Securities Law Updates | New Statutes, Regulations and Rules
June 18, 2012
CFTC Approves Final Rule on Swap Data Recordkeeping and Reporting Requirements for Pre-Dodd-Frank and Transition Swaps
Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps
CFTC Release No. PR6259-12, 17 CFR Part 46, 3038-AD48, 5/18/2012
The U.S. Commodity Futures Trading Commission (CFTC) has approved a final rule on swap data recordkeeping and reporting requirements for counterparties to pre-enactment swaps, those swaps executed prior to passage of the Dodd-Frank Act, and transition swaps, those entered into between the law’s enactment date and the applicable compliance date for swap data recordkeeping and reporting.
The goal of the final rule for these swaps, collectively called historical swaps, is to specify what records must be kept and what data must be reported. The rule is also designed to ensure that historical swap data is available to regulators through swap data repositories (SDRs).
The Commission’s final rule regarding swap data recordkeeping and reporting for historical swaps further implements the Dodd-Frank Act’s new statutory framework regarding swap data recordkeeping and reporting. Section 723 of the Dodd-Frank Act amends Section 2 of the Commodity Exchange Act (CEA or Act) by adding new Section 2(h)(5), which directs that rules adopted by the Commission pursuant to this section shall provide for the reporting of data relating to swaps entered into before the date of enactment of the Dodd-Frank Act (pre-enactment swaps) and data relating to swaps entered into on or after the date of enactment of the Dodd-Frank Act and prior to the compliance date specified in the Commission’s final swap data reporting rules (transition swaps).
The Commission’s final rule establishes recordkeeping and reporting requirements for these swaps, collectively known as historical swaps.
Recordkeeping requirements for historical swaps:
The rule establishes limited recordkeeping requirements for counterparties to historical swaps. For swaps in existence on or after April 25, 2011, the date of publication of the Commission’s proposed rule concerning historical swaps, counterparties are required to keep records of specified, minimum primary economic terms for a swap of the asset class in question.
Swap dealers (SDs) and major swap participants (MSPs) must keep the required records in electronic form (unless they were originally created and are exclusively maintained in paper form), while non-SD/MSP counterparties are permitted to keep them in either electronic or paper form. In addition, a counterparty to an historical swap must keep a confirmation, master agreement or credit support agreement concerning the historical swap in its possession on or after April 25, 2011.
For historical swaps that expired prior to April 25, 2011, counterparties are required to keep the records they have, in any form elected by the counterparty. The required records must be retained throughout the existence of a historical swap and for five years following its final termination or expiration.
Data Reporting Requirements for Historical Swaps:
For each historical swap in existence on or after April 25, 2011, the final rule calls for an electronic initial data report to a swap data repository (SDR) on the applicable compliance date for swap data recordkeeping and reporting. For historical swaps still in existence after the applicable compliance date, the rule addresses ongoing reporting of data from the continuation of the historical swap during its remaining existence. The determination of which counterparty must report the swap mirrors the provisions of the CFTC’s rules governing swap data reporting for new swaps.
The initial data report for each historical swap in existence on or after April 25, 2011, must include all of the minimum primary economic terms specified for a historical swap of the asset class in question that are in the possession of the reporting counterparty on or after April 25, 2011.
The reporting counterparty must also report its own legal entity identifier, the internal identifier it uses to identify the non-reporting counterparty, and the internal transaction identifier it uses to identify the swap. For historical swaps already reported to an existing repository prior to the applicable compliance date, duplicate reporting of information already reported is not required.
For each uncleared historical swap still in existence after the applicable compliance date, the final rule requires reporting of the swap continuation data required by the Commission’s Part 45 rules on swap data reporting, including changes to the primary economic terms initially reported for the historical swap.
The final rule does not require continuation data reporting for cleared historical swaps. Information reported by the reporting counterparty concerning each cleared historical swap will include the identity of the designated clearing organization clearing the swap. The Commission separately plans to further clarify how novated and cleared historical swaps should be reported under the Commission’s swap data reporting rules.
For each historical swap which expired or was terminated prior to April 25, 2011, the reporting party must report such information relating to the terms of the transaction as was in the reporting counterparty’s possession as of April 25, 2011. This information can be reported via any method selected by the reporting counterparty.
Third-party Facilitation of Data Reporting:
Counterparties required to report data concerning historical swaps may contract with third-party service providers to facilitate reporting. However, such counterparties remain responsible for reporting as required by the final rule.
In reporting swap data to an SDR, each counterparty must use the facilities, methods, or data standards provided or required by the SDR to which the counterparty reports the data. SDRs may permit reporting entities and counterparties to use various facilities, methods, or data standards, provided that its requirements in this regard enable it to meet the CFTC’s requirements with respect to data maintenance and transmission of data to the CFTC.
The final rule phases in the compliance dates for historical swap recordkeeping and reporting by both asset class and counterparty type, using the same compliance dates specified in the Commission’s main swap data recordkeeping and reporting rules in Part 45. SDs and MSPs must commence full compliance with this final rule with respect to historical credit swaps and interest rate swaps on Compliance Date 1, which is the later of July 16, 2012, or 60 calendar days after publication in the Federal Register of the later of the Commission’s final rule defining “swap” or the Commission’s final rule defining “swap dealer” and “major swap participant.” SDs and MSPs must commence full compliance with respect to historical equity swaps, foreign exchange swaps, and other commodity swaps on Compliance Date 2, 90 calendar days after Compliance Date 1. Non-SD/MSP counterparties must commence full compliance with respect to all historical swaps on Compliance Date 3, 90 calendar days after Compliance Date 2.
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