, at 3.

See id.

at 4.

See id.

at 7.

See id.

See

Markit Oct. 30, 2015 Letter, at 5.

Other commenters suggested that, for on-facility swaps that are not cleared by a DCO, the party responsible for reporting continuation data for the swap should not be bound by the SEF or DCM's choice of SDR for the reporting of creation data.

ISDA commented that in such cases the selection of the SDR should not be assigned to the entity that has the first obligation to report, but rather should be assigned to the entity that has the longest, recurring, or most frequent obligation to report.

100

See

ISDA Oct. 30, 2015 Letter, at 4-5; JBA Oct. 30, 2015 Letter, at 1.

100

See

ISDA Oct. 30, 2015 Letter, at 4-5.

v. Reporting of Principal Model Cleared Swaps

Finally, a few comments focused on swaps that are cleared through a principal, rather than agency, model. Eurex commented that it is not clear under the proposal which entity is to be reported as the counterparty to the DCO with regard to a clearing swap in the principal model.

101

See

Eurex Oct. 30, 2015 Letter, at 9;

See also

Section II.B.4.iii

supra.

Finally, the Commission proposed to modify the introductory language to § 45.4 and § 45.4(d)(1)(ii)(A) to remove outdated references to compliance dates that have already expired.

133

See

80 FR 52544, 52553.

3. Comments Received

The Commission received numerous comments on its proposed revisions to § 45.4.

134

Below is a summary of comments for each of the primary revisions and additions to § 45.4.

134

The Commission did not receive any comment directly addressing the conforming changes to § 45.4(a) or renumber and amended § 45.4(d). The Commission received a comment from FSR on continuation data for amortizing swaps.

See

FSR Oct. 30, 2015 Letter, at 4. Because the NPRM was limited to revisions of § 45.4 as it relates to clearing swaps, FSR's request is beyond the scope of this rulemaking.

i. Comments on Proposed Revisions to § 45.4(b)

The proposed amendment to § 45.4(b)(2), requiring only DCOs to submit valuation data for clearing swaps, was widely supported in the comment letters. Although one commenter contended that valuation data from SD/MSP swap counterparties is valuable information and that the Commission should require such information from SD/MSP counterparties for all swaps, cleared or uncleared,

135

many commenters to the IDWG Request for Comment and NPRM stated that only the DCO should have the responsibility to report valuation data for cleared swaps, and that the Commission should eliminate the requirement for an SD or MSP to report valuation data for cleared swaps.

136

One commenter noted that valuation data and mark-to-market value data provided by DCOs are sufficient for the Commission to understand clearing swap valuations, particularly because the DCO's valuation method is the industry standard.

137

135

See

Markit May 27, 2014 Letter, at 10-11 (arguing that the Commission might receive valuable information from valuations reported by counterparties).

136

See

ABA May 27, 2014 Letter, at 2; CME May 27, 2014 Letter, at 9-10; FSR May 27, 2014 Letter, at 2; ITV May 27, 2014 Letter, at 2, 10, 15; ISDA May 27, 2014 Letter, at 13-14; JBA May 27, 2014 Letter, at 2-3; MFA May 27, 2014 Letter, at 2, 4; NGSA May 27, 2014 Letter, at 4-5; AIMA Oct. 30, 2015 Letter, at 6; ISDA Oct. 30, 2015 Letter, at 5; JBA Oct. 30, 2015 Letter, at 2; FSR Oct. 30, 2015 Letter, at 3.

137

See

Eurex Oct. 30, 2015 Letter, at 6. Eurex also stated that information on posted collateral could be a useful data point for the Commission, but the original counterparties would be in a better position than the DCO to report such information. Eurex also stated that DCOs could provide information on margin, but that such data would require more effort.

ii. Comments on Proposed Revisions to § 45.4(c)

Commenters were split on support of proposed § 45.4(c), which would require the DCO to report continuation data on the original swaps once they are accepted for clearing to the SDR to which the original swap was originally reported. ISDA strongly supported the revision, stating that it would eliminate the issue of cleared “alpha” swaps that had not been terminated, which negatively affects data quality. ISDA commented that DCOs should be allowed to report continuation data as either lifecycle event data or state data.

138

DTCC, in its response to the IDWG Request for Comment, also supported requiring DCOs to report terminations of original swaps.

139

However, DTCC commented that some DCOs fail to submit termination of original swaps to DTCC according to DTCC's technical standards.

140

CEWG commented that DCOs were in the best position to report all data on original and clearing swaps, although it believes the original swap should not be reported.

141

138

See

ISDA Oct. 30, 2015 Letter, at 5.

139

See

DTCC May 27, 2014 Letter, at 7 (stating that when an alpha swap is novated, the Commission should require a DCO to submit information about the beta and gamma swaps in addition to the termination notice for the alpha swap).

140

See

DTCC Oct. 30, 2015 Letter, at 8.

141

See

CEWG Oct. 30, 2015 Letter, at 3. See Section II.B.3, above, for discussion of CEWG's and other commenters' positions on reporting of creation data for an original swap.

CME commented that under the proposed division of reporting obligations for original swaps and clearing swaps, DCOs are dependent on original swap counterparties providing sufficient information on the original swaps to fulfill reporting obligations on terminations of the original swap.

142

CME noted that counterparties rarely provided this information, meaning that DCOs cannot effectively terminate original swaps. As an alternative, CME proposed that DCOs should be the reporting party for creation and continuation data for both original and clearing swaps.

143

142

See

CME Oct. 30, 2015 Letter, at 3.

143

See

CME Oct. 30, 2015 Letter, at 3.

In contrast, some commenters recommended that the clearing member, and not the DCO, should report termination of the original swap to the

SDR.

144

Eurex stated that the clearing member would already have information on the original swap and a connection to the SDR where the original swap was reported, putting the original reporting party in the best position to report a termination.

145

LCH commented that having the original reporting party report any continuation events would avoid reporting gaps on events occurring between creation and clearing.

146

LCH commented that requiring DCOs to submit cancelations of original swaps would be inconsistent with reporting obligations under the European Markets Infrastructure Regulation (“EMIR”).

147

LCH also commented that the choice of original swap SDR could become an eligibility criterion for clearing, and that DCOs could potentially reject swaps from clearing based on the original swap SDR.

148

Eurex and LCH both noted that the requirement would force DCOs to connect to all registered SDRs and report terminations according to the technical requirements of each SDR.

149

As an alternative, Eurex proposed that DCOs be allowed to select the SDR to which they report the termination of the original swap.

150

144

See

OTC Hong Kong May 27, 2014 Letter, at 2-3. OTC Hong Kong stated that requiring the original counterparty to report termination of the alpha would be more cost-effective because the original reporting counterparty is already required to report creation data and life cycle event data of such alpha to an SDR, and thus would already have in place a technical and operational interface with the SDR of its choice. The commenter also stated that imposing an additional requirement on a DCO to report termination of the alpha does not appear to increase or improve the quantity and quality of information already available to the Commission, and that the burden on DCOs of the additional reporting requirement appears to outweigh the benefits to the Commission.

See also

LCH May 29, 2014 Letter, at 8 (stating that reporting entities should already report terminations under the obligation to report continuation data); LedgerX Oct. 30, 2015 Letter, at 3.

145

See

Eurex Oct. 30, 2015 Letter, at 3.

146

See

LCH Oct. 30, 2015 Letter, at 3.

147

See id.

148

See id.

149

Eurex Oct. 30, 2015 Letter, at 4-5; LCH Oct. 30, 2015 Letter, at 3.

150

Eurex also suggested that reporting of terminations could be foregone entirely, as an original swap, by definition, has been accepted for clearing and ceases to exist.

See

Eurex Oct. 30, 2015 Letter, at 5.

Regarding timing of reporting continuation data for original swaps, ISDA supported the provision in new § 45.4(c) allowing DCOs to report continuation data on original swaps daily and via either lifecycle event data or state data.

151

The Japanese Bankers Association commented that original swaps should be terminated as soon as technologically practicable, to align reporting on clearing swaps with reporting on cleared futures transactions under § 1.74.

152

Eurex commented that terminations were the only lifecycle events for original swaps that would need to be reported as continuation data.

153

151

ISDA Oct. 30, 2015 Letter, at 5.

152

JBA Oct. 30, 2015 Letter, at 2;

see also

LedgerX Oct. 30, 2015 Letter, at 3 (commenting that termination of original swap should be reported as soon as technologically practicable, but commenting that reporting party of original swap should have obligation to report termination).

153

Eurex Oct. 30, 2015 Letter, at 6. ISDA noted that bunched orders may be cleared either pre- or post-allocation, potentially creating multiple clearing swaps for a single original swap.

See

ISDA Oct. 30, 2015 Letter, at 6. ISDA commented that, where allocation is done after clearing, DCOs should report the USI of the pre-allocation swap as the “prior ISO” on clearing swaps for the allocations. Eurex commented that, in the event of default by a clearing member, it attempts to auction off the clearing swap.

See

Eurex Oct. 30, 2015 Letter, at 3. Eurex commented that it was unclear whether the novation of an auctioned clearing swap should be reported to the original swap SDR.

DTCC requested that the Commission offer guidance on how SDRs, DCOs, and any other affected entities should address previously reported cleared swaps for which the original swap had not been terminated.

154

See

DTCC Oct. 30, 2015 Letter, at 9.

iii. Comments on Proposed Additional Continuation Data Fields To Be Reported by DCOs

Several commenters asserted that the most cost-effective method for establishing a link between the original swaps and the swaps that replace the original swap upon acceptance for clearing is to include the USI of the original swap as a prior USI for the beta and gamma swaps.

155

Several commenters to the IDWG Request for Comment supported the concept of requiring that the DCO provide USIs for clearing swaps to the counterparties to those swaps under proposed Section 45.5(d)(2).

156

ISDA, DTCC and Markit generally supported the requirement that DCOs include the USI of the original swap when reporting clearing swaps, but objected to requiring additional fields linking original and clearing swaps as redundant.

157

LCH suggested that there should be a standardized format for reporting terminations of original swaps that must be accepted by all SDRs.

158

155

See

CME May 27, 2014 Letter, at 10 (“The most effective and efficient method for achieving linkage for all such events that have a one-to-one relationship (

i.e.,

assignment or exercise) or a one-to-many relationship (

i.e.,

clearing, novation, allocation) is by the inclusion of a prior USI(s).)”; DTCC letter appendix at 3 (stating that a new swap can generally be linked to an existing swaps through the use of a “prior USI” data field); ISDA May 23, 2014 Letter, at 11 (“Related swaps sent to different SDRs can also be linked via use of the USI. . . .”); Markit May 27, 2014 Letter, at 8 (arguing that the most effective method to establish a link between new and existing swaps is to store the USI of the original swap as a prior USI).

156

See

AIMA Oct. 30, 2015 Letter, at 7; Eurex Oct. 30, 2015 Letter, at 7; ISDA Oct. 30, 2015 Letter, at 7. ITV also commented on requirements for SDRs to transmit USIs to non-reporting counterparties for swaps between non-swap dealers or major swap participants, not executed on a DCM or SEF under existing Section 45.5(c)(2). ITV Oct. 30, 2015 Letter, at 4. Because the NPRM did not propose to amend § 45.5(c)(2), this comment is beyond the scope of the proposed rule.

157

See

ISDA Oct. 30, 2015 Letter, at 6; DTCC Oct. 30, 2015 Letter, at 8; Markit Oct. 30, 2015 Letter, at 3.

158

See

LCH Oct. 30, 2015 Letter, at 4.

4. Final Rule Text

Having considered the comments received, the Commission has decided to adopt the amendments to § 45.4 as proposed.

i. Conforming Changes to § 45.4(a)

Receiving no comments on the conforming changes to § 45.4(a), the Commission adopts these changes as proposed. The changes clarify that the standards for reporting continuation data in § 45.4(a) apply to all continuation events regardless of asset class or whether the swap is uncleared, an original swap, or a clearing swap.

ii. Revisions to § 45.4(b)

The Commission notes support among market participants for the amendment to § 45.4 removing the requirement that SDs and MSPs report valuation data for clearing swaps. The Commission adopts this revision, codifying existing no-action relief,

159

as proposed.

159

See

CFTC Letter 15-38 (Jun. 12, 2015).

iii. Addition of § 45.4(c)—Continuation Data Reporting for Original Swaps

The Commission notes the different opinions offered by commenters on the proposed addition of § 45.4(c), which would require DCOs to report continuation data, including terminations, of original swaps. The Commission has considered the alternative approaches to reporting original swap terminations that were proposed by commenters, such as requiring original swap reporting parties to report terminations; requiring DCOs to report both original and clearing swaps; and allowing DCOs to select the SDR for original swap terminations. The Commission believes that its proposed method best incorporates existing industry practice, whereby DCOs generally report clearing swaps as well as submitting termination messages on original swaps, thereby limiting additional costs. It may be more burdensome for the counterparties to the original swaps to report terminations because they would have

to receive messages from the DCO confirming that the original swap was accepted for clearing, then translate that message from the DCO into a termination message to the SDR. This may be particularly burdensome for commercial end-users executing swaps on SEFs or DCMs who might otherwise have no reporting obligations and who may not have the infrastructure in place to report as quickly or as efficiently as DCOs.

160

See supra,

n. 26, for discussion of reporting obligations for on-facility cleared swaps.

On the other hand, requiring DCOs to report creation and continuation data for both original and clearing swaps could slow the reporting of original swaps for part 43 and part 45 purposes. DCOs would need to receive messages from the counterparties, or from the SEF or DCM where executed on-facility, with all information necessary to report the swap that becomes an original swap. The DCO would then need to transmit such information to the SDR of its choice. Introducing an extra step in reporting would inherently slow reporting, which must be done as soon as technologically practicable particularly for transparency reasons. At the same time, requiring DCOs to report original swaps for part 43 and part 45 purposes would require DCOs to obtain information beyond what would be needed for clearing purposes, thus increasing the burden on DCOs.

Finally, the Commission has considered the alternative proposal that DCOs be allowed to report an original swap termination to an SDR other than that where the original swap was reported. Adoption of this alternative approach could result in significant data fragmentation, as data on a single swap could be housed at more than one SDR. Additionally, this alternative approach would render useless any position reports generated by an SDR, as the SDR (or market participant accessing its own data on an SDR) could not determine if the swaps it housed are still in effect, thereby removing a potential validation tool for market participants.

161

The Commission notes that the approach adopted could generate some degree of data fragmentation, as reports on the original swaps may be housed at a different SDR from reports on its clearing swaps. However, the Commission believes this issue can be overcome for its regulatory purposes—namely risk analysis and market surveillance—if the Commission is able to pull accurate data on individual swaps from each of the registered SDRs. Moreover, accurate reporting of original swap USIs and SDR identities in clearing swaps reporting, and accurate clearing swaps USIs and SDR identities in original swaps terminations, would allow for easy tracking of the lifecycle of a cleared swap transaction.

Having considered these alternatives as suggested by commenters, the Commission has determined to adopt the amendments to § 45.4 as it has proposed. The Commission believes that DCOs are in the best position to report the termination of an original swap because the DCO, through the clearing process, has all information needed to report such terminations. By virtue of its decision to accept a swap for clearing and to extinguish the swap upon acceptance,

162

a DCO will be the first entity to know that clearing occurred and that the original swap should be terminated, putting the DCO in the best position to report terminations quickly. DCOs can build original swap terminations into their systems architecture, allowing for fast, consistent, and accurate terminations.

163

162

See

17 CFR 39.12(b)(6). Through its rules, the DCO determines whether or not a swap that is submitted for clearing becomes an original swap.

163

The Commission has also considered LCH's comment that EMIR puts the original swap termination obligation on the original swap parties. Placing reporting obligations on one party under CFTC regulations, and on another party under EMIR, would not create a direct conflict as both parties would be able to satisfy their respective regulatory obligations. The Commission recognizes that this situation could result in two termination messages for the same original swap, but this should not have a negative impact on the quality of SDR data.

DCOs will also have all information needed to terminate the original swap based on the swap submitted for clearing. Data required for such termination messages would either be generated by the DCO itself (such as clearing swap USIs and clearing swap SDR LEIs) or could be included in any message submitting a swap for clearing (such as the USI of the original swap and the LEI of the original swap SDR). While CME commented that clearing members have not consistently included original swap USI and LEI of the original swap SDR in messages transmitted to the DCO for clearing, the Commission notes that DCOs could require their clearing members to provide such information. As proposed, § 45.4(c) would require DCOs to report these fields. DCOs must obtain the relevant information from their clearing members.

iv. Addition of Continuation Data Fields To Be Reported by DCOs

The Commission has considered the comments opposing the creation of required continuation data fields to be reported by DCOs for original swaps. The Commission has also considered ISDA's comment regarding the potential redundancy of having USIs of clearing swaps transmitted in the termination message for the original swap, as well as having the USI of the original swap in the creation data for the clearing swaps.

The Commission believes that reporting the clearing swaps USIs as continuation data for the original swap is an efficient mechanism for linking clearing swaps to the original swap that they replace and should be used for this purpose. New § 45.4(c)(2) will thus require DCOs to include the following additional enumerated data elements when reporting continuation data for original swaps pursuant to proposed § 45.4(c)(1): (i) The legal entity identifier (“LEI”) of the SDR to which each clearing swap for a particular original swap was reported by the DCO pursuant to new § 45.3(e); (ii) the USI of the original swap that was replaced by the clearing swaps;

164

and (iii) the USI for the clearing swaps that replace the original swap.

164

See

existing §§ 45.5(a)(2)(iii), (b)(2)(iii), & (c)(2)(ii) (requiring the entity that created the USI to transmit the USI of a swap to the DCO, if any, to which the swap is submitted for clearing, as part of the required swap creation data transmitted to the derivatives clearing organization for clearing purposes). Proposed revisions to § 45.5 are described in Section II.D of this release.

As adopted, these data fields will enable the DCO to fulfill its continuation data reporting obligations, enable the SDR to maintain the accuracy and completeness of swap transaction data, enable the Commission to track the life of a cleared swap transaction, and enable the Commission to monitor compliance with the clearing mandate. In particular, inclusion within an original swap termination message the LEI of the clearing swap SDR will permit the Commission and other regulators to ascertain the SDR where the clearing swaps associated with a particular original swap reside, which will enable the Commission and other regulators to review and more effectively associate data available at multiple SDRs in circumstances where the reporting entity or counterparty selects one SDR for the original swap and the DCO selects a different SDR for the clearing swaps under § 45.3.

Inclusion of the original swap's USI is necessary to enable the original swap SDR to associate continuation data reported by the DCO with the initial creation data reported by a SEF/DCM or reporting counterparty pursuant to § 45.3(a) through (d).

165

These data will

allow SDRs to validate termination messages reported by DCOs by ensuring that the termination message has the same USI as the original report. Similarly, in the case of clearing swaps that replace an original swap, inclusion of the USIs of the clearing swaps will permit the Commission and other regulators to identify the specific clearing swaps that replaced an original swap, thereby presenting a full history of the cleared swap transaction.

165

For instance, inclusion of the USI of the original swap in DCO continuation data reporting will permit the SDR receiving such continuation data to associate data regarding a life cycle event such as termination with the existing data maintained for the swap. This will help ensure that data in the SDR remains current and accurate and will enable the Commission and other regulators to ascertain whether a swap remains in existence or

has been extinguished upon acceptance for clearing by a DCO.

Together, the revisions to § 45.4(b) and the addition of § 45.4(c) will require the reporting of continuation data for original swaps and clearing swaps. Accordingly, the Commission expects that records of original swaps that have been terminated would include the USIs for the clearing swaps that replaced the original swap and the LEI of the clearing swap SDR, such that review of an original swap would permit the identification of the resulting clearing swaps and the SDR where they resides. These provisions will reflect the regulations applicable to DCOs outlined in part 39 of the Commission's regulations and will clearly delineate the continuation data reporting obligations associated with each swap involved in a cleared swap transaction.

166

See

17 CFR 39.12(b)(6). Part 45 currently requires all swap data and information reported to and maintained by an SDR regarding a given swap to be “current and accurate” and to include “all changes” to a swap.

See

17 CFR 45.4(a).

The Commission is mindful of LCH's suggestion that there be an industry-wide standard for original swap termination messages and DTCC's comment that termination reports often do not comply with SDR specifications. To help DCOs comply with the requirements of amended § 45.4, the Commission encourages DCOs and SDRs to develop an industry-wide standard for original swap termination messages. The Commission anticipates that original swap termination messages could be standardized given the limited number of data elements that must be transmitted, such as clearing swap USIs, DCO LEIs, and clearing swap SDR LEIs. Standardization also would alleviate LCH's concern that the original swap's SDR would become a factor in determining whether a swap was eligible for clearing.

The Commission has also considered conflicting comments on whether original swap terminations should be reported at the end of the day or as soon as technologically practicable. The Commission has determined to adopt the amendment as proposed and require reporting original swap terminations at the end of the day, as this would be consistent with reporting other types of continuation data under § 45.4.

v. Revisions to § 45.4(d)

The Commission received no comments on the proposed revisions to § 45.4(d), and is adopting those revision as proposed.

D. Unique Swap Identifiers—Amendments to Section 45.5

1. Existing § 45.5

Existing § 45.5 requires that each swap subject to the Commission's jurisdiction be identified in all recordkeeping and all swap data reporting by the use of a USI. The rule establishes different requirements for the creation and transmission of USIs depending on whether the swap is executed on a SEF or DCM (§ 45.5(a)), executed off-facility with an SD or MSP reporting counterparty (§ 45.5(b)), or executed off-facility with a non-SD/MSP reporting counterparty (§ 45.5(c)). Existing § 45.5 provides that for swaps executed on a SEF or DCM, the SEF or DCM creates the USI, and for swaps not executed on a SEF or DCM, the USI is created by an SD or MSP reporting counterparty, or by the SDR if the reporting counterparty is not an SD or MSP.

167

See

17 CFR 45.5(a)-(c).

With the exception of swaps with a non-SD/MSP reporting counterparty, the existing rule generally requires USI creation and transmission to be carried out by the entity or counterparty required to report all required swap creation data for the swap. Existing § 45.5 thus does not distinguish between original and clearing swaps, does not provide USI creation and transmission requirements specifically for DCOs, and consequently does not provide for the issuance to DCOs of a USI “namespace,” which is one of two component parts of a USI.

168

See, e.g.,

17 CFR 45.5(a)(1)(i), (b)(1)(i) and (c)(1)(i) (the data component of a USI commonly referred to as a namespace is the unique alphanumeric code assigned to the registered entity responsible for generating the USI for the purpose of identifying such registered entity with respect to USI creation).

The Commission understands that, in practice, SEFs/DCMs and reporting counterparties, or SDRs in the case of non-SD/MSP reporting counterparties, generate and assign USIs for swaps that would become original swaps under the proposed rules, and that DCOs generate and assign USIs to swaps that would qualify as clearing swaps in connection with reporting required swap creation data for clearing swaps to SDRs.

2. Proposed Amendments to § 45.5

The Commission proposed to renumber existing § 45.5(d) as § 45.5(e), and to create a new § 45.5(d) that would set forth requirements regarding the creation and transmission of USIs for clearing swaps.

169

The Commission also proposes conforming amendments to renumber existing § 45.5(e) as § 45.5(f).

As proposed, § 45.5(d)(1) would require a DCO to generate and assign a USI for each clearing swap upon, or as soon as technologically practicable after, acceptance of an original swap by the DCO for clearing (or execution of a clearing swap that does not replace an original swap), and prior to reporting the required swap creation data for each clearing swap.

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Proposed § 45.5(d)(1) would also require that the USI for each clearing swap consist of two data components: A unique alphanumeric code assigned to the DCO by the Commission for the purpose of identifying the DCO with respect to USI creation, and an alphanumeric code generated and assigned to that clearing swap by the automated systems of the DCO. These proposed USI creation requirements and data components for DCOs and clearing swaps are consistent with those currently required by part 45 for other registered entities such as SEFs, DCMs, and SDRs.

171

170

See

80 FR 52544, 52554.

171

See, e.g.,

17 CFR 45.5(a), 45.5(c).

As proposed, § 45.5(d)(2) would require a DCO to transmit the USI for a clearing swap electronically to the SDR to which the DCO reports required swap creation data for the clearing swap, as part of that report, and to the DCO's counterparty with respect to that clearing swap, as soon as technologically practicable after either acceptance of the original swap by the DCO for clearing or execution of a clearing swap that does not replace an original swap.

172

See

80 FR 52544, 52554.

Finally, the Commission proposed to amend §§ 45.5(a), 45.8(f), and 45.10(a) to incorporate the language “or pursuant to the rules of” to the phrase “swaps executed on a swap execution facility or designated contract market” to make clear that those provisions currently apply to all swaps executed on or pursuant to the rules of a SEF or DCM.

173

See

80 FR 52544, 52554.

3. Comments Received

The Commission received several comments regarding its proposed amendments to § 45.5.

174

All comments

received were supportive of the amendment to § 45.5(d)(1), which requires DCOs to generate USIs for clearing swaps.

175

174

ITV requested that the Commission remove the obligation for SDRs, when a swap is executed

between two non-SD/MSPs and the SDR is obligated to create the USI, to transmit the USI to the counterparties. ITV commented that this could create obligations for SDRs to transmit information to parties not enrolled with the SDR. The Commission has noted this comment, but it is beyond the scope of the NPRM.

175

See

ITV Oct. 30, 2015 Letter, at 3 (but noting that generation of the USI for a clearing swap by the SDR would slow acceptance of swaps in the clearing process); ISDA Oct. 30, 2015 Letter, at 7 (also suggesting that the Commission require the namespace component of USIs for each DCO be made publicly available); AIMA Oct. 30, 2015 Letter, at 7.

FSR requested that the Commission adopt ISDA best practices for identifying international swaps, including allowing for the use of a USI as a unique transaction identifier (“UTI”) for reporting swaps in other jurisdictions.

176

FSR commented that adopting the ISDA best practice concerning USIs would avoid potential double-counting when an international swap is reported to two separate SDRs in two jurisdictions.

177

176

See

FSR Oct. 30, 2015 Letter, at 4.

177

See id.

ISDA commented that, in principal model clearing, the DCO should ensure that both the DCO's clearing member and the ultimate counterparty (if not the clearing member) receive the clearing swap USIs.

178

ISDA further noted that the current Orders of Exemption issued to foreign DCOs do not include an obligation for those exempt DCOs to generate the USIs for reportable clearing swaps.

179

178

See

ISDA Oct. 30, 2015 Letter, at 6.

179

See

ISDA Oct. 30, 2015 Letter, at 6.

4. Final Rule Text of § 45.5

Having considered the comments relating to the purpose and scope of the proposed amendments to § 45.5, the Commission is adopting amended § 45.5 as proposed. The proposed § 45.5(d) provisions that would govern creation and assignment of USIs by the DCO with respect to clearing swaps would be consistent with the Commission's “first-touch” approach to USI creation for SEFs, DCMs, SDs, MSPs, and SDRs.

180

See

Final Part 45 Rulemaking, 77 FR 2136, 2158 (Jan. 13, 2012). The Commission's approach with respect to SEFs, DCMs, SDs, MSPs, and SDRs was designed to foster efficiency by taking advantage of the technological sophistication and capabilities of such entities, while ensuring that a swap is identified by a USI from its inception.

The Commission notes ISDA's request for guidance on whether DCOs must ensure, in the principal clearing mode, that the ultimate counterparty (when not the clearing member) receive the USI of the clearing swaps. As noted above, the Commission is aware of various issues relating to reporting of principal model clearing but will not offer further guidance at this time. The Commission notes ISDA's comment that the current Orders of Exemption for foreign DCOs do not include a requirement that the DCO generate USIs for reportable clearing swaps. Finally, the Commission notes FSR's request for the Commission to align the use of USIs and UTIs for reporting international swaps. While the Commission declines to address the issue in this release as it is beyond the scope of the NPRM, the Commission is cognizant of the need to harmonize reporting across jurisdictions and will continue to work with other regulators to address this and other issues.

E. Determination of Which Counterparty Must Report—Amendments to § 45.8

1. Existing § 45.8

Existing § 45.8 sets forth a hierarchy under which the reporting counterparty for a particular swap depends on the nature of the counterparties involved in the transaction. Regulation 45.8 assigns a reporting counterparty for off-facility swaps, for which the reporting counterparty must report all required swap creation data, as well as for swaps executed on or pursuant to the rules of a SEF or DCM, for which the SEF or DCM must report all required swap creation data.

2. Proposed Amendments to § 45.8

The Commission proposed to add paragraph (i) to § 45.8 in order to explicitly provide that the DCO will be the reporting counterparty for clearing swaps.

181

The Commission also proposed to amend the introductory language of § 45.8 to make clear that the reporting counterparty for all swaps except clearing swaps will be made as provided in paragraphs (a) through (h) of § 45.8, while the reporting counterparty for clearing swaps will be made as provided in paragraph (i) of § 45.8. The Commission further proposed to remove the language “if available” from § 45.8(h)(1)(i) to ensure consistency with proposed changes to appendix 1 to part 45. As discussed below in addressing changes to the PET data fields in appendix 1, the “if available” language was only relevant prior to availability of the LEI system.

182

181

See

80 FR 52544, 52554-55.

182

See, infra,

Section II.H.1.i.

The Commission proposed to further amend § 45.8 to remove part of paragraphs (d)(1) and (f)(1) and to remove part of paragraph (h)(2) and all of paragraphs (h)(2)(i) and (ii), which require SEFs to notify counterparties to a swap if it cannot determine who would be the reporting counterparty. Finally, the Commission proposed conforming changes to explanatory notes in the PET data tables in appendix 1 to part 45 that reference the situation described in § 45.8(h)(2).

3. Comments Received

The Commission received six comments in connection with its proposed amendments to § 45.8. One commenter supported proposed § 45.8(i) as it would promote efficiency in reporting by explicitly designating the DCO as the reporting party for clearing swaps.

183

See

AIMA Oct. 30, 2015 Letter, at 6.

ISDA noted a potential inconsistency between reporting obligations under parts 43 and 45 for clearing swaps, as DCOs are not included in the hierarchy under § 43.3 for determining reporting party of real-time reporting.

184

ISDA suggested that this could result in duplicative reporting obligations for DCOs and clearing members in situations where a clearing swap does not replace an original swap.

184

See

ISDA Oct. 30, 2015 Letter, at 7.

EEI/EPSA requested that the Commission not remove, as proposed, the provisions in §§ 45.8(d)(1) and (f)(1), which currently require the counterparties to select the reporting party, where the swap is executed on a SEF or DCM and both counterparties have the same SD, MSP or financial entity status.

185

The commenter requested that the provisions be left in place because the proposed rule did not set out how the reporting party would be determined. ITV argued that the reporting hierarchy in existing §§ 45.8(c) and (e), when applied to uncleared swaps between end-users, particularly in the commodity asset class, can preclude end-users from negotiating between themselves who the reporting party would be.

186

This may result in the selection of a reporting party who has less technical infrastructure than the non-reporting counterparty.

187

ISDA recommended that the Commission encourage SEFs to adopt the ISDA asset class tie-breaker logic (the “ISDA RCP”) for determining reporting party for on-SEF swaps.

188

185

See

EEI/EPSA Oct. 30, 2015 Letter, at 4.

186

See

ITV Oct. 30, 2015 Letter, at 4 and 6.

187

ITV also commented that it believes counterparties should be permit to select the reporting party for a swap when both counterparties are non-SD/MSPs, regardless of financial entity status or U.S. person status.

See

ITV Oct. 30, 2015 Letter, at 4.

188

See

ISDA Oct. 30, 2015 Letter, at 7.

Two commenters noted that, with the addition of proposed § 45.8(i)

addressing the reporting of clearing swaps, the phrase “or is cleared by a derivatives clearing organization” in § 45.8(f) would become inapplicable.

189

The commenters recommended that the Commission remove this clause from existing § 45.8(f).

189

See

EEI/EPSA Oct. 30, 2015 Letter, at 4; CMC Oct. 30, 2015 Letter, at 3.

4. Final Rule Text of § 45.8

For the reasons expressed more fully below, the Commission has decided to adopt the amendments to § 45.8 as proposed.

The Commission has considered ISDA's comment that the inclusion of DCOs in the part 45 reporting hierarchy could create inconsistencies between part 43 and part 45 reporting obligations for clearing swaps that do not replace original swaps. Existing § 43.3(a)(3) sets out the reporting hierarchy for real-time reporting of off-facility swaps. DCOs are not included in this hierarchy, but the hierarchy is applicable unless otherwise agreed to by the parties prior to the execution of the publicly reportable swap transaction.

190

To the extent that clearing swaps are reportable events under part 43, the Commission notes that DCOs and their clearing members could agree that the DCO should be the reporting party for part 43 purposes pursuant to the “unless otherwise agreed” clause of § 43.3(a)(3). It is only if the DCO and its clearing member did not so agree would the clearing member have part 43 reporting obligations for some clearing swaps pursuant to the reporting hierarchy under § 43.3. The Commission therefore declines in this rule release to include DCOs in the part 43 real-time reporting hierarchy.

190

17 CFR 43.3(a)(3).

The Commission has also considered comments from EEI/EPSA and ITV regarding the removal of provisions in §§ 45.8(d)(1) and (f)(1) governing the selection of reporting parties for swaps executed on SEFs and DCMs. As was explained in the preamble to the NPRM, the Commission proposed to remove these provisions to help preserve parties' anonymity on SEFs and DCMs, in particular for swaps cleared through a straight-through-processing mechanism.

191

SEFs have adopted various formulas to determine who will be the reporting party when both counterparties have the same SD, MSP, financial entity, and U.S. Person status. These formulas will ensure that reporting parties are selected consistently. Therefore, the Commission is adopting amendments to §§ 45.9(d)(1) and (f)(1) as proposed. In addressing ISDA's comment regarding the ISDA RCP, the Commission declines to adopt or impose any particular formula at this time for selecting the reporting party, instead leaving such determinations to the SEFs.

191

See

80 FR 52544, 52555.

The Commission has also considered EEI/EPSA's and CMC's comments regarding the continued inclusion of the phrase “or is cleared by a derivatives clearing organization” in § 45.8(f). The Commission notes that existing § 45.8(f) addresses reporting hierarchy for certain categories of reportable swaps executed between two non-U.S. Persons; one category of such reportable swaps is a swap cleared through a DCO. The Commission notes that the swap “cleared by a derivatives clearing organization” in this provision relates to the original swap between the original counterparties, and not the clearing swaps with the DCO. The Commission is adopting § 45.8(f) as proposed, with the continued inclusion of the phrase “cleared by a derivatives clearing organization.”

F. Reporting to a Single Swap Data Repository—Amendments to § 45.10

1. Existing § 45.10

Existing § 45.10 requires “all swap data for a given swap” to be reported to a single SDR, which must be the same SDR to which creation data for that swap is first reported. The time and manner in which such data must be reported to a single SDR depends on whether the swap is executed on a SEF or DCM,

192

executed off-facility with an SD/MSP reporting counterparty,

193

or executed off-facility with a non-SD/MSP reporting counterparty.

194

Currently, § 45.10(b) and (c) also provide circumstances in which a reporting counterparty is excused from reporting PET data to an SDR because the swap is accepted for clearing by a DCO before the applicable reporting deadline.

192

See

17 CFR 45.10(a).

193

See

17 CFR 45.10(b)

194

See

17 CFR 45.10(c).

2. Proposed Amendments to § 45.10

In order to further clarify that “all swap data for a given swap” encompasses all swap data required to be reported pursuant to parts 43 and 45 of the Commission's regulations, the Commission proposed to add language to this effect to paragraphs (a) through (c) and to the introductory language of § 45.10.

195

This proposed additional language would clarify the existing requirement that registered entities and reporting counterparties must provide all swap data required under parts 43 and 45 to a single SDR for a given swap.

196

195

See

80 FR 52544, 52555-56.

196

The Commission also proposed to repeat the language “Off-facility swaps with a swap dealer or major swap participant reporting counterparty” from the title of § 45.10(b) in the body of that regulation to make clear that the requirement pertains to off-facility swaps with an SD or MSP.

The Commission also proposed to remove § 45.10(b)(2) and (c)(2),

197

which are no longer applicable because they reference provisions in § 45.3(b)(1), (c)(1)(i), and (c)(2)(i) that, as discussed above, the Commission proposed to remove.

198

197

The Commission also proposed conforming amendments to § 45.10 to renumber paragraph (b)(3) as (b)(2), paragraph (c)(3) as (c)(2), and paragraph (c)(4) as (c)(3). The Commission also proposed to remove a reference to § 45.10(c)(2) from existing § 45.10(c)(4) because the Commission proposed to remove § 45.10(c)(2).

198

See

Section II.B.2.ii,

supra.

Additionally, the Commission proposed to add new § 45.10(d), which would govern clearing swaps and would establish explicit requirements that DCOs report all required swap creation data and all required swap continuation data for each clearing swap to a single SDR.

199

Specifically, proposed § 45.10(d)(1) would require a DCO to report all required swap creation data for a particular clearing swap to a single SDR. As proposed, § 45.10(d)(1) would also require the DCO to transmit the LEI of the SDR to which it reported the required swap creation data for each clearing swap to the counterparty of each clearing swap, as soon as technologically practicable after either acceptance of the original swap by the DCO for clearing or execution of a clearing swap that does not replace an original swap.

200

199

See

80 FR 52544, 52555-56.

200

See

80 FR 52544, 52555-56.

As proposed, § 45.10(d)(2) would require a DCO to report all required swap creation data and all required swap continuation data for a particular clearing swap to the same SDR that received the initial swap creation data for the clearing swap required by § 45.10(d)(1). In the event there are two or more clearing swaps that replace a particular original swap, and in the event there are equal and opposite clearing swaps that are created upon execution of the same transaction and that do not replace an original swap, proposed § 45.10(d)(3) would require the DCO to report all required swap creation and continuation data for each such clearing swap to a single SDR.

201

Accordingly, all required creation and continuation data for all clearing swaps that can be traced back to the same original swap (and for all equal and opposite clearing swaps that are created upon execution of the same transaction but that do not replace an original swap) will be reported to a single SDR.

201

The Commission notes that proposed § 45.10(d)(3) would require any equal and opposite clearing swaps, including those resulting from the operation of § 39.12(b)(6) of the Commission's regulations, to be reported to a single SDR, regardless of whether such clearing swaps replaced an original swap.

The Commission noted in its proposal that by operation of proposed new § 45.8(i) and (j) and proposed § 45.3(e), there may be scenarios in which the SEF/DCM or reporting counterparty reports required swap creation data for the swap that became the original swap to one SDR, and the DCO reports required swap creation data for the clearing swaps that replace the original swap to a different SDR.

202

The Commission proposed to require that all swap data for the clearing swaps that can be traced back to the same original swap be reported to the same SDR, but did not require that the clearing swaps be reported to the same SDR as the original swap.

203

202

See

80 FR 52556.

203

See id.

The Commission included in the NPRM the following example to illustrate the application of proposed § 45.10:

204

See

80 FR 52544, 52556.

Swap 1 is intended to be submitted to a DCO for clearing and executed on or pursuant to the rules of a SEF. The SEF reports all required creation data for such swap to registered SDR A pursuant to § 45.3(a), which was selected by the SEF pursuant to proposed § 45.3(j)(1), and submits the swap to the DCO for clearing. Upon acceptance of Swap 1 for clearing, the DCO extinguishes Swap 1 and replaces it with Swap 2 and Swap 3, both of which are clearing swaps. Swap 1 is now an original swap.

Proposed § 45.4(c) would require the DCO to report the termination of Swap 1 to SDR A,

205

reflecting that Swap 1, now an original swap, has been terminated through clearing novation.

206

The DCO would also report all required swap creation data for clearing Swap 2 to a single SDR of its choice (say, for example, SDR B) pursuant to proposed §§ 45.3(e) and (j)(2), and 45.10(d).

207

Similarly, the DCO would be required to report all required swap creation data for clearing Swap 3 to a single SDR, in this case SDR B. Pursuant to proposed § 45.10(d)(3), the DCO would be required to report all required swap creation data for clearing Swap 2 and clearing Swap 3 to the same SDR (SDR B) because Swap 2 and Swap 3 replaced Swap 1. Thereafter, proposed § 45.10(d)(2) would require the DCO to report all required swap creation data and continuation data to the SDR where the first report of required swap creation data for both clearing Swap 2 and clearing Swap 3 was made (SDR B).

205

Pursuant to proposed § 45.10(a)(2), (b)(2), and (c)(3), continuation data for original swaps must be reported to the SDR where the first report of required swap creation data was made for the swap.

206

Pursuant to existing § 45.13(b), the DCO shall use the facilities, methods, or data standards provided or required by SDR A. 17 CFR 45.13(b).

207

The Commission notes that pursuant to proposed §§ 45.10(a)-(d), the DCO in this example could select an SDR other than SDR A.

3. Comments Received

The Commission received three comments addressing its proposed amendments to § 45.10.

208

AIMA supported the Commission's proposal clarifying that the DCO is obligated to report creation and continuation data for clearing swaps to a single SDR.

209

208

An additional comment letter addressed the issue of “portability” of swaps reporting between SDRs.

See

ITV Oct. 30, 2015 Letter, at 3-4. The portability issue is beyond the scope of the NPRM.

209

See

AIMA Oct. 30, 2015 Letter, at 7.

ISDA opposed the requirement in proposed § 45.10(d)(1) that a DCO transmit to the counterparties of clearing swaps the LEI of the SDR to which the clearing swaps were reported.

210

ISDA doubted the value of such information for the clearing swap counterparties, and opined that counterparties are unlikely to build mechanisms to retain such information on a transactional basis.

211

ISDA also noted that a DCO would be separately required to send a termination of the original swap to the original swap's SDR, and this report would include the LEI of the SDR to which the clearing swaps are reported, making a report of such data to the counterparties redundant.

212

210

See

ISDA Oct. 30, 2015 Letter, at 8.

211

Id.

212

Id.

DTCC opposed the provision in proposed § 45.10(d)(1) that would allow a DCO to select the SDR for reporting clearing swaps, instead arguing that clearing swaps should be reported to the same SDR as the original swap.

213

DTCC argued that such reporting would create data fragmentation between the original swap and related clearing swaps.

213

See

DTCC Oct. 30, 2015 Letter, at 6.

4. Final Rule Text of § 45.10

Having considered all of the comments relating to the purpose and scope of the proposed amendments to § 45.10, including amendments to §§ 45.10(a) through (c) and new § 45.10(d), the Commission is adopting amended § 45.10 as proposed. The requirements for DCOs demonstrated in the above example and contained in proposed § 45.10(d)(1) and (2) are consistent with the existing requirements for SEFs, DCMs, and other reporting counterparties under current § 45.10. By requiring that all swap data for each clearing swap be reported to a single SDR, proposed §§ 45.10(d)(1) and (2) further the Commission's stated purpose in creating § 45.10, and part 45 generally, of reducing fragmentation of data for a given swap across multiple SDRs.

214

See, e.g.,

Final Part 45 Rulemaking, 77 FR 2136, 2139 (“To avoid fragmentation of data for a given swap across multiple SDRs, the [Notice of Proposed Rulemaking] [for part 45] would require that all data for a particular swap must be reported to the same SDR.”); at 2143 (“First, in order to prevent fragmentation of data for a single swap across multiple SDRs, which would seriously impair the ability of the Commission and other regulators to view or aggregate all of the data concerning the swap, the proposed rule provided that, once an initial data report concerning a swap is made to an SDR, all data reported for that swap thereafter must be reported to the same SDR.”); and at 2168 (“The Commission believes the important regulatory purposes of the Dodd-Frank Act would be frustrated, and that regulators' ability to see necessary information concerning swaps could be impeded, if data concerning a given swap was spread over multiple SDRs.”).

The proposed requirement in §§ 45.10(d)(3) that the DCO report to a single SDR all swap data for each clearing swap that can be traced back to the same original swap also supports the goal of avoiding fragmentation of swap data. Though clearing swaps are new individual swaps, all clearing swaps that issue from the same original swap are component parts of a cleared swap transaction. Fragmentation among clearing swaps would needlessly impair the ability of the Commission and other regulators to view or aggregate all the data concerning the related clearing swaps.

While proposed § 45.10 ensures that each swap comprising a cleared swap transaction is reported to a single SDR, the Commission notes DTCC's comments on data fragmentation where original swaps are reported to different SDRs than their resulting clearing swaps. However, as long as DCOs properly identify the original swap's USI and SDR in reports on clearing swaps, and report clearing swaps' USIs and SDR in terminations of the original swaps, the Commission believes it will be able to reconcile those transactions when performing risk and other analysis. As discussed in Section II.C.4.iii above, the Commission has considered various alternatives to the adopted rules. The Commission believes that the adopted amendments will provide the Commission with the information it needs to perform its regulatory obligations while minimizing

costs to market participants, SDRs, and DCOs.

In response to ISDA's comment that counterparties were unlikely to build mechanisms to retain information on the SDR to which clearing swaps were reported, the Commission believes that all swaps counterparties should be aware of the SDR to which their swaps are reported. The Commission notes that under existing § 45.14(b) non-reporting parties to swaps have obligations to correct any errors or omissions in swaps data of which they become aware.

G. Examples of Cleared Swap Reporting Workflows Under the Adopted Revisions

The following examples demonstrate the manner in which the adopted revisions and additions to part 45 rules would operate in hypothetical scenarios involving: (1) An off-facility swap not subject to the clearing requirement with an SD/MSP reporting counterparty; and (2) a swap executed on or pursuant to the rules of a SEF or DCM. All references to part 45 appearing in the following examples refer to the rules as adopted in this release. These examples are provided only for illustrative purposes to demonstrate the applicability of certain rules adopted in this release in hypothetical scenarios. The examples are not intended to dictate any aspect of compliance, reporting or other related processes and are not intended to cover all possible reporting circumstances.

1. Off-Facility Swap Not Subject to the Clearing Requirement With SD/MSP Reporting Counterparty

An off-facility swap that is not subject to the clearing requirement is executed with an SD reporting counterparty. The SD generates and assigns a USI for the swap pursuant to § 45.5(b) and reports all required swap creation data for the swap to SDR A pursuant to § 45.3(c). The SD submits the swap to a DCO for clearing and, pursuant to § 45.10(b), transmits to the DCO, at the time the swap is submitted for clearing, the identity of SDR A and the USI for the swap.

The DCO accepts the swap for clearing, extinguishing it and replacing it with clearing swaps; the swap that was submitted for clearing is now an original swap. The DCO generates and assigns a USI to each clearing swap pursuant to § 45.5(d) and, pursuant to § 45.3(e), reports all required swap creation data for the clearing swaps, including the original swap USI and all additional data fields applicable to clearing swaps,

215

to SDR B, which the DCO in this example selected pursuant to § 45.3(j)(2).

215

Modifications to appendix 1 would require that PET data include the original swap USI and all data categories and fields applicable to clearing swaps.

See infra,

Section II.H.3.

216

In addition to all other necessary continuation data, original swap continuation data reported by the DCO, including the original swap termination notice, would also include: The LEI of SDR B (the SDR to which creation data for each clearing swap that replaced the particular original swap was reported);

217

the USI of the original swap as transmitted to the DCO by the SD at the time the swap was submitted for clearing; and the USI for each clearing swap.

216

See

17 CFR 45.13(b).

217

The Commission notes that the amended § 45.4(c)(2)(i) requirement that the DCO include the LEI of the SDR to which all required swap creation data for each clearing swap was reported by the DCO applies whether or not swap data for the original and clearing swaps is reported to the same SDR or to different SDRs. The Commission expects that this information will be useful for regulators with respect to their review of data pertaining to cleared swap transactions, and to SDRs with respect to their processing of swap data received, even when the original and clearing swaps reside in the same SDR.

The DCO would also transmit to each counterparty to the clearing swaps, as soon as technologically practicable after acceptance for clearing, the USI of each clearing swap pursuant to § 45.5(d)(2) and the LEI of the SDR to which the clearing swap was reported pursuant to § 45.10(d)(1).

The DCO would have no further continuation data reporting obligations with respect to the original swap thereafter. However, the Commission notes that pursuant to § 45.14, registered entities and counterparties required to report swap data to an SDR must report any known errors and omissions in the data reported.

218

Additionally, non-reporting counterparties are required to notify the reporting counterparty of such errors or omissions.

219

Finally, pursuant to § 49.10(a), SDR A would be required to accept and record any original swap continuation data, including the original swap termination.

218

While the DCO would have no additional continuation data reporting requirement with respect to the original swap after reporting the termination upon acceptance for clearing, the DCO remains obligated under § 45.14 to correct errors and omissions in the data reported by the DCO, including the termination notice. For example, if a swap is submitted to, and accepted by, a DCO for clearing, the DCO would report the termination notice of the original swap to the SDR to which the creation data for the original swap was reported. After submission of the termination notice to the SDR, if the DCO should become aware of an error or omission in the termination notice, the DCO is required, pursuant to § 45.14, to correct any errors and omissions in the data so reported as soon as is technologically practicable after discovery of such errors or omissions. Likewise, all reporting entities and swap counterparties also remain obligated under § 45.14 to correct errors and omissions in all data reported by or on behalf of each entity and swap counterparty to an SDR.

219

Pursuant to § 45.14(b), if a counterparty to a swap that is not the reporting counterparty as determined by § 45.8 discovers any error or omission with respect to the continuation data, including termination notice of the original swap, such non-reporting counterparty is required to notify the DCO of each such error or omission.

2. Swaps Executed on or Pursuant to the Rules of a SEF or DCM

A swap is executed on or pursuant to the rules of a SEF or DCM. The SEF/DCM generates and assigns a USI for the swap pursuant to § 45.5(a) and reports all required swap creation data to SDR A pursuant to § 45.3(a). The SEF/DCM submits the swap to a DCO for clearing and, pursuant to § 45.10(a), transmits to the DCO, at the time the swap is submitted for clearing, the identity of SDR A and the USI for the swap.

The DCO accepts the swap for clearing, extinguishing it and replacing it with clearing swaps; the swap that was submitted for clearing is now an original swap. Under §§ 45.5(d) and 45.3(e), the DCO would generate and assign a USI to each clearing swap and report all required swap creation data, including the original swap USI and all additional data fields applicable to clearing swaps, for the clearing swaps to registered SDR A, which, in this example, the DCO selected pursuant to § 45.3(j)(2).

220

Pursuant to § 45.3(j)(2), the DCO could have selected SDR B.

Pursuant to § 45.4(c), the DCO would report continuation data for the original swap, including the original swap termination notice, to SDR A using either the life cycle or state data methods, and using the facilities, methods, or data standards provided or required by SDR A. Such continuation data would include the LEI of SDR A (the SDR to which creation data for each clearing swap that replaced the particular original swap was reported), the USI of the original swap as transmitted to the DCO by the SEF/DCM at the time the swap was submitted for clearing, and the USI for each clearing swap.

The DCO would also transmit to each counterparty to the clearing swaps, as soon as technologically practicable after

acceptance for clearing, the USI of each clearing swap pursuant to § 45.5(d)(2) and the LEI of the SDR to which the clearing swap was reported pursuant to § 45.10(d)(1).

221

Finally, pursuant to § 49.10(a), SDR A would be required to accept and record the original swap termination.

221

See

notes 220-221,

supra.

H. Primary Economic Terms Data—Amendments to Appendix 1 to Part 45—Tables of Minimum Primary Economic Terms

The Commission's existing lists of minimum primary economic terms for swaps in each swap asset class are found in tables in Exhibits A-D of appendix 1 to part 45. Those tables include data elements that reflect generic economic terms and conditions common to most standardized products. They reflect the fact that PET data captures a swap's basic nature and essential economic terms, and are provided in order to ensure to the extent possible that all such essential terms, where applicable, are included when required primary economic terms are reported for each swap.

1. Proposed Amendments and Additions to Primary Economic Data Fields

The Commission proposed the following revisions to Exhibits A-D of appendix 1, each of which is discussed in greater detail below: (1) Modifications to existing PET data fields; (2) the addition of three new PET data fields applicable to all reporting entities for all swaps; and (3) the addition of a number of new data fields that must be reported by DCOs for clearing swaps.

222

The Commission also proposes to revise each of the data categories and fields that reference the clearing requirement exception in CEA section 2(h)(7) to reflect that exceptions to, and exemptions from, the clearing requirement, including the clearing requirement exception in CEA section 2(h)(7), are set forth under part 50 of the Commission's regulations. Additionally, the Commission is making non-substantive edits to the following fields in Exhibits A-D: Asset class; For a multi-asset class swap, an indication of the primary asset class; For a multi-asset class swap, an indication of the secondary asset class(es); and to the Clearing member client account field in Exhibits C and D.

i. Proposed Modifications to Existing PET Data Fields

The Commission proposed clarifying and conforming changes and minor corrective modifications to the following existing PET data fields:

223

See

80 FR 52544, 52558.

• The Unique Swap Identifier for the swap—The Commission proposed to remove the explanatory note in the Comment section to this data field in Exhibits A-D. The explanatory note is no longer necessary because under proposed § 45.5(d), the DCO would create the USI for each clearing swap.

• PET data fields that utilize a LEI

224

—The Commission proposed conforming changes to the Comment sections to data fields in Exhibits A-D that utilize the LEI to reflect that the CFTC has designated an LEI system

225

and to reflect that a substitute identifier may be reported for natural person swap counterparties.

224

These include the following fields in Exhibits A-D: The Legal Entity Identifier of the reporting counterparty; If the swap will be allocated, or is a post-allocation swap, the Legal Entity Identifier of the agent; The Legal Entity Identifier of the non-reporting party; Clearing venue; The identity of the counterparty electing an exception or exemption to the clearing requirement under Part 50 of this chapter (formerly The identity of the counterparty electing the clearing requirement exception in CEA section 2(h)(7)); Exhibit A: An indication of the counterparty purchasing protection; An indication of the counterparty selling protection; Information identifying the reference entity; Exhibit D: Buyer, Seller.

225

The explanatory notes discussing a situation where no CFTC designated LEI is yet available are no longer applicable.

See generally

Order Extending the Designation of the Provider of Legal Entity Identifiers To Be Used in Recordkeeping and Swap Data Reporting Pursuant to the Commission's Regulations, 80 FR 44078 (Jul. 24, 2015).

• If no CFTC-approved LEI for the non-reporting counterparty is yet available, the internal identifier for the non-reporting counterparty used by the swap data repository—The Commission proposed to remove this data field in each of the Exhibits. As noted above, the CFTC has designated an LEI, and these PET data fields are no longer applicable.

• For a mixed swap reported to two non-dually-registered swap data repositories, the identity of the other swap data repository (if any) to which the swap is or will be reported—The Commission proposed to add an explanatory note to the Comment section for this data field in Exhibits A-D providing that the field value is the LEI of the other SDR to which the swap is or will be reported.

• Block trade indicator—The Commission proposed to modify the Comment section to this data field in Exhibits A-D to reflect that the CFTC has issued a final rulemaking regarding

Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades.

226

See, generally,

Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades, Final Rule, 78 FR 32866 (May 31, 2013).

• Execution venue—The Commission proposed to modify the explanatory note in the Comment section to this data field in Exhibits A-D to reflect that the CFTC has designated an LEI system and to require the reporting of only the LEI of the SEF or DCM for swaps executed on or pursuant to the rules of a SEF or DCM.

• Clearing indicator—The Commission proposed modifications to the explanatory note in the Comment section to this data field in Exhibits A-D to provide for the reporting of a Yes/No indication of whether the swap will be submitted for clearing to a DCO.

• Clearing venue—The Commission proposed modifications to the Comment section of this data field in Exhibits A-D to provide for the reporting of only the LEI of the derivatives clearing organization.

ii. Proposed Addition of New PET Data Fields Applicable to All Reporting Entities for All Swaps

The Commission proposed to add to Exhibits A-D the following new PET fields which would be applicable to all reporting entities for all swaps:

227

See

80 FR 52544, 52558-59.

• Asset class—This data field would provide the specific asset class for the swap. Field values: Credit, equity, FX, interest rates and other commodities.

• An indication of whether the reporting counterparty is a derivatives clearing organization with respect to the swap.

• Clearing exceptio

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