Real-Time Public Reporting Requirements

Federal RegisterNov 25, 2020

Ask Donna

What actually matters in this document.

Text

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 43

RIN 3038-AE60

Real-Time Public Reporting Requirements

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Final rule.

SUMMARY:

The Commodity Futures Trading Commission (“Commission” or “CFTC”) is amending certain regulations setting forth the real-time public swap reporting and dissemination requirements for swap data repositories (“SDRs”), derivatives clearing organizations (“DCOs”), swap execution facilities (“SEFs”), designated contract markets (“DCMs”), swap dealers (“SDs”), major swap participants (“MSPs”), and swap counterparties that are neither SDs nor MSPs. The amendments, among other things, address certain issues related to reporting post-priced swaps (“PPS”) and disseminating swaps associated with prime brokerage arrangements. In addition, the Commission is adopting technical amendments to certain provisions in other parts of its regulations.

DATES:

Effective date:

The effective date for this final rule is January 25, 2021.

Compliance Date:

SDRs, SEFs, DCMs, and reporting counterparties must comply with the amendments to the rules by May 25, 2022; provided, however, that SDRs, SEFs, DCMs, and reporting counterparties must comply with the amendments to §§ 43.4(h) and 43.6 of this final rule by May 25, 2023.

FOR FURTHER INFORMATION CONTACT:

Thomas Guerin, Special Counsel, (202) 734-4194,

tguerin@cftc.gov;

Matthew Jones, Special Counsel, (202) 418-6710,

majones@cftc.gov;

David E. Aron, Special Counsel, (202) 418-6621,

daron@cftc.gov;

Meghan Tente, Acting Deputy Director, (202) 418-5785,

mtente@cftc.gov,

each in the Division of Market Oversight; John Roberts, Senior Research Analyst, (202) 418-5943,

jroberts@cftc.gov,

Office of the Chief Economist; in each case at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

II. Amendments to Part 43

A. § 43.1—Purpose, Scope, and Rules of Construction

B. § 43.2—Definitions

C. § 43.3—Method and Timing for Real-Time Public Reporting

D. § 43.4—Swap Transaction and Pricing Data to be Publicly Disseminated in Real-Time

E. § 43.5—Time Delays for Public Dissemination of Swap Transaction and Pricing Data

F. § 43.6—Block Trades and Large Notional Off-Facility Swaps

G. § 43.7—Delegation of Authority

III. Swap Transaction and Pricing Data Reported to and Publicly Disseminated by Swap Data Repositories

A. Swap Transaction and Pricing Data Elements

IV. Compliance Date

A. General

B. Changes to the Appropriate Minimum Block Sizes and Cap Sizes

V. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

I. Background

Section 2(a)(13) of the Commodity Exchange Act (“CEA”) authorizes and requires the Commission to promulgate regulations for the real-time public reporting of swap transaction and pricing data. Section 2(a)(13)(A) defines “real-time public reporting” as reporting data relating to a swap transaction, including price and volume, as soon as technologically practicable after the time at which the swap transaction has been executed. Section 2(a)(13)(B) authorizes the Commission to make swap transaction and pricing data available to the public in such form and at such times as the Commission determines appropriate to enhance price discovery.

Section 2(a)(13) also imposes statutory requirements on the Commission. First, section 2(a)(13)(E) requires the Commission to prescribe regulations specifying what constitutes large notional swap transactions and the appropriate time delays for reporting such transactions to the public. Second, sections 2(a)(13)(E)(i) and 2(a)(13)(C)(iii) of the CEA require the Commission to protect the identities of counterparties and certain business transactions. Third, section 2(a)(13)(E)(iv) directs the Commission, in promulgating regulations under section 2(a)(13), to take into account whether public disclosure of swap transaction and pricing data will “materially reduce market liquidity.”

Part 43 of the Commission's regulations implements real-time public reporting requirements.

Part 43 requires swap counterparties, SEFs, and DCMs to report publicly reportable swap transactions to SDRs.

Subject to certain exceptions, SDRs are required to publicly disseminate this swap transaction and pricing data in real-time.

Commission regulations referred to herein are found at 17 CFR chapter I.

Real-Time Public Reporting of Swap Transaction Data, 77 FR 1182 (Jan. 9, 2012) (“2012 Real-Time Public Reporting Final Rule”); Procedures to Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades, 78 FR 32866 (May 31, 2013) (“Block Trade Rule”). 17 CFR 43.3(a)(1) through (3) and (b)(1).

See id.;

17 CFR 43.4.

Following the adoption of part 43, Commission staff has worked with SDRs, SEFs, DCMs, and reporting counterparties to address questions regarding interpretation and implementation of the regulatory requirements. Several years ago, the Division of Market Oversight (“DMO”) also reviewed the Commission's swap reporting rules. After completing that review, DMO announced

its Roadmap to Achieve High Quality Swaps Data (“Roadmap”),

consisting of a comprehensive review to, among other things: “[(i)] Evaluate real-time reporting regulations in light of goals of liquidity, transparency, and price discovery in the swaps market [; and (ii)] Address ongoing issues of reporting packages, prime brokerage, allocations, risk mitigation services/compressions, [exchange for related futures positions], and [PPSs] by clarifying obligations and identifying those distinct types of transactions to increase the utility of the real-time public tape.”

See

Commission Letter 17-33, DMO 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.

The Roadmap is available at

https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.

Comment letters are available at

https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.

Roadmap at 11.

In February 2020, the Commission proposed certain changes to part 43 (“Proposal”)

addressing the method and timing of real-time reporting and public dissemination generally and for specific types of swaps—the delay and anonymization of the public dissemination of block trades and large notional trades; the standardization and validation of real-time reporting data elements; the delegation of specific authority to Commission staff; and the clarification of specific real-time reporting questions and common issues.

See

Real-Time Public Reporting Requirements, 85 FR 21516 (Apr. 17, 2020).

The Commission received 33 comment letters regarding the

Proposal.

After considering the comments, the Commission is adopting portions of the rules as proposed; revising other portions of the proposed rules and adopting such portions as revised; and declining to adopt the remainder of the proposed changes. The Commission believes the rules adopted herein will increase transparency and price discovery in the swaps markets; provide clarity regarding obligations to report and disseminate swap transaction and pricing data; and lead to a more effective real-time reporting regime.

The following entities submitted comment letters: American Council of Life Insurers (“ACLI”); Better Markets; Carnegie Mellon; Chatham Financial; Chris Barnard; CHS Inc. and CHS Hedging LLC (“CHS”); Citadel; Clarus Financial Technology (“Clarus”); CME Group, Inc. (“CME”); Credit Suisse; Depository Trust & Clearing Corporation (“DTCC”); The Futures Industry Association (“FIA”); FIA Principal Traders Group (“FIA PTG”); Foreign Exchange Professionals Association (“FXPA”); The Global Foreign Exchange Division of the Global Financial Markets Association (“GFMA”); Healthy Markets; ICE Clear Credit and ICE Clear Europe (“ICE DCOs”); ICE Trade Vault (“ICE SDR”); IHS Markit (“Markit”); International Swaps and Derivatives Association, Inc. and the Securities Industry and Financial Markets Association (“SIFMA”) (collectively, “ISDA-SIFMA (Blocks)”); ISDA and SIFMA (collectively, “ISDA-SIFMA”); Investment Company Institute (“ICI”); Larry Harris and Kumar Venkataraman (“SMU”); Managed Funds Association (“MFA”); Massachusetts Institute of Technology (“MIT”); The National Rural Electric Cooperative Association and American Public Power Association (“NFP Electric Associations”); Navitech; Pacific Investment Management Company LLC (“PIMCO”); The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”); T. Rowe Price (“TRP”); and Vanguard.

II. Amendments to Part 43

A. § 43.1—Purpose, Scope, and Rules of Construction

The Commission is adopting non-substantive changes to § 43.1. The Commission is removing § 43.1(b). Existing § 43.1(b)(1), titled “Scope,” states that part 43 applies to all swaps, as defined in CEA section 1a(47),

and lists certain categories of swaps as examples. Existing § 43.1(b)(2) states that part 43 applies to registered entities and parties to a swap, and lists certain categories of swap parties. The Commission believes § 43.1(b) is superfluous. The scope of part 43 coverage is clear from various CEA sections and the operative provisions of part 43.

7 U.S.C. 1a(47).

The Commission is also re-designating existing § 43.1(c), entitled “Rules of construction,” as § 43.1(b). The first sentence of existing § 43.1(c) states that the examples in this part and in appendix A to this part are not exclusive. The Commission is deleting the reference to “appendix A” because the Commission is removing examples from appendix A.

The Commission is only removing this reference in case there are other places within part 43 in which market participants would rely on examples.

The Commission discusses the changes to appendix A in section III below.

The Commission is also deleting § 43.1(d), entitled “Severability.” Existing § 43.1(d) provides that if any provision of part 43, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or application of such provision to other persons or circumstances which can be given effect without the invalid provision or application. In the event a court invalidates one or more provisions of part 43, it is unclear that the Commission would interpret all related remaining provisions as continuing to be effective in the absence of the invalid provision(s). The Commission wishes to maintain the flexibility to make that determination at the time, and in light, of any such ruling.

The Commission received no comments on the changes to § 43.1. For the reasons discussed above, the Commission is adopting the changes thereto as proposed.

B. § 43.2—Definitions

The paragraph of existing § 43.2 is not lettered. The Commission is lettering the existing paragraph as “(a)” and adding paragraph (b) to § 43.2. Paragraph (a) will contain all of the definitions in existing § 43.2, as the Commission is modifying them. New paragraph (b) will clarify the terms not defined in part 43 have the meanings assigned to those terms in § 1.3 of the Commission's regulations, which was implied before but was not explicit.

The Commission is also adding new definitions, amending certain existing definitions, and removing certain definitions. Within each of these categories of definitions, the Commission discusses the changes in alphabetical order, except as otherwise noted.

1. New Definitions

The Commission is adding a definition of “execution date” to § 43.2. As proposed, “execution date” refers to the date, determined by reference to Eastern Time, on which swap execution occurred. The Commission believes the term is necessary for the new regulations for PPSs.

GFMA comments the proposed definition of “execution date” is “suitable” and should align with the definition proposed in the part 45 regulations, but does not need to align with other definitions.

The Commission discusses the regulations for PPSs in section II.C.2.

GFMA at 4.

The Commission received three comments opposing the definition's reference to Eastern Time. Chatham believes the Commission should use coordinated universal time (“UTC”) instead of Eastern Time to avoid reporting counterparties incurring time and expense converting systems to track in Eastern Time.

The NFP Electric Associations and CME both believe “execution date” should not reference to a time and note that the reference to eastern time is inconsistent with the execution data elements in appendix A that reference UTC.

Chatham at 1. Chatham requested if the Commission decides on eastern time, the Commission should have SDRs convert UTC to eastern time when submitting to the Commission.

NFP Electric Associations at 7; CME at 2.

The Commission appreciates commenters raising the reference to Eastern Time is inconsistent with the appendix A data elements regarding execution that use UTC. The Commission believes removing the reference to time from the definition of “execution date” best addresses the issue, as the reference to time is unnecessary with time covered by the data elements

that will continue to reference UTC. As such, the new definition of “execution data” will mean the date of execution of a particular swap.

The Commission discusses the data elements in appendix A in section III below.

The Commission is adding a definition of “post-priced swap” to § 43.2. A “post-priced swap” will mean an off-facility swap for which the price is not determined as of the time of execution. The Commission discusses the new regulations for PPSs in section II.C.2.

The Commission is adding a definition of “reporting counterparty” to § 43.3. This definition is the same as the existing definition of “reporting party” in § 43.2, but uses the more-specific term “counterparty” instead of “party.”

The Commission is adding a definition of “swap execution facility” to § 43.2. Parts 43 and 45 currently use the term, but only part 45 defines it. “Swap execution facility” will mean a trading system or platform that is a SEF as defined in CEA section 1a(50) and in 17 CFR 1.3, and that is registered with the Commission pursuant to CEA section 5h and 17 CFR part 37.

The Commission is adding a definition of “swap transaction and

pricing data” to § 43.2 with minor technical corrections for clarity. “Swap transaction and pricing data” will mean all data elements for a swap in appendix A

of part 43 that are required to be reported or publicly disseminated pursuant to part 43. The Commission believes this definition will help distinguish between the different types of data reported pursuant to the different reporting regulations.

The proposed definition of “swap transaction and pricing data” referenced appendix C. The Commission is changing the reference to appendix A to reflect the Commission is keeping data elements in appendix A.

The Commission proposed adding the following six definitions to § 43.2: “mirror swap;”

“pricing event;”

“prime broker;”

“prime brokerage agency arrangement;”

“prime brokerage agent;”

and “trigger swap.”

These definitions are all related to swaps entered into by prime brokers (“PBs”). Because all of these proposed definitions were used in the text of proposed § 43.3(a)(6) or in one or more of the proposed definitions that were in turn used in proposed § 43.3(a)(6), the Commission discusses all of the six proposed definitions in section II.C.4.

The Commission proposed to define mirror swap as a swap: (1) To which a prime broker is a counterparty or both counterparties are prime brokers; (2) that is executed contemporaneously with a corresponding trigger swap; (3) that has identical terms and pricing as the contemporaneously executed trigger swap (except that a mirror swap, but not the corresponding trigger swap, may include any associated prime brokerage service fees agreed to by the parties and except as provided in the final sentence of this “mirror swap” definition); (4) with respect to which the sole price forming event is the occurrence of the contemporaneously executed trigger swap; and (5) the execution of which is contingent on, or is triggered by, the execution of the contemporaneously executed trigger swap. The notional amount of a mirror swap may differ from the notional amount of the corresponding trigger swap, including, but not limited to, in the case of a mirror swap that is part of a partial reverse give-up;

provided, however,

that in such cases, (i) the aggregate notional amount of all such mirror swaps to which the prime broker that is a counterparty to the trigger swap is also a counterparty shall be equal to the notional amount of the corresponding trigger swap and (ii) the market risk and contractual cash flows of all such mirror swaps to which a prime broker that is not a counterparty to the corresponding trigger swap is a party will offset each other (and the aggregate notional amount of all such mirror swaps on one side of the market and with cash flows in one direction shall be equal to the aggregate notional amount of all such mirror swaps on the other side of the market and with cash flows in the opposite direction), resulting in such prime broker having a flat market risk position.

The Commission proposed to define pricing event as the completion of the negotiation of the material economic terms and pricing of a trigger swap.

The Commission proposed to define prime broker as with respect to a mirror swap and its related trigger swap, a SD acting in the capacity of a prime broker with respect to such swaps.

The Commission proposed to define prime brokerage agency arrangement as an arrangement pursuant to which a prime broker authorizes one of its clients, acting as agent for such prime broker, to cause the execution of a trigger swap.

The Commission proposed to define prime brokerage agent as a client of a prime broker who causes the execution of a trigger swap acting pursuant to a prime brokerage agency arrangement.

The Commission proposed to define trigger swap as a swap: (1) That is executed pursuant to one or more prime brokerage agency arrangements; (2) to which a prime broker is a counterparty or both counterparties are prime brokers; (3) that serves as the contingency for, or triggers, the execution of one or more corresponding mirror swaps; and (4) that is a publicly reportable swap transaction that is required to be reported to an SDR pursuant to parts 43 and 45.

2. Changes to Existing Definitions

The Commission received one comment on the existing definition of “physical commodity swap.” The NFP Electric Associations oppose defining “physical commodity swap” by reference to a swap “based on a tangible commodity” because such a definition would be inconsistent with the language of CEA section 1a(47) as well as the Commission's interpretations of “nonfinancial commodity” in the context of swaps. NFP Electric Associations at 7. The Commission declines to adopt any changes to the definition of “physical commodity swap.” The Commission believes the current definition is sufficient, and would want to provide adequate notice and comment for all market participants on a change involving a swap definition.

The Commission is making non-substantive changes to the definitions of: “as soon as technologically practicable” (“ASATP”); “asset class;” “novation;” “other commodity;” and “reference price.”

The Commission proposed changing the definitions of “appropriate minimum block size,” “large notional off-facility swap” (LNOFS), and “block trade” in § 43.2.

The Commission discusses the three definitions together, as the changes are inter-connected.

Existing § 43.2 defines “appropriate minimum block size” to mean the minimum notional or principal amount for a category of swaps that qualifies a swap within such category as a block trade or LNOFS. Existing § 43.2 defines “block trade” to mean a publicly reportable swap transaction that: (1) Involves a swap that is listed on a registered SEF or DCM; (2) occurs away from the registered SEF's or DCM's trading system or platform and is executed pursuant to the registered SEF's or DCM's rules and procedures; (3) has a notional or principal amount at or above the appropriate minimum block size applicable to such swap; and (4) is reported subject to the rules and procedures of the registered SEF or DCM and the rules described in part 43, including the appropriate time delay requirements set forth in § 43.5.

The Commission first proposed changing the “block trade” definition in a November 2018 rule proposal.

Then, in January 2020, the Commission published a proposal to revise condition (2) of the block trade definition in § 43.2 to state that: Is executed on the trading system or platform, that is not an order book as defined in § 37.3(a)(3), of a registered SEF or occurs away from a registered SEF's or DCM's trading system or platform and is executed pursuant to the registered SEF's or DCM's rules and procedures.

The Proposal incorporated the 2020 SEF NPRM's proposed changes to the definition of “block trade” in condition (2), which would apply to swaps that are not “off-facility swaps” and have specified connections to a SEF or a DCM.

In the Proposal, the Commission also proposed to incorporate condition (3) of the existing “block trade” definition

into condition (1), which would apply to “off-facility swaps.”

Condition (1) would make the separate definition of “large notional off-facility swap” unnecessary.

See

Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (Nov. 30, 2018) (“2018 SEF NPRM”). The Commission continues to evaluate the 2018 SEF NPRM.

This proposal addressed certain outstanding block-trade no-action relief SEFs and market participants have operated under for several years, most recently under CFTC Staff Letter No. 17-60 (“NAL No. 17-60).

See

Swap Execution Facility Requirements and Real-Time Reporting Requirements, 85 FR 9407 (Feb. 19, 2020) (“2020 SEF NPRM”).

As proposed, paragraph (2) of the “block trade” definition would read: (2) With respect to a swap that is not an off-facility swap, a publicly reportable swap that: (a) Involves a swap that is listed on a SEF or DCM; (b) Is executed on the trading system or platform, that is not an order book as defined in § 37.3(a)(3), of a SEF or occurs away from a SEF's or DCM's trading system or platform and is executed pursuant to the SEF's or DCM's rules and procedures; (c) Has a notional or principal amount at or above the appropriate minimum block size applicable to such swap; and (d) Is reported subject to the rules and procedures of the SEF or DCM and the rules described in this part, including the appropriate time delay requirements set forth in § 43.5.

This paragraph currently reads: Has a notional or principal amount at or above the appropriate minimum block size applicable to such swap.

As proposed, paragraph (1) of the “block trade” definition would read: (1) With respect to an off-facility swap, a publicly reportable swap that has a notional or principal amount at or above the appropriate minimum block size applicable to such swap. The Commission also proposed minor changes to the term “off-facility swap,” as discussed below in this section.

The Commission believes the change to condition (2) permitting execution of block trades—intended to be cleared or not—on a SEF's non-order book trading systems or platforms furthers the CEA goal of promoting swap trading on SEFs.

Moreover, for intended-to-be cleared block trades executed on a SEF's non-Order Book trading system or platform, the change would allow FCMs to conduct pre-execution credit screenings in accordance with § 1.73. The Commission believes that having a single set of block trade rules for both intended-to-be cleared and non-intended to-be-cleared swap block trades will help to reduce operational

complexity for both SEFs and market participants.

See

7 U.S.C. 7b-3(e).

In addition, the Commission believes that new condition (2), in allowing participants to use a SEF's non-Order Book functionalities to execute swap block trades, is consistent with the Commission's regulatory approach to mitigate risks of information leakage (

i.e.,

a “winner's curse”) as market participants can use the functionality of the SEF to execute a block trade in a manner that will not disclose the order to the entire market.

SEFs currently provide various modes of execution to enable market participants to execute block trades on the SEF without providing disclosure of the block trade to the market or to multiple market participants.

SEF Core Principles Final Rule, 78 FR at 33498, 33562, and 33563 (June 4, 2013).

For example, the Commission has observed that some SEFs offer a “RFQ-to-one” functionality that allows counterparties to bilaterally negotiate a block trade between two potential counterparties, without requiring disclosure of the potential trade to other market participants on a pre-trade basis.

Finally, the Commission believes permitting block trades to be executed on a SEF's non-Order Book trading platforms while also allowing them to “occur away” from a SEF provides SEFs increased flexibility. In particular, SEFs will be able to provide execution methods for block trades that are most suitable, efficient, and cost-effective for the product being traded, the SEF's market, and its market participants.

Therefore, the Commission is adopting paragraph (2) of the “block trade” definition as proposed with a minor non-substantive technical edits for clarity and consistency. However, the Commission is not adopting paragraph (1) of the proposed “block trade” definition and is keeping the definition of “large notional off-facility swap” in part 43.

The Proposal combined the definition of “large notional off-facility swap” into the definition of “block trade” to conform to proposed changes to § 43.5. The changes to § 43.5 would have created a single block trade dissemination delay regardless of whether the transaction was a “block trade” or a “large notional off-facility swap,” thus obviating the need for separate definitions.

However, since the Commission is not changing § 43.5,

it is necessary to retain separate definitions for block trades and LNOFSs in part 43. As a result, the Commission is keeping the definition of “large notional off-facility swap” in § 43.2 and keeping the reference to “large notional off-facility swaps” in the definition of “appropriate minimum block size.”

For example, under existing § 43.5, block trades are subject to a 15 minute dissemination delay, while LNOFS are subject to a range of dissemination delays ranging from 15 minutes to 24 business hours depending upon the type of market participant and asset class involved in the LNOFS transaction.

The Commission discusses § 43.5 in section II.E below.

The Commission is making non-substantive edits to the definition for clarity.

In light of the above changes, § 43.2 will define a “block trade” as a publicly reportable swap transaction that: (1) Involves a swap listed on a SEF or DCM; (2) is executed on a SEF's trading system or platform that is not an order book as defined in § 37.3(a)(3), or occurs away from the SEF's or DCM's trading system or platform and is executed pursuant to the SEF's or DCM's rules and procedures; (3) has a notional or principal amount at or above the appropriate minimum block size applicable to such swap; and (4) is reported subject to the rules and procedures of the SEF or DCM and the rules described in part 43, including the appropriate time delay requirements set forth in § 43.5.

The Commission received two comments on the Proposal's definition of “block trade.” ICI believes the proposed definition incorporating “block trade” and “large notional off-facility swap” would promote clarity and consistency across Commission regulations.

The Commission is declining to adopt the proposal because, as described above, separate definitions of “block trade” and “large notional off-facility swap” remain necessary since the Commission is not changing § 43.5.

ICI at 4.

Conversely, the NFP Electric Associations believe “[t]he concept of a `block trade' is not well understood in the swap markets” and recommends that the Commission should continue “to use the descriptive term `large notional off-facility swap,' as drawn from the primary language of CEA section 2a(13)(E), rather than use `block trade'. . . .”

The Commission agrees and, for the reasons described above, is retaining the separate definitions.

NFP Electric Associations at 7.

The Commission also received six comments on the 2020 SEF NPRM's “block trade” definition.

Citadel, ISDA-SIFMA, IECA, and Chris Barnard all generally support the 2020 SEF NPRM's changes.

Similarly, FIA agrees with the Commission “that block trades executed on a SEF's non-[o]rder [b]ook trading system or platform would allow FCMs to conduct pre-execution risk-based limit screenings in accordance with [§ ] 1.73.”

Finally, the TP ICAP SEFs support the proposed changes to the definition of “block trade,” but believe the Commission should not limit the execution methods that may be utilized by SEFs for block trades to avoid discouraging SEF trading and inconsistencies with the CEA, “which was clear that limiting modes of SEF execution was not the intent of Congress.”

The following entities submitted comment letters: Chris Barnard; Citadel; FIA; International Energy Credit Association (“IECA”); ISDA; and ICAP Global Derivatives Limited (“IGDL”) and tpSEF, Inc. (“tpSEF”) (collectively, “TP ICAP SEFs”). Since the proposed § 43.2 definition of “block trade” in the 2020 SEF NPRM is consistent with the second part of the § 43.2 “block trade” definition in the Proposal, the Commission is considering the comments in evaluating the proposed changes to the “block trade” definition in this release.

Citadel at 1; ISDA-SIFMA at 1; IECA at 1-3; Chris Barnard at 1.

FIA at 1; FIA at Appendix B. FIA separately requests the Commission amend § 1.73 to confirm clearing FCMs are not required to conduct pre-execution risk-based limit screenings for transactions executed bilaterally away from the SEF's non-order book trading system or platform and then submitted for clearing. The Commission declines to amend § 1.73 in this rulemaking. For the avoidance of doubt, if the parties purport to execute a block trade away from the SEF without first obtaining a credit check, an FCM clearing member that clears such trade and does not have knowledge of such purported execution is not in violation of the pre-execution credit check requirement under § 1.73. The Commission understands no mechanism exists to enable pre-execution credit checks where blocks are executed away from a SEF; however, these final rules do not preclude participants from developing and using such a mechanism in the future.

TP ICAP SEFs at 4. Rather, the TP ICAP SEFs believe that “SEFs have the greatest knowledge of the liquidity and market characteristics to” determine which execution methods to offer for block trades and as such “[t]he Commission should defer to the SEFs in a manner consistent with principles-based regulation to determine the methodology that they wish to offer for executing block trades.”

The Commission disagrees with the TP ICAP SEFs' assertion there should be no limitation on the method execution that can be used for a block trade.

By exposing a swap transaction that is above the appropriate minimum block size to the entire market through the use of a SEF order book,

the Commission believes that a market participant has signaled that the risks of information leakage and a “winner's curse” are not present to the same extent as they are in other block trades. Therefore, such transactions should not be afforded flexible execution and delayed public dissemination.

The Commission notes that trades above the appropriate minimum block size may still occur on a SEF's order book, as defined in § 37.3(a)(3), however such transactions will not receive treatment as block trades and will not receive a dissemination delay.

17 CFR 37.3(a)(3) (“Order Books”).

The Commission is changing the definition of “embedded option” in § 43.2 by removing the reference to

“confirmation” at the end of the current definition

to reflect the Commission's removal of the definition of “confirmation” from § 43.2, discussed further below. As amended, “embedded option” will mean any right, but not an obligation, provided to one party of a swap by the other party to the swap that provides the party holding the option with the ability to change any one or more of the economic terms of the swap.

“Embedded option” is currently defined as any right, but not an obligation, provided to one party of a swap by the other party to the swap that provides the party holding the option with the ability to change any one or more of the economic terms of the swap as those terms previously were established at confirmation (or were in effect on the start date).

The Commission is changing the definition of “execution” in § 43.2

by replacing the reference to execution occurring “orally, in writing, electronically, or otherwise” with “by any method” to shorten the definition without substantively altering it. The Commission is also removing the phrase that execution occurs simultaneous with or immediately following the affirmation of the swap because the Commission is removing the term “affirmation” from § 43.2 as well.

As amended, “execution” will mean an agreement by the parties, by any method, to the terms of a swap that legally binds the parties to such swap terms under applicable law. The NFP Electric Associations support the alignment of defined terms and concepts between part 45 and part 43, such as the common definition of “execution.”

Existing § 43.2 defines “execution” as an agreement by the parties (whether orally, in writing, electronically, or otherwise) to the terms of a swap that legally binds the parties to such swap terms under applicable law. The existing definition further provides that execution occurs simultaneous with or immediately following the affirmation of the swap.

The Commission discusses the proposed removal of “affirmation” in section II.B.3.

NFP Electric Associations at 6.

The Commission is amending the definition of “off-facility swap” in § 43.2 by removing the reference to “publicly reportable” and “registered.” Existing § 43.2 defines off-facility swap as any publicly reportable swap transaction that is not executed on or pursuant to the rules of a registered

SEF or DCM. The Commission is removing the requirement that the swap be “publicly reportable” because determining whether a swap transaction is an off-facility swap depends only on whether a swap was executed on or pursuant to the rules of a SEF or DCM; whether it is also a publicly reportable swap transaction is irrelevant.

The Commission is changing the definition of “public dissemination and publicly disseminate” in § 43.2. Existing § 43.2 defines “public dissemination and publicly disseminate” as to publish and make available swap transaction and pricing data in a non-discriminatory manner, through the internet or other electronic data feed that is widely published and in machine-readable electronic format. Separately, § 43.3(d)(1) requires that SDRs “publicly disseminate” swap transaction and pricing data in a consistent, usable, and machine-readable electronic format that allows the data to be downloaded, saved, and analyzed.

The Commission is also changing “registered SEF” to “SEF” throughout part 43. The Commission discusses this change in section II.C.1.a.

The definition of “public dissemination and publicly disseminate” varies enough from § 43.3(d)(1) to create ambiguity for SDRs as to the format they must use in publicly disseminating swap transaction and pricing data. For instance, the definition of “publicly disseminate” requires that access be non-discriminatory, but § 43.3(d)(1) does not explicitly require access be non-discriminatory. Therefore, the Commission is re-locating the qualification in § 43.3(d)(1) that SDRs publicly disseminate swap transaction and pricing data in a consistent, usable, and machine-readable electronic format that allows the data to be downloaded, saved, and analyzed to the definition of “public dissemination and publicly disseminate” in § 43.2.

As amended, the definition of “public dissemination and publicly disseminate” will mean to make freely available and readily accessible to the public swap transaction and pricing data in a non-discriminatory manner, through the internet or other electronic data feed that is widely published. Such public dissemination shall be made in a consistent, usable, and machine-readable electronic format that allows the data to be downloaded, saved, and analyzed.

The Commission did not propose changing the definition of “publicly reportable swap transaction,” but received six comments on the definition.

As discussed below in section II.C.8, the Commission is removing existing § 43.3(d)(1) in conjunction with moving the substance of the requirement to the definition of “publicly disseminate.”

The revised definition of “public dissemination and publicly disseminate” is also discussed below in section II.C.7 with respect to the responsibilities of SDRs to make publicly disseminated swap transaction and pricing data available to the public.

ISDA-SIFMA and ICE SDR both request the Commission clarify the list of swaps that are not included in the definition.

The Commission believes, with one exception, the current definition and the original part 43 adopting release adequately describe the swaps excluded from the definition, which, as ISDA-SIFMA point out, include inter-affiliate swaps and portfolio compression exercises. The Commission understands that since 2012, different multi-party swap portfolio risk reduction exercises have evolved to accomplish the same goals as portfolio compression exercises. To the extent any such risk reduction exercises serve the same purposes as portfolio compression exercises, the Commission is of the view that the resulting new or amended swaps from the exercise would not be deemed publicly reportable swaps. The purpose of such risk reduction exercises, similar to portfolio compression exercises, is to mitigate risk by replacing or changing swaps, which have already been publicly reported if the original swaps were publicly reportable swap transactions. Any new or amended swaps executed as a result of these exercises would not be arm's-length transactions resulting in a corresponding change in the market risk position between the parties, but may not otherwise meet the Commission's portfolio compression exercise definitions.

To qualify, the sole purpose of such risk reduction exercises, like portfolio compression exercises, must be to mitigate risk by replacing or changing swaps that have already been publicly reported, if the original swaps were publicly reportable swap transactions. In addition, the resulting new or amended swaps must be entered into between the same counterparties as the original swap(s) that is amended or terminated, and the risk reduction exercises must be market risk neutral and performed by automated systems of third-party service providers. If these conditions are satisfied, like portfolio compression exercises, the replacement or amended swaps resulting directly from a risk reduction exercise would not fall within the definition of publicly reportable swap transaction.

ISDA-SIFMA at 49; ICE SDR at 7. ISDA-SIFMA note that the list of swaps not included in the definition may include (i) inter-affiliate swaps, (ii) portfolio compression exercises, and (iii) post-allocation swaps. ICE SDR notes that it was unclear whether cross-border transactions are exempt from the definition.

77 FR 1182 at 1187 (Jan. 9, 2012).

For avoidance of doubt, the Commission makes clear that the evaluation of whether a swap that results from a risk reduction exercise does or does not fall within the definition of publicly reportable swap transaction is separate and distinct from the

evaluation of whether or not the platform operating such risk reduction exercises is subject to SEF registration requirements.

See

Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476, 33482-33483 (Jun. 4, 2013).

In response to ICE SDR's comment that it is unclear whether cross-border transactions are exempt from the definition the “publicly reportable swap transaction,” the Commission notes that its cross-border guidance covers cross-border reporting requirements. The Commission does not want to reassess the existing definition or its cross-border guidance without providing adequate notice for all market participants to comment on.

The NFP Electric Associations believe the Commission should exclude a subset of off-facility non-financial commodity swaps from the definition because few, if any, of such swaps enhance discovery.

Similarly, Clarus believes providers of portfolio compressions should report trade level details to SDRs for public dissemination.

The Commission disagrees and is keeping compressions on the list of transactions excluded from the publicly reportable swap definition or excluding non-financial commodity swaps. The Commission believes its determination that compression swaps do not contribute to price discovery,

and that the CEA requires the public dissemination of all swaps,

still holds true.

NFP Electric Associations at 6.

Clarus at 2.

2012 Real-Time Public Reporting Final Rule at 77 FR 1187 (Jan. 9, 2012).

Id.

at 1223.

ICE DCOs and CME believe if the Commission finalizes § 43.3(a)(5), it should also change the definition of publicly reportable swap transaction to exclude swaps created through DCO default management processes.

The Commission agrees with CME and ICE DCOs, and is amending the definition to exclude “swaps entered into by a [DCO] as part of managing the default of a clearing member.” However, the Commission discusses this change in section II.C.3 below.

ICE DCOs at 2; CME at 7-8. The commenters believe including such swaps could result in front-running as the default management processes may span multiple days. ICE DCOs believe DCO default management swaps may be impractical for part 43 reporting because they can be executed at the portfolio level.

The Commission is changing the definition of “trimmed data set” in § 43.2 by changing the standard deviation used in the calculation of the trimmed data set from four to two for the “other commodity” asset class, and from four to three for all other asset classes. The Commission discusses the reasoning behind these changes in section II.F.2.

3. Removed Definitions

The Commission is removing the definition of “Act” from § 43.2 because the term is defined in § 1.3.

The Commission proposed removing the definition of “business day” from § 43.2 because the term is defined in § 1.3. Further, the Commission proposed removing the definition of “business hours” because the term would have been unnecessary as a result of the Commission's proposal to remove references to “business hours” in the § 43.5 regulations for the timing delays for block trades.

The Commission received one comment on removing the definition of “business day.” DTCC notes § 43.2 does not include Saturdays while § 1.3 includes Saturdays; thus, replacing § 43.2 with § 1.3 would impact SDR operations as well as the currency conversion requirements in proposed § 43.6(g)(4).

Further, DTCC believes it is unclear whether the term “holiday” as used in the “business day” definition in § 1.3 has an identical meaning as existing § 43.2.

DTCC at 2.

Id.

The Commission agrees with DTCC that removing the definition of business day from § 43.2 would create a discrepancy in the regulations that would impact operations for all market participants. Therefore, the Commission is not adopting the proposal to remove the definition of business day from § 43.2. Similarly, the Commission is not adopting the proposal to remove the term “business hours” from § 43.2 because, as the Commission discusses in section II.E.2, § 43.5(c) will continue to reference “business hours.”

The Commission is removing the definition of “confirmation” from § 43.2, along with the following related definitions: “affirmation” and “confirmation by affirmation.” These definitions are unnecessary in part 43, as they are not used in any of the regulations.

The Commission is removing the definition of “executed” from § 43.2. The current definition is vague and the definition of “execution date” will provide the specificity that the current “executed” definition lacks.

The Commission is removing the definition of “real-time public reporting” from § 43.2. Existing § 43.2 defines “real-time public reporting” as the reporting of data relating to a swap transaction, including price and volume, ASATP after the time at which the swap transaction has been executed. The CEA currently already defines “real-time public reporting” as to report data relating to a swap transaction, including price and volume, ASATP after the time at which the swap transaction has been executed.

To avoid creating confusion between the two definitions, the Commission is removing the definition in part 43.

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

The Commission is removing the definition of “reporting party” from § 43.2 because it is adding the more-precise definition of “reporting counterparty” to § 43.2, as discussed above.

The Commission proposed removing the following definitions from § 43.2 as a result of proposed changes to §§ 43.5 and 43.6 for block trades and LNOFSs: “futures-related swap,” “major currencies,” “non-major currencies,” and “super-major currencies.” The Commission declines to adopt the proposal to remove these definitions from § 43.2.

The Commission is also removing the following definitions from § 43.2 as a result of changes simplifying the definition of “novation:” “remaining party,” “transferee,” and “transferor.”

The Commission is removing the “unique product identifier” (“UPI”) definition from § 43.2. “Unique product identifier” is currently only used in § 43.4(e). The Commission is deleting existing § 43.4(e), as discussed below in section II.D.1. Therefore, the definition of UPI in § 43.2 is unnecessary.

The Commission is removing the definition of “widely published” from § 43.2. “Widely published” means to publish and make available through electronic means in a manner that is freely available and readily accessible to the public. “Widely published” is currently referenced in the definition for “public dissemination and publicly disseminate” as the standard by which SDRs must publish data.

The Commission believes that the plain meaning of the term “widely published” is clear and that the definition is unnecessary and may cause confusion.

The term “widely published” is also used in existing § 43.6(g)(4) for currency conversions.

C. § 43.3—Method and Timing for Real-Time Public Reporting

1. § 43.3(a)(1) Through (3)—Method and Timing for Reporting Off-Facility Swaps and Swaps Executed on or Pursuant to the Rules of a SEF or a DCM

a. § 43.3(a)(1)—General Rule

The Commission is adopting changes to § 43.3(a)(1). Existing § 43.3(a)(1): (i)

Requires a “reporting party” to report publicly reportable swap transactions to SDRs ASATP after execution; and (ii) states that for purposes of part 43, a registered SDR includes any SDR provisionally registered with the Commission pursuant to part 49.

The Commission is changing the reference to a “reporting party” to reference the persons that, depending on the circumstances, have the reporting obligation for a publicly reportable swap transaction: A reporting counterparty; a SEF; or a DCM to be more precise. The Commission is also rewording § 43.3(a)(1) for brevity and adding a cross-reference to proposed § 43.3(a)(2) through (6), which address matters such as who must report publicly reportable swap transactions and the timing thereof. Consequently, the Commission is adding language to § 43.3(a)(1) stating that it would be “subject to” proposed § 43.3(a)(2) through (6) to reflect that, with respect to the transactions and persons covered by proposed § 43.3(a)(2) through (6), the provisions thereof apply instead of the general ASATP requirement of proposed § 43.3(a)(1). The Commission is also adding a requirement that the publicly reportable swap transaction reporting required pursuant to proposed § 43.3(a)(1) through (6) be done in the manner set forth in proposed § 43.3(d).

The Commission discusses § 43.3(d) in section II.C.8 below.

Finally, the Commission is deleting the sentence in § 43.3(a)(1) stating that for purposes of part 43, a registered SDR includes any SDR provisionally registered with the Commission pursuant to part 49. The Commission is replacing all references to registered SDRs with references to SDRs in § 43.3(a) specifically and throughout part 43.

The Commission is removing the reference to “registered” because registered and provisionally registered SDRs are subject to the same Commission regulations, but the existing regulations only referenced “registered” SDRs.

To limit repetition, the Commission will not discuss this change repeatedly throughout this release.

The Commission did not receive any comments on the non-substantive changes to § 43.3(a)(1). For the reasons discussed above, the Commission is adopting the changes to § 43.3(a)(1) as proposed with non-substantive edits for clarity. Amended § 43.3(a)(1) will require reporting counterparties, SEFs, or DCMs responsible for reporting a swap to report the publicly reportable swap transaction to an SDR ASATP after execution subject to § 43.3(a)(2) through (6) and in the manner set forth in § 43.3(d).

b. § 43.3(a)(2)—Swaps Executed on or Pursuant to the Rules of a SEF or a DCM

The Commission is adopting non-substantive changes to § 43.3(a)(2). Existing § 43.3(a)(2) states that a party to a publicly reportable swap transaction can satisfy its part 43 real-time public reporting obligations by executing publicly reportable swap transactions on or pursuant to the rules of a SEF or DCM. Existing § 43.3(b)(1) states that SEFs and DCMs satisfy their real-time public reporting obligations by transmitting swap transaction and pricing data to SDRs ASATP after the publicly reportable swap transaction was executed on or pursuant to the rules of the trading platform or facility.

The Commission is replacing § 43.3(a)(2) with the existing requirement in § 43.3(b)(1). New § 43.3(a)(2) will state that SEFs or DCMs must report publicly reportable swap transactions executed on or pursuant to the rules of a SEF or DCM ASATP after execution. As a result, § 43.3(a)(2), instead of § 43.3(b)(1), will contain SEFs' and DCMs' part 43 reporting obligations. In revising § 43.3(a)(2), the Commission is replacing the reference to a “registered [SEF]” with a reference to SEFs because the term “registered” is unnecessary with the Commission defining “SEFs” in § 43.2 as registered SEFs.

To limit repetition, the Commission will not discuss this change throughout this release.

The Commission did not receive any comments on the structural and non-substantive changes to § 43.3(a)(2). For the reasons discussed above, the Commission is adopting the changes as proposed. Amended § 43.3(a)(2) will require that for each swap executed on or pursuant to the rules of a SEF or DCM, the SEF or DCM shall report swap transaction and pricing data to an SDR ASATP after execution.

c. § 43.3(a)(3)—Off-Facility Swaps

The Commission proposed non-substantive changes to § 43.3(a)(3). Existing § 43.3(a)(3) requires reporting parties to report all off-facility swaps to an SDR for the appropriate asset class in accordance with the rules set forth in part 43 ASATP following execution, and sets out the reporting hierarchy for these publicly reportable swap transactions.

The Commission did not propose substantive amendments to the reporting hierarchy.

The Commission is clarifying in § 43.3(a)(3)(iii) through (v) that, in situations where the parties to an off-facility publicly reportable swap transaction must designate which of them is the reporting counterparty, they must make such designation prior to the execution of the off-facility publicly reportable swap transaction so that there is no delay in reporting the off-facility publicly reportable swap transaction pursuant to part 43. The Commission believes it will prevent a delay if the parties do not make such designation until after the off-facility publicly reportable swap transaction is executed or cannot agree on such designation.

Because the Commission is adding part 43 reporting requirements specific to PPSs, clearing swaps, and mirror swaps, respectively, in new § 43.3(a)(4) through (6), the Commission is introducing proposed § 43.3(a)(3) with “except as otherwise provided in paragraphs (a)(4) through (6) of this section.”

The Commission did not receive any comments on the changes to § 43.3(a)(3). For the reasons discussed above, the Commission is adopting the changes to § 43.3(a)(3) as proposed with non-substantive edits for clarity. Amended § 43.3(a)(3) will require that, except as otherwise provided in § 43.3(a)(4) through (6), a reporting counterparty report all publicly reportable swap transactions that are off-facility swaps to an SDR for the appropriate asset class in accordance with the rules set forth in part 43 ASATP after execution. Unless otherwise agreed to by the parties prior to execution, the reporting hierarchy will remain the same as it is in existing § 43.3(a)(3).

The hierarchy will remain: (i) If only one party is a SD or MSP, then the SD or MSP shall be the reporting counterparty; (ii) if one party is an SD and the other party is a MSP, then the SD shall be the reporting counterparty; (iii) if both parties are SDs, then prior to execution of a publicly reportable swap transaction that is an off-facility swap, the SDs shall designate which party shall be the reporting counterparty; (iv) if both parties are MSPs, then prior to execution of a publicly reportable swap transaction that is an off-facility swap, the MSPs shall designate which party shall be the reporting counterparty; and (v) if neither party is an SD or MSP, then prior to execution of a publicly reportable swap transaction that is an off-facility swap, the parties shall designate which party shall be the reporting counterparty.

2. § 43.3(a)(4)—Post-Priced Swaps

a. Proposal

The Commission proposed new § 43.3(a)(4) to address issues market participants face in reporting PPSs. “Post-priced swap” is a newly defined term in § 43.2 that means an off-facility swap for which the price has not been determined at the time of execution. Existing § 43.3(a) generally requires the reporting party for each publicly reportable swap transaction to report

certain swap terms to an SDR ASATP after execution of the transaction. Market participants raised concerns with complying with the ASATP requirement for a category of swaps with respect to which one or more terms are unknown at the time the swap is executed.

See, e.g.,

ISDA Request for No-action Relief for Post-priced Swaps (Mar. 26, 2013),

available at https://www.isda.org/2013/03/26/no-action-relief-request-post-price-swaps-under-parts-43-and-45/.

In the Proposal, the Commission proposed a longer deadline for reporting swap transaction and pricing data for PPSs. Proposed § 43.3(a)(4)(i) would permit the reporting counterparty to delay reporting a PPS to an SDR until the earlier of the price being determined and 11:59:59 p.m. eastern time on the execution date. Proposed § 43.3(a)(4)(i) would further provide that, if the price of a publicly reportable swap transaction that is a PPS is not determined by 11:59:59 p.m. eastern time on the execution date, the reporting counterparty shall: (i) Report all swap transaction and pricing data for such PPS other than the price and any other then-undetermined variable term, and (ii) report each such item of previously undetermined swap transaction and pricing data ASATP after such item is determined.

Proposed § 43.3(a)(4)(ii) would provide that the more lenient proposed reporting deadline in § 43.3(a)(4)(i) would not apply to publicly reportable swap transactions with respect to which the price

known at execution but one or more other variable terms are not yet known at the time of execution.

While the proposed definition of “post-priced swap” would be a swap for which the price has not been determined at the time of execution, such a swap with

additional

terms that are also not determined at the time of execution would also fall within the proposed “post-priced swap” definition. Consequently, if a PPS also has non-price terms that are not determined at the time of execution, a value for such non-price terms must be reported ASATP after it is determined. If a placeholder value that satisfies the allowable values parameters for an unknown variable term was previously reported for such undetermined swap transaction and pricing data, then such swap transaction and pricing data must be corrected ASATP after it is determined.

The Commission notes that when the price is known at execution but one or more variable terms are not yet known, the reporting counterparty must report the swap ASATP and then report the variable terms later ASATP after each item is determined.

b. Comments on the Proposal

The Commission received two comments opposing a delay from real-time reporting for PPSs. Citadel comments that instead of reducing the amount of information publicly reported in real-time, the Commission should enhance the reported data by implementing a separate flag to specifically identify PPSs.

Further, Citadel believes the proposal seems overly broad because it includes swaps where key economic terms are fully agreed at the time of execution (

e.g.,

where a spread above or below a reference index price is the key economic term, but the reference index price is not published until later in the day).

DTCC recommends minimizing carve-outs for strict validation rules wherever possible to avoid deviating from standardization and creating additional complexities.

Citadel at 10.

Id.

DTCC at 2.

Better Markets comments that any delay in public reporting would advantage certain market participants but reporting on the date of execution would be achievable for the vast majority of PPSs contingent on an independent market measure.

In addition, Better Markets believes delayed reporting for supposed “hedging needs” should not be accommodated until the Commission publishes additional information necessary to examine the implications of such a proposal.

Better Markets at 8.

Id.

The Commission received six comments supporting a delay from real-time reporting for PPSs. AMG supports permitting a reporting counterparty to report PPSs at the earlier of the price being determined or 11:59:59 p.m. eastern time on the execution date.

SIFMA AMG at 6.

ICI comments that the proposal would provide clarity and consistency so market participants can understand when their trading information will be publicly disseminated to the market.

Further, ICI believes funds may enter into PPSs in the form of swaps on various well-known indices and these swaps are priced based on the relevant index, which typically is published an hour or two after the close of the relevant markets.

ICI states that existing SDs have inconsistent practices regarding when they report these swaps and the Commission's proposal will in most cases prevent a fund's trading information from being prematurely disseminated and used to front run the fund's trades.

ICI at 8.

Id.

ISDA-SIFMA strongly agree with the proposal.

GFMA supports the ISDA-SIFMA response.

ISDA-SIFMA at 50.

GFMA at 14.

CME believes that PPSs and other swaps with variable term(s) that are not known at the time of execution should not be reported or disseminated until such time that the price(s) and all other variable term(s) are known.

CME believes the proposed requirement to have PPSs reported no later than 11:59:59 p.m. eastern time on the day of execution is misplaced as it would not further price transparency without a price.

CME also believes the proposal to require the immediate reporting of swap transactions with respect to which the price

known at execution but one or more other variable terms are not yet known is similarly misplaced.

CME at 3-4.

Id.

FIA suggests the Commission amend the Proposal to require the reporting of a PPS only after the price is determined, regardless of whether the price is determined on or after the execution date. FIA believes there is no value in reporting swap data without a price element and that reporting only after the price has been determined should reduce the risk of front-running.

FIA at 11.

The Commission received one comment maintaining that the proposal lacked needed explanation. Better Markets comments that the Commission's general description is undoubtedly accurate, but it does not sufficiently describe the use of PPSs for the public to determine the value, if any, of such transactions that would justify codifying a delayed public reporting timeline.

Further, Better Markets believes the proposal relied too heavily on only a few market participants and the Commission should instead look at common fact patterns, the identified asset classes using PPS practices, and the volume of PPSs within each asset class.

Better Markets at 8.

Id.

The Commission received one comment regarding an alternative proposal of reporting PPSs ASATP and then updating the report after the price is determined (in response to the Commission's request for comment 2). ISDA-SIFMA oppose the alternative proposal and comment that PPSs should have a reporting delay before being publicly disseminated by the SDR.

ISDA-SIFMA believe the reporting of PPSs before the price is determined does not serve any price discovery function and may increase the costs of hedging by signaling to other participants that a SD will be hedging a

particular large notional trade the following day.

Further, ISDA-SIFMA believe reporting counterparties should be able to submit data to the SDR as soon as available, and that the SDR should be permitted to delay public dissemination (similar to the process for block trades).

ISDA-SIFMA at 50.

Id.

The Commission received one comment related to the alternative of an indefinite delay for PPSs (in response to the Commission's request for comment 3). ISDA-SIFMA comments that PPS reporting under part 43 should be delayed until (a) the price is determined, or (b) 11:59:59 p.m. eastern time on the next business day following the execution date. If the price is still not yet known at 11:59:59 p.m. eastern time on the next business day following the execution date, ISDA-SIFMA comments that the reporting counterparty should then report the data elements that are known. Further, ISDA-SIFMA believe that the majority of PPSs would have the price determined prior to T+1. ISDA-SIFMA believe the reporting of PPSs before the price is determined may increase the costs of hedging by signaling to other participants that a SD will be hedging a particular large notional trade the following day.

As such, ISDA-SIFMA believe a T+1 cutoff will significantly reduce potential unnecessary hedging costs by reducing the number of PPSs reported without a price.

Id.

The Commission received one comment regarding whether the definition of PPS should be amended to exclude swaps for which the price is not known at execution because it is contingent upon the outcome of SD hedging (in response to the Commission's request for comment 4). ISDA-SIFMA comments that swaps for which a price is not known at execution because it is contingent upon the outcome of SD hedging should benefit from a reporting delay. ISDA-SIFMA do not believe permitting such swaps to receive the reporting delay in proposed § 43.3(a)(4) would change trading behavior.

Id.

at 51.

The Commission received three comments addressing indicators for PPSs. ISDA-SIFMA do not support an additional indicator to identify whether the price for a PPS is not known because it is contingent on SD hedging. ISDA-SIFMA believe that an identifier that specifies the reason the price is not known for a PPS would exacerbate the potential for other market participants to trade ahead of SD hedging.

ISDA-SIFMA believe the Commission should not modify its proposed post-priced swap indicator and anything more granular could exacerbate the issues (

e.g.,

front running) that the PPS proposal intends to remedy.

CME opposes additional data elements related to PPSs as they are of no value to market participants.

In contrast to CME, ICI supports an additional indicator to identify whether the price for a PPS is not known because it is contingent on SD hedging, and notes that such an indicator would provide the CFTC with additional information regarding each PPS.

Id.

CME at 4.

Id.

The Commission received one comment regarding costs and benefits. ISDA-SIFMA recommend that reporting for PPSs be delayed at least until 11:59:59 p.m. eastern time on the next business day following the execution date because of the potential cost to customers that results from the proposed 11:59:59 p.m. eastern time cutoff for PPSs, particularly in the context of global equity index trades.

ISDA-SIFMA give a cross-border example showing that a post-priced swap indicator could indicate to other market participants that an SD will continue hedging a large notional trade on T+1, which could hurt the client's execution.

ISDA-SIFMA at 56-57.

Id.

The Commission received one comment addressing an inconsistency with proposed validations. CME comments that the proposed PPS reporting process is inconsistent with the validations proposed in the Proposal.

100

Further, CME believes since the Commission did not specifically identify which data elements constitute “other economic or other terms” in proposed § 43.3(a)(4)(ii), it is not clear if the proposed validations would allow for the reporting of all these data elements.

101

However, CME states it is clear from the variable term “quantity” that is referenced in the Proposal that § 43.3(a)(4)(ii) is not consistent with the proposed validations.

102

CME notes that many proposed data elements relate to quantity (notional quantity, etc.), and some of these data elements, such as quantity unit of measure and total notional quantity, are mandatory data elements that would need to be populated to pass proposed validations.

103

CME states that while the proposed quantity unit of measure data element allows for submission of a dummy value, the allowable values and validations for the other proposed quantity data elements would require the reporting party to submit an inaccurate value to comply with proposed § 43.3(a)(4)(ii) and the proposed validations.

104

CME suggests that the Commission identity all data elements that comprise the variable terms and elements for any swap and either (1) open up the proposed validations to permit submission of such transactions with one or more blank data elements; (2) establish dummy variables as necessary for each of the variable terms such that the dummy variables could be submitted to pass validations; or (3) open all validations for all data elements for such swaps covered by § 43.3(a)(4)(ii).

105

100

CME at 4.

101

Id.

102

Id.

103

Id.

104

Id.

105

Id.

c. Final Rule

For reasons discussed in the Proposal and as more fully considered in light of comments, discussed below, the Commission is adopting § 43.3(a)(4) as proposed with a minor ministerial change for clarity. The Commission is modifying the swap data technical specification in response to a comment from CME that § 43.3(a)(4) was inconsistent with the swap data technical specification.

The Commission agrees with commenters that believe the reporting and public dissemination of PPSs ASATP after execution, but before the price is determined, generally does not serve a significant price discovery function. However, the Commission disagrees with CME's comment that the public dissemination of a PPS prior to the price being determined

never

provides any value to the market. The Commission believes the public dissemination of a PPS ASATP after execution with a blank price, or with a placeholder price that reflects the reporting counterparty's expectation of the future event on which pricing is contingent, would not enhance price discovery and may confuse the market. The Commission also believes, and thus agrees with Citadel, that when the price of a PPS is set as a spread above or below a referenced index that is to be published later in the day, the publishing of such spread and the reference index would serve a price

discovery function. Specifically, publishing the spread above or below a referenced index that is not published until a later time would inform market participants of the current pricing formula at which specific products are being traded. Market participants could use such information for intra-day price discovery even though the referenced index is not published until later in the day.

The Commission also agrees with FIA and ICI that the publishing of swap transaction and pricing data for PPSs ASATP after execution presents unique and heightened risks of front running. Public reporting of PPSs before their prices are determined would allow market participants to transact in swaps ahead of the event on which the price is contingent, potentially disadvantaging a counterparty to the PPS and increasing its costs. The Commission believes the increase in costs could be expected to lead market participants to forego the use of such swaps, thereby materially reducing swap market liquidity.

The Commission believes proposed § 43.3(a)(4) strikes an appropriate balance between public transparency and price discovery, and concerns that immediate publication of PPSs would materially reduce market liquidity.

In permitting the delayed reporting of PPSs until the earlier of the price being determined or the end of the execution day, the Commission expects that the majority of PPSs will be publicly disseminated only

after

their price has been determined. This will allow market participants to transact those PPSs without the risk that public dissemination will negatively affect the determination of the price, and thus address the Commission's concern regarding a potential material reduction in market liquidity.

The Commission also expects the end of the day reporting deadline in § 43.3(a)(4)

will

result in some PPSs being publicly disseminated prior to their price being determined. The Commission, balancing the delayed reporting of PPSs with the potential harms to transparency that would accrue if counterparties were incentivized to structure swaps as PPSs to take advantage of a longer reporting delay, believes an end of day reporting deadline is appropriate. The Commission believes an end of day reporting deadline for PPSs is necessary to ensure that the regulation does not inappropriately restrict public transparency and price discovery by encouraging or permitting the indefinitely delayed reporting of PPSs.

Additionally, the Commission is modifying the technical specification in response to a comment by CME. The Commission agrees with CME that the validations in the draft specification needed to be revised to ensure that swaps required to be reported pursuant to § 43.3(a)(4) would be consistent with the validations proposed in the specification. The validations in the technical specification have been revised accordingly.

The Commission agrees with DTCC that adding exceptions to the proposed validations in the technical specification, as the Commission is doing to facilitate the reporting of swaps with variable terms, should generally be avoided because it creates complexities and impedes the standardization of reporting brought about by strict validation rules. However, the Commission is cognizant of its statutory directive to make swap transaction and pricing data available as appropriate to enhance price discovery while taking into account whether the public dissemination will materially reduce market liquidity. Accordingly, the Commission does not view the benefits of simplicity and standardization available under the alternative approach of providing an indefinite delay in reporting PPSs until all variable terms are determined as sufficient reason to justify deviation from the more balanced approach that the Commission believes best suited to effectuate this statutory directive.

3. § 43.3(a)(5)—Clearing Swaps

The Commission is amending § 43.3(a) by adding DCOs to the reporting counterparty hierarchy for clearing swaps that are publicly reportable swap transactions to address the limited circumstances in which DCOs may execute clearing swaps that meet the definition of a publicly reportable swap transaction in part 43. Proposed § 43.3(a)(5) stated that notwithstanding the provisions of § 43.3(a)(1) through (3), if a clearing swap, as defined in § 45.1, is a publicly reportable swap transaction, the DCO that is a party to such swap shall be the reporting counterparty and shall fulfill all reporting counterparty obligations for such swap ASATP after execution.

The Commission received two comments on the proposed amendments to § 43.3(a)(5). ICE DCOs and CME believe that if the Commission finalizes proposed § 43.3(a)(5), the Commission should amend the definition of “publicly reportable swap transaction” in § 43.2 to exclude swaps created through DCO default management processes to avoid frustrating the default management process by allowing front-running if the processes span multiple days.

106

They also believe it would be impractical as the default management process may be achieved through the sale at the portfolio (not individual swap) level, which “does not lend itself” to part 43 reporting.

107

Also, they believe the prices disseminated with default management related swaps would not be relevant to market participants as the prices are affected by the clearing house's priority to take timely action, so mistaken reliance on these prices may lead to price dislocations and market disruption.

108

106

ICE DCOs at 2; CME at 7-8.

107

Id.

108

Id.

The Commission agrees with ICE DCOs and CME that the Commission should amend the definition of publicly reportable swap transaction to exclude swaps created through DCO default management processes because of § 43.3(a)(5). The Commission is concerned that the new requirement could impede the efficacy or ability of DCOs to proceed with default management exercises.

As such, the Commission is adopting § 43.3(a)(5) as proposed, but as discussed above in section II.B.2, is amending the definition of “publicly reportable swap transaction” in § 43.2(a) to exclude swaps entered into by a DCO as part of managing the default of a clearing member. New § 43.3(a)(5) will require that notwithstanding the provisions of § 43.3(a)(1) through (3), if a clearing swap, as defined in § 45.1(a), is a publicly reportable swap transaction, the DCO that is a party to such swap shall be the reporting counterparty and shall fulfill all reporting counterparty obligations for such swap ASATP after execution.

4. § 43.3(a)(6)—PB Swaps

The Commission understands that prime brokerage swaps begin with a counterparty opening an account with a PB that grants limited agency powers to the counterparty. These limited powers enable the counterparty, as an agent for the PB, to enter into swaps with approved executing dealers (“ED”), subject to specific limits and parameters, such as credit limits and collateral requirements. The PB also enters into “give-up” arrangements with approved EDs in which the EDs agree to negotiate swaps with the counterparty, acting as an agent for the PB, within the specified parameters and to face the PB as counterparty for the resulting ED-PB swap (“ED-PB Swap”).

The Commission understands that in a prime brokerage swap, the counterparty seeks bids for the desired swap from one or more of the approved EDs, within the parameters established by the PB. Once the counterparty and ED agree on the terms, the Commission believes that both the counterparty and ED provide a notice of the terms to the PB, and those terms constitute the ED-PB Swap, which the PB must accept if: The swap is with an approved ED; the counterparty and ED have committed to the material terms; and the terms are within the parameters established by the PB. Once the ED-PB Swap is accepted by the PB, the PB enters into a mirror swap (“Mirror Swap”) with the counterparty with identical economic terms and pricing, subject to adjustment, as a result of the prime brokerage servicing fee.

a. Proposal

The CEA authorizes the Commission to make swap transaction and pricing data available to the public in such form and at such times as the Commission determines appropriate to enhance price discovery.

109

In 2017, DMO announced its intention to review the reporting regulations addressing ongoing issues of reporting prime brokerage transactions.

110

In response to concerns that publicly disseminating all legs of a prime brokerage transaction incorrectly suggests the presence of more trading activity and price discovery than actually exists, the Commission proposed to define and exempt certain legs of prime brokerage transactions, defined as “mirror swaps,” from public dissemination.

109

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

110

Roadmap at 11. DMO has previously provided no-action relief from the real-time public reporting requirements for swaps executed pursuant to prime brokerage arrangements in response to concerns that reporting both legs of prime brokerage transactions would incorrectly suggest the presence of more trading activity and price discovery in the market than actually exists.

See

Commission Letter No. 12-53, Time-Limited No-Action Relief from (i) Parts 43 and 45 Reporting for Prime Brokerage Transactions, and (ii) Reporting Unique Swap Identifiers in Related Trades under Part 45 by Prime Brokers (Dec. 17, 2012),

available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/12-53.pdf

(“NAL No. 12-53”).

i. Proposed New § 43.2 Definitions Related to Mirror Swaps

As noted above at section II.C, the Commission proposed adding the following six definitions to § 43.2: “mirror swap;” “pricing event;” “prime broker;” “prime brokerage agency arrangement;” “prime brokerage agent;” and “trigger swap.” Since these six proposed definitions are related to the Commission's proposal to exempt mirror swaps from public dissemination, the Commission discusses these definitions in this section.

The Commission proposed adding the term “prime brokerage agency arrangement” to § 43.2(a). “Prime brokerage agency arrangement” would mean an arrangement pursuant to which a PB authorizes one of its clients, acting as agent for such PB, to cause the execution of a particular leg of a prime brokerage transaction. The Commission's goal in proposing the “prime brokerage agency arrangement” definition and using this defined term in other definitions in proposed § 43.2(a) was to help ensure that the scope of unreported mirror swaps is limited to swaps that are, among other things, integrally related to the other leg(s) of a prime brokerage transaction that will always be required to be reported.

The Commission proposed adding the term “prime brokerage agent” to § 43.2(a) as a new definition that would mean a client of a PB who causes the execution of a particular leg(s) of a prime brokerage transaction acting pursuant to a prime brokerage agency arrangement.

The Commission also proposed adding the term “prime broker” to § 43.2(a). “Prime broker” would mean with respect to a mirror swap and the related leg(s) of a PB transaction that will not be required to be reported, a SD acting in the capacity of a PB with respect to such swaps. The Commission proposed to use the term “prime broker” in the proposed definitions of “prime brokerage agency arrangement,” “prime brokerage agent,” and “trigger swap” in proposed § 43.2(a), and in proposed § 43.3(a)(6), to establish the parameters of when a “mirror swap” would not be reportable under part 43 if it satisfied the terms of proposed § 43.3(a)(6)(i).

The Commission proposed adding the term “trigger swap” to § 43.2(a) as a new definition that would mean a swap: (1) That is executed pursuant to one or more prime brokerage agency arrangements;

111

(2) to which one counterparty or both counterparties are PBs; (3) that serves as the contingency for, or triggers the execution of, one or more corresponding mirror swaps; and (4) that is a publicly reportable swap transaction that is required to be reported to an SDR pursuant to parts 43 and 45. The Commission proposed to use the term “trigger swap” as an element of a “mirror swap,” which the Commission proposed to make not reportable.

111

The Commission understands that some pricing events that result in trigger swaps are negotiated by persons that are acting pursuant to a prime brokerage agency arrangement with more than one prime broker. The Commission understands that some pricing events that lead to trigger swaps are negotiated by two persons that are each acting pursuant to a prime brokerage agency arrangement with its respective prime broker.

The Commission proposed adding the term “pricing event” to § 43.2(a) as a new definition that would mean the completion of the negotiation of the material economic terms and pricing of a trigger swap. The Commission proposed using the term “pricing event” in proposed § 43.3(a)(6)(i) to make it clear when execution of a trigger swap, which would be required to be reported under proposed § 43.3(a)(6)(iv) (discussed below in section II.C.4.b), occurs.

The Commission proposed adding the term “mirror swap” to § 43.2(a) to mean a swap: (1) To which a PB is a counterparty or both counterparties are PBs; (2) that is executed contemporaneously with a corresponding trigger swap; (3) that has identical terms and pricing as the contemporaneously executed trigger swap (except that a mirror swap, but not the corresponding trigger swap, may include any associated prime brokerage service fees agreed to by the parties and except as provided in the final sentence of this “mirror swap” definition); (4) with respect to which the sole price forming event is the occurrence of the contemporaneously executed trigger swap; and (5) the execution of which is contingent on, or is triggered by, the execution of the contemporaneously executed trigger swap. As further proposed, the notional amount of a mirror swap may differ from the notional amount of the corresponding trigger swap, including, but not limited to, in the case of a mirror swap that is part of a partial reverse give-up;

112

provided, however, that in such cases, (i) the aggregate notional amount of all such mirror swaps to which the PB that is a counterparty to the trigger swap is also a counterparty shall be equal to the notional amount of the corresponding trigger swap and (ii) the market risk and contractual cash flows of all such mirror swaps to which a PB that is not a counterparty to the corresponding trigger swap is a party will offset each other (and the aggregate notional amount of all such mirror swaps on one side of the market and with cash flows in one direction shall be equal to the aggregate notional amount of all such

mirror swaps on the other side of the market and with cash flows in the opposite direction), resulting in each PB having a flat market risk position.

112

A “partial reverse give-up” is described below in section II.C.4.b.

The Commission proposed defining the term “mirror swap” to delineate a group of swaps that do not have to be reported under part 43 if the related conditions set forth in proposed § 43.3(a)(6) are satisfied. The Commission believed that because the terms and pricing of a trigger swap and its related mirror swaps are similar, part 43 reporting of both a trigger swap and the related mirror swaps could falsely indicate the occurrence of two or more pricing events and incorrectly suggest the presence of more trading activity and price discovery than actually exist.

The Commission proposed using the word “contemporaneously” in clause (2) of the “mirror swap” definition rather than “simultaneously” to reflect the fact that it may take time for potential parties to a mirror swap to receive the terms of such mirror swap and to verify that the terms are within the parameters established by the governing prime brokerage arrangement.

The Commission proposed the language regarding associated prime brokerage service fees in clause (3) of the proposed “mirror swap” definition to reflect that a mirror swap may contain fees that a PB that is a counterparty to a mirror swap may charge as a fee for serving as a PB in such swap. The Commission understands that PBs typically charge their clients a service fee for the swap intermediation service that PBs provide. The PB service fee is meant to reflect PBs' credit intermediation costs as well as PBs' back-office and middle-office administrative services costs related to trigger swaps and mirror swaps (

e.g.,

booking, reconciling, settling, and maintaining such trigger swaps and mirror swaps). The PB service fee is typically agreed upon by a PB and its client before a pricing event. To be considered prime brokerage service fees for purposes of clause (3) of the proposed “mirror swap” definition, such fees must be limited to the foregoing purpose and cannot contain any other elements.

113

For example, the Commission would not consider a purported prime brokerage service fee providing the prime broker or its counterparty exposure to a commodity to be a prime brokerage service fee within the meaning of clause (3) of the proposed “mirror swap” definition, as a result of which the related “mirror swap” would not be a mirror swap, and thus would not be within the scope of proposed § 43.3(a)(6) (discussed below in section II.C.4.b), and therefore would be reportable under § 43.3(a)(1) through (3), as applicable, depending on the facts and circumstances.

ii. Proposed Regulations

Proposed new § 43.3(a)(6)(i) would provide that a mirror swap, which the Commission proposed to define in § 43.2(a), as discussed above in section II.B.1, is not a publicly reportable swap transaction. Proposed new § 43.3(a)(6)(i) would also state that, for purposes of determining when execution occurs under § 43.3(a)(1) through (3), execution of a trigger swap shall be deemed to occur at the time of the pricing event for such trigger swap.

Proposed new § 43.3(a)(6)(ii) would provide parameters for determining which counterparty is the reporting counterparty for a given trigger swap in situations where it is unclear, with respect to a given set of swaps, which are mirror swaps and which is the related trigger swap. More specifically, proposed new § 43.3(a)(6)(ii) would state that if, with respect to a given set of swaps, it is unclear which are mirror swaps and which is the related trigger swap, the PBs would be required to determine which swap is the trigger swap and which are mirror swaps. Proposed new § 43.3(a)(6)(ii) would also specify that, with respect to the trigger swap to which a PB is a party, the reporting counterparty shall be determined pursuant to § 43.3(a)(3). Proposed new § 43.3(a)(6)(ii) would add that, notwithstanding the foregoing, if the counterparty to a trigger swap that is not a PB is an SD, then that counterparty will be the reporting counterparty for the trigger swap.

Proposed new § 43.3(a)(6)(iii) would provide that, if, with respect to a given set of swaps, it is clear which are mirror swaps and which is the related trigger swap, the reporting counterparty for the trigger swap shall be determined pursuant to § 43.3(a)(3).

Proposed new § 43.3(a)(6)(iv) would provide that trigger swaps described in proposed § 43.3(a)(6)(ii) and (iii) shall be reported pursuant to the requirements set out in § 43.3(a)(2) or (a)(3), as applicable, except that the provisions of proposed § 43.3(a)(6)(ii), rather than of proposed § 43.3(a)(3), shall govern the determination of the reporting counterparty for purposes of the trigger swaps described in proposed § 43.3(a)(6)(ii).

The goal of proposed § 43.3(a)(6)(ii) is to have each trigger swap be reported ASATP after its pricing event. The Commission understands that one counterparty to a trigger swap often will have participated in negotiating the related pricing event, so should be well-placed to report the trigger swap pursuant to part 43 in such circumstances, particularly if that counterparty is an SD, given that most SDs are experienced with part 43 reporting. If the PB is an SD, but its counterparty is not, the PB would be the reporting counterparty for the trigger swap even though the PB may not learn of the pricing event for some time. However, pursuant to proposed § 43.3(a)(7), discussed below in section II.C.5, the PB could contract with a third-party service provider (which could include a party to the pricing event (

e.g.,

an executing broker)) to handle such reporting if it believes reporting such publicly reportable swap transaction in a timely manner (

i.e.,

ASATP after the pricing event, per proposed § 43.3(a)(6)(i)) would be problematic, while remaining fully responsible for such reporting. Similarly, even in circumstances in which neither counterparty to a trigger swap participated in negotiating the related pricing event (

e.g.,

a double give-up prime brokerage swap structure), such counterparties can contract with a third-party service provider to handle such reporting if they believe that reporting such trigger swap in a timely manner (

i.e.,

ASATP after the pricing event, per proposed § 43.3(a)(6)(i)) would be problematic for them, while remaining fully responsible for such reporting.

b. Comments on the Proposal

The Commission received one comment opposing the proposal to provide an exemption from real-time reporting for mirror swaps. Citadel comments the Commission should instead enhance swap transaction and pricing data by implementing a separate flag to specifically identify mirror swaps.

114

Citadel at 10.

The Commission received two comments supporting the proposal to provide an exemption from real-time reporting for mirror swaps. CME comments that publishing information regarding mirror swaps would not provide any information of value to market participants.

115

FXPA similarly notes their agreement with Commissioner Berkowitz's assessment that “duplicated reporting can create a false signal of swap trading volume and potentially obscure price discovery by giving the price reported for a single prime brokerage swap twice as much weight relative to other non-prime brokerage swaps.”

116

115

CME at 5.

116

FXPA at 4.

The Commission received an additional two comments that support the proposal but also suggest

modifications. ISDA-SIFMA support the proposed treatment of mirror swaps as non-publicly reportable swap transactions.

117

ISDA-SIFMA note that even though mirror swaps resemble hedging swaps, the key difference is that hedges occur in the market while mirror swaps are solely entered into as a function of a PB acting as a credit intermediary between parties that agreed to the terms of the relevant swap.

118

117

ISDA-SIFMA at 51-53, 64-66.

118

Id.

ISDA-SIFMA also believe the current proposal could be improved by modifying obligations to report trigger swaps where the reporting obligation may fall on a prime broker. ISDA-SIFMA suggest that when an off-facility trigger swap is entered into with a SD that is not a PB with respect to such trigger swap, that SD should always report such trigger swap ASATP after such pricing event.

119

However, ISDA-SIFMA believe that when a pricing event occurs between two non-SDs, the related trigger swap should be reported ASATP upon acceptance of the prime broker.

120

119

Id.

120

Id.

ISDA-SIFMA also note that non-SDs generally do not have the necessary systems to effectuate reporting and PBs would thus be reluctant to delegate reporting responsibility to a non-SD.

121

ISDA-SIFMA believe a PB would therefore report a trigger swap when the pricing event occurred between two non-SDs, which could only occur after the PB has accepted the trigger swap. ISDA-SIFMA believe that requiring the PB to report a trigger swap sooner than acceptance is impractical and would have the negative effect of limiting PB client access to non-SD liquidity.

122

ISDA-SIFMA believe that PB client access to non-SD liquidity would be limited under the Proposal because PBs would be concerned with their ability to comply with the reporting requirement and may restrict their PB clients from transacting with non-SDs.

123

121

ISDA-SIFMA at 64.

122

Id.

123

ISDA-SIFMA at 51-53, 64-66.

ISDA-SIFMA acknowledge that the suggestion that PBs be required to report trigger swaps after the PB has accepted the trigger swap may lead to a delay in the reporting of the trigger swap.

124

ISDA-SIFMA state that the extent of the delay would vary based on factors that include the sophistication of the non-SD's operational and systems capability, but that they assume reporting would be feasible within a T+1 timeline.

125

ISDA-SIFMA suggest using the proposed prime broker transaction indicator exclusively for such non-SD trigger swaps to assist in indicating to market participants that such trigger swaps may be reported later than the occurrence of the pricing event.

126

124

ISDA-SIFMA at 52.

125

ISDA-SIFMA at 66.

126

ISDA-SIFMA at 52-53.

ISDA-SIFMA do not believe additional indicators for trigger swaps are necessary because pricing data that is of interest to the public are already included in the swap transaction and pricing data for the trigger swap.

127

ISDA-SIFMA believe it is not practicable to require the potential additional reporting data elements on which the Commission sought comment because the relevant reporting counterparty may not have access to such information.

128

127

ISDA-SIFMA at 51-53.

128

Id.

GFMA supports ISDA-SIFMA's response and similarly believes that the above modifications to the proposal are necessary.

129

GFMA at 1, 5-6.

The Commission received one comment addressing definitions. ISDA-SIFMA do not believe the proposed definitions need to be modified to reflect that prime brokerage fees might not be included in all mirror swaps. ISDA-SIFMA comments that clause (3) of the proposed “Mirror Swap” definition appears to adequately address such a possibility.

130

ISDA-SIFMA at 53.

ISDA-SIFMA support the Commission's proposed definition for “prime broker” and believes it accurately describes the term as understood in common industry practice.

131

However, ISDA-SIFMA anticipate that the related definitions for “mirror swap” and “trigger swap” would create unintended challenges and suggests revisions to those definitions that reference a newly defined term, “prime broker swap.”

132

ISDA-SIFMA suggest revisions to clarify that the defined terms apply across asset classes and were not intended to imply that a prime brokerage agency arrangement is limited to the execution of the trigger swap.

133

ISDA-SIFMA also suggest a revision to the definition of trigger swap that would not, in conjunction with proposed § 43.3(a)(6)(i), require the public dissemination of a mirror swap if the associated trigger swap was exempt from public dissemination for any reason.

134

131

ISDA-SIFMA at 53-54.

132

Id.

133

Id.

134

ISDA-SIFMA at 65.

The Commission received one comment specifically regarding costs and benefits. ISDA-SIFMA comments that adding an additional reporting data element identifying if a swap was a mirror swap or a trigger swap would only result in added costs and complexity to PB reporting, without commensurate benefit to regulatory oversight.

135

ISDA-SIFMA believe that the real-time reporting of mirror swaps would neither enhance price transparency nor serve any price discovery purpose given that there would be no new or additional pricing information released to the market and publicly disseminating mirror swaps with a mirror swap flag would only create noise on the public tape.

136

With respect to the prevalence of mirror swaps, ISDA-SIFMA note that all PB intermediated transactions have at least one mirror swap, but ISDA-SIFMA cannot speak to percentages because firms have strict internal policies on what sort of information can be shared with or amongst other firms.

137

135

ISDA-SIFMA at 57.

136

Id.

137

Id.

at 58.

c. Final Rule

The Commission is adopting the proposal and the proposed new § 43.2 definitions related to mirror swaps with some modifications suggested by commenters, as discussed further below.

138

In addition, the Commission made minor non-substantive technical edits for clarity.

The CEA authorizes the Commission to make swap transaction and pricing data available to the public in such form and

at such times as the Commission determines appropriate to enhance price discovery.

139

The Commission concludes, as informed by commenters, that price discovery will be enhanced by excluding mirror swaps from public dissemination. The Commission believes that price discovery will not be enhanced because the terms and pricing of a trigger swap and its related mirror swap(s) are the same and the current requirement to report both trigger and mirror swaps may be falsely indicating the occurrence of two or more pricing events. The Commission understands that such potentially false indications may also incorrectly suggest the presence of more trading activity and price discovery in the market than actually exists. The Commission is therefore finalizing the portions of the proposed amendments that clarify that

mirror swaps are not publicly reportable swap transactions.

139

7 U.S.C. 2(a)(13)(B) (emphasis added).

The Commission disagrees with the comment that mirror swaps should continue to be publicly disseminated. The commenter suggests that the Commission address concerns that mirror swaps may create false signals of swap trading volume by requiring the reporting of a new indicator for mirror swaps, but the Commission notes that none of the other commenters assert that the public reporting of mirror swaps enhances price discovery. The Commission believes that it would be inconsistent with section 2(a)(13) of the CEA for the Commission to continue to require the public dissemination of swap transaction and pricing data that does not enhance price discovery.

140

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

The Commission is also finalizing as proposed those portions of the proposal that provide that the execution of a trigger swap, for purposes of determining when execution occurs under § 43.3(a)(1) through (3), shall be deemed to occur at the time of the pricing event for such trigger swap. Since all of the material terms of trigger swaps are determined at the time of its related pricing event, the Commission believes it would enhance price discovery for swap transaction and pricing data associated with trigger swaps to be reported in real time and disseminated, subject to any applicable time delay described in § 43.5, ASATP after the occurrence of the pricing event.

The Commission disagrees with the comment that a PB should be required to report a trigger swap after the trigger swap has been accepted by the PB in circumstances where the counterparty to the trigger swap is not an SD. The commenter acknowledges that conditioning the requirement to report a trigger swap upon the acceptance of the trigger swap by a PB would permit an indefinite delay in the reporting of some trigger swaps. The Commission believes that the proposed indefinite delay is generally inconsistent with the section 2(a)(13) of the CEA and would have negative impacts on transparency, price discovery, and liquidity. Since all of the material terms of trigger swaps are determined at the time of its related pricing event, the Commission believes it would enhance price discovery for swap transaction and pricing data associated with trigger swaps to be reported in real time and disseminated, subject to any applicable time delay described in § 43.5, ASATP after the occurrence of the pricing event.

The Commission is also finalizing the proposed definition of mirror swap and trigger swap with modifications suggested by commenters.

141

The Commission believes it is necessary to define a mirror swap and trigger swap with specificity to ensure that § 43.3(a)(6) only exempts from public reporting those legs of a prime brokerage transaction that might incorrectly suggest the presence of more trading activity and price discovery than actually exist.

141

In addition, the Commission made minor non-substantive technical edits for clarity.

The Commission agrees with comments suggesting clarifying revisions to the proposed definitions of mirror swap and trigger swap, and the creation of a newly defined term “prime broker swap.” These modifications seek to clarify that such terms apply across asset classes and were not intended to imply that a prime brokerage agency arrangement is limited to the execution of the trigger swap. The Commission did not intend to imply otherwise and believes such clarifications may help market participants better understand their obligations. Accordingly, the Commission is amending proposed § 43.2(a) to define the term “Prime broker swap” as “any swap to which a SD acting in the capacity as PB is a party.” Under this definition, both the trigger swap and mirror swap would be prime broker swaps. The Commission is similarly amending the proposed definitions of “Prime brokerage agency arrangement” and “Prime brokerage agent” to reference PB swaps instead of trigger swaps.

The Commission is amending the proposed definition of “Trigger swap” to clarify that a PB swap executed on or pursuant to the rules of a SEF or DCM shall be treated as the trigger swap for purposes of part 43. The Proposal did not directly address the potential fact pattern where a leg of a prime brokerage transaction is executed on a facility. In such instances, the Commission believes that it is preferable for that leg to be deemed the trigger swap so that it can be reported in real-time by the SEF or DCM.

The Commission is amending the proposed definition of “Mirror swap” to replace references to “notional” with a broader reference to “contractually agreed payment and delivery amounts.” The Commission believes that use of the broader term “contractually agreed payment and delivery amounts” clarifies that the term mirror swap may apply to swaps in all asset classes, including swaps for which the term “notional” may not generally be used by market participants. The Commission is also amending the proposed definition of “Mirror swap” to remove the phrase: Including, but not limited to, in the case of a mirror swap that is part of a partial reverse give-up. While the Commission understands that the definition of “Mirror swap” may apply to swaps associated with partial reverse give-ups, as described in the Proposal, the Commission believes such specific reference in the text of the regulation is unnecessary.

The Commission is otherwise finalizing the proposed definitions of mirror swap and trigger swap as proposed. The Commission believes the definitions are necessary to ensure that § 43.3(a)(6) only exempts from public reporting those legs of a prime brokerage transaction that might incorrectly suggest the presence of more trading activity and price discovery than actually exist.

The Commission is therefore defining a mirror swap to mean a swap: (1) To which (i) a PB is a counterparty or (ii) both counterparties are prime brokers; (2) that is executed contemporaneously with a corresponding trigger swap; (3) That has identical terms and pricing as the contemporaneously executed trigger swap (except (i) that a mirror swap, but not the corresponding trigger swap, may include any associated prime brokerage service fees agreed to by the parties and (ii) as provided in paragraph (5) of this “mirror swap” definition); (4) With respect to which the sole price forming event is the occurrence of the contemporaneously executed trigger swap; and (5) The execution of which is contingent on, or is triggered by, the execution of the contemporaneously executed trigger swap. The contractually agreed payments and delivery amounts under a mirror swap may differ from those amounts of the corresponding trigger swap if: (i) Under all such mirror swaps to which the PB that is a counterparty to the trigger swap is also a counterparty, the aggregate contractually agreed payments and delivery amounts shall be equal to the aggregate of the contractually agreed payments and delivery amounts under the corresponding trigger swap; and (ii) the market risk and contractually agreed payments and delivery amounts of all such mirror swaps to which a PB that is not a counterparty to the corresponding trigger swap is a party will offset each other, resulting in such PB having a flat market risk position at the execution of such mirror swaps.

The Commission is similarly defining a trigger swap to mean a swap: (1) That is executed pursuant to one or more prime brokerage agency arrangements; (2) to which one counterparty or both counterparties are prime brokers; (3)

that serves as the contingency for, or triggers, the execution of one or more corresponding mirror swaps; and (4) that is a publicly reportable swap transaction that is required to be reported to an SDR pursuant to parts 43 and 45. A PB swap executed on or pursuant to the rules of a SEF or DCM shall be treated as the trigger swap for purposes of part 43.

The Commission expects the parties to a trigger swap to promptly convey those terms to the relevant prime broker(s) that would be a party or parties to related mirror swaps. Any delay in conveying such terms should not be used as an opportunity to find additional counterparties to take part in unreported mirror swaps.

142

The Commission may construe any purported mirror swaps resulting from such activity as not executed contemporaneously with the related trigger swap, and thus not within the scope of the proposed mirror swap definition or, as a result, § 43.3(a)(6), and therefore reportable under § 43.3(a)(1) through (3), as applicable, depending on the facts and circumstances.

142

This could include, but would not be limited to, a potential party to a mirror swap receiving the terms of a related trigger swap from one party to the trigger swap and seeking additional counterparties to a mirror swap while waiting to receive the matching terms of the trigger swap from the other party thereto.

The Commission disagrees with comments suggesting the proposed definition of trigger swap be amended to allow an exception to the requirement that such swap be a publicly reportable swap transaction reported to an SDR, where the trigger swap is otherwise exempt from public reporting. The Commission is excluding mirror swaps from public dissemination because of its concern that the public dissemination of both trigger and mirror swaps may falsely indicate the occurrence of two or more pricing events. The Commission's concern that the publication of a mirror swap may mislead the market is premised on the publication of the associated trigger swap. If the trigger swap is not publicly disseminated, this concern is moot. The Commission is therefore not amending the definition of trigger swap to allow for an exception to the requirement that a trigger swap be a publicly reportable swap transaction that is reported to an SDR.

The Commission agrees with the comment suggesting revisions to clarify and simplify reporting obligations for trigger swaps. The Commission is changing the title of § 43.6(a)(6) from “Mirror swaps” to the more general “Prime Broker swaps” as the paragraph contains reporting obligations related to trigger swaps. The Commission is modifying proposed § 43.6(a)(6)(ii) to clarify that the obligation for PBs to determine which swaps are mirror swaps and which are trigger swaps applies when the trigger swap would occur between two PBs under a prime brokerage agency arrangement. The Commission is also removing the distinction in proposed §§ 43.6(a)(6)(ii) and 43.6(a)(6)(iii) that would have created slight differences in the process for determining the reporting counterparty for certain off-facility trigger swaps.

5. § 43.3(a)(7)—Third-Party Facilitation of Data Reporting

The Commission is adding new § 43.3(a)(7) to provide for the third-party facilitation of data reporting. New § 43.3(a)(7) states that any person required by part 43 to report swap transaction and pricing data, while remaining fully responsible for reporting as required by part 43, may contract with a third-party service provider to facilitate reporting. Regulation 45.9 provides for third-party facilitation of data reporting, and the Commission believes a parallel requirement in part 43 will provide regulatory certainty by expressly permitting the same opportunity for part 43 reporting.

The Commission received one comment on the proposal. Markit comments the proposed explicit acknowledgement that third-party reporting services may be used to meet part 43 reporting requirements will encourage more firms to provide such services and will consequently result in reduced compliance costs.

143

The Commission agrees with Markit, and for the reasons discussed above, is adopting § 43.3(a)(7) as proposed.

143

Markit at 8.

6. § 43.3(b)—Public Dissemination of Swap Transaction and Pricing Data

The Commission is adopting changes to § 43.3(b). Existing § 43.3(b)(2)

144

states that registered SDRs shall ensure that swap transaction and pricing data is publicly disseminated ASATP after such data is received from a SEF, DCM, or reporting party, unless such publicly reportable swap transaction is subject to a time delay described in § 43.5, in which case the publicly reportable swap transaction shall be publicly disseminated in the manner described in § 43.5.

144

As the Commission discussed above in section II.C.1, the Commission is moving the substance of existing § 43.3(b)(1) to revised § 43.3(a)(2).

The Commission is re-locating existing § 43.3(b)(2) to § 43.3(b)(1). The Commission is replacing the language in existing § 43.3(b)(2) stating that SDRs “shall ensure” swap transaction and pricing data is publicly disseminated with an SDR “shall publicly disseminate” swap transaction and pricing data ASATP to clarify that SDRs must disseminate the data, rather than ensure it is done. The Commission is also correcting two references to “publicly reportable swap transaction” to reference “swap transaction and pricing data.”

The Commission is re-locating § 43.3(c)(1) to § 43.3(b)(2) in conjunction with the above relocation of § 43.3(b)(2) to § 43.3(b)(1). Existing § 43.3(c)(1) states that any SDR that accepts and publicly disseminates swap transaction and pricing data in real-time shall comply with part 49 and shall publicly disseminate swap transaction and pricing data in accordance with part 43 ASATP upon receipt of such data, except as otherwise provided in part 43. Because existing § 43.3(c)(1) is an SDR obligation regarding the public dissemination of swap transaction and pricing data, the Commission is re-locating it to revised § 43.3(b).

The Commission is also removing the last phrase of existing § 43.3(c)(1), which states that SDRs must publicly disseminate swap transaction and pricing data in accordance with part 43 ASATP upon receipt of such data, except as otherwise provided in part 43. The language is unnecessary given the similar, but more precise, reference to § 43.5 in existing § 43.3(b)(2) and in proposed § 43.3(b)(1).

145

Finally, the Commission is re-designating existing § 43.3(c)(2) and (3) as § 43.3(b)(4) and (5), respectively.

145

The reference in § 43.3(c)(1) to “except as otherwise provided in part 43” rather than solely to § 43.5 is unnecessarily broad, given that § 43.5 currently is the only regulation in part 43 containing a delay to public dissemination.

The Commission did not receive any comments on the non-substantive or structural changes to § 43.3(b). For the reasons discussed above, the Commission is adopting the changes to § 43.3(b) as proposed. Separately, DTCC recommends deleting the annual independent review requirements for SDRs in existing § 43.3(c)(3), re-designated § 43.3(b)(5), because SDRs are subject to the system safeguards requirements in § 49.24, so the requirements in § 43.3(b)(5) create unnecessary compliance costs and burdens for SDRs.

146

To the extent the requirements overlap, the Commission clarifies SDRs can apply the controls

testing provisions in § 49.24 by their internal audit departments to satisfy § 43.3(b)(5), but the Commission is not removing § 43.3(b)(5) from its regulations.

146

DTCC at 3.

7. § 43.3(c)—Availability of Swap Transaction and Pricing Data to the Public

The Commission is relocating the requirements to make swap transaction and pricing data available to the public from existing § 43.3(d)(1) and (2) to § 43.3(c)(1) and (2).

147

Existing § 43.3(d)(2) specifies that SDRs must make “publicly disseminated”

148

swap transaction and pricing data “freely available and readily accessible” to the public.

147

As discussed above in section II.C.6, the Commission is re-locating the text of existing § 43.3(c)(1), as the Commission is modifying it, to § 43.3(b)(2), and existing § 43.3(c)(2) and (3) as § 43.3(b)(4) and (5), respectively.

148

Existing § 43.2 defines “publicly disseminated” to mean to publish and make available swap transaction and pricing data in a non-discriminatory manner, through the internet or other electronic data feed that is widely published and in machine readable electronic format.

The Commission is also changing existing § 43.3(d)(1) and (2), re-designated as § 43.3(c)(1) and (2) to establish requirements for SDRs to make swap transaction and pricing data available to the public on their websites. First, the Commission is specifying that SDRs must make swap transaction and pricing data available on their websites for a period of a least one year after the initial “public dissemination” of such data. Second, the Commission is moving the format requirements for SDRs in making this swap transaction and pricing data available to the revised definition of “public dissemination.”

The Commission believes publishing historical data supports the fairness and efficiency of markets and increases transparency, which in turn improves price discovery and decreases risk.

149

Most SDRs currently make historical swap transaction and pricing data available on their websites for market participants to download, save, and analyze.

150

However, without clear requirements on how long SDRs must make this data available, or make instructions available, a situation could arise where swap transaction and pricing data is reported, publicly disseminated, and then quickly or unreasonably made unavailable to the public. Removing data in this fashion would deny the public a sufficient opportunity to review the data and ultimately impede the goals of increasing market transparency, improving price discovery, and mitigating risk.

149

See

Real-Time Public Reporting of Swap Transaction Data, 77 FR 1182, 1183.

150

DTCC-SDR's historical swap transaction and pricing data is available at

https://rtdata.dtcc.com/gtr/;

CME SDR's historical swap transaction and pricing data is available at

https://www.cmegroup.com/market-data/repository/data.html;

and ICE Trade Vault's historical swap transaction and pricing data is available at

https://www.icetradevault.com/tvus-ticker/#.

The Commission received three comments supporting the proposal to require SDR's to make public data available on their websites free for one year.

151

In particular, Citadel believes SDRs should be required to make available at least one year of historical data free of charge.

152

The Commission agrees with commenters and is adopting the changes to § 43.3(c) as proposed, with one modification described below.

151

Citadel at 11; CME at 8; DTCC at 3.

152

Citadel at 11.

DTCC recommends clarifying the connection between the fee requirement in proposed § 43.3(c)(2) and the one-year period set forth in § 43.3(c)(1) by either (i) combining the requirements in a single paragraph or (ii) changing the language under § 43.3(c)(2) from “pursuant to this part” to “pursuant to this paragraph (c).”

153

The Commission agrees with DTCC and is changing “this part” in § 43.3(c)(2) to “this paragraph” to clarify the connection.

153

DTCC at 3. DTCC is concerned interpreting § 43.3(c)(2)'s fee requirement without any time limitation would mean any such previously publicly disseminated data held by an SDR must be offered free of charge in perpetuity, which could unnecessarily limit the services SDRs could provide to market participants.

Therefore, § 43.3(c) will state that SDRs shall make: Swap transaction and pricing data available on their websites for a period of time that is at least one year after the initial public dissemination thereof; instructions freely available on their websites on how to download, save, and search such swap transaction and pricing data; and swap transaction and pricing data that is publicly disseminated pursuant to this paragraph available free of charge.

8. § 43.3(d)—Data Reported to SDRs

The Commission is adopting new § 43.3(d)(1) to require reporting counterparties, SEFs, and DCMs to report the swap transaction and pricing data as described in the elements in appendix A. The Commission provides guidance with respect to the form and manner of reporting such elements in the technical specification published by the Commission in place of existing § 43.3(d)(1).

154

The Commission is also adding § 43.3(d)(2) to require reporting counterparties, SEFs, and DCMs to satisfy SDR validation procedures when reporting swap transaction and pricing data to SDRs in place of existing § 43.3(d)(2).

155

154

The Commission is relocating the requirement in existing § 43.3(d)(1) to the definition of “publicly disseminate” in § 43.2.

155

The Commission is relocating the requirement in existing § 43.3(d)(2) to § 43.3(c)(1) and (2).

The Commission is also removing existing § 43.3(d)(3). In its place, the Commission is requiring reporting counterparties, SEFs, and DCMs to use the facilities, methods, or data standards provided or required by the SDR to which the reporting counterparty, SEF, or DCM, reports the data.

The Commission believes reporting counterparties will benefit from distinct regulatory requirements in part 43 for reporting the swap transaction and pricing data as described in the data elements in appendix A in the form and manner provided in the technical specification published by the Commission. In addition, the Commission believes the SDR validation procedures the Commission is adopting in § 43.3(f) will help improve the timeliness and accuracy of data SDRs publicly disseminate. However, the Commission believes a companion requirement to § 43.3(f) for reporting counterparties, SEFs, and DCMs to satisfy SDR validation procedures in § 43.3(d)(2) is necessary. Without a companion requirement, ambiguity could arise as to the responsibilities of reporting counterparties, SEFs, and DCMs to actually satisfy the validation requirements in § 43.3(f).

The Commission received one comment

156

on the changes to § 43.3(d). DTCC believes the revisions would benefit market participants by having publicly disseminated swap transaction and pricing data standardized across SDRs via the requirements of the technical specifications published by the Commission pursuant to § 43.7.

157

The Commission agrees with DTCC. For the reasons discussed above, the Commission is adopting the changes to existing § 43.3(d) as proposed, with a non-substantive technical change to proposed § 43.3(d)(1) for clarity.

156

NFP Electric Associations also comment they read CEA section 2(a)(13)(D) as only authorizing the Commission to require registered entities to disseminate data on swaps. As such, after a non-SD/MSP/DCO reports an off-facility swap pursuant to part 43, their reporting obligations should be satisfied as there is no separate “public dissemination” requirement in the CEA that falls on such non-registered entities. The Commission agrees nothing in existing or amended § 43.3(d) imposes a public dissemination requirement on a non-registered entity, and as such, the Commission considers NFP Electric Associations' concern misplaced.

157

DTCC at 4.

9. § 43.3(f)—Data Validation Acceptance Message

The Commission is adopting new regulations for SDRs to validate swap transaction and pricing data in § 43.3(f). New § 43.3(f) will require that, in addition to validating each swap transaction and pricing data report submitted to it, the SDR also shall notify the reporting counterparty, SEF, or DCM submitting the report whether the report satisfied the data validation procedures of the SDR. The SDR will have to provide such notice ASATP after accepting the swap transaction and pricing data report. New § 43.3(f)(1) will provide that an SDR may satisfy the validation requirements by transmitting data validation acceptance messages as required by § 49.10.

158

The Commission is adopting new regulations for SDRs to validate swap transaction and pricing data in a separate release amending parts 45, 46, and 49.

New § 43.3(f)(2) will provide that if a swap transaction and pricing data report submitted to an SDR does not satisfy the data validation procedures of the SDR, the reporting counterparty, SEF, or DCM required to submit the report has not satisfied its obligation to report swap transaction and pricing data in the manner provided by § 43.3(d). The reporting counterparty, SEF, or DCM will not have satisfied its obligation until it submits the swap transaction and pricing data report in the manner provided by § 43.3(d), which includes the requirement to satisfy the data validation procedures of the SDR.

The Commission is making one change to the proposal in response to a comment from DTCC. DTCC believes the Commission should replace the word “transmitting” with “making available” to give market participants flexibility in using the best available means to achieve proposed § 43.3(f)(1)'s purpose.

159

The Commission agrees “transmitting” could limit SDRs in providing information to their customers. As a result, the Commission is changing “transmitting” in § 43.3(f)(1) to “making available.”

159

DTCC at 4. DTCC is concerned proposed § 43.3(f)(1) is silent regarding other means by which an SDR can satisfy the validation requirements and is concerned that the proposed language unnecessarily limits the means by which SDRs and their members may arrange for access to such information.

The Commission believes rules for validations in § 43.3(f) are critical for ensuring accurate, high-quality swap transaction and pricing data reaches the public. The Commission's regulations do not currently require that SDRs validate swap transaction and pricing data. The Commission understands, however, that SDRs have implemented validations as a best practice. As a result, each SDR runs a number of checks, or validations, on each message prior to publicly disseminating it. A failed validation can cause an SDR to reject the message without disseminating it to the public.

The Commission is concerned that the lack of validation requirements has resulted in reporting counterparties, SEFs, and DCMs being unaware of, or unfamiliar with, the existence of such validations. The Commission is concerned that the lack of awareness may be resulting in reporting counterparties, SEFs, and DCMs being unclear about their responsibilities to monitor their submissions to SDRs for errors that may result in validation failures that ultimately result in non-dissemination. As a result, the Commission is adopting § 43.3(d)(2) to require reporting counterparties, SEFs, and DCMs to satisfy SDR validation procedures when reporting swap transaction and pricing data to SDRs. The Commission is also adopting § 43.3(f) to make clear the requirement for each SDR to notify submitting parties of their failure to meet the SDR's validation procedures and that an entity's reporting obligation is not satisfied until the SDR's validation procedures have been satisfied.

The Commission received one comment opposing validations. NFP Electric Associations believe they will impose a significant additional burden on non-SD/MSP/DCO counterparties to off-facility non-financial commodity swaps and believe the Commission has not proved the validations will achieve a specific regulatory benefit to offset these burdens.

160

The Commission acknowledges the concerns raised by NFP Electric Associations, but believes that as SDRs currently validate data, the new regulations should not impose significant additional burdens on all reporting counterparties, including non-SD/MSP/DCO counterparties.

160

NFP Electric Associations at 6-7.

10. § 43.3(h)—Timestamp Requirements

The Commission is removing the timestamp requirements in existing § 43.3(h)(1) through (4).

161

Existing § 43.3(h)(1) through (4) sets forth timestamp requirements for registered entities, SDs, and MSPs for all publicly reportable swap transactions.

162

Separately, existing § 43.3(h)(4)(i) contains regulations regarding SDR fees. The Commission is not substantively amending § 43.3(h)(4)(i), but is re-locating the requirement to § 43.3(g) in light of the changes to § 43.3(h).

161

The Commission proposed moving the § 43.3(g) regulations for SDR hours of operation to § 49.28 and reserving § 43.3(g).

See

84 FR at 21064 (May 13, 2019).

162

SEFs and DCMs must timestamp swap transaction and pricing data relating to a publicly reportable swap transaction with the date and time, to the nearest second, of when such SEF or DCM receives data from a swap counterparty (if applicable), and transmits such data to an SDR for public dissemination. 17 CFR 43.3(h)(1). SDRs must timestamp swap transaction and pricing data relating to a publicly reportable swap transaction with the date and time, to the nearest second when such SDR receives data from a SEF, DCM, or reporting party, and publicly disseminates such data. 17 CFR 43.3(h)(2). SDs or MSPs must timestamp swap transaction and pricing data for off-facility swaps with the date and time, to the nearest second when such SD or MSP transmits such data to an SDR for public dissemination. 17 CFR 43.3(h)(3). Records of all timestamps required by § 43.3(h) must be maintained for a period of at least five years from the execution of the publicly reportable swap transaction. 17 CFR 43.3(h)(4).

The updated list of data elements in appendix A will cover the timestamps described in § 43.3(h).

163

Therefore, § 43.3(h)(1) through (3) requiring SEFs, DCMs, SDs, MSPs, and SDRs to timestamp swap transaction and pricing data is now redundant. In addition, the separate recordkeeping requirement for timestamps duplicates other recordkeeping requirements for SEFs, DCMs, SDs, MSPs, and SDRs. SDRs must already keep swap data for five years following the final termination of the swap and for an additional ten years in archival storage.

164

In a separate release, the Commission is adding part 43 swap transaction and pricing data to the recordkeeping requirement in § 49.12(b)(1) for SDRs.

165

SEFs, DCMs, SDs, and MSPs have similar recordkeeping requirements for swaps.

166

As a result, SEFs, DCMs, SDs, MSPs, and SDRs have to maintain timestamps they disseminate as part of recordkeeping requirements separate

from § 43.3(h)(4), making the requirement redundant as well.

163

The Commission discusses appendix A in section III below.

164

See

§ 45.2(f) and (g) (containing recordkeeping requirements for SDRs);