# Certain Swap Data Repository and Data Reporting Requirements > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2019-08788 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** May 13, 2019 - **Citation:** 84 FR 21044 ## Text COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 23, 43, 45, and 49 RIN Number 3038-AE32 Certain Swap Data Repository and Data Reporting Requirements AGENCY: Commodity Futures Trading Commission. ACTION: Notice of proposed rulemaking. SUMMARY: The Commodity Futures Trading Commission (“Commission” or “CFTC”) is proposing amendments to parts 23, 43, 45, and 49 of the Commission's regulations to improve the accuracy of data reported to, and maintained by, swap data repositories (“SDRs”). Among other changes, the proposed amendments would modify existing requirements for SDRs to establish policies and procedures to confirm the accuracy of swap data with both counterparties to a swap. The proposed amendments would further require reporting counterparties to verify the accuracy of swap data pursuant to those SDR procedures. The Commission is also proposing certain amendments to parts 23, 43, 45, and 49 to provide enhanced and streamlined oversight over SDRs and data reporting generally. DATES: Comments must be received on or before July 29, 2019. ADDRESSES: You may submit comments, identified by RIN number 3038-AE32, by any of the following methods: • The agency's website, at http://comments.cftc.gov. Follow the instructions for submitting comments through the website. • Mail: Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. • Hand Delivery/Courier: Same as Mail above. Please submit your comments using only one method. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to http://www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. 1 1 17 CFR 145.9. The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from http://www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act. FOR FURTHER INFORMATION CONTACT: Benjamin DeMaria, Special Counsel, 202-418-5988, bdemaria@cftc.gov or Meghan Tente, Lead Attorney-Advisor, 202-418-5785, mtente@cftc.gov, Division of Market Oversight, Data and Reporting Branch, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: Table of Contents I. Background A. Introduction B. Statutory Authority C. Regulatory History—Final Rulemakings II. Proposed Amendments to Part 49 A. § 49.2—Definitions B. § 49.3—Procedures for Registration C. § 49.5—Equity Interest Transfers D. § 49.6—Request for Transfer of Registration E. § 49.9—Open Swaps Reports Provided to the Commission F. § 49.10—Acceptance of Data G. § 49.11—Verification of Swap Data Accuracy H. § 49.12—Swap Data Repository Recordkeeping Requirements I. § 49.13—Monitoring, Screening, and Analyzing Data J. § 49.15—Real-Time Public Reporting by Swap Data Repositories K. § 49.16—Privacy and Confidentiality Requirements of Swap Data Repositories L. § 49.17—Access to SDR Data M. § 49.18—Confidentiality Arrangement N. § 49.20—Governance Arrangements (Core Principle 2) O. § 49.22—Chief Compliance Officer P. § 49.24—System Safeguards Q. § 49.25—Financial Resources R. § 49.26—Disclosure Requirements of Swap Data Repositories S. § 49.28—Operating Hours of Swap Data Repositories T. § 49.29—Information Relating to Swap Data Repository Compliance U. § 49.30—Form and Manner of Reporting and Submitting Information to the Commission V. § 49.31—Delegation of Authority to the Director of the Division of Market Oversight Relating to Certain Part 49 Matters III. Proposed Amendments to Part 45 A. § 45.2—Swap Recordkeeping B. § 45.14—Verification of Swap Data Accuracy and Correcting Errors and Omissions in Swap Data IV. Proposed Amendments to Part 43 A. § 43.3—Method and Timing for Real-Time Public Reporting V. Proposed Amendments to Part 23 A. § 23.204—Reports to Swap Data Repositories B. § 23.205—Real-Time Public Reporting VI. Request for Comments VII. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act C. Cost-Benefit Considerations D. Anti-Trust Considerations I. Background A. Introduction Pursuant to the Dodd-Frank Act, 2 beginning in 2011, the Commission adopted parts 45 and 49 of its regulations to implement a swap data reporting and recordkeeping regime along with registration requirements and duties for SDRs. 3 In 2012, the Commission adopted part 23 of its regulations, which sets forth requirements for swap dealers (“SDs”) and major swap participants (“MSPs”) related to the timely and accurate reporting, confirmation, and processing of swaps. 4 The regulations the Commission is proposing to amend with this release concern data reporting and recordkeeping duties generally and other duties for SDRs. 2 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf. 3 Swap Data Repositories: Registration Standards, Duties and Core Principles, 76 FR 54538 (Sept. 1, 2011) (“Part 49 Adopting Release”); Swap Data Recordkeeping and Reporting Requirements, 77 FR 2136 (Jan. 13, 2012) (“Part 45 Adopting Release”). 4 See Swap Dealer and Major Swap Participant Recordkeeping, Reporting, and Duties Rules; Futures Commission Merchant and Introducing Broker Conflicts of Interest Rules; and Chief Compliance Officer Rules for Swap Dealers, Major Swap Participants, and Futures Commission Merchants, 77 FR 20128 (Apr. 3, 2012) (“Part 23 Adopting Release”). B. Statutory Authority Section 727 of the Dodd-Frank Act added section 2(a)(13)(G) to the Commodity Exchange Act (“CEA” or “Act”), which requires all swaps—whether cleared or uncleared—to be reported to SDRs, 5 which are registered entities created by section 728 of the Dodd-Frank Act. 6 Section 728 of the Dodd-Frank Act added section 21 to the CEA, 7 which governs registration and regulation of SDRs, and directs the Commission to promulgate rules concerning those duties and responsibilities. 5 Section 721 of the Dodd-Frank Act amended section 1a of the CEA to add the definition of SDR. Pursuant to section 1a(48) of the CEA, the term SDR “means any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps.” 7 U.S.C. 1a(48). 6 The Commission notes that there are currently three SDRs provisionally registered with the Commission: CME Inc., DTCC Data Repository (U.S.) LLC (“DDR”), and ICE Trade Vault, LLC (“ICE”). 7 7 U.S.C. 24a. To register and maintain registration with the Commission, SDRs are required to comply with specific duties and core principles enumerated in CEA section 21 as well as other requirements that the Commission may prescribe by rule. In particular, CEA section 21(c) mandates that SDRs: (1) Accept data; (2) confirm with both counterparties the accuracy of submitted data; (3) maintain data according to standards prescribed by the Commission; (4) provide direct electronic access to the Commission or any designee of the Commission (including another registered entity); (5) provide public reporting of data in the form and frequency required by the Commission; (6) establish automated systems for monitoring, screening, and analyzing data (including the use of end-user clearing exemptions) at the direction of the Commission; (7) maintain data privacy; (8) make data available to other specified regulators, on a confidential basis, pursuant to section 8 of the CEA, 8 upon request and after notifying the Commission; and (9) establish and maintain emergency and business continuity-disaster recovery (“BC-DR”) procedures. CEA section 21(f)(4)(C) further requires the Commission to establish additional duties for SDRs to minimize conflicts of interest, protect data, ensure compliance, and guarantee the safety and security of the SDR. 9 Section 21(b) of the CEA also directs the Commission to prescribe standards for data recordkeeping and reporting that apply to both registered entities and reporting counterparties. 10 8 7 U.S.C. 12(e). 9 Pursuant to this provision, the Commission may develop one or more additional duties applicable to SDRs. 7 U.S.C. 24a(f)(4). This provision is referred to as “Core Principle 4.” 10 See 7 U.S.C. 24a(b)(1)(B). Section 4s(f) of the CEA, 11 added by section 731 of the Dodd-Frank Act, established recordkeeping and reporting requirements for SDs and MSPs. CEA section 4s(f)(1)(A) 12 requires SDs and MSPs, among other things, to provide transaction and position reports that the Commission requires by rule or regulation. CEA section 4s(f)(2) 13 requires the Commission to adopt rules governing, among other things, recordkeeping and reporting by SDs and MSPs. 11 7 U.S.C. 6s(f). 12 7 U.S.C. 6s(f)(1)(A). 13 7 U.S.C. 6s(f)(2). C. Regulatory History—Final Rulemakings On August 4, 2011, the Commission adopted part 49 of the Commission's regulations. 14 Part 49 implements the requirements of section 21 of the CEA by setting forth the specific duties that SDRs are required to comply with to be initially registered as an SDR and maintain such registration as an SDR with the Commission. As part of the Part 49 Adopting Release, the Commission, among other sections, adopted § 49.11 regarding the confirmation of data accuracy. 14 See Part 49 Adopting Release. Pursuant to CEA section 4s(f)(2), the Commission promulgated swap reporting rules for SDs and MSPs, including §§ 23.204-205, which were both adopted on April 3, 2012. 15 Section 23.204(a) requires SDs and MSPs to report all information and swap data in accordance with part 45. Section 23.204(b) requires SDs and MSPs to have the procedures and electronic systems necessary to report all information and swap data required to be reported in accordance with part 45. Sections 23.205(a) and (b) establish parallel requirements for SDs and MSPs with respect to the real-time reporting requirements of part 43. 15 See Part 23 Adopting Release. Since the Commission adopted part 49 in 2011, Commission staff has led many efforts to evaluate and improve reporting issues relating to data accuracy. Commission staff leads or participates in several international regulatory working groups concentrating on harmonization of data reporting and is incorporating in this release lessons learned from these undertakings and best practices from the international regulatory community. Commission staff's efforts have also included the formation of an interdivisional staff working group to identify, and make recommendations to resolve, reporting challenges associated with certain swap data recordkeeping and reporting provisions. 16 The Commission has also requested comments from the public on reporting issues. 17 16 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. 17 See, e.g., Review of Swap Data Recordkeeping and Reporting Requirements, Request for Comment, 79 FR 16689 (Mar. 26, 2014). Throughout these ongoing efforts, the Commission has generally adhered to the view that verification of data accuracy can be achieved through: (i) SDR processes confirming the accuracy of data submitted; (ii) data reconciliation exercises by entities that reported data; and (iii) the prompt reporting of errors and omissions when discovered. 18 18 See id. at 16695. Most recently, based in part on information received during the ongoing efforts described above, Commission staff announced a comprehensive review of swap reporting regulations and released the Roadmap to Achieve High Quality Swap Data (“Roadmap”) 19 to solicit feedback on improvements to data reporting and how the Commission's regulatory goals may be achieved without imposing unnecessary burdens on market participants. Commission staff requested comments in response to the Roadmap (“Roadmap Request for Comment”) and received a number of comment letters that addressed data accuracy and confirmation of data reported to SDRs, among other subjects. 20 19 See CFTC Letter 17-33, Division of Market Oversight Announces Review of Swap Reporting Rules in Parts 43, 45, and 49 of Commission Regulations (July 10, 2017), available at http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf; Roadmap to Achieve High Quality Swap Data, available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf. 20 These comment letters are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824. References to “commenters” in this release refer to those who submitted comment letters in response to the Roadmap Request for Comment. Summaries and a discussion of the relevant comments submitted by those commenters appear in the appropriate section in this release. 21 21 See section II.G.1. The revisions and additions proposed in this release are intended to address the SDR Operations Review goals of the Roadmap related to confirming the accuracy of swap data, 22 to improve the clarity and consistency of regulations governing SDRs, and to bolster the Commission's oversight of SDRs. This proposal is the first of three anticipated Roadmap rulemakings that, when all of the planned rulemakings are complete, should achieve the Roadmap's overall goals of improving the quality, accuracy, and completeness of the data reported to the Commission, streamlining data reporting, and clarifying obligations for market participants. 23 When the Commission proposes the next two rulemakings, the Commission anticipates re-opening the comment period for this proposal to provide market participants with an opportunity to comment collectively on the three rulemakings together, because the proposals address interconnected issues. As the Roadmap rulemakings must all work in tandem to achieve these goals, the Commission also anticipates that key provisions of each rulemaking would have the same compliance date, regardless of when each rulemaking is released in final form. The Commission intends to provide a sufficient implementation period for these various rulemakings in order to give SDRs and market participants enough time to implement and test the changes that would be required. 22 See Roadmap, p. 6 (stating the Commission's intent to “Identify the most efficient and effective solution for swap counterparty(ies) to confirm the accuracy and completeness of data held in an SDR.”). 23 See id. at 3 (describing the Commission's goals for the review of reporting regulations). Where possible, in creating the proposed regulations set forth in this release, the Commission has taken into consideration certain pertinent rules adopted by other regulators, including the European Securities and Markets Authority (“ESMA”) and the U.S. Securities and Exchange Commission (“SEC”). 24 This is particularly the case for the SEC's regulations relating to the registration, duties, and core principles of Security-Based Swap Data Repositories (“SBSDRs”) 25 and reporting requirements for Security-Based Swaps (“SBSs”) set forth in Regulation SBSR (“Regulation SBSR”). 26 The Commission notes that there are similarities between the regulatory framework for SBSDRs and the SDR regulations that are the subject of this proposal. 24 The Commission has also reviewed the SEC's recent proposed rule on risk mitigation techniques for uncleared security-based swaps, which addresses issues related to reconciling security-based swap transactions and confirming the transaction data. See generally Risk Mitigation Techniques for Uncleared Security-Based Swaps, 84 FR 4614 (Feb. 15, 2019). 25 See generally Security-Based Swap Data Repository Registration, Duties and Core Principles, 80 FR 11438 (Mar. 19, 2015) (“SBSDR Adopting Release”). The SEC adopted Rules 13n-1 through 13n-12 (17 CFR 240n-1 through 240n-12) under the Securities Exchange Act of 1934 (“Exchange Act”) relating to the registration and operation of SBSDRs. 26 See generally Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR 14740 (Mar. 19, 2015) (“SBSR Adopting Release”). The SEC adopted Regulation SBSR (Rules 900 through 909, 17 CFR 242.900 through 909) to create a reporting framework for SBSs. The SEC has also adopted additional regulations regarding the reporting and dissemination of certain information related to SBSs. See generally 81 FR 53546 (Aug. 12, 2016). II. Proposed Amendments to Part 49 A. § 49.2—Definitions 1. Formatting Change to § 49.2(a) The defined terms in § 49.2(a) currently are numbered and arranged in alphabetical order. The Commission is proposing to remove the numbering and instead arrange the defined terms in § 49.2(a) solely in alphabetical order. Arranging the defined terms in § 49.2(a) solely in alphabetical order would require the Commission to make fewer conforming changes to § 49.2(a) and other regulations when adding or removing defined terms in the future, as the Commission currently proposes to do. 27 27 The Office of the Federal Register prefers the solely alphabetical approach to definitions sections. See Office of the Federal Register, Document Drafting Handbook May 2017 Update, Revision 5, 2-31 (2017) (“ Definitions. In sections or paragraphs containing only definitions, we recommend that you do not use paragraph designations if you list the terms in alphabetical order.”). 2. Proposed Changes to § 49.2 i. Conforming and Ministerial Changes to Some Definitions The Commission proposes non-substantive conforming and ministerial changes to certain definitions to provide clarity and for consistency with other Commission regulations. 28 Specifically, the Commission is proposing the following changes to definitions in § 49.2(a): 28 Other than removing subsection numbering and ministerial corrections as discussed above in section II.A.1, the Commission is not proposing any substantive changes to the definitions of “affiliate,” “control,” “foreign regulator,” “independent perspective,” “position,” or “section 8 material,” as those terms are defined in current § 49.2(a). • “Asset class”: Modify the definition to conform the wording to the definition of “asset class” used in part 43. 29 29 See 17 CFR 43.2 (Asset class means a broad category of commodities including, without limitation, any “excluded commodity” as defined in section 1a(19) of the Act, with common characteristics underlying a swap. The asset classes include interest rate, foreign exchange, credit, equity, other commodity and such other asset classes as may be determined by the Commission.). • “Commercial use”: Modify the definition to use active instead of passive voice, and to change use of swap data for regulatory purposes and/or responsibilities to use of SDR data for regulatory purposes and/or to perform its regulatory responsibilities. • “Market participant”: Change the term “swaps execution facilities” to “swap execution facilities,” to conform to section 5h of the Act and other Commission regulations, and make the term counterparty singular. • “Non-affiliated third party”: Clarify paragraph (3) to identify “a person jointly employed” by an SDR and any affiliate. • “Person associated with a swap data repository”: Clarify that paragraph (3) includes a “jointly employed person.” • “Swap data”: Modify the definition to more closely match the related definitions of “SDR data” and “swap transaction and pricing data” that are being added to § 49.2(a) and to incorporate the requirements to provide swap data to the Commission pursuant to part 49. Finally, the Commission proposes to remove the term “capitalized” from § 49.2(b), to reflect that most defined terms used in part 49 are not capitalized in the text of part 49. The Commission does not consider any of the above changes to be substantive. ii. “As Soon As Technologically Practicable” The Commission proposes to add the term “as soon as technologically practicable” as a defined term to standardize the meaning and use of this term across the Commission's swap reporting regulations. The term as soon as technologically practicable would mean as soon as possible, taking into consideration the prevalence, implementation, and use of technology by comparable market participants. The term is intended to be identical to the use of the term as it is used in parts 43 and 45 of the Commission's regulations. 30 30 See 17 CFR 43.2 (defining of as soon as technologically practicable). Part 45 of the Commission's regulations also uses the term “as soon as technologically practicable” in the same way as part 43 and this proposed definition, but does not define the term. iii. “Non-Swap Dealer/Major Swap Participant/Derivatives Clearing Organization Reporting Counterparty” The Commission proposes to add the term “non-swap dealer/major swap participant/derivatives clearing organization reporting counterparty,” defined to mean a reporting counterparty that is not a swap dealer, major swap participant, derivatives clearing organization, or exempt derivatives clearing organization. The Commission believes the defined term would provide clarity in part 49. iv. “Open Swap” The Commission proposes to add the term “open swap” as a defined term and to define the term as an executed swap transaction that has not reached maturity or the final contractual settlement date, and has not been exercised, closed out, or terminated. The Commission considers an “open swap” to mean a swap that is still in force or “alive.” This definition is intended to function the same as the definitions of “open swap” 31 and “closed swap” 32 in part 20, but provides more clarity as to the Commission's meaning of the term. 31 See 17 CFR 20.1 (Open swap or swaption means a swap or swaption that has not been closed.). 32 See 17 CFR 20.1 (Closed swap or closed swaption means a swap or swaption that has been settled, exercised, closed out, or terminated.). v. “Reporting Counterparty” The Commission proposes to add the term “reporting counterparty” as a defined term to standardize its meaning and use across the Commission's swap reporting regulations. Reporting counterparty would mean the counterparty responsible for reporting SDR data to an SDR pursuant to parts 43, 45, or 46 of the Commission's regulations. The term is intended to be functionally equivalent to the term “reporting party,” as defined in part 43, 33 the term “reporting counterparty,” as defined in part 45, 34 and the term “reporting counterparty,” as defined in part 46. 35 The Commission notes that the reporting counterparty may not always be the entity reporting SDR data to the SDR, particularly for transactions executed on swap execution facilities (“SEFs”) or designated contract markets (“DCMs”), but it is the counterparty responsible for the initial and subsequent SDR data reporting, as determined by parts 43, 45, or 46 of the Commission's regulations, as applicable to a particular swap. 33 See 17 CFR 43.2 (Reporting party means the party to a swap with the duty to report a publicly reportable swap transaction in accordance with part 43 and section 2(a)(13)(F) of the CEA.). 34 See 17 CFR 45.1 (Reporting counterparty means the counterparty required to report swap data pursuant to part 45, selected as provided in § 45.8.). 35 See 17 CFR 46.1 (Reporting counterparty means the counterparty required to report swap data pursuant to part 46, selected as provided in § 46.5.). vi. “SDR Data” The Commission proposes to add the term “SDR data” as a defined term. SDR data would mean the specific data elements and information required to be reported to an SDR or disseminated by an SDR, pursuant to two or more of parts 43, 45, 46, and/or 49, as applicable. The Commission notes that in this context, “disseminated” would include SDRs making swap data available to the Commission as required by part 49. The term SDR data would refer to multiple sources of data reported to the SDR or disseminated by the SDR. For example, SDR data could refer to all data reported or disseminated pursuant to parts 43, 45, and 46, or may refer to data reported or disseminated pursuant to parts 45 and 46, depending on the context in which the term is used. This is in contrast with the proposed term “swap transaction and pricing data,” discussed below, which would only refer to data reported to the SDR or publicly disseminated by the SDR pursuant to part 43 and the term “swap data,” which would only refer to data reported to the SDR or made available to the Commission pursuant to part 45. The Commission believes that consolidating references to the different types of data that must be reported to an SDR and data the SDR must make available to the public or to the Commission into a single term would provide clarity throughout part 49. vii. “SDR Information” The Commission proposes to amend the existing definition of “SDR information” to add “related to the business of the swap data repository that is not SDR data” to the end of the current definition. The Commission believes this change would make clear that the scope of SDR information is limited to information that the SDR receives or maintains related to its business that is not the SDR data reported to or disseminated by the SDR. SDR information would include, for example, SDR policies and procedures created pursuant to part 49. 36 36 This clarification is particularly relevant for the SDR recordkeeping obligations in the proposed amendments to § 49.12, discussed below in section II.H. viii. “Swap Transaction and Pricing Data” and “As Soon as Technologically Practicable” The Commission proposes to add the terms “swap transaction and pricing data” and “as soon as technologically practicable” as defined terms from part 43. Swap transaction and pricing data would mean the data elements and information required to be reported to an SDR or publicly disseminated by an SDR, as applicable, pursuant to part 43. Though this phrase is not currently defined in part 43, it is used throughout that part to refer to the data that must be reported to an SDR and publicly disseminated by an SDR pursuant to part 43, and the meaning of the term added here is identical. The Commission is proposing to adopt the same definition of as soon as technologically practicable defined in part 43, which means as soon as possible, taking into consideration the prevalence, implementation, and use of technology by comparable market participants. The Commission is proposing to add both phrases as defined terms in part 49 to increase consistency in terminology used in the Commission's swap reporting regulations. ix. Removal of “Reporting Entity” The Commission proposes to remove the term “reporting entity” from part 49. The Commission believes that “reporting entity” is no longer necessary with the proposed addition of the defined term for “reporting counterparty,” because reporting counterparties are also reporting entities under the current definition. 37 SEFs and DCMs are the only entities that may have the responsibility to report data that are not included in the proposed definition of “reporting counterparty.” The Commission notes that this proposed rule would retain most requirements related to reporting entities, but would update the terminology used to describe the requirements. As a result, most obligations for reporting entities would still exist under the proposed amendments. 37 See 17 CFR 49.2(a)(12) (defining “reporting entity” as those entities that are required to report swap data to a registered swap data repository which includes derivatives clearing organizations, swap dealers, major swap participants and certain non-swap dealer/non-major swap participant counterparties.). x. Removal of “Registered Swap Data Repository” The Commission proposes to remove the term “registered swap data repository” from part 49. The Commission believes the term “registered swap data repository” is not needed in part 49 because the defined term “swap data repository” already exists in § 1.3. 38 The definition of “swap data repository” in § 1.3 is identical to the definition contained in section 1a(48) of the CEA. 39 This definition of “swap data repository” therefore already applies, and would continue to apply, to part 49 and all other Commission regulations and, when combined with § 49.1, 40 removes the need for a separate defined term for “registered swap data repository.” The inclusion of the word “registered” in “registered swap data repository” and the definition of the term 41 also creates unnecessary confusion as to when the requirements of part 49 apply to entities that are in the process of registering as SDRs or are provisionally registered as SDRs under the requirements of § 49.3(b). 42 Finally, the removal of the term “registered swap data repository” would decrease inconsistency in terms within part 49 and would also increase consistency between part 49 and other Commission regulations, which overwhelmingly use the term “swap data repository.” The Commission emphasizes that removing the defined term “registered swap data repository” is a non-substantive amendment that would not in any way modify the requirements applicable to current or future SDRs. 38 See 17 CFR 1.3 (defining “swap data repository” as “any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps.”). 39 See 7 U.S.C. 1a(48) (“The term `swap data repository' means any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps.”). 40 See 17 CFR 49.1 (“The provisions of this part apply to any swap data repository as defined under Section 1a(48) of the [CEA] which is registered or is required to register as such with the Commission pursuant to Section 21(a) of the [CEA].”). 41 See 17 CFR 49.2(a)(11) (“The term ` registered swap data repository ' means a swap data repository that is registered under Section 21 of the [CEA].”). 42 See 17 CFR 49.3(b) (creating standards for granting provisional registration to an SDR). Request for Comment. The Commission requests comment on all aspects of the proposed changes to § 49.2. The Commission also invites specific comment on the following: (1) Are there any proposed amendments to definitions in existing regulations in part 49 that are unclear or inaccurate? B. § 49.3—Procedures for Registration Section 49.3 of the Commission's regulations establishes procedural and substantive requirements for SDR registration. In relevant part, § 49.3 requires persons seeking SDR registration to file an application for registration on Form SDR 43 and to amend it periodically. 44 Specifically, current § 49.3(a)(5) requires that if any information in Form SDR or any amendment becomes inaccurate for any reason, whether before or after the registration application has been granted, the SDR shall promptly file an amendment on Form SDR updating such information. In addition, § 49.3(a)(5) requires the SDR to submit an annual amendment to Form SDR within sixty days after the end of the SDR's fiscal year. 43 See 17 CFR 49.3(a)(1). 44 See 17 CFR 49.3(a)(5). The Commission is proposing to amend § 49.3(a)(5) to remove the requirement for SDRs to: (i) File an annual amendment to Form SDR; and (ii) amend Form SDR after the registration application has been granted pursuant to § 49.3(a). Accordingly, as proposed, § 49.3(a)(5) would simply require an SDR to amend Form SDR to correct inaccuracies until its application for registration has been granted. The Commission no longer believes that the requirement to amend Form SDR after registration is needed because the SDRs registered under § 49.3(a) will have demonstrated the ability to meet initial registration and compliance requirements in order to receive registration and the registered SDRs will still submit changes to many of the items in Form SDR as rule filings under part 40. 45 The Commission is also proposing new § 49.29, which would permit the Commission to request that SDRs produce information demonstrating compliance with the Commission's regulations, as discussed further in section II.T. The Commission does, however, believe that updates to Form SDR are still necessary prior to the granting of registration under § 49.3(a), because the application would still be active and the applicant would still need to demonstrate the ability to meet initial registration and compliance requirements. 45 See 17 CFR 40.1, 40.5, and 40.6 (containing the filing and review provisions applicable to rules under the Commission's regulations). Consistent with the above proposed amendments, the Commission is also proposing to amend Form SDR to remove the references to annual amendments and amendments after SDR registration. 46 46 The Commission is proposing various non-substantive amendments to Form SDR. These amendments include making terminology consistent throughout Form SDR, fixing incorrect references and misspellings, and fixing grammatical and style errors. As discussed below in section II.O, current § 49.22(f)(2) requires that the annual compliance report be provided to the Commission concurrently with the filing of the annual amendment to Form SDR that must be submitted to the Commission pursuant to § 49.3(a)(5) of this part. The Commission is proposing removing the reference to § 49.3(a)(5) from § 49.22(f)(2), to reflect the removal of the annual amendment requirement from § 49.3(a)(5). Request for Comment. The Commission requests comment on all aspects of the proposed changes to § 49.3(a)(5). C. § 49.5—Equity Interest Transfers The Commission is proposing to amend § 49.5 to streamline the requirements for equity interest transfers for SDRs. The Commission believes that the amendments to § 49.5 simplify the notification and timing requirements associated with transfers of equity interest for SDRs. 1. Notification of Intended Equity Interest Transfer—Proposed § 49.5(a) Current § 49.5(a) establishes the requirement for SDRs to provide the Commission an equity transfer notification. Specifically, current § 49.5(a) requires that: (i) Upon entering into any agreement that could result in an equity interest transfer of ten percent or more in the SDR, the SDR shall file a notification with the Secretary of the Commission in the manner specified by the Secretary, no later than the business day following the date on which the SDR enters into a firm obligation to transfer the equity interest; and (ii) that the SDR amend any information that is no longer accurate on Form SDR consistent with the procedures set forth in § 49.3. Proposed § 49.5 would revise current § 49.5(a) in several respects. First, proposed § 49.5 would make clear that the proposed rule would apply to both the direct and indirect transfers of ten percent or more of the equity interest in the SDR. The Commission believes that including both direct and indirect transfers of equity ownership in proposed § 49.5 is necessary for the Commission to properly oversee SDRs and to address any compliance concerns that may arise from the indirect transfer of equity interest in an SDR through transactions involving an SDR's direct or indirect parent company, but not the SDR itself. Second, proposed § 49.5 would require that the SDR file the equity transfer notification at the earliest possible time but no later than the open of business ten business days following the date upon which a firm obligation is made to transfer, directly or indirectly, ten percent or more of the equity interest in the SDR. The Commission believes SDRs may need additional time to file the necessary documents, and ten business days would provide greater flexibility to SDRs without sacrificing the information the Commission needs to conduct effective oversight of SDRs. Third, proposed § 49.5 would specify that the equity transfer notification be filed electronically with the Secretary of the Commission and the Director of the Division of Market Oversight (“DMO”) via email. The Commission is also proposing to remove the requirement to amend information that is no longer accurate on Form SDR due to the equity interest transfer because the requirement is duplicative in light of the requirements of both current and proposed § 49.3(a)(5). 47 47 Proposed § 49.5(a) would continue to apply the requirement to update information in Form SDR that is no longer accurate due to an equity interest transfer to an SDR whose application for registration has not been granted under § 49.3(a). 2. Documentation Requirements—Proposed § 49.5(b) Current § 49.5(b) sets forth the documentation requirements for the equity transfer notice. Current § 49.5(b) requires that: (i) The notification include any relevant agreements, corporate documents, charts outlining new ownership or corporate or organizational structure, a brief description of the purpose and any impact of the transfer, and a representation from the SDR that it meets all of the requirements of section 21 of the Act and Commission regulations; (ii) the SDR keep the Commission apprised of the projected date that the transaction will be consummated, and provide the Commission any new agreements or modifications to the original agreements filed pursuant to § 49.5; and (iii) the SDR notify the Commission of the consummation of the transaction on the day it occurs. The Commission is proposing to simplify current § 49.5(b) and instead simply provide that the Commission may, upon receiving an equity transfer notification from an SDR, request that the SDR provide supporting documentation for the transaction. The Commission believes that reserving the authority to request supporting documentation rather than compelling specific production would satisfy the Commission's need for information without placing unnecessary burdens on SDRs. 3. Notification of Completed Equity Interest Transfer—Proposed § 49.5(c) Current § 49.5(c) requires that, upon the transfer, the SDR file with the Secretary of the Commission a certification that the registered SDR meets all of the requirements of section 21 of the Act and Commission regulations, and state whether changes to any aspects of the SDR's operations were made as a result of such change in ownership, with a description of any such change. The certification may rely on and be supported by reference to an SDR registration application or prior filings made pursuant to a rule submission requirement, along with any necessary new filings, including material updates of prior submissions. The certification must be filed within two business days of the date on which the equity interest was acquired. Proposed § 49.5(c) would instead require that upon the transfer of the equity interest, whether directly or indirectly, the SDR shall file electronically with the Secretary of the Commission and DMO a certification that the SDR meets all of the requirements of section 21 of the Act and Commission regulations, no later than two business days following the date on which the equity interest of ten percent or more was acquired. The Commission believes proposed § 49.5(a) and (c) would provide the Commission with the pertinent information it needs to assess the impact of an equity interest transfer on the SDR's operations. Request for Comment. The Commission requests comment on all aspects of the proposed changes to § 49.5. D. § 49.6—Request for Transfer of Registration The Commission is proposing amendments to streamline the requirements for the transferring of SDR registration to a successor entity in § 49.6. As part of these amendments, the Commission is proposing to retitle the section “Request for transfer of registration,” to more accurately reflect the subject of the regulation. Proposed § 49.6(a) would require that an SDR seeking to transfer its registration from its legal entity as a result of a corporate change that creates a new legal entity file a request for approval to transfer such registration with the Secretary of the Commission in the form and manner specified by the Commission. Examples of such corporate changes could include, but are not limited to, re-organizations, mergers, acquisitions, bankruptcy, or other similar events that result in the creation of a new legal entity for the SDR. Proposed § 49.6(b) would specify that an SDR file a request for transfer of registration as soon as practicable prior to the anticipated corporate change. Proposed § 49.6(c) would set forth the information that must be included in the request for transfer of registration, including the underlying documentation that governs the corporate change, governance documents, and representations by the transferee entity, among other information. Proposed § 49.6(d) would specify that upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request for transfer of registration. Current § 49.6(a) requires that in the event of a corporate transaction that creates a new entity, an SDR must request a transfer of its registration, rules, and other matters no later than 30 days after the succession. Current § 49.6(a) also specifies that the registration shall be deemed to remain effective as the registration of the successor if the successor, within 30 days after such succession, files a Form SDR application for registration, and the predecessor files a Form SDR request for vacation, provided, however, that the registration of the predecessor SDR shall cease to be effective 90 days after the Form SDR registration application is filed by the successor SDR. Current § 49.6(b) requires that if the succession is based solely on a change in the predecessor's date or state of incorporation, form of organization, or composition of a partnership, the successor may, within 30 days after the succession, amend the registration of the predecessor SDR on Form SDR to reflect these changes. The amendment shall be an application for registration filed by the predecessor and adopted by the successor. The Commission believes that the amendments to § 49.6 would simplify the process for requesting a transfer of SDR registration. The Commission believes the requirement, timing, content of requests, and format of a Commission determination in proposed § 49.6(a), (b), (c), and (d) respectively, would achieve the Commission's information needs when an SDR seeks to transfer registration. These requirements would streamline the requirements for SDRs by setting forth a clear process for transfer that focuses on informing the Commission of changes relevant to the Commission in carrying out its oversight responsibilities, as opposed to requiring SDRs to file new Forms SDR, which would likely duplicate most of the transferor's current Form SDR. Request for Comment. The Commission requests comment on all aspects of the proposed changes to § 49.6. E. § 49.9—Open Swaps Reports Provided to the Commission The Commission is proposing to replace current § 49.9 with requirements for SDRs to provide open swaps reports to the Commission. 48 The Commission proposes renaming § 49.9 “Open swaps reports provided to the Commission” to reflect this change. 48 As discussed above in section II.A, the Commission is proposing to define an open swap as an executed swap transaction that has not reached maturity or the final contractual settlement date, and has not been exercised, closed out, or terminated. Proposed § 49.9(a) would require SDRs to provide the Commission with open swaps reports that contain an accurate reflection of the swap data for every swap data field required to be reported under part 45 for every open swap maintained by the SDR, organized by the unique identifier created pursuant to § 45.5 of the Commission's regulations associated with each open swap, 49 as of the time the SDR compiles the open swaps report. 49 Proposed § 49.11 would also require SDRs to distribute open swaps reports to reporting counterparties. While a distinct report and separate requirement from proposed § 49.9, the Commission expects that the swap data contained in the open swaps reports provided to the Commission under proposed § 49.9 and the swap data provided to reporting counterparties under proposed § 49.11 would be identical, except for any data that is required to be kept confidential, if both reports reflect data as of the same moment. See section II.G below. Proposed § 49.9(b) would require SDRs to transmit all open swaps reports to the Commission as instructed by the Commission, and notes that such instructions may include, but would not be limited to, the method, timing, and frequency of transmission, as well as the format of the swap data to be transmitted. 50 50 As discussed below in section II.V, proposed § 49.31 would delegate the Commission's authority in proposed § 49.9, including the authority to create instructions for transmitting open swaps reports to the Commission, to the Director of DMO. Current § 49.9 lists and briefly summarizes the duties of SDRs. Current § 49.9 does not contain any unique regulatory requirements, but instead references where the duties are found in other sections of part 49. 51 The Commission believes that current § 49.9 is superfluous because all of the SDR duties listed in § 49.9 are also contained, in much greater detail, in the other sections of part 49. The Commission notes that removing current § 49.9 would be a non-substantive change that would not affect the requirements for SDRs found in the other sections of part 49, including the sections currently referenced in § 49.9. 51 As discussed below in section II.Q, the Commission is proposing conforming amendments to § 49.25 to remove references to amended § 49.9. The Commission believes that regularly receiving accurate and up-to-date information on the open swaps maintained by each SDR is necessary for the Commission to perform its regulatory functions. While the specific requirements in proposed § 49.9 are new to part 49, SDRs currently send open swaps reports to the Commission on a regular basis. The Commission currently uses open swaps reports to produce a weekly swaps report that is made available to the public 52 and for entity-netted notional calculations. 53 The Commission also uses open swaps to perform market risk and position calculations, and for additional market research projects. 52 The Commission's various public reports, including the weekly swaps reports, are available at http://www.cftc.gov/MarketReports/index.htm. 53 See “Introducing ENNs: A Measure of the Size of Interest Rate Swaps Markets,” Jan. 2018, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_enns0118.pdf. SDRs currently provide open swaps reports that use different calculation approaches and different formats. These variations among SDRs reduce the Commission's ability to effectively use the swap data. The Commission notes that the proposed regulations would standardize a type of report the SDRs already create for the Commission. The Commission believes that providing standards for how the swap data in open swaps reports should be provided to the Commission would help remedy issues the Commission faces in trying to reconcile open swaps reports across the SDRs. The Commission notes that it would have the ability to instruct SDRs as to all aspects of transmitting the open swaps reports to the Commission under proposed § 49.9. These instructions may include the method of transmission ( e.g., file types and methods used for transmission), the timing of transmission, the frequency of transmission, and the formatting of the swap data included in the reports. The Commission believes that retaining the flexibility to determine how SDRs would provide open swaps reports to the Commission and the ability to modify the requirements over time as needed would allow the Commission to use the information in the reports to fulfill its regulatory responsibilities while not requiring unnecessary effort on the part of the SDRs. The Commission intends to work with the SDRs before creating or modifying any instructions pursuant to proposed § 49.9 and would provide a reasonable amount of time for SDRs to adjust their systems before any instructions take effect. The Commission notes that it currently works with SDRs to implement changes to open swaps reports, with SDRs being given time to update their systems as needed. The Commission anticipates using a similar process when working with the SDRs on the new requirements for open swaps reports. Request for Comment. The Commission requests comment on all aspects of the proposed changes to § 49.9. F. § 49.10—Acceptance of Data The Commission proposes amending § 49.10 to add a new paragraph (e) to address correction of errors and omissions in SDR data. SDRs are currently required to publicly disseminate cancellations and corrections to swap transaction and pricing data as soon as technologically practicable after receipt of any cancellation or correction, 54 and transmit corrections to errors and omissions in swap data previously transmitted to the Commission in the same format as the erroneous or omitted swap data was originally transmitted. 55 54 See 17 CFR 43.3(e)(1), (3), and (4) (requiring an SDR to publicly disseminate corrections and cancellations to data and containing requirements for cancellation and correction). 55 See 17 CFR 45.14(c) (requiring corrections to be transmitted to the Commission in the same format as the data was originally transmitted, unless otherwise approved). Swap counterparties, SEFs, and DCMs currently have obligations to report errors and omissions to the reporting counterparty, SEF, DCM, or SDR, depending on whether they are reporting swap transaction and pricing data or swap data. 56 The Commission is proposing to move the obligations for SDRs in correcting errors and omissions to § 49.10(e), to place all obligations for SDRs in part 49. 57 The Commission believes proposed § 49.10(e) is consistent with the SDRs' duty to correct errors and omissions that already exists in the CEA and current Commission regulations. 56 See § 43.3(e) for swap transaction and pricing data, discussed below in section IV.A, and § 45.14 for swap data, discussed below in section III.B. The obligations for swap counterparties, SEFs, and DCMs to report errors and omissions in swap transaction and pricing data and swap data would remain in their current sections. 57 Parts 43 and 45, while containing provisions related to SDR acceptance and dissemination of data, concentrate on the reporting and dissemination of data by all market participants, while part 49 contains provisions that govern the registration and operations of SDRs more generally. Proposed § 49.10(e) would set forth the general requirement that an SDR correct errors and omissions in SDR data that was previously reported to the SDR or was not previously reported to the SDR as required, 58 regardless of the state of the swap that is the subject of the SDR data. 58 The Commission notes that the failure to perform the initial data reporting as required under parts 43, 45, or 46 is an “omission” for the purposes of those parts and proposed § 49.10. The SDR would be required to correct the omission pursuant to proposed § 49.10, just as it would be required to correct any other error or omission, regardless of the state of the swap, and disseminate the corrected data as required in proposed § 49.10. Proposed § 49.10(e)(1)-(4) would set forth the specific requirements SDRs would need to meet to fulfill the general requirement in § 49.10(e). Proposed § 49.10(e)(1) would require an SDR to accept corrections for errors and omissions reported to the SDR pursuant to parts 43, 45, and 46. Proposed § 49.10(e)(2) would require each SDR to correct the reported errors and omissions as soon as technologically practicable after the SDR receives a report of errors or omissions. Proposed § 49.10(e)(3) would require an SDR to disseminate corrected SDR data to the public and the Commission, as applicable, as soon as technologically practicable after the SDR corrects the SDR data. Proposed § 49.10(e)(4) would require SDRs to establish, maintain, and enforce policies and procedures designed for the SDR to fulfill its responsibilities under § 49.10(e)(1)-(3). 59 59 The Commission notes that the policies and procedures for reporting corrections to the SDR created pursuant to § 49.10(e) would be subject to disclosure to SEFs, DCMs, and reporting counterparties under proposed § 49.26(j). See section II.R below. The Commission is aware of previous instances where market participants were not provided with SDR policies and procedures related to the reporting or correction of data and were unaware of the SDR's requirements, which unnecessarily interfered with the reporting and correction processes. The requirements of proposed § 49.10(e)(4) and proposed § 49.26(j) are intended to prevent a similar situation from occurring in the context of data corrections. As noted above, new § 49.10(e) is designed to complement the correction provisions of other parts of the Commission's swap reporting regulations that apply to the entities reporting errors and omissions to SDRs, including proposed § 45.14(b), to ensure that errors and omissions in SDR data are corrected and disseminated as soon as possible. 60 The Commission also notes that SDRs currently have the duty to correct all SDR data previously reported, and all SDR data that was erroneously not reported as required, and to properly disseminate the corrections as required, including making the corrected SDR data available to the Commission as instructed, 61 which will continue pursuant to proposed § 49.17. 62 60 See section III.B below. 61 See 17 CFR 43.3(e) (correction and dissemination requirements for swap transaction and pricing data); 17 CFR 45.14 (correction and dissemination requirements for swap data); see also 17 CFR 49.13(a) (requiring SDRs to transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission.). 62 See section II.L below. As discussed in that section, SDRs are currently required to provide the Commission with direct electronic access to SDR data, including scheduled data transfers to the Commission. Finally, the Commission notes that, as specified in § 49.10(e), the requirements of new § 49.10(e) would apply regardless of the state of the swap, meaning SDRs would have to correct and disseminate SDR data for swaps that have matured or were otherwise terminated and are no longer open swaps. The Commission believes this requirement is necessary for SDRs to continue to maintain and disseminate SDR data that accurately reflects market activity to the public 63 and regulators. Further, SDRs currently do regularly make and disseminate corrections to previously-reported SDR data and SDR data that was not initially reported as required, including SDR data for previously matured or terminated swaps. 63 The Commission understands that market participants use the real-time swap transaction and pricing data disseminated by SDRs pursuant to part 43 for a variety of purposes, including modeling of the swaps markets that impacts their decisions related to transacting in swaps. In general, the Commission believes that specifying SDRs' responsibilities to receive corrections to SDR data from market participants, make the corrections to the SDR data, and to provide the corrected SDR data to the public and the Commission, as applicable, would further the Commission's goal of having accurate and complete SDR data available to both the Commission and the public by clearly delineating the SDRs' responsibilities in the process. Request for Comment. The Commission requests comment on all aspects of proposed § 49.10(e). G. § 49.11—Verification of Swap Data Accuracy The Commission proposes to revise the current requirements of § 49.11 that set forth SDRs' responsibilities to confirm the accuracy and completeness of swap data reported to SDRs. At the same time, the Commission is proposing to revise the requirements of § 45.14 for reporting counterparties, SEFs, and DCMs to verify swap data and correct errors in swap data. 64 The Commission believes that revised § 49.11 and § 45.14 would provide SDRs, reporting counterparties, SEFs, and DCMs with a clear understanding of their respective responsibilities for verifying swap data. 64 See section III.B below. The Commission is proposing to change the name of § 49.11 to “Verification of swap data accuracy” from “Confirmation of data accuracy” in order to reduce the number of differing uses of the word “confirmation” within the Commission's regulations. The Commission uses different tenses of the word “verify” 65 for the proposed requirement for the same reason. 65 The Commission recognizes that CEA section 21(c)(2) uses the term “confirm,” but for the reasons stated above believes “verification” and “verify” are necessary to avoid confusion. 1. General Requirement To Verify Swap Data Accuracy—Proposed § 49.11(a) The Commission proposes to amend § 49.11(a) to include a general requirement that SDRs verify the accuracy and completeness of swap data that the SDRs receive from SEFs, DCMs, and reporting counterparties, or third-party service providers acting on their behalf. 66 Revised § 49.11(a) would also require each SDR to establish, maintain, and enforce policies and procedures reasonably designed to verify the accuracy and completeness of swap data that it receives from SEFs, DCMs, reporting counterparties, or third-party service providers. 67 66 The Commission notes that an SDR may receive swap data from any SEF, DCM, or reporting counterparty, as defined in proposed § 49.2, but that the SDR would, under the proposed regulations, verify the accuracy and completeness of swap data with the reporting counterparty for a given swap, as discussed in this section. Likewise, under proposed § 45.14(a), the reporting counterparty would be required to verify the accuracy and completeness of swap data as required by that section. 67 SDRs would be required make their policies and procedures created pursuant to proposed § 49.11(a) available to their users and potential users under the requirements of proposed § 49.26(j). As noted above, proposed § 45.14(a) contains companion requirements to proposed § 49.11(a) that would require reporting counterparties to verify swap data with SDRs and to conform to the relevant SDR's verification policies and procedures in fulfilling their verification responsibilities. 68 68 See section III.B below. Section 21(c)(2) of the CEA requires SDRs to confirm with both counterparties to the swap the accuracy of the data that was submitted. 69 The Commission implemented section 21(c)(2) through adopting current § 49.11. Current § 49.11(a) requires that SDRs establish and adopt policies and procedures to ensure the accuracy of swap data and other regulatory information that is reported to an SDR. Current § 49.11(b) generally requires an SDR to confirm the accuracy and completeness of all swap data submitted pursuant to part 45. The Commission provided an exception to the requirement that SDRs confirm with both counterparties to the swap the accuracy of the data that was submitted in § 49.11(b)(1)(ii) for swap creation data and § 49.11(b)(2)(ii) for swap continuation data when swap data is received from a SEF, DCM, derivatives clearing organization (“DCO”), or from a third-party service provider acting on behalf of the swap counterparty, under certain conditions. 70 69 7 U.S.C. 24a(c)(2). 70 In these cases, §§ 49.11(b)(1)(ii) and 49.11(b)(2)(ii) relax the general requirement that the SDR affirmatively notify both counterparties directly if: (1) The SDR has formed a reasonable belief that the swap data is accurate; (2) the swap data or accompanying information reflect that both counterparties agreed to the swap data; and (3) the counterparties were provided with a 48-hour correction period. SDRs are required under current § 49.11(b)(1)(i) and § 49.11(b)(2)(i) to notify both counterparties to a swap when swap data is submitted directly via a swap counterparty, such as an SD, MSP, or non-SD/MSP counterparty, and not by a SEF, DCM, DCO, or a third-party service provider. 71 However, because counterparties do not currently have a corollary obligation to respond to the SDRs' notifications, SDRs have adopted rules based on the concept of negative affirmation: Reported swap data is presumed accurate and confirmed if a counterparty does not inform the SDR of errors or omissions or otherwise make modifications to a trade record for a certain period of time. 72 71 See 17 CFR 49.11(b). 72 See, e.g., CME Rules 604.A and 604.B; DTCC Data Repository (U.S.) LLC Rule 3.3.3.3; and ICE Trade Vault Rules 4.6 and 4.7. When the Commission adopted current § 49.11, it did not believe that requiring an SDR to affirmatively communicate with both counterparties to a swap was necessary when the swap data was submitted to the SDR by a SEF, DCM, DCO, or third-party service provider. 73 However, based on the Commission's experience with swap data submitted by SEFs, DCMs, DCOs, and third-party service providers since the rule was adopted, the Commission believes that such swap data has not been consistently complete and accurate in some instances, and the swap data accuracy is not sufficient to justify the exception to the requirement that SDRs confirm the reported swap data's accuracy with swap counterparties. The current requirements have had a negative effect on swap data accuracy and consistency, which has hampered the Commission's ability to carry out its regulatory responsibilities. 73 See Part 49 Adopting Release at 54547 (describing the requirements of § 49.11). Commission staff received many comments on confirmation requirements for swap data reported to SDRs in response to the Roadmap Request for Comment. 74 In general, the SDRs commented that they cannot meet their obligation to confirm data with both counterparties because non-reporting counterparties are not required to confirm data reported to the SDR under current regulations. 75 The SDRs also stated that they often have no way to contact non-reporting counterparties because non-reporting counterparties are not obligated to connect to the SDRs' services. 76 SDRs also commented that the obligation to confirm data accuracy should generally reside with the entities that are in the best position to know whether the reported data is accurate and complete ( i.e., the parties to the swap, not the SDRs). 77 74 The following organizations submitted comments related to confirmation and reconciliation for data reported to SDRs: American Counsel of Life Insurers (“ACLI”); Commercial Energy Working Group (“CEWG”); Chatham Financial (“Chatham”); CME Group (“CME”); Coalition for Derivatives End-Users (“Coalition”); Depository Trust & Clearing Corporation (“DTCC”); Eurex Clearing AG (“Eurex”); a joint comment letter from BSDR LLC, Chicago Mercantile Exchange Inc., and ICE Trade Vault (“Joint SDR”); Global Financial Markets Association (“GFMA”); ICE Trade Vault (“ICE”); International Energy Credit Association (“IECA”); a joint letter comment letter from International Swaps and Derivatives Association, Inc. and the Securities Industry and Financial Markets Association (“ISDA/SIFMA”); Japanese Bankers Association (“JBA”); Natural Gas Supply Association (“NGSA”); a joint comment letter from National Rural Electric Cooperative Association and American Public Power Association (“NRECA/APPA”); and Securities Industry and Financial Markets Association Asset Management Group (“SIFMA AMG”). 75 Joint SDR Letter at 5; ICE Letter at 2. 76 Joint SDR Letter at 5; DTCC Letter at 3; ICE Letter at 2. 77 Joint SDR Letter at 5 (listing CME and ICE as supporting this belief); CME Letter at 2; DTCC Letter at 3. As a result, many SDRs advocated for removing some or all SDR obligations from § 49.11 of the Commission's regulations. 78 The Joint SDR letter commented that the Commission should clearly define the obligations of counterparties to confirm the accuracy and completeness of reported data, including requiring non-reporting counterparties to on-board with every SDR and to follow the SDRs' processes and procedures, if the non-reporting counterparties have confirmation obligations. 79 78 Joint SDR Letter at 5; CME Letter at 2; ICE Letter at 2. 79 Joint SDR Letter at 5 (listing CME and ICE as providing this recommendation). Other commenters, including end-user groups, opposed confirmation requirements for non-reporting counterparties. 80 Chatham stated that non-reporting parties are rarely the cause of errors in the swap data and that reconciliation by reporting counterparties in conjunction with more robust validation of swap data would render reconciliation by non-reporting counterparties unnecessary. 81 CEWG advocated against any periodic reconciliation, and suggested that if reconciliation is required, it only be required for position data. 82 80 Coalition Letter at 4 (noting that end-users do not have the dedicated systems, personnel, or resources to confirm swap details with SDRs); IECA Letter at 2; NRECA/APPA Letter at 3; Chatham Letter at 3-4; JBA Letter at 1-2; NGSA Letter at 3; ISDA/SIFMA Letter at 6; ACLI Letter at 2-3; SIFMA AMG Letter at 1-2. 81 Chatham Letter at 3-4. 82 CEWG Letter at 3. The Commission's proposed revisions to § 49.11 and § 45.14(a) 83 should provide more detail on the responsibilities of SDRs, working in conjunction with reporting counterparties, to verify the accuracy and completeness of swap data. As described in the discussions of proposed § 49.11(b)-(d) below, the Commission is proposing that SDRs only verify swap data with reporting counterparties because the Commission believes this would be the most practical approach to verification. The Commission understands that SDRs are not parties to swaps and are therefore unable to verify the accuracy and completeness of swap data without the assistance of a swap counterparty. 83 See section III.B. The Commission believes reporting counterparties are in the best position to verify swap data with SDRs. The CEA's swap reporting framework is based on reporting counterparties reporting swap data on behalf of non-reporting counterparties. 84 Because of the data reporting requirements for reporting counterparties, reporting counterparties are connected to SDRs for reporting, while non-reporting counterparties, especially those that are not SDs/MSPs, often lack such connections. 85 For entities that never serve as reporting counterparties, such a requirement would mean the expense of building, maintaining, and operating systems to connect to SDRs purely for the purposes of verifying swap data. The Commission believes this outcome would be inconsistent with the CEA's goal of placing swap data reporting responsibilities on reporting counterparties. 84 As discussed in the Part 45 Adopting Release, in designating reporting counterparties to report on behalf of non-reporting counterparties, Congress made a policy choice to place lesser burdens on non-reporting counterparties. See 77 FR 2136, 2166 (discussing the reporting counterparty hierarchy in CEA section 4r(a)(3)). 85 The Commission notes that under current and proposed § 45.14(b), a non-reporting counterparty's correction responsibilities are limited to notifying the reporting counterparty of the errors and omissions, as opposed to notifying the SDR. See 17 CFR 45.14(b); section III.B below. Requiring non-reporting counterparties to verify swap data would be the only instance where a non-reporting counterparty has swap data responsibilities with SDRs outside of corrections. 2. Distribution of Open Swaps Reports—Proposed § 49.11(b) To meet the requirement to verify swap data accuracy in proposed § 49.11(a), proposed § 49.11(b) would require an SDR to distribute to each reporting counterparty on a regular basis an open swaps report detailing the swap data maintained by the SDR for all open swaps. 86 86 Under proposed § 45.14(a), a reporting counterparty would then compare its books and records related to each swap for which it is the reporting counterparty against the report to determine if the swap data the SDR maintains is complete and accurate. See section III.B below. The Commission notes that the open swaps report would contain the same type of information that would be provided to the Commission in an open swaps report under proposed § 49.9, as of the time the SDR compiles the open swaps report, but limited to the open swaps for which the recipient of the open swaps report is the reporting counterparty. 87 The Commission notes that an SDR would not be required to provide an open swaps report to an entity that does not have any open swaps at the time the SDR compiles a particular open swaps report, even if the entity has been the reporting counterparty for swaps previously maintained by the SDR. For example, if all of the swaps for which an entity was the reporting counterparty were terminated before the SDR begins compiling an open swaps report, the SDR need not provide an open swaps report to that reporting counterparty. The SDR would need to provide subsequent open swaps reports to the entity if the entity becomes the reporting counterparty for any swaps that are open as of the time of a subsequent regular compiling of open swaps reports. 87 The Commission anticipates that, because the SDR would be required to regularly distribute the open swaps report on the same day during the verification period for each individual reporting counterparty under proposed § 49.11(b)(1)-(2), the SDR would begin to compile the open swaps report at the same time before each distribution. The Commission also notes that it is not proposing to prescribe how an SDR must distribute the open swaps reports to reporting counterparties. Commission staff understands some SDRs “push” or actively send information to reporting counterparties, while other SDRs typically have customers “pull” information by having those customers connect to SDR systems to retrieve the information. The Commission would not have a preference between these two approaches, provided that the SDR has instructed its customers on when and how the SDR would distribute the open swaps reports in the SDR's swap data verification policies and procedures that it makes available to market participants pursuant to proposed § 49.26(j), such that the SDR's customers are able to effectively access and utilize the open swaps reports. The Commission also notes that it does not have a preference as to the communication methods, such as file types and data languages, that the SDRs and reporting counterparties use when distributing the open swaps reports, as long as the communication methods are made clear in the SDR's swap data verification policies and procedures and the entities can effectively communicate regarding the contents of each open swaps report, including accounting for all necessary automated systems, mapping of data fields, and potential data translation between data languages. The Commission would expect SDRs and reporting counterparties to work together to devise efficient and effective methods for successfully distributing the open swaps reports, with particular attention paid to creating a distribution system that minimizes the burden of distribution for non-SD/MSP/DCO reporting counterparties. Reporting counterparties are already connected to SDRs to fulfill their reporting responsibilities under part 45 and therefore the Commission anticipates that SDRs and reporting counterparties would be able to communicate easily, potentially through existing infrastructure for reporting swap data. 3. Content of Open Swaps Reports—Proposed § 49.11(b)(1) Proposed § 49.11(b)(1) would require an SDR to distribute an open swaps report that contains an accurate reflection of the swap data for every swap data field required to be reported for swaps pursuant to part 45 for every open swap maintained by the SDR for which the recipient of the report is the reporting counterparty, organized by the unique identifier created pursuant to § 45.5 of the Commission's regulations associated with every open swap, as of the time the SDR compiles the open swaps report. The Commission notes that the swap data to be included in the open swaps report would need to include every data field required to be reported for swaps under part 45, unless access to a particular data field is prohibited by other Commission regulations. 88 88 The Commission notes that the confidentiality requirements, particularly § 49.17(f), would apply to the open swaps reports. Under § 49.17(f), for example, an SDR may not include the identity or legal entity identifier of the non-reporting counterparty to the swap (or the non-reporting counterparty's clearing member for the swap) if the swap was executed anonymously on a SEF or DCM and cleared in accordance with the Commission regulations referenced in § 49.17(f)(2). See 17 CFR 49.17(f)(2) (providing the exception to the general prohibition on market participant access to swap data maintained by SDRs). The Commission believes that having every reporting counterparty review the swap data and respond to the SDR as required in proposed § 45.14 would improve the quality of swap data by facilitating the discovery and correction of errors and omissions. Proposed § 49.11(b)(1) would facilitate this review by requiring the SDRs to provide the swap data for all of a reporting counterparty's open swaps on a regular basis. The Commission anticipates this process would be largely automated and would become more efficient over time as reporting counterparties and SDRs gain experience with verification. The Commission is not proposing specific requirements for the formatting of the open swaps report provided pursuant to proposed § 49.11(b)(1), but the Commission expects that the swap data included in the open swaps report would be identical to the swap data provided to the Commission pursuant to proposed § 49.9 in all instances where the two reports reflect swap data as of the same time, except for any data that is required to be kept confidential. 89 The Commission believes it is important that the reporting counterparty would be able to review the same swap data that is provided to the Commission as of the moment the SDR compiled the open swaps report, to help ensure data consistency. 89 See section II.E above (discussing the proposed requirements for providing open swaps reports to the Commission). 4. Frequency of Open Swaps Reports for SD, MSP, and DCO Reporting Counterparties—Proposed § 49.11(b)(2) Proposed § 49.11(b)(2) would require SDRs to distribute the open swaps reports to all SD/MSP/DCO reporting counterparties on a weekly basis, no later than 11:59 p.m. Eastern Time 90 on the day of the week that the SDR chooses to regularly distribute the open swaps reports. The Commission notes that it is not prescribing the day that the SDR chooses to distribute the open swaps report, but would require that the SDR use the same day of the week for each distribution. The Commission would also require that the SDR distribute all of the open swaps reports to the relevant reporting counterparties on the same day. Distributing the open swaps reports irregularly may create the unnecessary risk of confusion and/or missed reports, and may lead to swap data not being properly verified. Regular distribution would also allow reporting counterparties to prepare for when they would be required to fulfill their verification responsibilities. 90 The Commission is specifying a time under proposed § 49.11 for consistency purposes. SDRs would need to account for the adjustments to Eastern Time that occur during the year in their verification policies and procedures and reporting counterparties would need to accommodate these adjustments in their verification practices. The Commission believes that SDs, MSPs, and DCOs, as large, sophisticated Commission-registered entities that are accustomed to swap data regulatory compliance, and as the most likely entities to serve as reporting counterparties, 91 can efficiently verify swap data on a weekly basis. Further, as SDs, MSPs, and DCOs are the reporting counterparty for the overwhelming majority of swaps, 92 requiring these entities to review the swap data maintained for their open swaps on a weekly basis would ensure that the large majority of open swaps would be verified within a week of execution, which would also facilitate the prompt correction of any errors or omissions in the swap data for these swaps. 91 Any swap involving at least one SD, MSP, or DCO as a counterparty will have a reporting counterparty that is a SD, MSP, or DCO. See 17 CFR 45.8 (providing the requirements for determining which counterparty to a swap is the reporting counterparty). 92 See De Minimis Exception to the Swap Dealer Definition, 83 FR 56666, 56674 (Nov. 13, 2018) (stating that, in 2017, approximately 98 percent of swap transactions involved at least one registered SD). 5. Frequency of Open Swaps Reports for Non-SD/MSP/DCO Reporting Counterparties—Proposed § 49.11(b)(3) Proposed § 49.11(b)(3) would require SDRs to distribute the open swaps reports to non-SD/MSP/DCO reporting counterparties on a monthly basis, no later than 11:59 p.m. Eastern Time on the day of the month that the SDR chooses to regularly distribute the open swaps reports. For the reasons discussed above with respect to proposed § 49.11(b)(2), the Commission is not prescribing the day of the month that the SDR chooses to distribute the open swaps reports, but does require that the SDR use the same day of the month for each distribution. The Commission is also proposing to require that the SDR distribute all of the open swaps reports to the relevant reporting counterparties on the same day. The Commission believes that monthly distribution would satisfy the Commission's need for accurate swap data. The Commission is aware that non-SD/MSP/DCO counterparties tend to be less active in the swaps markets with fewer resources to devote to regulatory compliance. The Commission understands that this is particularly true of swaps end-users that use swaps infrequently and are more likely to engage in swaps for hedging purposes. Non-SD/MSP/DCO counterparties are also the reporting counterparties for relatively few swaps; 93 therefore, the Commission believes that there would not be a significant risk of errors associated with less frequent verification for these reporting counterparties. 93 See id. (finding that, during the examination period, 98 percent of swap transactions involved at least one SD/MSP counterparty). 6. Receipt of Verification of Data Accuracy or Notice of Discrepancy—Proposed § 49.11(c) Proposed § 49.11(c) would require SDRs to receive from each reporting counterparty to which it sends an open swaps report, in response to the open swaps report, either a verification of data accuracy indicating that the swap data contained in the open swaps report distributed pursuant to § 49.11(b) is accurate and complete or a notice of discrepancy indicating that the data contained in an open swaps report contains one or more discrepancies. 94 Proposed § 49.11(c) would also require SDRs to establish, maintain, and enforce policies and procedures reasonably designed for the SDR to successfully receive the verification of data accuracy or the notice of discrepancy. 94 The Commission notes that an SDR receiving a notice of discrepancy should expect to—and be prepared to—receive corrections for the errors and omissions in the swap data close in time to when it receives the notice of discrepancy, due to the requirements of proposed § 45.14(b). The Commission notes that an SDR would not fully satisfy the requirements of proposed § 49.11 until it receives the verification of data accuracy or notice of discrepancy. The Commission believes that proposed § 49.11(c) would help ensure that the reporting counterparty has received and reviewed the open swaps report, which would aid the data correction process and improve the quality of swap data. The Commission also believes that proof of compliance would assist the SDRs and the Commission with any necessary compliance reviews. The requirement to establish, maintain, and enforce policies and procedures regarding this stage of verification would help ensure that the SDR is fully prepared to perform its verification duties and, because the policies and procedures would be made available to reporting counterparties pursuant to proposed § 49.26(j), would help ensure that the verification process is clear and efficient for reporting counterparties and SDRs. The Commission notes that it is not prescribing the methods for how SDRs fulfill their responsibilities under proposed § 49.11(c), but does expect that the SDRs would be reasonable in the requirements of their policies and would utilize methods that are as low-cost and efficient as possible. The Commission particularly encourages SDRs to be accommodating for non-SD/MSP/DCO reporting counterparties. The Commission notes that proposed § 45.14 includes corresponding requirements for reporting counterparties to verify the accuracy and completeness of swap data in response to the open swaps reports and for reporting counterparties to follow an SDR's verification policies and procedures in fulfilling their verification responsibilities, including analyzing and responding to open swaps reports. These corresponding requirements would help ensure that reporting counterparties respond to the open swaps reports in a timely and efficient manner, such that SDRs can fulfill their responsibilities under proposed § 49.11(c). The Commission also clarifies that, given the separate proposed companion requirements for reporting counterparties, an SDR would not be responsible for failing to satisfy the requirements of § 49.11 in the instance where an SDR made a full, good-faith effort to comply with proposed § 49.11, and followed its policies and procedures created pursuant to proposed § 49.11 in doing so, but was prevented from fulfilling the requirements because of a reporting counterparty failing to meet its responsibilities to respond to the open swaps report as required under proposed § 45.14(a). In such a situation, the reporting counterparty would be held responsible for its failure to satisfy the requirements of proposed § 45.14. 7. Amending Verification Policies and Procedures—Proposed § 49.11(d) Proposed § 49.11(d) would require SDRs to comply with the requirements under part 40 of the Commission's regulations when adopting or amending their verification policies and procedures. 95 95 Verification policies and procedures would be considered “rules” for the purposes of part 40 requirements. See 17 CFR 40.1, 40.5, and 40.6 (containing the filing and review provisions applicable to rules under the Commission's regulations). Request for Comment. The Commission requests comment on all aspects of proposed § 49.11. The Commission also invites specific comment on the following: (2) Is the Commission's proposed approach, which does not involve non-reporting counterparties in the verification process, an effective approach to verification? Why or why not? Are there additional benefits or costs to involving non-reporting counterparties in the verification process that have not been considered? Please be specific. (3) Should the Commission be more prescriptive in how the SDRs must distribute the open swaps reports to reporting counterparties pursuant to proposed § 49.11(b)? If so, what should be the requirements included in the prescribed approach? Please be specific. (4) Should the Commission be more prescriptive for the distribution timing and formatting for the open swaps reports the SDRs would provide to the reporting counterparties pursuant to proposed § 49.11(b)(2) and (3)? If so, what should be the requirements in the prescribed approach? Please be specific. (5) Should the Commission prescribe any aspect of how SDRs must receive verifications of accuracy or notices of discrepancy pursuant to proposed § 49.11(c)? If so, what should be the requirements in the prescribed approach? Please be specific. (6) Should the Commission require the verification of all swap data messages, as opposed to open swaps reports? Please explain why or why not. If so, what would be the costs and benefits associated with requiring the verification of all swap data messages? Please be specific. (7) Should the Commission require verification of open swaps reports more or less frequently than weekly for reporting counterparties that are SDs, MSPs, or DCOs? If so, please explain why and suggest a more appropriate verification frequency. (8) Should the Commission require verification of open swaps reports more or less frequently than monthly for reporting counterparties that are not SDs, MSPs, or DCOs? If so, please explain why and suggest a more appropriate verification frequency. (9) Should reporting counterparties also be required to verify the completeness and accuracy of swap transaction and pricing data submitted pursuant to part 43? Please explain why or why not. H. § 49.12—Swap Data Repository Recordkeeping Requirements Current recordkeeping requirements for SDRs are found in §§ 49.12, 45.2(f), and 45.2(g) of the Commission's regulations. Current § 49.12 contains recordkeeping requirements for SDRs, which include both specific provisions and references to the recordkeeping requirements for SDRs included in parts 43 and 45. 96 The Commission is proposing amendments to the SDR recordkeeping rules to clarify ambiguities, resolve inconsistencies, and move requirements for SDRs currently in part 45 to part 49. 96 See generally 17 CFR 43.3(h)(4), 17 CFR 45.2. Proposed § 49.12(a) would require that SDRs keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the SDR, including, but not limited to, all SDR information and all SDR data that is reported to the SDR. Proposed § 49.12(b) would specify separate recordkeeping requirements for SDR information in proposed § 49.12(b)(1) and SDR data reported to the SDR in proposed § 49.12(b)(2). Proposed § 49.12(b)(1) would require that an SDR maintain all SDR information, including, but not limited to, all documents, policies, and procedures required to be kept by the Act and the Commission's regulations, correspondence, memoranda, papers, books, notices, accounts, and other such records made or received by the SDR in the course of its business. All SDR information would be maintained in accordance with § 1.31 of this chapter. Proposed § 49.12(b)(2) would require an SDR to maintain all SDR data and timestamps reported to or created by the SDR, and all messages related to such reporting, throughout the existence of the swap that is the subject of the SDR data and for five years following final termination of the swap, during which time the records would be readily accessible by the SDR and available to the Commission via real-time electronic access, and for a period of at least ten additional years in archival storage from which such records are retrievable by the SDR within three business days. 97 97 The propose retention period is the current requirement for SDR records retention. See 17 CFR 45.2(g) (requiring that all records required to be kept by an SDR be kept readily accessible and electronically available to the Commission throughout the existence of the swap and for five years after final termination of the swap and then kept in archival storage for an additional period of at least ten years). Proposed § 49.12(c) would require SDRs to create and maintain records of SDR validation errors and SDR data reporting errors and omissions. Proposed § 49.12(c)(1) would require an SDR to create and maintain an accurate record of all reported SDR data that fails to satisfy the SDR's data validation procedures. The records would include, but would not be limited to, records of all of the SDR data reported to the SDR that failed to satisfy the SDR data validation procedures, all SDR validation errors, and all related messages and timestamps. Proposed § 49.12(c)(2) would require an SDR to create and maintain an accurate record of all SDR data errors and omissions reported to the SDR and all corrections disseminated by the SDR pursuant to parts 43, 45, and 46. SDRs would be required to make the records available to the Commission on request. The Commission is proposing to amend § 49.12(d) by replacing it with a revised version of current § 49.12(c) that would require that: (i) All records required to be kept pursuant to part 49 must be open to inspection upon request by any representative of the Commission or any representative of the U.S. Department of Justice; and (ii) an SDR must produce any record required to be kept, created, or maintained by the SDR in accordance with § 1.31. Finally, the Commission is proposing a technical change to move the current requirements of § 49.12(e) to the proposed revised requirements of SDRs to monitor, screen, and analyze SDR data in § 49.13, as discussed further below in section II.I. Current § 49.12 98 contains recordkeeping requirements for SDRs, which include both specific provisions and references to the recordkeeping requirements for SDRs included in parts 43 and 45. 99 Current § 49.12(a) requires an SDR to maintain its books and records in accordance with the recordkeeping requirements of part 45. 100 98 See 17 CFR 49.12. 99 See generally 17 CFR 49.12, 17 CFR 45.2. 100 The recordkeeping requirements of part 45 for SDRs are found in § 45.2(f) and (g). See 17 CFR 45.2(f) and (g). Current § 49.12(b) requires the SDR to maintain swap data (including historical positions) throughout the existence of the swap and for five years following the final termination of the swap, during which time the records must be readily accessible by the SDR, available to the Commission via real-time electronic access, and in archival storage from which the data is retrievable by the SDR within three business days. 101 Current § 49.12(b) however does not fully account for the requirements of § 45.2(g)(2). 102 Additionally, the sections of part 45 applicable to SDRs apply to all records, as opposed to current § 49.12(b), which only applies to swap data. 101 See 17 CFR 49.12(b). 102 Section 45.2(g)(2) requires that all records required to be kept by an SDR must be kept in archival storage for ten years after the initial § 45.2(g)(1) retention period. Current § 49.12(b) only includes the initial retention period. Current § 49.12(c) requires all records that are required to be kept pursuant to part 49 be open to inspection upon request by any representative of the Commission and the U.S. Department of Justice. Current § 49.12(c) also requires that copies of all SDR records will be provided, at the expense of the SDR or person required to keep such records, to any representative of the Commission upon request, either by electronic means or in hard copy, or both, as requested by the Commission. Current § 49.12(d) requires an SDR to comply with the real time public reporting and recordkeeping requirements of § 49.15 and part 43. Current § 49.12(e) requires an SDR to establish policies and procedures to calculate positions for position limits and for any other purpose as required by the Commission. The Commission's proposed amendments to § 49.12(a) incorporate the provisions of current § 45.2(f). Current § 49.12(a) implies that the recordkeeping requirements only apply to swap data 103 while § 45.2(f) clearly states that its requirements apply to records, not only data reported to the SDR. 104 As discussed in section III.A, coupled with the deletion of § 45.2(f) and (g), this amendment would reduce confusion that may arise from having separate SDR recordkeeping requirements in two different rules. This amendment would also clearly state that an SDR is required to keep records beyond just the swap data that is reported to the SDR, which is consistent with the requirements of current § 45.2(f). The Commission notes that, despite the amendment to § 49.12(a), the actual requirements for an SDR would remain the same, because the amendments to § 49.12(a) are merely reproducing the § 45.2(f) requirements, which have applied to SDRs since the effective date for part 45 in 2012. 103 See 17 CFR 49.12(a) (regarding the swap data required to be reported to the swap data repository). 104 See 17 CFR 45.2(f) (Each swap data repository registered with the Commission shall keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the swap data repository and all swap data reported to the swap data repository, as prescribed by the Commission.). The Commission is proposing to amend current § 49.12(b) because: (i) Current § 49.12(b) only applies to swap data, 105 as opposed to all records required to be kept by an SDR; 106 (ii) current § 49.12(b) only fully includes the record retention and retrieval requirements of § 45.2(g)(1), 107 though the requirements of § 45.2(g)(2) 108 also apply to all SDR records; and (iii) neither current § 49.12(b) nor § 45.2 distinguish between records of data related to swaps and other records required to be kept by SDRs in regards to the retention periods. Current § 49.12(b) and § 45.2 use the existence of the swap as the basis for the record retention timeframes, but this offers no guidance on how long to keep a record of SDR information, such as SDR policies and procedures. The Commission proposes to remove these inconsistencies and to clarify the scope of SDR recordkeeping, while also consolidating SDR recordkeeping obligations in one regulation. 105 See 17 CFR 49.12(b) (A registered swap data repository shall maintain swap data). 106 See 17 CFR 45.2(f) (Stating that SDRs are required to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the swap data repository and all swap data reported to the swap data repository). 107 See 17 CFR 45.2(g)(1) (Throughout the existence of the swap and for five years following the final termination of the swap, during which time the records must be readily accessible by the swap data repository and available to the Commission via real time electronic access.). 108 See 17 CFR 45.2(g)(2) (Thereafter, for a period of at least ten additional years in archival storage from which they are retrievable by the swap data repository within three business days.). Proposed § 49.12(b)(1) also requires that the SDR information be maintained in accordance with § 1.31. 109 The proposed changes to § 49.12(b) would also help harmonize the Commission's regulations with the SEC's regulations. 110 The SDR information listed in the proposed changes to § 49.12(b)(1) largely matches the SEC's requirement for SBSDR recordkeeping 111 and the retention provisions of § 1.31 of this chapter largely match the requirement for SBSDRs. 112 Further, any SDR that also registers with the SEC as an SBSDR would have to comply with § 49.12 and § 240.13n-7, and therefore consistency between the recordkeeping provisions would be particularly beneficial to these SDRs. The SDR information records requirement is also similar to recordkeeping obligations for DCMs, 113 SEFs, 114 and DCOs. 115 109 Section 1.31 of the Commission's regulations is the Commission's general recordkeeping provision, which requires, among other requirements, that all regulatory records that do not pertain to specific transactions and are not retained oral communications be kept for no less than five years from the creation date of the record. See 17 CFR 1.31(b)(3). 110 The concept of separate recordkeeping requirements for information similar to SDR information and for SDR data reported to an SDR has already been adopted by the SEC in its regulations governing SBSDRs. See 17 CFR 240.13n-7(b) (listing recordkeeping requirements for SBSDRs); 17 CFR 240.13n-7(d) (excluding “transaction data and positions” from the recordkeeping requirements and instead referring to 17 CFR 240.13n-5 for this recordkeeping). 111 See 17 CFR 240.13n-7(b)(1) (Every security-based swap data repository shall keep and preserve at least one copy of all documents, including all documents and policies and procedures required by the Securities Exchange Act and the rules and regulations thereunder, correspondence, memoranda, papers, books, notices, accounts, and other such records as shall be made or received by it in the course of its business as such.). 112 Compare 17 CFR 1.31(b)(3) (A records entity shall keep each regulatory record for a period of not less than five years from the date on which the record was created.) and 17 CFR 1.31(b)(4) (A records entity shall keep regulatory records exclusively created and maintained on paper readily accessible for no less than two years. A records entity shall keep electronic regulatory records readily accessible for the duration of the required record keeping period.) with 17 CFR 240.13n-7(b)(2) (Every SBSDR shall keep all such documents for a period of not less than five years, the first two years in a place that is immediately available to representative of the Securities and Exchange Commission for inspection and examination.). 113 See 17 CFR 38.951. 114 See 17 CFR 37.1001. 115 See 17 CFR 39.20. By specifically requiring records to be kept for all SDR data reported to the SDR, including all timestamps and messages to or from the SDR related to the reported SDR data, as opposed to only swap data, 116 and requiring that the records be kept for ten years in archival storage, 117 proposed § 49.12(b)(2) would reorganize current § 49.12(b). These “new” requirements are however already applicable to SDR recordkeeping by virtue of their inclusion in § 45.2(f) and (g). 118 Proposed § 49.12(b)(2) would reproduce the requirements of § 45.2(f) and (g) in part 49 to minimize the number of regulatory sections that contain recordkeeping and retention requirements for SDRs. 116 See 17 CFR 49.12(b) (A registered swap data repository shall maintain swap data throughout the existence of the swap and for five years following final termination of the swap). 117 Current § 49.12(b) does not specifically include the ten-year requirement, though current § 49.12(a) does state that books and records must be kept in accordance with the requirements of part 45, which does include the ten-year requirement. See 17 CFR 49.12(a) and (b); 17 CFR 45.2(g)(2). 118 See 17 CFR 45.2(f) and (g). Though the term “swap data” is defined in § 49.2(a) to mean the specific data elements and information set forth in part 45 of this chapter, the Commission notes that the term “swap data” is not currently defined in part 45. Section 45.2(f) requires the SDR to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities related to the business of the swap data repository and all swap data reported to the swap data repository, as prescribed by the Commission. This expansive requirement for “all pertinent data and memoranda” for all activities related to the business of the swap data repository and all swap data reported to the swap data repository shows that § 45.2(g) requires the SDRs to keep records of data from activities beyond reporting pursuant to part 45 of this chapter, including, for example, all of the required swap transaction and pricing data reporting pursuant to part 43 of this chapter. The “full, complete, and systematic records” that must be kept for “all activities related to the business” of the SDR also include all messages related to the reported data, including all messages sent from the SDR and to the SDR. This recordkeeping obligation on SDRs is analogous to recordkeeping obligations on DCMs, SEFs, and DCOs. See 17 CFR 38.950, 37.1001, and 39.20(a). The Commission notes that though the Commission is specifically proposing recordkeeping requirements for SDR data validation errors and SDR data reporting errors in this proposed § 49.12(c), this would not in any way limit the scope of recordkeeping requirements in proposed § 49.12 to these records. The recordkeeping discussed in proposed § 49.12(c) would also be required under the more general recordkeeping provisions of proposed § 49.12. The Commission notes that it believes SDRs already receive the data validations information that would be required in proposed § 49.12(c) via regular interaction with SEFs, DCMs, and reporting counterparties, but emphasizes that it must be maintained in order to allow for assessments of reporting compliance, including the initial reporting and the correction of the SDR data. The Commission also notes that because the records addressed by proposed § 49.12(c) are all comprised of or relate to SDR data reported to SDRs, all records created and maintained by the SDR pursuant to proposed § 49.12(c) would be subject to the requirements of proposed § 49.12(b)(2). The Commission notes that current § 49.12(d) 119 is redundant because its requirements that an SDR comply with the real time public reporting and recordkeeping requirements prescribed in § 49.15 and part 43 are also required by revised §§ 49.12(b)(2) and 49.15, as well as part 43. The Commission further notes that though current § 49.12(d) is proposed to be removed, SDRs would still be subject to the real time public reporting and recordkeeping requirements of § 49.15 and part 43. 119 See 17 CFR 49.12(d) (A registered swap data repository shall comply with the real time public reporting and recordkeeping requirements prescribed in § 49.15 and part 43 of this chapter.). Request for Comment. The Commission requests comment on all aspects of proposed § 49.12. The Commission also invites specific comment on the following: (10) Would SDRs be substantially impacted by changing the archival storage requirements of current § 45.2(g)(2) and proposed § 49.12(b)(2) from ten years to a different period of time? If so, what would be the correct length of time, and how would this change impact the SDRs? Please include specific facts and figures when providing comments. I. § 49.13—Monitoring, Screening, and Analyzing Data Section 21(c)(5) of the CEA specifically requires SDRs to, at the direction of the Commission, establish automated systems for monitoring, screening, and analyzing swap data, including compliance and frequency of end-user clearing exemption claims by individuals and affiliated entities. 120 The Commission believes, based on the text of section 21(c)(5) of the CEA, that SDRs function not only as repositories for swap data, but also as providers of data support for the Commission's oversight of swaps markets and swap market participants. To implement section 21(c)(5), the Commission adopted current § 49.13 and § 49.14. 120 7 U.S.C. 24a(c)(5). Current § 49.13 requires SDRs to: (i) Monitor, screen, and analyze all swap data in their possession as the Commission may require, including for the purpose of any standing swap surveillance objectives that the Commission may establish as well as ad hoc requests; and (ii) develop systems and maintain sufficient resources as necessary to execute any monitoring, screening, or analyzing functions assigned by the Commission. In the Part 49 Adopting Release, the Commission received comments relating to §§ 49.13(a) and 49.14 indicating concerns that the then-proposed regulations did not sufficiently describe the specific tasks SDRs are expected to perform. 121 In response, the Commission specifically stated that its intention in adopting §§ 49.13(a) and 49.14 was to codify the statutory requirements in CEA section 21(c)(5) and later establish specific monitoring, screening, and analyzing duties when its knowledge of the swaps markets was more fully-developed. 122 121 See letters from: (1) Americans for Financial Reform on February 22, 2011; (2) Chris Barnard on May 25, 2011; (3) Better Markets on February 22, 2011; (4) CME Group on February 22, 2011; (5) Depository Trust & Clearing Corporation on February 22, 2011; (6) Reval on February 18, 2011; (7) SunGard Energy & Commodities on February 22, 2011; and (8) TriOptima on February 22, 2011 available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=939. 122 See Part 49 Adopting Release at 54548. The Commission has worked with SDRs to implement the Commission's swap reporting regulations since 2011. In that time, SDRs have worked with Commission staff to produce reports that enable the Commission to perform oversight and monitoring of the swaps market. For instance, Commission staff uses the open swaps reports to monitor risk. In addition, reports on clearing exception elections provide the Commission with information on which entities are claiming exemptions from the Commission's mandatory clearing requirement for swaps. As noted in the Part 49 Adopting Release, the Commission intended to establish specific monitoring, screening, and analyzing duties for SDRs separately. The Commission believes that, based on its experience working with SDRs to monitor, screen, and analyze swap data as directed by CEA section 21(c)(5) thus far, it is prepared to identify the specific duties. The Commission expects specifying these topic areas would not impose substantial new fixed costs on SDRs because SDRs have already established the technology and related infrastructure designed to monitor, screen, and analyze data at the request of the Commission as required under current § 49.13(a). Finally, the Commission notes that the requested tasks would only be performed by SDRs to provide the Commission with data and reports related to the listed topic areas that would assist the Commission in performing its regulatory functions. The Commission would not expect SDRs to perform any of the Commission's regulatory functions or to provide recommendations to the Commission. The Commission proposes to amend § 49.13 to provide more detail on the monitoring, screening, and analyzing tasks that SDRs may be required to perform as directed by the Commission. The Commission is also proposing to amend § 49.13 to make clear that the requirements of proposed § 49.13 would apply to SDR data reported to the SDR pursuant to parts 43, 45, and 46. CEA section 21(c)(5) requires SDRs to establish automated systems for monitoring, screening, and analyzing swap data, but the term “swap data” is not defined in the CEA. The Commission believes that monitoring, screening, and analyzing tasks could be incomplete if limited to only swap data, as defined in § 49.2. 123 123 Current and proposed § 49.2 limit “swap data” to data reported to an SDR pursuant to part 45. See 17 CFR 49.2(a)(15). The proposed amendments to § 49.2(a) do not substantively change the definition of “swap data” for the purposes of part 49. Proposed § 49.13(a) would generally require that an SDR: (i) Establish automated systems for monitoring, screening, and analyzing all relevant SDR data in its possession in the form and manner as directed by the Commission, and (ii) routinely monitor, screen, and analyze relevant SDR data at the request of the Commission. 124 124 As discussed further below, proposed § 49.13(a) would more closely track the language of CEA section 21(c)(5) that requires SDRs to at the direction of the Commission, establish automated systems for monitoring, screening, and analyzing swap data, including compliance and frequency of end-user clearing exemption claims by individual and affiliated entities. Proposed § 49.13(a)(1) would require SDRs to utilize relevant SDR data maintained by the SDR to provide information to the Commission concerning such relevant SDR data. Proposed § 49.13(a)(1) would state that monitoring, screening, and analyzing requests may require the SDRs to compile and/or calculate the requested information within discrete categories, including comparing information among categories, and lists potential topics areas for which the Commission could request related data and reports: (i) The accuracy, timeliness, and quality of SDR data; (ii) updates and corrections to, and verification of the accuracy of, SDR data; (iii) currently open swaps and the consistency of SDR data related to individual swaps; (iv) the calculation of market participants' swap positions, including for purposes of position limit compliance, risk assessment, and compliance with other regulatory requirements; 125 (v) swap counterparty exposure to other counterparties and standard market risk metrics; (vi) swap valuations and margining activities; (vii) audit trails for individual swaps, including post-transaction events such as allocation, novation, and compression, and all related messages; (viii) compliance with Commission regulations; (ix) market surveillance; (x) the use of clearing exemptions and exceptions; and/or (xi) statistics on swaps market activity. 125 The Commission notes that the Commission regulations currently require SDRs to establish policies and procedures to calculate swap positions in § 49.12(e). The Commission is proposing to incorporate the current § 49.12(e) into proposed § 49.13(a), without substantively modifying the requirements for SDRs to calculate swap positions. Proposed § 49.13(a)(2) would state that all monitoring, screening, and analyzing requests shall be at the discretion of the Commission, which includes, but is not limited to, the content, scope, and frequency of each required response, and require that all information provided pursuant to a request conform to the form and manner requirements established for the request pursuant to proposed § 49.30. 126 126 The Commission, as discussed below in section II.U, is proposing to adopt § 49.30 to establish a “form and manner” regulation applicable to how information reported to, and maintained by, SDRs would be formatted and delivered to the Commission. The term “formatted” refers to how the information would be presented and could include, but is not limited to, attributes such as data messaging standards, allowable values, and levels of precision, as well as instructions on how the information would be transmitted, including, but not limited to, direct electronic access by Commission staff or by the SDR sending the information to the Commission, and the frequency and timing of delivery. Proposed § 49.13(a)(3) would require that all monitoring, screening, and analyzing requests be fulfilled within the time specified by the Commission for the particular request. 127 Proposed § 49.13(b) would require that SDRs establish, and at all times maintain, sufficient information technology, staff, and other resources to fulfill the requirements in § 49.13 in the manner prescribed by the Commission. 127 The Commission anticipates working with the SDRs and providing a reasonable time to fulfill each request based on the specific circumstances, including the volume of information requested and the complexity of the request. The Commission is also proposing to create a new § 49.13(c) that would incorporate current § 49.15(c) 128 but also expand it to require SDRs to promptly notify the Commission of any swap transaction for which the SDR is aware that it did not receive swap data according to part 45, or data according to part 46, in addition to the current requirement to notify the Commission of any swap transaction and pricing data not received according to part 43. 128 See 17 CFR 49.15(c) (Duty to Notify the Commission of Untimely Data. A registered swap data repository must notify the Commission of any swap transaction for which the real-time swap data was not received by the swap data repository in accordance with part 43 of this chapter.). As discussed further below, the Commission believes moving § 49.15(c) to § 49.13 would help consolidate the information SDRs need to send to the Commission into one part. The Commission is providing the following list of examples of monitoring, screening, and analyzing tasks that the Commission could request in the future pursuant to proposed § 49.13(a)(1). All of the examples would fall under at least one of the topic areas included in proposed § 49.13(a)(1). The Commission emphasizes that the following list is merely examples, is not exhaustive, and does not limit the Commission's ability to request that SDRs perform other monitoring, screening, and analyzing tasks that would fall under the topics listed in proposed § 49.13(a). Examples of potential future monitoring, screening, and analyzing activities include reports or information concerning: (i) The reporting (or corrected non-reporting) of swap transactions and any subsequent changes related to the swap, such as life cycle events, as defined in part 45; (ii) the timeliness of reporting through the tracking of execution and reporting timestamps; (iii) the altering or amending of swap terms after the initial public reporting of the swap transaction and pricing data; (iv) the application of the SDR's data validation procedures and information regarding data validation errors; (v) the identification and treatment of duplicate records; (vi) net and gross positions relating to unique product identifiers; (vii) positions of swap counterparties on an aggregate basis, including futures-equivalent positions identified with the legal entity to which a legal entity identifier is assigned; (viii) swap cancellations; (ix) accuracy and quality of reported SDR data; and (x) the positions of swap counterparties. The Commission notes that an information request under § 49.13(a)(1) could require an SDR to review a market participant's open swap positions for swaps where that market participant elected a clearing exemption. Such a request would combine categories in § 49.13(a)(1)(iii) and (x). Proposed § 49.13(a)(1) also states that such monitoring, screening, and analyzing requests could require SDRs to provide information comparing certain metrics over a period of time. For instance, an information request could require SDRs to compare the accuracy, timeliness, and quality of SDR data submitted by one or more SEFs, DCMs, or reporting counterparties over a defined period of time. Finally, information requests could require SDRs to compare two or more categories of information across a defined period of time. The Commission understands that SDRs can only be expected to perform monitoring, screening, and analyzing tasks based on the SDR data available to each SDR and that the results of any task would be limited to the SDR data for swaps reported to each SDR. The Commission also expects that SDRs and Commission staff would work together to design each task before a task is prescribed, as is current practice. Finally, the Commission believes that expanding the notice requirements of current § 49.15(c) under new proposed § 49.13(c) would improve the Commission's ability to monitor compliance with its regulations and increase the Commission's ability to efficiently respond to compliance issues by helping the Commission learn of compliance issues as soon as possible so that the issues can be remedied. SDRs are often in the best position to know of non-compliance with the data reporting requirements because of the information they receive from market participants. For example, SDRs would quickly know if a reporting counterparty has reported swap data pursuant to part 45 in an untimely manner because the SDR receives the swap data, including the execution timestamp, and can quickly compare when the swap was executed and when the swap data was received. The Commission acknowledges that SDRs can only identify and notify the Commission of SDR data reporting non-compliance based on the SDR data they receive and does not expect SDRs to inform the Commission of reporting issues of which they are not aware. Expanding the notice requirement to noncompliance with parts 45 and 46 would help the Commission to learn of a wider range of compliance issues when they first arise, which in turn would help the Commission to work with market participants and SDRs to fix issues as quickly as possible. Request for Comment. The Commission requests comment on all aspects of proposed § 49.13. The Commission also invites specific comment on the following: (11) Should the Commission require SDRs to calculate positions for market participants? Are there technological and/or regulatory limitations that would make such tasks difficult to perform and unlikely to achieve the desired results? Please be specific. (12) Should the SDRs create a process whereby the counterparties whose positions have been calculated based on data contained in the SDR have the opportunity to review and subsequently challenge and/or correct the results? Please explain why or why not. (13) Are there specific reports or sets of data that the Commission should consider obtaining from SDRs to monitor risk exposures of individual counterparties to swap transactions, to monitor concentrations of risk exposures, or for other purposes? Please be specific. (14) Are there specific reports or sets of data that the Commission should consider obtaining from SDRs to evaluate systemic risk or that could be used for prudential supervision? Are there any other reports or sets of data that the Commission should consider obtaining from SDRs that would not be included in the categories listed in proposed § 49.13(a)(1)? Please be specific. (15) Are there any other tasks or functions that SDRs could perform related to swap data that could help the Commission better assess individual market participant risks and market risks generally? Please be specific. (16) Would any of the specific monitoring, screening, or analyzing topic areas enumerated under proposed § 49.13(a)(1) impose new or substantial costs on SDRs that are not present under the requirements of current [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2019-08788. Public record. Not legal advice.