AGENCY:

Commodity Futures Trading Commission.

ACTION:

Final rule.

SUMMARY:

The Commodity Futures Trading Commission (“Commission” or “CFTC”) is amending certain regulations setting forth the swap data recordkeeping and reporting 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, streamline the requirements for reporting new swaps, define and adopt swap data elements that harmonize with international technical guidance, and reduce reporting burdens for reporting counterparties that are neither SDs nor MSPs.

DATES:

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

Compliance Date: SDRs, SEFs, DCMs, reporting counterparties, and non-reporting counterparties must comply with the amendments to the rules by May 25, 2022.

FOR FURTHER INFORMATION CONTACT:

Richard Mo, Special Counsel, (202) 418-7637, rmo@cftc.gov; Benjamin DeMaria, Special Counsel, (202) 418-5988, bdemaria@cftc.gov; Thomas Guerin, Special Counsel, (202) 734-4194, tguerin@cftc.gov; Meghan Tente, Acting Deputy Director, (202) 418-5785, mtente@cftc.gov; Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581; Kristin Liegel, Surveillance Analyst, (312) 596-0671, kliegel@cftc.gov, Division of Market Oversight, Commodity Futures Trading Commission, 525 West Monroe Street, Suite 1100, Chicago, Illinois 60661; Kate Mitchel, Business Analyst, (202) 418-5871, kmitchel@cftc.gov, Office of Data and Technology; Nancy Doyle, Senior Special Counsel, (202) 418-5136, ndoyle@cftc.gov, Office of International Affairs; John Coughlan, Research Economist, (202) 418-5944, jcoughlan@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 45

A. § 45.1—Definitions

B. § 45.2—Swap Recordkeeping

C. § 45.3—Swap Data Reporting: Creation Data

D. § 45.4—Swap Data Reporting: Continuation Data

E. § 45.5—Unique Transaction Identifiers

F. § 45.6—Legal Entity Identifiers

G. § 45.8—Determination of Which Counterparty Shall Report

H. § 45.10—Reporting to a Single Swap Data Repository

I. § 45.11—Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any Swap Data Repository

J. § 45.12—Voluntary Supplemental Reporting

K. § 45.13—Required Data Standards

L. § 45.15—Delegation of Authority

III. Amendments to Part 46

A. § 46.1—Definitions

B. § 46.3—Data Reporting for Pre-Enactment Swaps and Transition Swaps

C. § 46.10—Required Data Standards

D. § 46.11—Reporting of Errors and Omissions in Previously Reported Data

IV. Amendments to part 49

A. § 49.2—Definitions

B. § 49.4—Withdrawal from Registration

C. § 49.10—Acceptance and Validation of Data

V. Swap Data Elements Reported to Swap Data Repositories

A. Proposal

B. Comments on the Proposal and Commission Determination

VI. Compliance Date

VII. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

I. Background

Pursuant to section 2(a)(13)(G) of the Commodity Exchange Act (“CEA”), all swaps, whether cleared or uncleared, must be reported to SDRs.^[1] CEA section 21(b) directs the Commission to prescribe standards for swap data recordkeeping and reporting.^[2] Part 45 of the Commission's regulations implements the swap data reporting rules.^[3] The part 45 regulations require SEFs, DCMs, and reporting counterparties to report swap data to SDRs. SDRs collect and maintain data related to swap transactions, keeping such data electronically available for regulators or the public.^[4]

Since the Commission adopted the part 45 regulations, Commission staff has worked with SDRs, SEFs, DCMs, reporting counterparties, and non-reporting counterparties to interpret and implement of the requirements established in the regulations. Several years ago, the Division of Market Oversight (“DMO”) announced ^[5] its Roadmap to Achieve High Quality Swaps Data (“Roadmap”),^[6] consisting of a comprehensive review to, among other things: (i) ensure the CFTC receives accurate, complete, and high-quality data on swap transactions for its regulatory oversight role; and (ii) streamline reporting, reduce messages that must be reported, and right-size the number of data elements reported to meet the agency's priority use-cases for swap data.^[7]

In February 2020, the Commission proposed certain changes to its parts 45, 46, and 49 regulations (“Proposal”) ^[8] to simplify the requirements for reporting swaps, require SDRs to validate swap reports, permit the transfer of swap data between SDRs, alleviate reporting burdens for non-SD/MSP reporting counterparties, and harmonize the swap data elements counterparties report to SDRs with international technical guidance.

The Commission received 26 comment letters on the Proposal.^[9] After considering the comments, the Commission is adopting parts of the rules as proposed, although there are proposed changes the Commission has determined to either revise or decline to adopt. The Commission believes the rules it is adopting herein will provide clarity and lead to more effective swap data reporting by SEFs, DCMs, and reporting counterparties.

Before discussing the changes to the regulations, the Commission highlights the important role international data harmonization efforts have played in this rulemaking. As discussed in the Proposal, since November 2014, regulators across major derivatives jurisdictions, including the CFTC, have come together through the Committee on Payments and Market Infrastructures (“CPMI”) and the International Organization of Securities Commissions (“IOSCO”) working group for the harmonization of key over-the-counter (“OTC”) derivatives data elements (“Harmonisation Group”) to develop global guidance regarding the definition, format, and usage of key OTC derivatives data elements reported to trade repositories (“TRs”), including the Unique Transaction Identifier (“UTI”), the Unique Product Identifier (“UPI”), and critical data elements other than UTI and UPI (“CDE”).^[10]

The Commission has played an active role in the development and publication of each of the Harmonisation Group's technical guidance documents. For the CDE Technical Guidance in particular, as part of the Harmonisation Group, Commission staff worked alongside representatives from Canada, France, Germany, Hong Kong, Japan, Singapore, and the United Kingdom, among others, to provide feedback regarding the data elements, taking into account the Commission's experience with swap data reporting thus far. Commission staff also participated in the solicitation of responses to three public consultations on the CDE Technical Guidance, along with related industry workshops and conference calls.^[11]

The Commission's sustained, active role in the Harmonisation Group in developing global guidance on key OTC derivatives data elements reported to TRs is part of the Commission's broader, long-range goal of continued efforts to achieve international harmony in the area of swaps reporting. The Commission has co-led efforts to design ongoing international regulatory oversight of these standards in the Financial Stability Board (“FSB”) Working Group on UPI and UTI Governance (“GUUG”) and the Commission's efforts to achieve international harmonization in the entire clearing ecosystem, including swap data reporting, will continue.

In particular, the Commission continues to be open to further ways to cooperate with our foreign regulatory counterparts in the supervision of TRs. An example is the consideration of when and how the Commission should grant swap data reporting substituted compliance determinations for SDs and DCOs domiciled in non-U.S. jurisdictions with similar swap data reporting requirements, permitting reporting of swap data to a foreign TR to satisfy Commission swap data requirements under appropriate circumstances. Efficiencies in cross-border reporting are critical to the smooth operation of transatlantic clearing and trading. To the degree the Commission can work with its international counterparts to thus increase interoperability between jurisdictions, this will enhance cross-border trading efficiency. Moreover, with appropriate tailoring and protections, and due access to foreign TR data, deference to foreign jurisdictions will reduce expensive redundancies in trade reporting.

II. Amendments to Part 45

A. § 45.1—Definitions

The paragraph of existing § 45.1 is not lettered. The Commission is lettering the existing paragraph as “(a)” and adding (b) to § 45.1. Paragraph (a) will contain all of the definitions in existing § 45.1, as the Commission is modifying them. New paragraph (b) provides the terms not defined in part 45 have the meanings assigned to the terms in Commission regulation § 1.3, which was implied in the existing regulation but will now be explicit.^[12]

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

1. New Definitions

The Commission is adding a definition of “allocation” to § 45.1(a). “Allocation” means the process by which an agent, having facilitated a single swap transaction on behalf of clients, allocates a portion of the executed swap to the clients. Existing § 45.3(f) contains regulations for reporting allocations without defining the term. The definition will help market participants comply with the regulations for reporting allocations in § 45.3.

The Commission is adding a definition of “as soon as technologically practicable” (“ASATP”) to § 45.1(a). “As soon as technologically practicable” means as soon as possible, taking into consideration the prevalence, implementation, and use of technology by comparable market participants. The phrase “as soon as technologically practicable” is currently undefined but used throughout part 45. The Commission is adopting the same definition of “as soon as technologically practicable” as is defined in § 43.2 for swap transaction and pricing data.^[13]

The Commission is adding a definition of “collateral data” to § 45.1(a). “Collateral data” means the data elements necessary to report information about the money, securities, or other property posted or received by a swap counterparty to margin, guarantee, or secure a swap, as specified in appendix 1 to part 45. The Commission explains this definition in a discussion of collateral data reporting in section II.D.4 below.

The Commission is adding definitions of “execution” and “execution date” to § 45.1(a). “Execution” means 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.^[14] In the Proposal, the Commission proposed “execution date” to mean the date, determined by reference to Eastern Time, on which swap execution has occurred. The execution date for a clearing swap that replaces an original swap would be the date, determined by reference to Eastern Time, on which the DCO accepts the original swap for clearing. The term “execution” is currently undefined but used throughout part 45, and the Commission is adding regulations referencing “execution date.” ^[15]

The Commission received three comments supporting the definition of “execution date.” ^[16] In particular, ISDA-SIFMA believe the definition is more practical than the referencing the “day of execution,” because the latter would require a more complex build for industry participants, including requiring reporting counterparties to compare against the non-reporting counterparty to determine the party with the calendar day that ends latest, on a swap-by-swap basis.^[17]

The Commission received three comments opposing the reference to Eastern Time in the proposed definition of “execution date.” CME and Chatham both believe the definition should use a coordinated universal time (“UTC”) standard.^[18] CME notes Eastern Time could make the reporting entity convert data between three time zones— local time zone, Eastern Time, and UTC—and also account for daylight savings time.^[19] Chatham notes reporting counterparties build systems using UTC and it would be time-consuming and costly to convert to Eastern Time, as well as inconsistent with other regulatory reporting frameworks.^[20] JBA suggests the Commission use UTC to globally harmonize and follow the CDE Technical Guidance, and points out the January 2020 CPMI-IOSCO “Clock Synchronization” report recommends business clocks synchronize to UTC.^[21]

The Commission agrees the reference to Eastern Time in “execution date” would create unnecessary operational complexities and be inconsistent with the approach taken by other regulators. In addition, the Commission's updated swap data elements in appendix 1 reference UTC. In response, the Commission is removing the references to Eastern Time in the definition of “execution date,” and the swap data elements in appendix 1 will clarify that SEFs, DCMs, and reporting counterparties should report the specific data elements using UTC. As such, the new definition of “execution date” means the date of execution of a particular swap. The execution date for a clearing swap that replaces an original swap is the date on which the original swap has been accepted for clearing.

The Commission is adding the following three definitions to § 45.1(a): “Global Legal Entity Identifier System,” “legal entity identifier” or “LEI,” and “Legal Entity Identifier Regulatory Oversight Committee” (“LEI ROC”). “Global Legal Entity Identifier System” means the system established and overseen by the LEI ROC for the unique identification of legal entities and individuals. “Legal entity identifier” or “LEI” means a unique code assigned to swap counterparties and entities in accordance with the standards set by the Global Legal Entity Identifier System. “Legal Entity Identifier Regulatory Oversight Committee” means the group charged with the oversight of the Global Legal Entity Identifier System that was established by the finance ministers and the central bank governors of the Group of Twenty nations and the FSB, under the Charter of the Regulatory Oversight Committee for the Global Legal Entity Identifier System dated November 5, 2012, or any successor thereof.^[22] These definitions are all associated with, and further explained in the context of, the § 45.6 regulations for LEI, in section II.F below.^[23]

The Commission is adding a definition of “non-SD/MSP/DCO reporting counterparty” to § 45.1(a). “Non-SD/MSP/DCO reporting counterparty” means a reporting counterparty that is not an SD, MSP, or DCO. The existing definition of “non-SD/MSP reporting counterparty” does not explicitly include DCOs. This creates problems when, for instance, the Commission did not intend DCOs follow the required swap creation data reporting regulations in § 45.3(d) for off-facility swaps not subject to the clearing requirement with a non-SD/MSP reporting counterparty, even though DCOs are technically reporting counterparties that are neither SDs nor MSPs. Instead, DCOs follow § 45.3(e) for clearing swaps. The definition of “non-SD/MSP/DCO reporting counterparty” addresses this unintended gap.

The Commission is adding a definition of “novation” to § 45.1(a). “Novation” means the process by which a party to a swap legally transfers all or part of its rights, liabilities, duties, and obligations under the swap to a new legal party other than the counterparty to the swap under applicable law. The term “novation” is currently undefined but used in the definition of “life cycle event,” as well as the existing § 45.8(g) regulations for determining which counterparty must report.

The Commission is adding a definition of “swap” to § 45.1(a). “Swap” means any swap, as defined by § 1.3, as well as any foreign exchange forward, as defined by CEA section 1a(24), or foreign exchange swap, as defined by CEA section 1a(25).^[24] The term “swap” is currently undefined but used throughout part 45 and the definition codifies the meaning of the term as it is currently used throughout part 45.^[25]

The Commission is adding definitions of “swap data” and “swap transaction and pricing data” to § 45.1(a). In the Proposal, the Commission proposed “swap data” to mean the specific data elements and information in appendix 1 to part 45 required to be reported to an SDR pursuant to part 45 or made available to the Commission pursuant to part 49, as applicable. The Commission received a comment from DTCC suggesting deleting the phrase “and information” from the definition of “swap data,” because it is unclear to what “and information” refers.^[26] The Commission agrees and is modifying the definition to remove “and information.” ^[27] The Commission is adopting the rest of the definition of “swap data” as proposed.

Separately, the Commission is adopting the definition of “swap transaction and pricing data,” with minor changes from the proposed definition. “Swap transaction and pricing data” will mean all data elements for a swap in appendix A ^[28] to part 43 that are required to be reported or publicly disseminated pursuant to part 43. Having “swap data” apply to part 45 data, and “swap transaction and pricing data” apply to part 43 data, will provide clarity across the reporting regulations.

The Commission is adding a definition of “swap data validation procedures” to § 45.1(a). “Swap data validation procedures” means procedures established by an SDR pursuant to § 49.10 to accept, validate, and process swap data reported to an SDR pursuant to part 45. The Commission discusses this definition in section IV.C.3 below.

The Commission is adding a definition of “unique transaction identifier” to § 45.1(a). “Unique transaction identifier” means a unique alphanumeric identifier with a maximum of 52 characters constructed solely from the upper-case alphabetic characters A to Z or the digits 0 to 9, inclusive in both cases, generated for each swap pursuant to § 45.5. The Commission received a comment from DTCC supporting the definition because it is consistent with UTI Technical Guidance.^[29] The Commission explains this definition in a discussion of the regulations to transition from using unique swap identifiers (“USIs”) to UTIs in section II.E below.

2. Changes to Existing Definitions ^[30]

The Commission is making non-substantive technical changes to the existing definitions of “asset class,” “derivatives clearing organization,” and “swap execution facility.”

The Commission is changing the definition of “business day” in § 45.1. Existing § 45.1 defines “business day” to mean the twenty-four hour day, on all days except Saturdays, Sundays, and legal holidays, in the location of the reporting counterparty or registered entity reporting data for the swap.^[31] In the Proposal, the Commission proposed replacing “the twenty-four hour day” with “each twenty-four-hour day,” and “legal holidays, in the location of the reporting counterparty” with “Federal holidays” to simplify the definition by no longer requiring the determination of different legal holidays depending on the reporting counterparty's location.

The Commission received four comments raising concerns with the changes to “business day.” CME believes the proposed changes could result in firms keeping some staff in the office on local holidays or reporting before the deadline.^[32] JSCC believes the proposed changes would force non-U.S. reporting counterparties to report valuation, margin, and collateral data on local holidays even though the data would be unchanged because their markets would be closed.^[33] ISDA-SIFMA request clarification that “federal holidays” include legal holidays in the reporting counterparty's principal place of business so a reporting counterparty located outside the U.S. can take into account legal holidays that are not U.S. federal holidays.^[34] DTCC suggests using the same definitions for parts 43 and 45.^[35]

The Commission seeks to avoid firms keeping staff in the office on local holidays, as commenters pointed out the changes suggest. As such, the Commission is keeping the current definition of “business day” with one modification: “registered entity” refers to SEFs and DCMs. Therefore, the “business day” will mean the twenty-four-hour day, on all days except Saturdays, Sundays, and legal holidays, in the location of SEF, DCM, or reporting counterparty reporting data for the swap.

The Commission is changing the definition of “life cycle event” in § 45.1. Existing § 45.1 defines “life cycle event” to mean any event that would result in either a change to a primary economic term (“PET”) of a swap or to any PET data (“PET data”) previously reported to an SDR in connection with a swap.^[36] The Commission is replacing the reference to PET data with required swap creation data to reflect the Commission's removal of the concept of PET data reporting from § 45.3.^[37] The Commission is also replacing a reference to a counterparty being identified in swap data by “name” with “other identifiers” to be more precise in when counterparties are identified by other means.

The Commission is changing the definition of “non-SD/MSP counterparty” in § 45.1. Existing § 45.1 defines “non-SD/MSP counterparty” to mean a swap counterparty that is neither an SD nor an MSP. The Commission is changing the defined term to “non-SD/MSP/DCO counterparty.” ^[38] “Non-SD/MSP/DCO counterparty” means a swap counterparty that is not an SD, MSP, or DCO. This change conforms to the changes to the term “non-SD/MSP/DCO reporting counterparty” explained in section II.A.1 above.

The Commission is changing the definition of “required swap continuation data” in § 45.1. Existing § 45.1 defines “required swap continuation data” to mean all of the data elements that must be reported during the existence of a swap to ensure that all data concerning the swap in the SDR remains current and accurate, and includes all changes to the PET terms of the swap occurring during the existence of the swap. The definition further specifies that required swap continuation data includes: (i) All life-cycle-event data for the swap if the swap is reported using the life cycle reporting method, or all state data for the swap if the swap is reported using the snapshot reporting method; and (ii) all valuation data for the swap.

First, the Commission is removing the reference to “[PET] of the swap.” ^[39] Second, the Commission is removing the reference to snapshot reporting to reflect the removal of the concept of snapshot reporting from § 45.4.^[40] Third, the Commission is adding a reference to margin and collateral data.^[41] As amended, “required swap continuation data” means all of the data elements that must be reported during the existence of a swap to ensure that all swap data concerning the swap in the SDR remains current and accurate, and includes all changes to the required swap creation data occurring during the existence of the swap. For this purpose, required swap continuation data includes: (i) All life-cycle-event data for the swap; and (ii) all swap valuation, margin, and collateral data for the swap.

The Commission is changing the definition of “required swap creation data” in § 45.1. Existing § 45.1 defines “required swap creation data” to mean all PET data for a swap in the swap asset class in question and all confirmation data for the swap. The Commission is replacing the reference to PET data and confirmation data with a reference to the swap data elements in appendix 1 to part 45, to reflect the Commission's update of the swap data elements in existing appendix 1.^[42]

The Commission is changing the definition of “valuation data” in § 45.1(a). Existing § 45.1 defines “valuation data” to mean all of the data elements necessary to fully describe the daily mark of the transaction, pursuant to CEA section 4s(h)(3)(B)(iii),^[43] and § 23.431 of the Commission's regulations, if applicable. The Commission is adding a reference to the swap data elements in appendix 1 to part 45 to link the definition and the data elements.

3. Removed Definitions

The Commission is removing the following definitions from § 45.1: “credit swap;” “designated contract market;” “foreign exchange forward;” “foreign exchange instrument;” “foreign exchange swap;” “interest rate swap;” “major swap participant;” “other commodity swap;” “state data;” “swap data repository;” and “swap dealer.” The Commission wants market participants to use the terms as they are already defined in Commission regulation § 1.3 or in CEA section 1a.^[44]

The Commission is removing the following definitions from § 45.1: “confirmation;” “confirmation data;” “electronic confirmation;” “non-electronic confirmation;” “primary economic terms;” and “primary economic terms data.” The definitions are unnecessary due to the Commission combining PET data and confirmation data into a single data report in § 45.3.^[45]

The Commission is removing the definition of “quarterly reporting” from § 45.1 because the Commission is removing the quarterly reporting requirement for non-SD/MSP reporting counterparties from § 45.4(d)(2)(ii).^[46]

The Commission is removing the definitions of “electronic verification,” “non-electronic verification,” and “verification” from § 45.1 because the Commission is changing the deadlines for reporting counterparties to report required swap creation data in § 45.3 to no longer depend on verification.^[47]

The Commission is removing the definition of “international swap” from § 45.1. Existing § 45.1 defines “international swap” to mean a swap required by U.S. law and the law of another jurisdiction to be reported both to an SDR and to a different TR registered with the other jurisdiction. The Commission is removing the definition because the Commission is removing the international swap regulations in § 45.3(i).^[48]

B. § 45.2—Swap Recordkeeping

The Commission is adopting technical changes to the § 45.2 swap recordkeeping regulations.^[49] For instance, the Commission is removing the phrase “subject to the jurisdiction of the Commission” from § 45.2. The Commission is also removing this phrase from all of part 45.^[50] The phrase is unnecessary, as the Commission's regulations apply to all swaps or entities within the Commission's jurisdiction, regardless of whether the regulation states the fact.

The Commission received three comments on § 45.2 unrelated to the technical changes. COPE requests the Commission confirm recordkeeping requirements for physical energy companies that use swaps for hedging purposes are limited to recordkeeping in the normal course of business, as is customary for the hedger's particular industry.^[51] As the requirement does not specify records outside of the normal course of business, the Commission is unsure of what else the regulation could require.

EEI-EPSA request the Commission clarify no additional recordkeeping is mandated to avoid injecting regulatory uncertainty into recordkeeping requirements.^[52] The Commission confirms its changes to § 45.2 in this release are technical and do not create new requirements. Chris Barnard opposes retaining the current substantive requirement of keeping records for “at least five years,” following the final termination of the swap.^[53] The Commission declines to substantively amend the five-year requirement as requested by Chris Barnard. The Commission believes five years is reasonable for the Commission to access records if it has concerns about particular swaps.

The Commission did not receive any comments on the non-substantive changes to § 45.2. For the reasons discussed above, the Commission is adopting the changes as proposed.

C. § 45.3—Swap Data Reporting: Creation Data

Existing § 45.3 requires SEFs, DCMs, and reporting counterparties to report swap data to SDRs upon swap execution. As discussed in the sections below, the Commission is adopting four significant changes to the regulations for reporting new swaps: (i) Requiring a single data report at execution instead of two separate reports; (ii) extending the time SEFs, DCMs, and reporting counterparties have to report new swaps to SDRs; (iii) removing the requirement for SDRs to map allocations; and (iv) removing the regulations for international swaps. The remaining changes to § 45.3 discussed below are non-substantive clarifying, cleanup, or technical changes.

1. Introductory Text

The Commission is removing the introductory text to § 45.3. The existing introductory text to § 45.3 provides a broad overview of the swap data reporting regulations for registered entities and swap counterparties. The Commission believes the introductory text is superfluous because the scope of § 45.3 is clear from the operative provisions of § 45.3.^[54] Removing the introductory text does not impact any regulatory requirements, including those referenced in the existing introductory text.

The Commission did not receive any comments on the proposal to remove the introductory text to § 45.3.

2. § 45.3(a) through (e)—Swap Data Reporting: Creation Data

a. § 45.3(a)—Swaps Executed on or Pursuant to the Rules of a SEF or DCM

The Commission is adopting several changes to the § 45.3(a) required swap creation data reporting regulations for swaps executed on or pursuant to the rules of a SEF or DCM. Existing § 45.3(a) requires that SEFs and DCMs report all PET data ^[55] for swaps ASATP after execution. If the swap is not intended to be cleared at a DCO, existing § 45.3(a) requires the SEF or DCM also report confirmation data ^[56] for the swap ASATP after execution.

First, the Commission is changing § 45.3(a) to require SEFs and DCMs to report a single required swap creation data report, regardless of whether the swap is intended to be cleared. While the Commission intended the initial PET report would ensure SDRs have sufficient data on each swap for the Commission to perform its regulatory functions while the more complete confirmation data is not yet available,⁵⁷the Commission is concerned the separate reports may be encouraging the reporting of duplicative information to SDRs. The Commission believes this will streamline reporting, remove uncertainty, and reduce instances of duplicative required swap creation data reports.

One of the PET data elements in existing appendix 1 to part 45 is any other term(s) matched or affirmed by the counterparties in verifying the swap.^[58] The Commission believes this catchall has obscured the difference between PET data and confirmation data. The Commission is concerned reporting counterparties, SEFs, and DCMs are submitting duplicative reports to meet the distinct, yet seemingly indistinguishable, regulatory requirements at the expense of data quality.^[59]

Second, the Commission is changing § 45.3(a) to extend the deadline for SEFs and DCMs to report required swap creation data until the end of the next business day following the execution date (sometimes referred to as “T+1”). Initially, the Commission believed reporting swap data immediately after execution ensured the ability of the Commission and other regulators to fulfill their systemic risk mitigation, market transparency, position limit monitoring, and market surveillance objectives,^[60] but the Commission is concerned the ASATP deadline may be causing reporting counterparties to hastily report required swap creation data that has contributed to data quality issues. The Commission believes an extended reporting timeline will help improve data quality while encouraging alignment with reporting deadlines set by other regulators.^[61]

The Commission received four comments supporting a single report for PET data and confirmation data in § 45.3(a).^[62] In particular, DTCC believes this will streamline reporting, reduce instances of duplicative reports, remove uncertainty regarding which data elements are required to be reported to the SDR, and reduce operational burdens for SDRs and market participants by reducing the number of message types and duplicative data.^[63] CEWG believes the existing requirement is duplicative and costly.^[64] The Commission agrees with commenters, and for the reasons discussed above, is adopting the changes proposed.

The Commission received seven comments generally supporting extending the deadline for reporting required swap creation data in existing § 45.3(a).^[65] In particular, DTCC believes the change will reduce the number of corrections being sent to SDRs because of better quality data, be consistent with the SEC and ESMA, and promote reporting structure consistency concerning timing that would, in turn, create processing efficiencies for SDRs and data submitters.^[66] The Commission agrees with commenters, and for the reasons discussed above, is adopting the changes proposed, with one exception explained below.

Markit opposes extending the deadline for reporting because it believes ASATP reporting is already possible and using experienced third-party service providers like Markit helps minimize errors.^[67] The Commission understands ASATP reporting is possible and market participants have developed ways to minimize errors, and expects SEFs and DCMs have sophisticated reporting systems that will encourage them to continue reporting ASATP after execution. However, the Commission believes less-sophisticated reporting counterparties, especially for off-facility swaps, will benefit from having more time to report swap data to SDRs, and a single deadline for all reporting entities will be clearest for market participants.^[68]

The Commission received three comments concerning the reference to Eastern Time in the proposed extended deadline. Eurex and Chatham believe the Commission should consider aligning with regulators that reference UTC for global harmonization.^[69] ISDA-SIFMA believe a T+1 deadline for required swap creation data is similar to the deadline used by other jurisdictions, and that a specific cutoff time like 11:59 p.m. eastern time is less complex to build than T+24 hours.^[70] The Commission agrees with Eurex and Chatham that referencing Eastern Time would be inconsistent with global regulators. The swap data elements in appendix 1 also reference UTC.^[71] As a result, the Commission deems it appropriate to adopt a modification from the proposal to remove the reference to 11:59 p.m. eastern time. Instead, § 45.3(a) will extend the deadline for reporting to not later than the end of the next business day following the execution date. For the same reason, and to be consistent, the Commission is removing the reference to 11:59 p.m. eastern time from all of the proposed regulations in §§ 45.3 and 45.4.^[72] While ISDA-SIFMA believe a specific cutoff time is less complex to build, the Commission views the complications the deadline would create for reporting counterparties, especially in other countries, as offsetting build-simplicity considerations.

In summary, in light of the above changes, § 45.3(a) will require that for each swap executed on or pursuant to the rules of a SEF or DCM, the SEF or DCM shall report required swap creation data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the execution date.

b. § 45.3(b) through (e)—Off-Facility Swaps

The Commission is making several changes to the § 45.3(b) through (e) required swap creation data reporting regulations for off-facility swaps. Most of these changes conform to the changes in § 45.3(a) because the regulations in § 45.3(b) through (e) for off-facility swaps are analogous to the regulations in § 45.3(a) for swaps executed on SEFs and DCMs.

In general, for off-facility swaps subject to the Commission's clearing requirement, existing § 45.3(b) requires that SD/MSP reporting counterparties report PET data ASATP after execution, with a 15-minute deadline, while non-SD/MSP reporting counterparties report PET data ASATP after execution with a one-business-hour deadline.^[73] For off-facility swaps not subject to the clearing requirement but have an SD/MSP reporting counterparty, existing § 45.3(c)(1) generally requires that SD/MSP reporting counterparties report PET data ASATP after execution with a 30-minute deadline, and confirmation data for swaps that are not intended to be cleared ASATP with a 30-minute deadline if confirmation is electronic, or ASATP with a 24-business-hour deadline if not electronic, for credit, equity, foreign exchange, and interest rate swaps.^[74]

Existing § 45.3(c)(2) requires that for swaps in the other commodity asset class, SD/MSP reporting counterparties report PET data ASATP after execution, with a two-hour deadline, and confirmation data for swaps that are not intended to be cleared ASATP after confirmation with a 30-minute deadline if confirmation is electronic, or a 24-business-hour deadline if confirmation is not electronic.^[75] For off-facility swaps that are not subject to the clearing requirement but have a non-SD/MSP reporting counterparty, existing § 45.3(d) requires reporting counterparties report PET data ASATP after execution with a 24-business-hour deadline, and confirmation data ASATP with a 24-business-hour deadline, if the swap is not intended to be cleared.^[76]

Finally, existing § 45.3(e) requires that ASATP after a DCO accepts an original swap for clearing, or ASATP after execution of a clearing swap that does not replace an original swap, the DCO report all required swap creation data for the clearing swap, which includes all confirmation data and all PET data.

First, the Commission is replacing existing § 45.3(b) through (e) with § 45.3(b), titled “Off-facility swaps,” to restructure the regulations.^[77] Second, the Commission is changing the existing § 45.3(b) through (e) requirements for reporting counterparties to submit separate PET data and confirmation data reports for all off-facility swaps that are not intended to be cleared at a DCO to report a single required swap creation data report. The Commission discusses its reasoning for this change in section II.C.2.a above. As with swaps executed on SEFs and DCMs, the Commission believes a single report would align with the approach taken by other regulators and improve data quality.

The Commission did not receive any comments beyond those discussed in section II.C.2.a above.^[78] The Commission is adopting the new requirement for reporting counterparties to report a single required swap creation data report as proposed.

Third, the Commission is changing the existing § 45.3(b) through (e) requirements for reporting counterparties to report required swap creation data ASATP after execution with different deadlines for off-facility swaps in § 45.3(b)(1) and (2). New § 45.3(b)(1) requires SD/MSP/DCO reporting counterparties report swap creation data to an SDR by T+1 following the execution date. New § 45.3(b)(2) requires non-SD/MSP/DCO reporting counterparties report swap creation data to an SDR not later than T+2 following the execution date.

The Commission discusses the background to these changes in section II.C.2.a above. The Commission discusses several comments beyond those discussed in section II.C.2.a in this section. CEWG believes a T+2 deadline for non-SD/MSP/DCO reporting counterparties strikes an appropriate balance between giving end-users enough time to report, incurring a limited compliance burden, and providing the Commission with swap data in a timely manner.^[79] The Commission agrees with CEWG and believes the extended deadline reflects the Commission's interest in avoiding placing unnecessary burdens on non-SD/MSP/DCO reporting counterparties.

The Commission received two comments raising issues with the new deadlines for reporting required swap creation data in § 45.3(b). ICE SDR believes including a set time of no later than 11:59 p.m. on T+1 or T+2 could impede the SDR's ability to update its reporting system during its maintenance window.^[80] As the Commission discusses in section II.C.2.a above, the Commission is removing 11:59 p.m. eastern time from § 45.3(b)(1) and (2). The Commission believes this addresses ICE SDR's timing concern.

CME believes the reporting deadline should be T+1 or T+2 for all entities to avoid a sequencing issue with non-SD/MSP/DCO reporting counterparties that have a T+2 deadline, and the § 45.4(b) deadline for DCOs to report original swap terminations, which would result in DCO terminations being rejected until original swaps are reported.^[81] The Commission does not share CME's concern, as it expects SEFs, DCMs, and DCOs will continue to report original swaps and clearing swaps ASATP, which will avoid sequencing issues for original swap terminations. The Commission expects to monitor the data for implementation issues, however, and to work with SDRs in case the deadlines need to be modified.

In summary, § 45.3(b) will require that for each off-facility swap, the reporting counterparty shall report required swap creation data electronically to an SDR as provided by § 45.3(b)(1) or (2), as applicable. If the reporting counterparty is an SD, MSP, or DCO, § 45.3(b)(1) will require the reporting counterparty report required swap creation data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the execution date. If the reporting counterparty is a non-SD/MSP/DCO counterparty, the reporting counterparty shall report required swap creation data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the second business day following the execution date.

3. § 45.3(f)—Allocations ^[82]

The Commission is making several changes to the existing § 45.3(f) regulations for reporting allocations, re-designated as § 45.3(c). The Commission is making most of the changes to § 45.3(f) to conform to the changes in § 45.3(a) through (e). Existing § 45.3(f)(1) provides that the reporting counterparty to an initial swap with an allocation agent reports required swap creation data for the initial swap, including a USI. For the post-allocation swaps, existing § 45.3(f)(2)(i) provides that the agent tells the reporting counterparty the identities of the actual counterparties ASATP after execution, with a deadline of eight business hours. Existing § 45.3(f)(2)(ii) provides that the reporting counterparty must create USIs for the swaps and report all required swap creation data for each post-allocation swap ASATP after learning the identities of the counterparties. Existing § 45.3(f)(2)(iii) provides that the SDR to which the initial and post-allocation swaps were reported must map together the USIs of the initial swap and each post-allocation swap.

First, the Commission is making non-substantive changes, including specifying required swap creation data for allocations must be reported “electronically” to SDRs in § 45.3(c), (c)(1), and (c)(2)(ii), and replacing the reference in existing § 45.3(f)(1) (re-designated as § 45.3(c)(1)) to “§ 45.3(a) through (d)” with a reference to paragraph (a) or (b) of § 45.3, to reflect the structural revisions to § 45.3(a) through (e). However, because the Commission is extending the time to report required swap creation data in § 45.3(a) and (b), reporting counterparties will have additional time to report required swap creation data for the initial swaps for allocations as well.

Second, the Commission is changing existing § 45.3(f)(2)(ii) (re-designated as § 45.3(c)(2)(ii)) ^[83] to replace the requirement to report required swap creation data for post-allocation swaps ASATP after learning the identities of the actual counterparties with a cross-reference to § 45.3(b). This gives reporting counterparties until T+1 or T+2, depending on their status, to report required swap creation data for the allocated swaps. Failing to extend the deadline for allocations would result in reporting counterparties unnecessarily reporting allocations faster than creation and continuation data swap reports.

Finally,^[84] the Commission is removing § 45.3(f)(2)(iii) without re-designation. The Commission is requiring an event data element in appendix 1.^[85] One of the events in this data element is “allocation,” which requires reporting counterparties indicate whether a swap is associated with an allocation. The Commission believes this will simplify the current process involving SDRs mapping data elements by having reporting counterparties report the information about allocations themselves.

The Commission received one question from two commenters on the proposed changes to § 45.3(f).^[86] GFXD and ISDA-SIFMA request the Commission clarify for allocations, T+1 begins on receipt of the allocations, rather than on execution, given that allocations may not be provided for up to eight hours.^[87] In response, the Commission clarifies T+1 begins on receipt of the allocation notification, rather than execution. However, the Commission notes it is retaining the requirement for the agent to inform the reporting counterparties of the allocation ASATP after execution, with an eight-business-hour deadline. As such, in the majority of cases, the Commission expects the deadline to effectively remain T+1 following execution.

The Commission did not receive additional comments on the proposed changes to § 45.3(f), re-designated as § 45.3(c). For the reasons discussed above, the Commission is adopting the changes to § 45.3(f).

4. § 45.3(g)—Multi-Asset Swaps ^[88]

The Commission is making non-substantive changes to the § 45.3(g) regulations for reporting multi-asset swaps to conform to the changes in § 45.3(a) through (f). Existing § 45.3(g) provides that for each multi-asset swap, required swap creation data and required swap continuation data must be reported to a single SDR that accepts swaps in the asset class treated as the primary asset class involved in the swap by the SEF, DCM, or reporting counterparty making the first report of required swap creation data pursuant to § 45.3. Existing § 45.3(g) also provides that the registered entity or reporting counterparty making the first report of required swap creation data report all PET data for each asset class involved in the swap.

First, the Commission is replacing “making the first report” of required swap creation data with “reporting” required swap creation data to reflect the single report for required swap creation data, instead of separate PET data and confirmation data reports. Second, the Commission is removing the last sentence of the regulation concerning all PET data for each asset class involved in the swap. The Commission believes this sentence is unnecessary and no longer relevant with the Commission's removal of PET data from the regulations.

The Commission did not receive any comments on the amendments to § 45.3(g). The Commission is adopting the amendments to § 45.3(g), re-designated as § 45.3(d), as proposed.

5. § 45.3(h)—Mixed Swaps ^[89]

The Commission is making several non-substantive changes to the § 45.3(h) regulations for mixed swaps to conform to the changes in § 45.3(a) through (g). Existing § 45.3(h)(1) requires that for each mixed swap, required swap creation data and required swap continuation data shall be reported to an SDR registered with the Commission and to a security-based SDR (“SBSDR”) registered with the SEC. This requirement may be satisfied by reporting the mixed swap to an SDR or SBSDR registered with both Commissions. Existing § 45.3(h)(2) requires that the registered entity or reporting counterparty making the first report of required swap creation data under § 45.3(h) ensure that the same USI is recorded for the swap in both the SDR and the SBSDR.

The Commission is replacing “making the first report” of required swap creation data with “reporting” required swap creation data, among other non-substantive changes. The Commission did not receive any comments on the changes to § 45.3(h), re-designated as § 45.3(e). The Commission is adopting the changes as proposed.

6. § 45.3(i)—International Swaps

The Commission is removing the § 45.3(i) regulations for international swaps. Existing § 45.3(i) requires that for each international swap, the reporting counterparty report to an SDR the identity of the non-U.S. TR to which the swap is also reported and the swap identifier used by the non-U.S. TR.^[90]

When § 45.3(i) was adopted, the Commission believed the regulations for international swaps were necessary to provide an accurate picture of the swaps market to regulators to further the purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).^[91] However, if the same swap is reported to different jurisdictions, the USI or UTI ^[92] should be the same. If the transaction identifier is the same for the swap, there is no need for the counterparties to send the identifier to other jurisdictions. In addition, in the future, regulators should have access to each other's TRs, if necessary, further obviating the need for reporting counterparties sending identifiers to multiple jurisdictions. As a result, the Commission believes § 45.3(i) is unnecessary and is removing § 45.3(i) from its regulations. The Commission did not receive any comments on the removal of § 45.3(i).

7. § 45.3(j)—Choice of SDR ^[93]

The Commission is making non-substantive changes to the § 45.3(j) regulations for reporting counterparties in choosing their SDR. Existing § 45.3(j) requires that the entity with the obligation to choose the SDR to which all required swap creation data for a swap is reported be the entity to make the first report of all data pursuant to § 45.3, as follows: (i) For swaps executed on or pursuant to the rules of a SEF or DCM, the SEF or DCM choose the SDR; (ii) for all other swaps, the reporting counterparty, as determined in § 45.8, choose the SDR.

The Commission is changing the heading of re-designated § 45.3(f) from “Choice of SDR” to “Choice of swap data repository,” to be consistent with other headings throughout part 45, among other technical changes. The Commission did not receive any comments on the proposed changes to § 45.3(j), re-designated as § 45.3(f). The Commission is adopting the changes to § 45.3(j) as proposed.

D. § 45.4—Swap Data Reporting: Continuation Data

Existing § 45.4 requires reporting counterparties to report updates to existing swap data and swap valuations to SDRs. As discussed in the sections below, the Commission is adopting four significant changes to these regulations: (i) Removing the option for state data reporting; (ii) extending the deadline for reporting required swap continuation data to T+1 or T+2; (iii) removing the requirement for non-SD/MSP/DCO reporting counterparties to report valuation data quarterly; and (iv) requiring SD/MSP reporting counterparties to report margin and collateral data daily. The remaining changes to § 45.4 discussed below are non-substantive clarifying, cleanup, or technical changes.

1. Introductory Text

The Commission is removing the introductory text to existing § 45.4.^[94] The existing introductory text to § 45.4 provides a broad overview of the swap continuation data reporting regulations for registered entities and swap counterparties. The Commission believes the introductory text is superfluous because the scope of § 45.4 is clear from the operative provisions of § 45.4. Removing the introductory text would not impact any regulatory requirements, including those referenced in the introductory text.

The Commission did not receive any comments on the proposal to remove the introductory text to § 45.4.

2. § 45.4(a)—Continuation Data Reporting Method Generally

The Commission is making several changes to the § 45.4(a) regulations for required swap continuation data reporting. Existing § 45.4(a) requires reporting counterparties and DCOs ^[95] report required swap continuation data in a manner sufficient to ensure that all data in the SDR for a swap remains current and accurate, and includes all changes to the PET data of the swap occurring during the existence of the swap. Existing § 45.4(a) further specifies reporting entities and counterparties fulfill their obligations by reporting, within the applicable deadlines outlined in § 45.4, the following: (i) Life-cycle-event data to an SDR that accepts only life-cycle-event data reporting; (ii) state data to an SDR that accepts only state data reporting; or (iii) either life-cycle-event data or state data to an SDR that accepts both life-cycle-event data and state data reporting.

First, the Commission is changing the first two sentences to state that for each swap, regardless of asset class, reporting counterparties and DCOs required to report required swap continuation data shall report, to improve readability without changing the regulatory requirement.

Second, the Commission is removing state data reporting as an option for reporting changes to swaps from § 45.4. State data reporting involves reporting counterparties re-reporting the PET terms of a swap every day, regardless of whether any changes have occurred to the terms of the swap since the last state data report.^[96] In contrast, life-cycle-event data reporting involves reporting counterparties re-submitting the PET terms of a swap when an event has taken place that results in a change to the previously reported terms of the swap.^[97]

In adopting part 45, the Commission gave reporting counterparties the option of reporting changes to swaps by either the state data reporting method or life cycle event method to provide flexibility.^[98] However, the Commission believes state data reporting may be contributing to data quality issues by filling SDRs with unnecessary swap messages. As noted in the Proposal, the Commission estimates that state data reporting messages represent the vast majority of swap reports maintained by SDRs and the Commission.^[99] The Commission believes eliminating state data reporting will improve data quality without impeding the Commission's ability to fulfill systemic risk mitigation, market transparency, position limit monitoring, and market surveillance objectives.

CME opposes removing state data reporting from § 45.4(a). CME believes the Commission should instead require the reporting of final-state life cycle event changes per swap on the day in question to reduce further submission of unnecessary data, noting that this requirement would be consistent with the requirements of other international regulators.^[100] The Commission agrees with CME updates should be limited to final-state life cycle event changes per swap on a day in question, but believes the Commission can clarify this without continuing to permit state data reporting. As a result, the Commission declines to keep state data reporting, but does clarify life cycle updates should be limited to end of day updates where multiple take place on a day.

For the reasons discussed above, the Commission is adopting the changes to § 45.4(a) as proposed. Therefore, § 45.4(a) will require that for each swap, regardless of asset class, reporting counterparties and DCOs required to report required swap continuation data shall report life-cycle-event data for the swap electronically to an SDR in the manner provided in § 45.13(a) within the applicable deadlines outlined in § 45.4.

3. § 45.4(b)—Continuation Data Reporting for Clearing Swaps

The Commission is making several changes to the existing § 45.4(b) regulations for required swap continuation data reporting for clearing swaps. The Commission is moving the § 45.4(b) required swap continuation data reporting regulations for clearing swaps to § 45.4(c) as part of structural changes to the regulations.^[101] The Commission is re-designating existing § 45.4(c) as § 45.4(b). Existing § 45.4(c) contains the continuation data reporting regulations for original swaps. Re-designated § 45.4(b) will be titled “Continuation data reporting for original swaps.”

The Commission is also making several changes to the continuation data reporting regulations for original swaps in re-designated § 45.4(b). Existing § 45.4(c) requires required swap continuation data, including terminations, must be reported to the SDR to which the original swap that was accepted for clearing was reported pursuant to § 45.3(a) through (d).^[102] For continuation data, existing § 45.4(c)(1) requires: (i) Life-cycle-event data or state data reporting either on the same day that any life cycle event occurs with respect to the swap, or daily for state data reporting; and (ii) daily valuation data. In addition, existing § 45.4(c)(2) requires the reporting of: (i) The LEI of the SDR to which all required swap creation data for each clearing swap was reported by the DCO under § 45.3(e); (ii) the USI of the original swap that was replaced by the clearing swaps; and (iii) the USI of each clearing swap that replaces a particular original swap.

First, the Commission is extending the deadline for reporting swap continuation data for original swaps in § 45.4(c)(1) to either T+1 or T+2, depending on the reporting counterparty, to be consistent with the new deadlines for reporting required swap creation data in § 45.3.^[103] As the Commission discusses in section II.C.2.a above, though, the Commission is removing the references to 11:59 p.m. eastern time that were in the Proposal. The Commission is thus changing the reference from 11:59 p.m. eastern time to the end of the next business day or the second business day that any life cycle event occurs for the swap. Second, the Commission is removing the references to state data reporting ^[104] in § 45.4(b) and clarifying that required swap continuation data must be reported “electronically,” among other non-substantive changes.

The Commission received three comments supporting extending the deadline for reporting required swap continuation data in § 45.4(b).^[105] In particular, GFXD believes T+1 will create a more harmonized global regulatory framework.^[106] The Commission agrees with commenters that the proposal extending the deadline for reporting required swap continuation data will streamline reporting and be consistent with the deadlines set by other regulators.

DTCC requests clarification on when “each business day” begins for § 45.4(b) reporting.^[107] The Commission believes the definitions of “required swap creation data” and “required swap continuation data” explain that § 45.4 required swap continuation data reporting begins when reporting counterparties need to update information for a swap reported to an SDR under § 45.3. As such, reporting data required by § 45.4 would begin on the “business day” on which a reporting counterparty needs to begin reporting according to § 45.4.

Eurex proposes removing the DCO obligation to report terminations of original swaps for “off facility swaps.” ^[108] Eurex states that in Europe clearing members have no automated reporting line to Eurex and not all multilateral trading facilities (“MTFs”) or Approved Trade Sources (“ATSs”) transmit USI namespaces and LEIs of the SDR for “off-facility swaps” to the DCO.^[109] Eurex states this would be burdensome as SDRs' USI namespaces and LEIs would have to be manually obtained from the MTFs and ATSs.^[110] The Commission is not changing DCOs' obligations for reporting original swap terminations, as the Commission does not want to disrupt the reporting workflows for original and clearing swaps the Commission established in a 2016 rulemaking extensively analyzing the process.^[111] The Commission declines to adopt Eurex's suggestion at this time.

In summary, § 45.4(b) will require that for each original swap, the DCO shall report required swap continuation data, including terminations, electronically to the SDR to which the swap that was accepted for clearing was reported pursuant to § 45.3 in the manner provided in § 45.13(a), and such required swap continuation data shall be accepted and recorded by such SDR as provided in § 49.10. New § 45.4(b)(1) will provide that the DCO that accepted the swap for clearing shall report all life-cycle-event data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the day that any life cycle event occurs with respect to the swap. New § 45.4(b)(2) will require that, in addition to all other required swap continuation data, life-cycle-event data shall include the LEI of the SDR to which all required swap creation data for each clearing swap was reported by the DCO pursuant to § 45.3(b); the UTI of the original swap that was replaced by the clearing swaps; and the UTI of each clearing swap that replaces a particular original swap.

4. § 45.4(c)—Continuation Data for Original Swaps

The Commission is making several changes to the § 45.4(c) regulations for reporting required swap continuation data for original swaps. The Commission is moving the required swap continuation data reporting requirements for original swaps from existing § 45.4(c) to § 45.4(b) as part of structural changes.^[112] The Commission is also moving the continuation data reporting requirements for clearing swaps from existing § 45.4(b) to § 45.4(c), and combining them with the continuation data reporting requirements for uncleared swaps in existing § 45.4(d). The Commission is retitling § 45.4(c) “Continuation data reporting for swaps other than original swaps” to reflect the combination.

The Commission is making several changes to the continuation data reporting regulations for clearing swaps and uncleared swaps in § 45.4(b) and (d), respectively, proposed to be re-designated as § 45.4(c). Existing § 45.4(b) requires that for all clearing swaps, DCOs report: (i) Life-cycle-event data or state data reporting either on the same day that any life cycle event occurs with respect to the swap, or daily for state data reporting; and (ii) daily valuation data. Existing § 45.4(d) requires that for all uncleared swaps, including swaps executed on a SEF or DCM, the reporting counterparty report: (i) All life-cycle-event data on the same day for SD/MSP reporting counterparties, or the second business day if it relates to a corporate event of the non-reporting counterparty, or state data daily; (ii) all life-cycle-event data on the next business day for non-SD/MSP reporting counterparties, or the end of the second business day if it relates to a corporate event of the non-reporting counterparty, or state data daily; (iii) daily valuation data for SD/MSP reporting counterparties; and (iv) the current daily mark of the transaction as of the last day of each fiscal quarter, within 30 calendar days of the end of each fiscal quarter for non-SD/MSP reporting counterparties.^[113]

First, the Commission is changing the life cycle event reporting deadlines for these swaps to match other T+1 and T+2 deadlines.^[114] The Commission is changing the life cycle event reporting deadline for SD/MSP/DCO reporting counterparties from the same day to T+1 following any life cycle event.^[115] The Commission is changing the exception for corporate events of the non-reporting counterparty to T+2. For non-SD/MSP/DCO reporting counterparties, the Commission is changing the life cycle event reporting deadline to T+2 following the life cycle event. As explained in section II.C.2.a above, though, the Commission is removing the references to 11:59 p.m. eastern time from the proposal. As a result, the deadlines will be either the end of the next business day or the second business day following the events.

Second, the Commission is removing the references to state data reporting in new § 45.4(c).^[116] Third, the Commission is clarifying that required swap continuation data must be reported “electronically,” among other non-substantive edits to improve readability and update cross-references.

Fourth, the Commission is changing the swap valuation data reporting requirements for all reporting counterparties. DCOs, SDs, and MSPs report valuation data daily, while non-SD/MSP reporting counterparties report the daily mark of transactions quarterly.^[117] For DCO, SD, and MSP reporting counterparties, the Commission is keeping the daily reporting requirement. However, the Commission is expanding the requirement to include margin and collateral data.^[118] Conversely, the Commission is eliminating the requirement for non-SD/MSP/DCO reporting counterparties to report valuation data and is not requiring them to report margin and collateral data.

The Commission decided against requiring collateral data reporting when it adopted part 45 in 2012. At the time, both the Commission and industry understood collateral data was important for systemic risk management, but was not yet possible to include in transaction-based reporting since it was calculated at the portfolio level.^[119] In light of this limitation, the Commission required the daily mark be reported for swaps as valuation data, but not collateral.^[120] However, the Commission noted while the industry had not yet developed data elements suitable for representing the terms required to report collateral, the Commission could revisit the issue in the future if and when industry and SDRs develop ways to represent electronically the terms required for reporting collateral.^[121]

The Commission is concerned not having margin and collateral data at SDRs impedes its ability to fulfill systemic risk mitigation objectives. As a result, the Commission revisited this issue in the Proposal to determine whether it is now feasible.^[122] The Commission believes margin and collateral data is necessary to monitor risk in the swaps market. Given that ESMA is already requiring margin and collateral reporting, and that the Commission is requiring many of the data elements that ESMA requires, the Commission believes certain market participants are ready to report this data to SDRs.

However, the Commission is concerned valuation, margin, and collateral data reporting could create a significant burden for non-SD/MSP/DCO reporting counterparties. These entities include those market participants that, by virtue of size and extent of activity in the swap market, may have fewer resources to devote to reporting this complex data. The Commission also recognizes the quarterly valuation data these counterparties report is not integral to the Commission's ability to monitor systemic risk in the swaps market and may not justify the cost to these entities to report it.

The Commission received 11 comments on expanding daily valuation data reporting to include margin and collateral data reporting in § 45.4(c) for SD/MSP/DCO reporting counterparties. Three commenters support the proposal.^[123] In particular, Markit believes it is more efficient for reporting counterparties to submit both cleared and uncleared margin and collateral data together to SDRs, and states that when it comes to valuation or collateral reporting valuation, some systems may have limited information (e.g., trade reference identification but not clearing status), and therefore it is more complex to split valuation or collateral reporting into cleared versus uncleared categories.

Eight commenters oppose the proposal.^[124] CME, Eurex, ISDA-SIFMA, and FIA note collateral and margin reporting for DCOs pursuant to part 45 would be redundant for DCOs that have to report similar data to the Commission pursuant to part 39 of the Commission's regulations, which could result in burdens on DCOs with questionable benefits to the Commission.^[125] In particular, CME believes the Commission should consider consolidating its collateral reporting obligations for DCOs under part 39.^[126]

The Commission received nine comments supporting excluding non-SD/MSP/DCO reporting counterparties from reporting valuation, margin, and collateral data in § 45.4(c).^[127] In particular, IECA notes reporting counterparties contract for third-party services to perform quarterly valuations of transactions, and the valuation analysis does not mitigate systemic risk, and offers only tangential value, at best, to the two parties.^[128] Similarly, ISDA-SIFMA strongly support the proposal because ISDA-SIFMA do not believe the 2% of swaps reported by non-SD/MSP/DCO reporting counterparties represent systemic risk.^[129]

The Commission acknowledges the concerns raised by CME, Eurex, ICE DCOs, ISDA-SIFMA, and FIA about duplicative reporting for DCOs regarding cleared swaps. While collateral and margin data is reported pursuant to part 39 using a different set of data elements than those contained in appendix 1, and collateral and margin data is reported for end-of-day positions pursuant to part 39 as opposed to a more granular transaction-by-transaction basis pursuant to part 45, the Commission believes the collateral and margin data reported by DCOs pursuant to part 39 is sufficiently similar to data reported pursuant to part 45 to meet the Commission's current needs.

However, the Commission is also open to requiring DCO reporting counterparties to report collateral and margin data on a transaction-by-transaction basis pursuant to part 45 at a future date if a Commission need for more granular data emerges in its monitoring of systemic risk or if granular data is needed as a condition for global jurisdictions to grant substituted compliance and TR access to one another. The Commission notes any added costs to DCO reporting counterparties to comply with any such future Commission requirement would be substantially mitigated by DCOs' existing and future systems for transaction-by-transaction reporting of collateral and margin data developed to comply with the requirements of other jurisdictions, including Europe.

The Commission received one comment on reporting corporate events. FIA suggests that for the reporting of corporate events of non-reporting counterparties, the Commission measure the reporting deadline from the day the non-reporting counterparty informs the reporting counterparty of the corporate event.^[130] The Commission believes corporate events need to be reported in a timely manner, and is concerned FIA's suggestion of leaving the decision of when to inform the reporting counterparty could delay the notification for extended periods of time, resulting in inaccurate or stale data. As such, the Commission declines to adopt FIA's suggestion.

For the reasons discussed above, the Commission is adopting the changes to § 45.4(c) as proposed, except the Commission is excluding DCO reporting counterparties from the requirement to report collateral data. In summary, § 45.4(c) will require that for each swap that is not an original swap, including clearing swaps and swaps not cleared by DCOs, the reporting counterparty shall report all required swap continuation data electronically to an SDR in the manner provided in § 45.13(a) as provided in § 45.4(c). New § 45.4(c)(1) will require that: (i) If the reporting counterparty is a SD, MSP, or DCO, the reporting counterparty shall report life-cycle-event data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the day that any life cycle event occurred, with the sole exception that life-cycle-event data relating to a corporate event of the non-reporting counterparty shall be reported in the manner provided in § 45.13(a) not later than the end of the second business day following the day that such corporate event occurred; (ii) if the reporting counterparty is a non-SD/MSP/DCO counterparty, the reporting counterparty shall report life-cycle-event data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the second business day following the day that any life cycle event occurred. New § 45.4(c)(2)(i) will require that if the reporting counterparty is a SD, MSP, or DCO, swap valuation data shall be reported electronically to an SDR in the manner provided in § 45.13(b) each business day. New § 45.4(c)(2)(ii) will require that if the reporting counterparty is a SD or MSP, collateral data shall be reported electronically to an SDR in the manner provided in § 45.13(b) each business day.

E. § 45.5—Unique Transaction Identifiers

The Commission is amending § 45.5 to adopt requirements for UTIs, the globally accepted transaction identifier, replacing USIs in existing § 45.5. In general, the Commission is amending existing § 45.5(a) through (f) to require each swap to be identified with a UTI in all recordkeeping and all swap data reporting, and to require the UTI be comprised of the LEI of the generating entity and a unique alphanumeric code. Before discussing the specific changes to § 45.5(a) through (f) in sections II.E.1 to II.E.7 below, the Commission explains the policy behind adopting UTIs.

In general, existing § 45.5 requires: (i) Each swap be identified with a USI in all recordkeeping and all swap data reporting, and (ii) the USI be comprised of a unique alphanumeric code and an identifier the Commission assigns to the generating entity. Each swap retains its USI from execution until, for instance, the swap reaches maturity or the counterparties terminate the contract. USIs allow the Commission to identify new swaps in SDR data and track changes to swaps by reviewing all reports associated with a USI.

The Commission implemented the existing USI regulations before global consensus was reached on the structure and format for a common swap identifier. For entities reporting swap data to multiple jurisdictions, this has resulting in conflicting or ambiguous generation and transmission requirements across jurisdictions. Practically, the Commission is concerned this has resulted in: (i) Conflicting responsibilities for generating identifiers and (ii) entities reporting different identifiers identifying the same swap to different SDRs and TRs.

The Commission believes amending § 45.5 to require each swap be identified with a UTI in all recordkeeping and all swap data reporting, and to require that the UTI be comprised of the LEI of the generating entity and a unique alphanumeric code, will result in the structure and format for the swap identifier being consistent with the UTI Technical Guidance, which will reduce cross-border reporting complexity and encourage global swap data aggregation.

1. Title and Introductory Text

The Commission proposed several conforming amendments to the § 45.5 title and the introductory text. Existing § 45.5 is titled “Unique swap identifiers.” The existing introductory text states that each swap subject to the jurisdiction of the Commission shall be identified in all recordkeeping and all swap data reporting pursuant to part 45 by the use of a USI, which shall be created, transmitted, and used for each swap as provided in § 45.5(a) through (f).

The Commission proposed replacing “swap” in the title with “transaction” to reflect the Commission's proposed adoption of the UTI. Accordingly, the Commission proposed updating the reference to USI with UTI in the introductory text.

The Commission also proposed updating the reference to paragraphs (a) through (f) of existing § 45.5 to (a) through (h) of proposed § 45.5. This would reflect the Commission's addition of proposed § 45.5(g) and (h), discussed in sections II.E.8 and II.E.9 below.

The Commission received eight general comments on adopting UTIs in § 45.5. Four commenters generally support adopting UTIs in § 45.5.^[131] In particular, BP also supports using the same UTI across jurisdictions and recommends SDRs manage UTI generation and identify and coordinate the use of the earliest regulatory reporting deadline among jurisdictions.^[132]

GFXD supports implementing global UTI standards but is concerned the Commission will conflict with the global harmonized generation hierarchy or run on a timeframe that is not coordinated with other jurisdictions, negating the purpose and benefits of a universal UTI standard and creating significant extra cost and complexity, as well as the need to separate UTI systems and logic for each jurisdiction.^[133]

Eurex supports harmonizing the UTI and believes it would significantly relieve reporting counterparties. Eurex recommends the Commission align UTI requirements with ESMA and other global regulators on the effective date of UTI and phase in UTI to handle existing open swap positions.^[134] LCH recommends the Commission apply the factors provided in Table 1 of the UTI Technical Guidance, which contains specific factors authorities should consider for allocating responsibility for UTI generation.^[135]

JBA believes not adopting the UTI Technical Guidance precisely could lead to confusion for the UTI generation responsibility for cross-border transactions. JBA asks the Commission consider designing easy-to-implement and flexible rules, such as allowing a change to the UTI generation responsibility in accordance with a bilateral agreement or adopting tiebreaker logic similar to the existing ISDA Tie-Breaker Logic that easily determines the UTI generation responsibility.^[136]

The Commission did not receive any comments on the proposals to retitle § 45.5 “Unique Transaction Identifiers,” to update the reference to paragraphs (a) through (f) of § 45.5 to (a) through (h) of § 45.5, or to update the reference to USI with UTI in the introductory text and for reasons articulated in the Proposal and reiterated above, is adopting the changes to those portions of the introductory text as proposed. For the reasons articulated in the Proposal and the additional reasons discussed below, the Commission is adopting the changes to the remainder of the introductory text to § 45.5 as proposed.

The Commission acknowledges the comments supportive of the Commission's proposal to adopt UTIs. The Commission agrees with Eurex and GFXD that the promise of UTIs can only be realized if jurisdictions worldwide adopt the UTI, but the Commission shares the FSB's belief that it is not feasible for jurisdictions to have one coordinated global implementation date due to differences in the legislative and regulatory process across jurisdictions.^[137] However, as discussed in section VI below, the Commission is adopting an 18-month compliance date for UTIs in an effort to be closer aligned with the estimated implementation dates of other jurisdictions and recommends that other jurisdictions adopt UTIs as expeditiously as possible.

As to the comments from LCH, GFXD, and JBA on the importance of following the UTI Technical Guidance for assigning UTI generation responsibilities, the Commission agrees and has cited the specific steps from the UTI Technical Guidance generation flowchart in sections II.E.2 to II.E.5 below to demonstrate the conformity of § 45.5(a) to (d) with the UTI Technical Guidance.

The Commission declines JBA's request for a rule affording flexibility in UTI generation responsibilities, such as allowing bilateral agreement between counterparties to override the UTI generation responsibilities in § 45.5, because it believes clear rules delineating UTI generation responsibilities provide the best assurance that only one unique UTI is generated for a trade, a necessity for swap data reporting integrity. Allowing UTIs to be generated according to bilateral agreement results in the need to reach agreement on a trade-by-trade or counterparty-by-counterparty basis, a scenario the Commission believes will increase the likelihood, due to miscommunication, that no UTI is generated for a swap if each entity believes the other agreed to generate or multiple UTIs are generated for a swap if each entity believes it agreed to generate.

2. § 45.5(a)—Swaps Executed on or Pursuant to the Rules of a SEF or DCM

The Commission proposed several conforming amendments to § 45.5(a) for the creation and transmission of UTIs for swaps executed on or pursuant to the rules of SEFs and DCMs. Existing § 45.5(a)(1) requires that for swaps executed on or pursuant to the rules of SEFs and DCMs, the SEFs and DCMs generate and assign USIs at or ASATP following execution, but prior to the reporting of required swap creation data, that consist of a single data field.^[138]

Existing § 45.5(a)(2) requires that the SEF or DCM transmit the USI electronically (i) to the SDR to which the SEF or DCM reports required swap creation data for the swap, as part of that report; (ii) to each counterparty to the swap ASATP after execution of the swap; and (iii) to the DCO, if any, to which the swap is submitted for clearing, as part of the required swap creation data transmitted to the DCO for clearing purposes.^[139]

First, the Commission proposed amendments to conform to the Commission's proposed adoption of the UTI. The Commission proposed replacing all references to “USIs” with “UTIs” in proposed § 45.5(a)(1) and (2). In addition, the Commission proposed updating the phrase in existing § 45.5(a)(1) that requires the USI to consist of a single data “field” that contains two components to a single data “element with a maximum length of 52 characters” so that the length of the UTI is consistent with the UTI Technical Guidance.^[140]

The Commission also proposed amending the § 45.5(a)(1)(i) description of the first component of the UTI's single data element to replace “unique alphanumeric code assigned to” the SEF or DCM with “legal entity identifier of” the SEF or DCM so that the identifier used to identify the UTI generating entity is consistent with the UTI Technical Guidance.^[141] The Commission proposed to delete the phrase in the second half of the sentence statin that by the Commission for the purpose of identifying the SEF or DCM with respect to the USI creation, because, according to the UTI Technical Guidance, an LEI is used to identify the UTI generating entity instead of an identifier assigned by individual regulators.

The Commission did not receive any comments on the proposed amendments to the requirements for the creation and transmission of UTIs for swaps executed on or pursuant to the rules of SEFs and DCMs in proposed § 45.5(a) and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission notes assigning UTI generation responsibilities for swaps executed on or pursuant to the rules of SEFs and DCMs to the SEF or DCM adheres to the generation flowchart in the UTI Technical Guidance.^[142]

3. § 45.5(b)—Off-Facility Swaps With an SD or MSP Reporting Counterparty

The Commission proposed several amendments to existing § 45.5(b) for the creation and transmission of UTIs for off-facility swaps by SD/MSP reporting counterparties. Existing § 45.5(b)(1) requires that, for off-facility swaps with SD/MSP reporting counterparties, the reporting counterparty generate and assign a USI consisting of a single data field.^[143] The required USI must be generated and assigned after execution of the swap and prior to the reporting of required swap creation data and the transmission of data to a DCO if the swap is to be cleared.

Existing § 45.5(b)(2) requires that the reporting counterparty transmit the USI electronically: (i) To the SDR to which the reporting counterparty reports required swap creation data for the swap, as part of that report; and (ii) to the non-reporting counterparty to the swap, ASATP after execution of the swap; and (iii) to the DCO, if any, to which the swap is submitted for clearing, as part of the required swap creation data transmitted to the DCO for clearing purposes.

First, the Commission proposed expanding the UTI creation and transmission requirements for SD/MSP reporting counterparties to include reporting counterparties that are financial entities.^[144] The Commission explained that it believed extending the responsibility for generating off-facility swap UTIs to reporting counterparties that are financial entities would reduce the UTI generation burden on non-financial entities. The Commission also proposed conforming changes. These changes replaced “swap dealer or major swap participant reporting counterparty” in the title to proposed § 45.5(b) with “financial entity reporting counterparty” and replaced “swap dealer or major swap participant” in the first sentence of § 45.5(b) with “financial entity.” As proposed, the new title of § 45.5(b) would be “Off-facility swaps with a financial entity reporting counterparty” and the first sentence of proposed § 45.5(b) would begin with “For each off-facility swap where the reporting counterparty is a financial entity. . . .” ^[145] The Commission similarly proposed to replace references to “swap dealer or major swap participant” in § 45.5(b)(1)(i) and (ii) with “reporting counterparty.” ^[146]

Second, the Commission proposed amendments to conform to the Commission's proposed adoption of the UTI. The Commission proposed replacing all references to “USIs” with “UTIs” in proposed § 45.5(b)(1) and (2). In addition, the Commission proposed updating the phrase in proposed § 45.5(b)(1) that requires the USI to consist of a single data “field” that contains two components to a single data “element with a maximum length of 52 characters” so that the length of the UTI is consistent with the UTI Technical Guidance.^[147]

The Commission proposed amending § 45.5(b)(1)(i) to describe the first component of the UTI's single data element by replacing “unique alphanumeric code assigned to” the SD or MSP with “legal entity identifier of” the reporting counterparty so that the identifier used to identify the UTI generating entity is consistent with the UTI Technical Guidance.^[148] The Commission also proposed deleting the phrase in the second half of the sentence stating “by the Commission at the time of its registration as such, for the purpose of identifying the [SD] or [MSP] with respect to the [USI] creation,” because, according to the UTI Technical Guidance, an LEI should be used to identify the UTI generating entity instead of an identifier assigned by individual regulators.

The Commission also believed this would more closely align the UTI generation hierarchy with the reporting counterparty determination hierarchy in § 45.8, which incorporates financial entities for purposes of determining the reporting counterparty.^[149] For example, in an off-facility swap where neither counterparty is an SD nor an MSP and only one counterparty is a financial entity, the counterparty that is a financial entity would be the reporting counterparty,^[150] yet the SDR would generate the USI under existing § 45.5(c).^[151] The Commission explained that the proposed changes to § 45.5(b) would ensure that for such swap, the financial entity would be assigned to both the reporting counterparty and to generate the UTI and that the proposal would also reduce the number of swaps for which SDRs would be required to generate the UTI.

The Commission received two comments on the proposed amendments to § 45.5(b). ISDA-SIFMA believe the Commission should delay the requirement to disseminate UTIs to non-reporting counterparties from ASATP to T+1, because the UTI transmission mechanisms generally align with the method of confirmation, such as electronic or paper. ISDA-SIFMA suggest the Commission replace the ASATP requirement for UTI transmission with a deadline of no later than T+1, to correspond with the proposed timeline for reporting creation data to the SDR.^[152] DTCC agrees that the reporting counterparty should be responsible for generating off-facility swap UTIs.^[153]

The Commission did not receive any comments opposing the proposed amendments to § 45.5(b) expanding the UTI creation and transmission requirements for SD/MSP reporting counterparties to include reporting counterparties that are financial entities, and for reasons articulated in the Proposal and reiterated above, is adopting the proposal with one modification relating to transmission. The Commission agrees with ISDA-SIFMA and believes in light of the proposed changes in § 45.3(b) to the deadline for reporting required swap creation data, that transmission of the UTI to the non-reporting counterparty should be similarly delayed in order to not potentially provide two separate confirmations to the non-reporting counterparty. The Commission therefore is adopting the changes as proposed, except it replaces “To the non-reporting counterparty to the swap, as soon as technologically practicable after execution of the swap; and” with “To the non-reporting counterparty to the swap, no later than the applicable deadline in § 45.3(b) for reporting required swap creation data; and” in final § 45.5(b)(2)(ii).

The Commission notes assigning UTI generation responsibilities for off-facility swaps with a financial entity reporting counterparty to the reporting counterparty adheres to the generation flowchart in the UTI Technical Guidance.^[154]

4. § 45.5(c)—Off-Facility Swaps With a Non-SD/MSP Reporting Counterparty

The Commission proposed several amendments to existing § 45.5(c) for the creation and transmission of USIs for off-facility swaps by non-SD/MSP reporting counterparties. Existing § 45.5(c)(1) requires that, for off-facility swaps with non-SD/MSP reporting counterparties, the SDR generates and assigns the USI ASATP after receiving the first report of PET data, consisting of a single data field.^[155]

Existing § 45.5(c)(2) requires that the SDR transmit the USI electronically: (i) To the counterparties to the swap ASATP after creation of the USI, and (ii) to the DCO, if any, to which the swap is submitted for clearing ASATP after creation of the USI.

First, the Commission proposed replacing “non-SD/MSP reporting counterparty” in the title of proposed § 45.5(c) with “non-SD/MSP/DCO reporting counterparty that is not a financial entity” and replacing “reporting counterparty is a non-SD/MSP counterparty” in the first sentence of proposed § 45.5(c) with “reporting counterparty is a non-SD/MSP/DCO counterparty that is not a financial entity.” The new title of § 45.5(c) would be “Off-facility swaps with a non-SD/MSP/DCO reporting counterparty that is not a financial entity” and the first sentence of § 45.5(c) would begin with “For each off-facility swap for which the reporting counterparty is a non-SD/MSP/DCO counterparty that is not a financial entity. . . .” The Commission is expanding UTI generation responsibilities to financial entities,^[156] and believes this amendment will clarify that § 45.5(c) will apply only where a reporting counterparty is a non-SD/MSP/DCO counterparty that is not a financial entity.

Second, the Commission proposed amending existing § 45.5(c) to provide non-SD/MSP/DCO reporting counterparties that are not financial entities with the option to generate the UTI for an off-facility swap or to request the SDR to which required swap creation data will be reported to generate the UTI. If the non-SD/MSP/DCO reporting counterparty that is not a financial entity chooses to generate the UTI for an off-facility swap, the reporting counterparty would follow the creation and transmission requirements for financial entity reporting counterparties in final § 45.5(b)(1) and (2). If the non-SD/MSP/DCO reporting counterparty that is not a financial entity chooses to request the SDR generates the UTI, the SDR would follow the creation and transmission requirements for SDRs in proposed § 45.5(c)(1) and (2). The Commission proposed amendments to the requirements for SDRs in proposed § 45.5(c)(1), as discussed below.

The Commission participated in the preparation of the UTI Technical Guidance, which includes guidance to authorities for allocating responsibility for UTI generation, including a generation flowchart that places SDRs at the end.^[157] The UTI Technical Guidance also notes “[n]ot all factors” in the flowchart for allocating responsibility for UTI generation “will be relevant for all jurisdictions.” ^[158]

Because the UTI Technical Guidance was produced with the need to accommodate the different trading patterns and reporting rules in jurisdictions around the world, the Commission explained certain factors included in the UTI Technical Guidance generation flowchart are not applicable for the Commission (e.g., factors relating to the principal clearing model ^[159] or electronic confirmation platforms),^[160] and that therefore the Commission was unable to adopt the UTI Technical Guidance without modification. However, the Commission explained in the Proposal that none of the provisions of proposed § 45.5 would conflict with the UTI Technical Guidance, including maintaining the existing obligations for SDRs to generate and transmit UTIs. While UTI generation and transmission responsibilities by SDRs remain in proposed § 45.5(c), the Commission also believed the proposed alignment of the UTI generation and reporting counterparty determination for financial entities in final § 45.5(b) and the proposed reporting option for reporting counterparties that are neither DCOs nor financial entities in proposed § 45.5(c) would result in reduced overall UTI generation and transmission burdens for SDRs.

The Commission explained in the Proposal that amending § 45.5(c) to provide the reporting counterparty with the option to generate the UTI for an off-facility swap where the reporting counterparty is neither a DCO nor financial entity or, if the reporting counterparty elects not to generate the UTI, to request the SDR to which required swap creation data will be reported generate the UTI would provide a reporting counterparty that is neither a DCO nor financial entity with the flexibility to generate the UTI should it choose to do so. Simultaneously, the Commission believed the proposal would reduce the number of swaps where an SDR is assigned UTI generation responsibilities, while also maintaining the existing SDR role as a guarantee that every off-facility swap will be identified with a UTI.

Third, the Commission proposed amendments to conform to the Commission's proposed adoption of the UTI.^[161] The Commission also proposed deleting the phrase in the second half of the sentence stating “by the Commission at the time of its registration as such, for the purpose of identifying the [SDR] with respect to the [USI] creation,” because, according to the UTI Technical Guidance, an LEI should be used to identify the UTI generating entity instead of an identifier assigned by individual regulators.

The Commission received four comments supporting expansion of the ability to generate UTIs. CME supports expanding the ability to generate UTIs to non-SD/MSP/DCO reporting counterparties that are not financial entities, because the internal reference identifier used in bookkeeping systems is different than the transaction identifier used in swap data reporting.^[162] DTCC agrees that the reporting counterparty should be responsible for generating off-facility swap UTIs, because reporting counterparties are in the best position to collect information from a non-reporting counterparty necessary to generate a UTI, such as LEI.^[163] Chatham believes all non-SD/MSP/DCO reporting counterparties should have the option to have the SDR continue to generate the UTI for them, because it is efficient and requires the fewest changes to the current practice.^[164] BP supports SDRs continuing to manage UTI generation.^[165]

The Commission received four comments opposing the requirement for SDRs to generate UTIs. CME believes the rule changes appear to require SDRs to offer separate parts 43 and 45 messages because of the different reporting deadlines, and that SDRs would not be able to link the parts 43 and 45 messages, necessitating the reporting counterparty to include the UTI from the first message in the second message. CME believes SDRs should not generate UTIs to avoid this situation. CME also notes some reporting counterparties who currently rely on SDRs to generate USIs have swaps with multiple USIs because of an issue when reporting counterparties submit swaps to the SDR in batches but the swaps fail some validations.^[166]

DTCC opposes SDRs generating and transmitting UTIs because it would not enable early and automated generation in the transaction's life-cycle, which may be necessary for counterparties.^[167] ICE SDR suggests the Commission instead let non-SD/MSP/DCO reporting counterparties choose which counterparty generates the UTI, and highlights that non-SD/MSP/DCOs may have more flexibility with extended reporting timelines by electing to have a third-party service provider or confirmation platform generate and assign the UTI. ICE SDR believes allowing a confirmation platform to assign UTIs aligns with the UTI Technical Guidance.^[168] ICE SDR recommends that the Commission revise proposed § 45.5(c) to remove the requirement that the SDR transmit the UTI to both counterparties to a swap. ICE SDR contends that, if the reporting counterparty chooses to have the SDR generate the UTI, the SDR should be responsible only for transmitting the UTI to the reporting counterparty requesting UTI generation, because SDRs often has no relationship with the non-reporting counterparties who are not participants of the SDR.^[169]

ISDA-SIFMA believe each jurisdiction must align to a global UTI waterfall to the maximum extent possible. ISDA-SIFMA also believe the Commission deviates from the UTI Technical Guidance by assigning SDRs the obligation to generate UTIs for non-SD/MSP/DCOs superior in the hierarchy than the UTI Technical Guidance. As non-SD reporting counterparties can conduct trade reporting and must transmit the UTI to their counterparties, ISDA-SIFMA question whether there is sufficient demand for UTI generation by the SDR to substantiate this deviation from the UTI Technical Guidance.^[170]

For reasons articulated in the Proposal and informed by comments and analysis as further discussed below, the Commission is adopting the proposed changes to the § 45.5(c) regulations for the creation and transmission of UTIs for off-facility swaps with a non-SD/MSP/DCO reporting counterparty that is not a financial entity as proposed. The Commission notes SDRs have been required to generate USIs pursuant to existing § 45.5(c) since the adoption of part 45 in 2012 and further notes assigning UTI generation responsibility for off-facility swaps with a non-SD/MSP/DCO reporting counterparty that is not a financial entity to the SDR adheres to the generation flowchart in the UTI Technical Guidance.^[171]

In addition to adhering to the UTI Technical Guidance, the Commission also believes the adopted rule appropriately balances the burdens between reporting counterparties and SDRs by providing optionality to a non-SD/MSP/DCO reporting counterparty that is not a financial entity to elect to generate a UTI if it so chooses, and lowers costs for both SDRs and non-SD/MSP/DCO reporting counterparties. SDR costs would be lowered due to fewer transaction identifiers that SDRs would be required to generate under final § 45.5(c) compared to existing § 45.5(c). Costs on non-SD/MSP/DCO reporting counterparties who choose not to generate UTIs would be lowered due to their ability to leverage the existing transaction identifier generation infrastructure of SDRs rather than expenditures to develop their own UTI generation systems.

In response to the several comments indicating that the proposed amendments to § 45.5(c) do not follow the UTI Technical Guidance, the Commission notes Commission staff was heavily involved in the preparation of the UTI Technical Guidance generation flowchart, and disagrees that assigning UTI generation to SDRs contravenes the UTI Technical Guidance for the following reasons. Section 45.5(c) would apply only for off-facility trades where both counterparties are of equal status (i.e., non-financial entities), and in this scenario, UTI Technical Guidance flowchart step 8 directs to step 11, which instructs inquiring about whether the counterparties have an agreement as to UTI generation. Since no agreement exists, the flowchart leads to step 12, which instructs inquiring about whether electronic confirmation platforms are able, willing, and permitted to generate UTIs, the step ICE SDR suggests the Commission set as the last step in assigning UTI generation responsibilities. However, the Commission is unable to assign electronic confirmation platforms with UTI generation responsibilities, as it has no jurisdiction over such platforms, nor does the Commission deem it desirable to require counterparties who do not use such platforms to specifically contract with platforms or other third parties solely for the purpose of UTI generation. As a result, step 12 is not applicable, leading to step 13 where the SDR is the entity responsible for generating UTIs. As demonstrated above, the Commission believes each step of the UTI Technical Guidance generation flowchart leading up to step 13 matches the conditions under which an SDR is required to generate UTIs pursuant to § 45.5(c).

While the optionality to generate UTIs for non-SD/MSP/DCO reporting counterparties that are not financial entities is not a step in the UTI Technical Guidance generation flowchart, the Commission does not believe the optionality conflicts with an SDR's responsibility for serving as UTI generator of last resort. Under the optionality, an SDR continues to be the entity that has legal responsibility for UTI generation for this type of off-facility trade should the non-SD/MSP/DCO reporting counterparty that is not a financial entity elect not to, and at no point would a non-SD/MSP/DCO reporting counterparty that is not a financial entity that is unwilling or unable to generate the UTI be forced to generate the UTI. Additionally, no commenters oppose providing non-SD/MSP/DCO reporting counterparties that are not financial entities with the ability to generate UTIs.

The Commission acknowledges ICE SDR's request to remove the requirement to transmit the UTI to the non-reporting counterparty due to a potential lack of relationship between an SDR and the non-reporting counterparty, but declines to adopt the suggestion for two reasons. First, the Commission notes the requirement for an SDR generator to transmit USIs to both counterparties has been in existing § 45.5(c)(2)(i) that SDRs have complied with since part 45 was adopted in 2012, and based on experience with compliance by SDRs since 2012, the Commission has seen no evidence that lack of relationship presents a problem in need of being addressed. In addition, the Commission is adopting three amendments to § 45.5 that will result in SDRs generating fewer UTIs than USIs and mitigate any burden placed on SDRs to transmit the UTIs they generate to non-reporting counterparties, including: (i) All financial entities, not just SD/MSPs, being required to generate UTIs pursuant to final § 45.5(b); (ii) the optionality provided to non-SD/MSP/DCO reporting counterparties that are not financial entities to generate UTIs in final § 45.5(c); and (iii) as described in section II.E.8 below, the requirement in final § 45.5(g) for entities using third-party service providers to ensure that the third-party service providers generate UTIs.

Finally, the Commission declines to adopt the SDRs' suggestion to end the UTI generation responsibilities with the reporting counterparty as the last step of the hierarchy, since this would result in incomplete UTI generation logic. A natural person reporting counterparty, who by definition is a non-SD/MSP/DCO reporting counterparty that is not a financial entity, will highly likely be unable to generate UTIs due to the inability of most natural persons to obtain an LEI ^[172] that is necessary to generate UTIs. As a result, the SDRs' suggestion would not ensure that an entity capable of generating UTIs is assigned with the responsibility to generate the UTI for every swap.

The Commission also acknowledges—but does not find persuasive—DTCC's comment that reporting counterparties should be the entity responsible for generating UTIs because they are in the best position to collect information such as LEI from a non-reporting counterparty necessary to generate a UTI. The Commission notes no information about the non-reporting counterparty is necessary for an entity to generate UTIs, as the UTI is composed using the LEI of the UTI generating entity, not the LEI of the non-reporting counterparty. Accordingly, because proposed § 45.5(c)(1)(i) requires the UTI to be composed of the “legal entity identifier of the swap data repository” and SDRs do not need the LEI of any other entity to generate the UTI, the Commission does not believe DTCC's reasoning supports its request for the Commission not to assign UTI generation responsibilities to SDRs.

5. § 45.5(d)—Clearing Swaps

The Commission proposed several amendments to the existing § 45.5(d) regulations for the creation and transmission of USIs for clearing swaps. Existing § 45.5(d) requires that for each clearing swap, the DCO that is a reporting counterparty to such swap shall create and transmit a USI upon, or ASATP after, acceptance of an original swap for clearing, or execution of a clearing swap that does not replace an original swap, and prior to the reporting of required swap creation data for the clearing swap. Existing § 45.5(d)(1) requires that the USI consist of a single data field.^[173]

Existing § 45.5(d)(2) requires that the DCO transmit the USI electronically to: (i) The SDR to which the DCO reports required swap creation data for the clearing swap; and (ii) to the counterparty to the clearing swap, ASATP after accepting the swap for clearing or executing the swap, if the swap does not replace an original swap.

First, the Commission proposed to retitle proposed § 45.5(d) as “Off-facility swaps with a [DCO] reporting counterparty.” The Commission also proposed rephrasing the introductory text in § 45.5(d) to reflect this shift in terminology.

Second, the Commission proposed amendments to conform to the Commission's proposed adoption of the UTI.^[174] The Commission also proposed deleting the phrase in the second half of the sentence stating “by the Commission at the time of its registration as such, for the purpose of identifying the [DCO] with respect to the [USI] creation,” because, according to the UTI Technical Guidance, an LEI should be used to identify the UTI generating entity instead of an identifier assigned by individual regulators.

The Commission received two comments regarding DCOs in § 45.5(d). LCH supports the proposal that DCOs generate the UTIs for cleared swaps, as it is in line with the UTI Technical Guidance.^[175] ISDA-SIFMA suggest that the Commission cover exempt DCOs, SEFs, and DCMs in § 45.5, because it is unclear which entities have part 45 reporting obligations. ISDA-SIFMA recommend that parts 43 and 45 rules specify that the entities with individual exemptive orders assigning reporting obligations have the same reporting and UTI generation responsibilities as their non-exempt equivalents.^[176]

The Commission received one supportive comment on the proposed amendments to the § 45.5(d) regulations for the creation and transmission of UTIs for clearing swaps and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission notes assigning UTI generation responsibilities for clearing swaps to the DCO adheres to the generation flowchart in the UTI Technical Guidance.^[177]

The Commission appreciates the comment from ISDA-SIFMA recommending that the Commission issue a clarification that exempt DCOs, SEFs, and DCMs have the same reporting and UTI generation responsibilities as their non-exempt equivalents. The Commission did not propose including exempt DCOs, SEFs, and DCMs in § 45.5 and has not had enough time to study the range of effects that any inclusion of these exempt entities in § 45.5 would have on other provisions of the Act and the Commission's regulations, and as a result, the Commission declines to adopt alternative amendments relating to UTI generation for exempt entities such as exempt DCOs, SEFs, and DCMs at this time. However, the Commission notes despite exempt DCOs, SEFs, and DCMs not being assigned with formal UTI generation responsibilities in § 45.5, exempt entities wishing to generate UTIs on behalf of their clients could do so voluntarily by entering into agreements with their clients to act as their third-party service provider pursuant to § 45.5(g).

6. § 45.5(e)—Allocations

The Commission proposed several amendments to the existing § 45.5(e) regulations for the creation and transmission of USIs for allocations. The Commission proposed replacing references to USIs with UTI throughout proposed § 45.5(e) to conform to the Commission's proposed adoption of the UTI. The Commission also proposed non-substantive technical and language edits to update cross-references and improve readability.

The Commission did not receive any comments on the proposed changes to existing § 45.5(e) is adopting the changes to § 45.5(e) as proposed.

7. § 45.5(f)—Use

The Commission proposed several amendments to the existing § 45.5(f) regulations for the use of UTIs by registered entities and swap counterparties. Existing § 45.5(f) requires that registered entities and swap counterparties subject to the jurisdiction of the Commission include the USI for a swap in all of their records and all of their swap data reporting concerning that swap, from the time they create or receive the USI, throughout the existence of the swap, and for as long as any records concerning the swap are required to be kept by the CEA or Commission regulations, regardless of any life cycle events or any changes to state data concerning the swap, including, without limitation, any changes with respect to the counterparties to or the ownership of the swap.

Existing § 45.5(f) also specifies that this requirement shall not prohibit the use by a registered entity or swap counterparty in its own records of any additional identifier or identifiers internally generated by the automated systems of the registered entity or swap counterparty, or the reporting to an SDR, the Commission, or another regulator of such internally generated identifiers in addition to the reporting of the USI.

First, the Commission proposed amendments to conform proposed § 45.5(f) to the Commission's proposed adoption of the UTI. The Commission proposed replacing all references to “USIs” with “UTIs” in proposed § 45.5(f). The Commission also proposed removing the reference to state data in part 45, and to make minor technical language edits, including removing reference to ownership of the swap, which is not needed given the reference to counterparties.

Second, the Commission proposed removing the existing § 45.5(f) provision permitting the reporting of any additional identifier or identifiers internally generated by the automated systems of the registered entity or swap counterparty to an SDR, the Commission, or another regulator. The Commission explained this amendment would improve consistency in the swap data reported to SDRs, and further the goal of harmonization of SDR data across FSB member jurisdictions.

Proposed § 45.5(f) would therefore require that registered entities and swap counterparties include the UTI for a swap in all of their records and all of their swap data reporting concerning that swap, from the time they create or receive the UTI, throughout the existence of the swap, and for as long as any records are required to be kept concerning the swap by the CEA or Commission regulations, regardless of any life cycle events concerning the swap, including, without limitation, any changes to the counterparties to the swap.

The Commission received one request for clarification on the proposal. ISDA-SIFMA believe, due to the requirement for a UTI to persist through “changes with respect to the counterparty,” the Commission should be clearer that these counterparty changes, when related to corporate events such as name change, are not considered novations or assignments, as current market practice is to create a new USI for a swap created through the novation process.^[178] The Commission declines to adopt the suggestion, as the Commission notes, in light of the Commission's adoption of the new definition of “novation” in § 45.1(a) described in section II.A above, market participants should refer to the newly adopted definition as to what constitutes a novation.

The Commission received no additional comments on proposed § 45.5(f) and for reasons articulated in the Proposal and reiterated above in this section, is adopting § 45.5(f) as proposed.

8. § 45.5(g)—Third-Party Service Provider

The Commission proposed adding new § 45.5(g) to its regulations, titled “Third-party service provider.” Proposed § 45.5(g) would create requirements for registered entities and reporting counterparties—when contracting with third-party service providers to facilitate reporting under § 45.9—to ensure that the third-party service providers create and transmit UTIs.^[179]

The Commission explained in the Proposal that it had encountered inconsistencies in the format and standard of USIs for swaps reported using third-party service providers, which is detrimental to the Commission's ability to use swap data for its regulatory purposes. The Commission believed proposed § 45.5(g) would help ensure consistency with the UTI Technical Guidance in the format and standard of UTIs for swaps reported by third-party service providers. The Commission further explained that proposed § 45.5(g) would also reinforce that a registered entity or reporting counterparty is responsible for the data reported on its behalf by a third-party service provider.

The Commission received one comment supporting the proposal. Markit supports § 45.5(g) UTI generation by third-party service providers and believes this is an important clarification, but advises the Commission to monitor SDRs' implementation of this requirement as some SDRs have struggled to capture third-party service provider LEIs as part of the transaction record, especially when reporting on behalf of SEFs.^[180]

The Commission received no additional comments on proposed § 45.5(g) and for reasons articulated in the Proposal and reiterated above in this section, is adopting § 45.5(g) as proposed.

9. § 45.5(h)—Cross-Jurisdictional Swaps

The Commission proposed adding new § 45.5(h) to its regulations, titled “Cross-jurisdictional swaps.” Proposed § 45.5(h) would clarify that, notwithstanding §§ 45.5(a) through (g), if a swap is also reportable to one or more other jurisdictions with a regulatory reporting deadline earlier than the deadline set forth in § 45.3, the same UTI generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline is to be transmitted pursuant to §§ 45.5(a) through (g) and used in all recordkeeping and all swap data reporting pursuant to part 45.

The Commission explained in the Proposal that the benefits resulting from global swap data aggregation and harmonization are realizable only if each swap is identified in all regulatory reporting worldwide with a single UTI to avoid double- or triple-counting of the swap. While the existing requirement in part 45 (for swap creation data to be reported ASATP after execution) results in the Commission having the earliest reporting deadline, changes to the reporting deadline in proposed amendments to § 45.3 may result in the reporting of a cross-jurisdictional swap to another jurisdiction earlier than to the Commission. Further, given the critical importance of a unique UTI used to identify each swap, the Commission proposed that, if a cross-jurisdictional swap is reportable to another jurisdiction earlier than required under part 45, the UTI for such swap reported pursuant to part 45 be generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline.

The Commission explained in the Proposal that the new proposed provision would: (i) Ensure consistency with the UTI Technical Guidance; ^[181] (ii) assist the Commission, SDRs, and swap counterparties to avoid potentially identifying a single cross-jurisdictional trade with multiple UTIs; and (iii) eliminate the potential for market participants to be faced with a situation of attempting to comply with conflicting UTI generation rules.

The Commission received three comments on cross-jurisdictional swaps. Specifically, ISDA-SIFMA highlight several implementation issues.^[182] ISDA-SIFMA believe counterparties may not come to the same conclusions regarding each other's jurisdictions, which could cause differing conclusions about who generates the UTI. In this regard, ISDA-SIFMA believe each counterparty's jurisdictional hierarchy would need to readjust each time new reporting jurisdictions go live. Separately, ISDA-SIFMA state that the UTI generating party should be determined separately from any nexus obligations, because nexus reporting (i.e., reporting requirements depending on the location of personnel) is treated differently according to jurisdiction, and it would be challenging for counterparties to communicate nexus obligations on a swap-by-swap basis.^[183] Lastly, ISDA-SIFMA note it is important for each reporting jurisdiction to follow a global UTI waterfall.^[184]

JBA believes it would be difficult for a counterparty in a jurisdiction to generate a UTI if other jurisdictions with a regulatory reporting deadline earlier than the Commission's do not mandate the UTI or use an identifier different from the UTI required under Commission or global rules.^[185] In addition, BP supports imparting responsibility on SDRs to coordinate identification of the jurisdiction with the earliest regulatory reporting deadline and conform to that jurisdiction's UTI requirements.^[186]

The Commission is adopting the proposed provisions relating to cross-jurisdictional swaps in § 45.5(h) as proposed, with one clarification relating to the CFTC reporting deadlines to be considered for cross-jurisdictional swaps, as discussed below. In the technical specification, UTIs are required to be reported (but are not publicly disseminated) pursuant to parts 43 and 45 to allow the Commission to link and reconcile the two reports for each swap, requiring the deadline to be measured in terms of both parts 43 and 45. Therefore, the Commission is adopting, in § 45.5(h), the requirement that, notwithstanding §§ 45.5(a) through (g), if a swap is also reportable to one or more other jurisdictions with a regulatory reporting deadline earlier than the deadline set forth in § 45.3 or in part 43, the same UTI generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline is to be transmitted pursuant to §§ 45.5(a) through (g) and used in all recordkeeping and all swap data reporting pursuant to part 45, a modification from the proposal's consideration of only the deadline outlined in § 45.3.

The Commission declines to adopt ISDA-SIFMA's suggestion regarding nexus obligations, as the Commission has no requirements for nexus reporting and how the jurisdictions requiring nexus reporting mandate UTI generation is outside of the Commission's jurisdiction. As discussed above, the Commission expects the vast majority of cross-jurisdictional swaps reportable to both the CFTC and one or more additional jurisdictions will result in the CFTC having the earliest regulatory reporting deadline due to the CFTC being one of the few jurisdictions with real-time reporting requirement and UTIs being required to be generated ASATP for part 43 reporting. However, the Commission recognizes the potential concern that market participants may have in complying with similar rules that other jurisdictions may adopt to ensure consistency with the UTI Technical Guidance, and recommends that market participants and the LEI ROC work collaboratively on additional guidance relating to cross-jurisdictional swaps. The Commission also recognizes that the UTI Technical Guidance did not address which jurisdiction's UTI generation rules to follow if two jurisdictions hypothetically have the same reporting deadline, and similarly recommends that market participants and the LEI ROC work collaboratively on guidance to address this scenario.

The Commission appreciates JBA's comment regarding the potential difficulties if other jurisdictions with a regulatory reporting deadline earlier than the Commission's do not mandate the UTI, but the Commission does not believe this hypothetical is likely to occur. As discussed above, the Commission's ASATP reporting deadline under part 43 will result in the UTIs for most, if not all, swaps reportable to the Commission and another jurisdiction being generated according to § 45.5. Furthermore, the Commission also acknowledges JBA's concern that other jurisdictions may require an identifier different from the UTI, but the Commission notes authorities in the major swap markets have all indicated through the FSB and CPMI-IOSCO harmonization initiatives of their intention to adopt the UTI and the other harmonized identifiers, and the Commission does not believe inaction by a holdout authority should hinder the Commission's fulfillment of its commitments on UTI.

The Commission also acknowledges BP's desire for SDRs to coordinate identification of the jurisdiction with the earliest regulatory reporting deadline and conform to that jurisdiction's UTI requirements, but the Commission declines to adopt the suggestion. SDRs lack information to determine on their own the jurisdiction(s) that a SEF, DCM, DCO, or counterparty for each swap is subject to, and therefore the Commission believes requiring entities without such information such as SDRs to serve as the entity responsible for determining the earliest regulatory reporting deadline would not serve the Commission's interest in seeing that each swap is identified in all regulatory reporting worldwide with a single UTI.

F. § 45.6—Legal Entity Identifiers ¹⁸⁷

Existing § 45.6 requires counterparties to be identified in all recordkeeping and swap data reporting under part 45 by an LEI. As discussed in the sections below, the Commission is revising the § 45.6 LEI regulations in two ways: (i) Cleanup changes removing unnecessary outdated regulatory text concerning LEIs and (ii) changes to the LEI regulations for SEFs, DCMs, DCOs, SDRs, and reporting and non-reporting counterparties.

1. Introductory Text

The Commission proposed amending the introductory text of the § 45.6 regulations for LEIs. The existing introductory text states that each counterparty to any swap subject to the jurisdiction of the Commission shall be identified in all recordkeeping and all swap data reporting under part 45 through a single LEI as specified in § 45.6.

First, to improve the section's precision, the Commission proposed replacing “each counterparty” with each SEF, DCM, DCO, SDR, entity reporting pursuant to § 45.9, and counterparty to any swap. Second, the Commission proposed revising the introductory text to require each relevant entity (SEF, DCM, DCO, SDR, entity reporting pursuant to § 45.9, and counterparty to any swap that is eligible to receive an LEI) to “obtain,” as well as be identified in, all recordkeeping and swap data reporting by a single LEI.

The Commission received two comments on proposed § 45.6. ISDA-SIFMA, while recognizing that SEF trades are not specifically addressed in § 45.6, suggest clarifying that SEFs must require any entity allowed to execute a trade on a SEF under part 45 to obtain an LEI prior to reporting by the SEF.^[188] The Commission appreciates ISDA-SIFMA's comment; however, the Commission did not propose substantive amendments to regulations relating to SEF trading and has not had enough time to study the range of effects that ISDA-SIFMA's proposal would have on SEF trading or market liquidity. Accordingly, it would be inappropriate to finalize such an amendment at this time.

XBRL agrees with the proposed requirement that counterparties must be identified, not only with their own LEI, but that they must obtain an LEI if they do not have one.^[189] The Commission agrees with XBRL. The Commission is aware of uncertainty as to whether the requirement to identify each counterparty with an LEI in existing § 45.6 also included a requirement for the counterparty to obtain an LEI, and the Commission believes clarifying in § 45.6 that a person or entity required to be identified with an LEI in recordkeeping and swap data reporting also has an associated affirmative requirement to obtain an LEI would clarify that identification using LEI necessarily requires the identified person or entity, if eligible to receive an LEI, to obtain an LEI.

The Commission believes extending the requirement for each counterparty to any swap to be identified in all recordkeeping and swap data reporting by a single LEI to all SEFs, DCMs, DCOs, entities reporting under § 45.9, and SDRs will ensure consistency with the CDE Technical Guidance, allow for standardization in the identification in recordkeeping and swap data reporting, and encourage global swap data aggregation.

For reasons discussed above, the Commission is adopting the proposed changes to the introductory text of the § 45.6 regulations for LEIs as proposed, with one clarification relating to the maintenance of LEI reference data. As discussed in section II.F.8 below, the Commission is adding “maintain” to the introductory text of final § 45.6 to clarify that each SEF, DCM, DCO, SDR, entity reporting under § 45.9, and counterparty to any swap that is eligible to receive an LEI is required to “maintain,” as well as obtain and be identified in, all recordkeeping and swap data reporting by a single LEI.

2. § 45.6(a)—Definitions

a. Proposal

The Commission proposed several changes to the definitions for the LEI regulations in § 45.6(a). As background, existing § 45.6(a) provides definitions for “control,” “legal identifier system,” “level one reference data,” “level two reference data,” “parent,” “self-registration,” “third-party registration,” and “ultimate parent.”

The Commission proposed moving certain definitions pertaining to LEIs to § 45.1(a). The Commission explained in the Proposal these definitions should be in § 45.1(a) because they are used in regulations outside of § 45.6. These definitions were: “Global Legal Entity Identifier System,” ^[190] “legal entity identifier” or “LEI,” and “Legal Entity Identifier Regulatory Oversight Committee.” These definitions are discussed in section II.A.1 above.

The Commission proposed removing certain definitions pertaining to LEIs from § 45.6(a). The Commission explained that these definitions would no longer be necessary in light of the proposed amendments to the LEI regulations, discussed in sections II.F.3 to II.F.8 below. These definitions were: “control,” “level one reference data,” “level two reference data,” “parent,” and “ultimate parent.”

The Commission proposed amending certain definitions pertaining to LEIs in § 45.6(a). Specifically, the Commission proposed amending the definition of “self-registration” in several respects. First, the Commission proposed removing the specific reference to “level one or level two” reference data, and the accompanying specifier “as applicable.” The amendment reflected the Commission's proposal to remove the definitions of “level one reference data” and “level two reference data.” ^[191]

Second, the Commission proposed adding a reference to “individuals,” to reflect the fact that swap counterparties may be individuals who need to obtain LEIs. As amended, “self-registration” would mean submission by a legal entity or individual of its own reference data.

Separately, the Commission proposed amending the definition of “third-party registration.” In this regard, the Commission proposed removing the specific references to “level one or level two” reference data, and the accompanying specifier “as applicable.” This amendment reflected the Commission's proposal to remove the definitions of “level one reference data” and “level two reference data.” ^[192]

Further, the Commission proposed adding references to “individuals,” to reflect that swap counterparties may be individuals who need to obtain LEIs. As amended, “third-party registration” would mean submission of reference data for a legal entity or individual that is or may become a swap counterparty, made by an entity or organization other than the legal entity or individual identified by the submitted reference data. Examples of third-party registration include, without limitation, submission by an SD or MSP of reference data for its swap counterparties, and submission by a national numbering agency, national registration agency, or data service provider of reference data concerning legal entities or individuals with respect to which the agency or service provider maintains information.

Finally, the Commission proposed adding two definitions pertaining to LEIs to § 45.6(a). First, the Commission proposed adding a definition of “local operating unit.” As proposed, “local operating unit” would mean an entity authorized under the standards of the Global Legal Entity Identifier System to issue legal entity identifiers. Second, the Commission proposed adding a definition of “reference data.” As proposed, “reference data” would mean all identification and relationship information, as outlined in the standards of the Global Legal Entity Identifier System, of the legal entity or individual to which an LEI is assigned. The terms “local operating unit” and “reference data” are explained in a discussion of the proposed amendments to § 45.6(e) in section II.F.7 below.

b. Comments on the Proposal

As also noted in section II.A.1 above, GLIEF suggests moving proposed definitions to § 45.1(a) from § 45.6(a) for “local operating unit” and “legal entity reference data.” ^[193]

i. Definition: “Reference data”

The Commission received one comment on the proposed definition of “reference data.” GLEIF suggests an alternative definition: “data as defined by the currently valid common data file formats in the Global [Legal Entity Identifier] System describing business card and relationship information related to corresponding [Legal Entity Identifier] Regulatory Oversight Committee policies.” GLEIF, however, does not explain why it believes its suggested alternative is preferable to the Commission's proposal.^[194]

ii. Definition: “Self-registration”

The Commission received one comment on the definition of “self-registration.” GLEIF supports the proposed definition revisions in § 45.6(a), including removal of references to “level one” and “level two.” ^[195]

c. Final Rule

The Commission did not receive any comments on the proposed definitions for “local operating unit” and “third-party registration” and for reasons articulated in the Proposal and reiterated in section II.F.2.a above, is adopting those two definitions as proposed. The only comment submitted on the proposed definition of “self-registration” supports the proposal and for reasons articulated in the Proposal and reiterated in section II.F.2.a above, the Commission is adopting the definition as proposed.

GLEIF does not explain why its suggested alternative for “reference data” is preferred to the Commission's proposal. Based on the analysis of the proposed text, the Commission believes the GLEIF definition's references to “data as defined by the currently valid common data file formats” and “related to corresponding [LEI ROC] policies” are unnecessarily detailed, and may not account for potential future changes to the Global Legal Entity Identifier System. The Commission believes references in its proposed definition to “all identification and relationship information” and “the standards of the Global Legal Entity Identifier System” are more general and better-suited to account for potential future changes in the Global Legal Entity Identifier System (e.g., a hypothetical future shift away from common data files in setting reference data standards) and is adopting the definition as proposed, rather than the more-specific GLEIF suggestion.

As the four definitions proposed in § 45.6(a) are only used in § 45.6, the Commission declines to adopt GLEIF's suggestion to move the proposed definitions to § 45.1(a).

3. § 45.6(b)—International Standard for the Legal Entity Identifier

The Commission proposed several changes to § 45.6(b) regulations for the international standards for LEIs. The amendments would reflect changes that have taken place since the Commission adopted the existing LEI regulations in § 45.6 in 2012. Existing § 45.6(b) states that the LEI used in all recordkeeping and all swap data reporting required by part 45, following designation of the legal entity identifier system as provided in § 45.6(c)(2), shall be issued under, and shall conform to, International Organization for Standardization (“ISO”) Standard 17442, Legal Entity Identifier (LEI), issued by the ISO.

The Commission proposed removing the phrase “following designation of the [LEI] system as provided in [§ 45.6(c)(2)].” The Commission explained in the Proposal that governance of the Global Legal Entity Identifier System was designed by the FSB with the contribution of private sector participants and was fully in place.^[196] The Commission further explained that LEI ROC establishes policy standards, such as the definition of the eligibility to obtain an LEI and conditions for obtaining an LEI; the definition of reference data and any extension thereof, such as the addition of information on relationships between entities; the frequency of update for some or all of the reference data; the nature of due diligence and other standards necessary for sufficient data quality; or high-level principles governing data and information access.^[197]

The Commission did not receive any comments on the proposed changes to § 45.6(b) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(b) as proposed.

4. § 45.6(b)—Technical Principles for the Legal Entity Identifier

The Commission proposed removing this redundantly-numbered § 45.6(b) for the technical principles for the LEI.^[198] Regulations for LEI reference data are currently located in § 45.6(e), which the Commission proposed moving to § 45.6(c). The Commission discusses revisions to the existing § 45.6(e) reference data regulations in section II.F.7 below.

Existing § 45.6(b) enumerates the six technical principles for the legal entity identifier to be used in all recordkeeping and all swap data reporting: (i) Uniqueness; (ii) neutrality; (iii) reliability; (iv) open source; (v) extensibility; and (vi) persistence.

The Commission proposed removing the technical principles from § 45.6(b). The Commission explained in the Proposal that it adopted § 45.6(b) before global technical principles for the LEI were developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which global technical principles have been developed and a functioning LEI system introduced. The Commission believed removing the technical principles from § 45.6(b) for the LEI to be used in all recordkeeping and all swap data reporting was warranted because the global technical principles that have been developed and adopted by the Global Legal Entity Identifier System already conform to the technical principles in § 45.6(b).

The Commission did not receive any comments on the changes to § 45.6(b) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(b) as proposed.

5. § 45.6(c)—Governance Principles for the Legal Entity Identifier

The Commission proposed removing the existing § 45.6(c) regulations for the governance principles for the LEI.^[199] Regulations for the use of the LEI are currently located in § 45.6(f), which the Commission proposed moving to § 45.6(d), which would be correctly renumbered as § 45.6(d). The Commission discusses the revisions to existing § 45.6(f) section II.F.8 below.

Existing § 45.6(c) enumerates the five governance principles for the LEI to be used in all recordkeeping and all swap data reporting: International governance; reference data access; non-profit operation and funding; unbundling and non-restricted use; and commercial advantage prohibition.

The Commission proposed removing the governance principles from § 45.6(c). The Commission explained in the Proposal that it adopted § 45.6(c) before global governance principles for the LEI were developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which global governance principles have been developed and a functioning LEI system introduced. The Commission believed deleting existing § 45.6(c) to remove the governance principles for the legal entity identifier to be used in all recordkeeping and all swap data reporting was warranted because the global governance principles that have been developed and adopted by the Global Legal Entity Identifier System already conform to the governance principles in § 45.6(c).

The Commission did not receive any comments on the proposed changes to § 45.6(c) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(c) as proposed.

6. § 45.6(e)—Designation of the Legal Entity Identifier System

The Commission proposed removing the § 45.6(e) regulations for the designation of the legal entity identifier system. Existing § 45.6(e) enumerates the procedures for determining whether a legal entity identifier system meets the Commission's requirements and the procedures for designating the legal entity identifier system as the provider of LEIs to be used in all recordkeeping and all swap data reporting.

The Commission explained in the Proposal that it adopted § 45.6(e) before a global legal entity identifier system was developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which a functioning LEI system has been introduced, overseeing the issuance of LEIs by local operating units. The Commission believed deleting existing § 45.6(e) to remove the procedures for designating a legal entity identifier system was warranted because such determination and designation procedures were no longer needed due to the establishment of the Global Legal Entity Identifier System and the standards adopted by the Global Legal Entity Identifier System under which a local operating unit is authorized to issue LEIs.

The Commission did not receive any comments on the proposed changes to § 45.6(e) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(e) as proposed.

7. § 45.6(e)—Reference Data Reporting (Re-Designated as § 45.6(c))

The Commission proposed changes to the § 45.6(e) regulations for LEI reference data reporting.^[200] First, the Commission proposed moving the requirements for reporting LEI reference data in § 45.6(e) to correctly renumbered § 45.5(c).

Second, the Commission proposed changing the requirements for reporting LEI reference data in existing § 45.6(e) to be moved to § 45.6(c). Existing § 45.6(e)(1) requires level one reference data for each counterparty to be reported via self-registration, third-party registration, or both, and details the procedures for doing so, including the requirement to update level one reference data in the event of a change or discovery of the need for a correction. Existing § 45.6(e)(2) contains the requirement, once the Commission has determined the location of the level two reference database, for level two reference data for each counterparty to be reported via self-registration, third-party registration, or both, and the procedures for doing so, including the requirement to update level two reference data in the event of a change or discovery of the need for a correction.

The Commission proposed removing the distinction between level one and level two reference data now found in § 45.6(e). Instead, proposed new § 45.6(c) would require that all reference data for each SEF, DCM, DCO, SDR, entity reporting under § 45.9, and counterparty to any swap be reported via self-registration, third-party registration, or both, to a local operating unit in accordance with the standards set by the Global Legal Entity Identifier System. Proposed new § 45.6(c) would retain the requirement in existing § 45.6(e) to update the reference data in the event of a change or discovery of the need for a correction.

The Commission explained in the Proposal that it adopted § 45.6(e) before a global legal entity identifier system was developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which a functioning LEI system has been introduced that sets, and updates as needed, the standards governing the identification and relationship reference data required to be provided to obtain an LEI. The Commission believed amending existing § 45.6(e) to remove the distinction between level one and level two reference data, and proposed a new § 45.6(c) to require that all reference data is reported to a local operating unit in accordance with the standards set by the Global Legal Entity Identifier System was warranted because the establishment of Global Legal Entity Identifier System removes the role of individual authorities in determining the standards governing LEI reference data.

The Commission explained in the Proposal that while existing § 45.6(e) requires that reference data for only the counterparties to a swap be reported, the extension of the requirement to be identified in all recordkeeping and swap data reporting by a single LEI to all SEFs, DCMs, DCOs, entities reporting pursuant to § 45.9, and SDRs described in section II.F.1 above also necessarily requires that all SEFs, DCMs, DCOs, entities reporting pursuant to § 45.9, and SDRs report their LEI reference data.

The Commission did not receive any comments on the proposed changes to § 45.6(e) and for reasons articulated in the Proposal and reiterated above in this section, is adopting the changes to § 45.6(e) as proposed.

8. § 45.6(f)—Use of the Legal Entity Identifier System by Registered Entities and Swap Counterparties (Re-designated as § 45.6(d))

The Commission proposed changing the § 45.6(f) regulations for the use of LEIs by registered entities and swap counterparties. Existing § 45.6(f)(1) requires that when a legal entity identifier system has been designated by the Commission pursuant to § 45.6(e), each registered entity and swap counterparty shall use the LEI provided by that system in all recordkeeping and swap data reporting pursuant to part 45. Existing § 45.6(f)(2) requires that before a legal entity identifier system has been designated by the Commission, each registered entity and swap counterparty shall use a substitute counterparty identifier created and assigned by an SDR in all recordkeeping and swap data reporting pursuant to part 45.^[201]

Existing § 45.6(f)(3) requires that for swaps reported pursuant to part 45 prior to Commission designation of a legal entity identifier system, after such designation each SDR shall map the LEIs for the counterparties to the substitute counterparty identifiers in the record for each such swap. Existing § 45.6(f)(4) requires that prior to October 15, 2012, if an LEI has been designated by the Commission as provided in § 45.6, but a reporting counterparty's automated systems are not yet prepared to include LEIs in recordkeeping and swap data reporting pursuant to part 45, the counterparty shall be excused from complying with § 45.6(f)(1), and shall instead comply with § 45.6(f)(2), until its automated systems are prepared with respect to LEIs, at which time it must commence compliance with § 45.6(f)(1).^[202]

The Commission proposed retitling the section “Use of the legal entity identifier,” because, as discussed below, the LEI will no longer be used only by registered entities and swap counterparties. The Commission proposed moving the requirements for the use of LEIs from existing § 45.6(f) to correctly renumbered § 45.6(d),^[203] as a result, the Commission's proposed amendments to the requirements for the use of LEIs in existing § 45.6(f) discussed below will be captured in new § 45.6(d).

The Commission proposed removing the sections of existing § 45.6(f) that are no longer operative, either because the Commission has designated a legal entity identifier system, or the provisions have expired. For these reasons, the Commission proposed removing existing § 45.6(f)(2) and (4). As a result, the substantive requirements of existing § 45.6(f)(2) and (4) were not proposed to be moved to § 45.6(d).

The Commission explained in the Proposal that while the provisions of existing § 45.6(f)(3) relating to substitute counterparty identifiers are no longer applicable for new swaps, the substantive requirements in § 45.6(f)(3), which are still applicable for swaps previously reported pursuant to part 45 using substitute counterparty identifiers assigned by an SDR before Commission designation of a legal entity identifier system, would be moved to final § 45.6(d)(4). The Commission considered this change to be non-substantive.

The Commission proposed the following substantive changes to the regulations requiring the use of LEIs. First, the Commission proposed revisions to the existing § 45.6(f)(1) regulations for the use of LEIs. The revised regulations would be moved to final § 45.6(d)(1), as discussed below.

The Commission proposed deleting the introductory clause “[w]hen a legal entity identifier system has been designated by the Commission pursuant to paragraph (e) of this section” in existing § 45.6(f)(1) because it was no longer relevant due to the establishment of the Global Legal Entity Identifier System and the LEI ROC in 2013. In addition, while existing § 45.6(f)(1) requires “each registered entity and swap counterparty” to use LEIs in all recordkeeping and swap data reporting pursuant to part 45, the Commission proposed to replace “each registered entity and swap counterparty” with “[e]ach [SEF], [DCM], [DCO], [SDR], entity reporting pursuant to § 45.9, and swap counterparty” to, as described in section II.F.1 above, ensure consistency with the CDE Technical Guidance, allow for standardization in the identification in recordkeeping and swap data reporting, and encourage global swap data aggregation. The Commission also proposed to add “to identify itself and swap counterparties” immediately after “use [LEIs]” in this section to clarify the intended use of LEIs. Finally, the Commission proposed to add a new sentence in this section to clarify that if a swap counterparty is not eligible to receive an LEI, such counterparty should be identified in all recordkeeping and all swap data reporting pursuant to part 45 with an alternate identifier pursuant to § 45.13(a). Because some counterparties, including many individuals, are currently ineligible to receive an LEI based on the standards of the Global Legal Entity Identifier System, the Commission believed this sentence would provide clarity as to how LEI-ineligible counterparties should be identified.

Second, the Commission proposed § 45.6(d)(2) to require each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance with the standards set by the Global Legal Entity Identifier System (as opposed to the requirement for other entities to only maintain its LEI). Existing § 45.6(e) requires that reference data be updated in the event of a change or discovery of the need for a correction, which will continue to be required under final § 45.6(c).

The Commission explained in the Proposal that pursuant to the Global Legal Entity Identifier System, established in 2013, a person or entity is issued an LEI after: (1) Providing its identification and relationship reference data to a local operating unit and (2) paying a fee, currently as low as approximately $65, to the local operating unit to validate the provided reference data. After initial issuance, an LEI holder is asked to certify the continuing accuracy of, or provide updates to, its reference data annually, and pay a fee, currently as low as approximately $50, to the local operating unit. LEIs that are not renewed annually are marked as lapsed. Existing § 45.6 does not require annual LEI renewal because part 45 was drafted and implemented before the establishment of the Global Legal Entity Identifier System. The Commission further explained that since the implementation of existing § 45.6, the Commission has received consistent feedback from certain market participants and industry groups that the Commission should require at least some LEI holders to annually renew their LEIs.

The Commission explained in the Proposal that it was aware that some LEI holders have not updated reference data as required by existing § 45.6(e), and imposing an annual renewal requirement may increase the accuracy of their reference data. The Commission also recognized that other LEI holders comply with the continuing requirement to update reference data, and imposing an annual renewal requirement may impose costs on those LEI holders without necessarily increasing the accuracy of their reference data. The Commission further explained that it has participated in the Global Legal Entity Identifier System since its inception, and values the functionality of the LEI reference data collected, including the introduction of level two reference data.

The Commission explained in the Proposal that it considers the activities of SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to have the most systemic impact affecting the Commission's ability to fulfill its regulatory mandates. Accordingly, in light of the introduction of LEI level two reference data, the Commission believed requiring each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance with the standards set by the Global Legal Entity Identifier System in § 45.6(d)(2) struck the appropriate balance between the Commission's interest in accurate LEI reference data and cost to LEI holders.

Third, the Commission proposed a new § 45.6(d)(3) that would obligate each DCO and each financial entity reporting counterparty executing a swap with a counterparty that does not have an LEI but is eligible for one to cause, before reporting any required swap creation data for such swap, an LEI to be assigned to the counterparty, including if necessary, through third-party registration.

The Commission explained in the Proposal that it was aware that some counterparties have not obtained an LEI. While proposed amendments to § 45.6 clarify the requirement that a counterparty required to be identified with an LEI in swap data reporting also has an associated affirmative requirement to obtain an LEI, the Commission explained that it anticipates a small percentage of counterparties nonetheless will not have obtained an LEI before executing a swap. The Commission further explained that swap data that does not identify eligible counterparties with an LEI hinders the Commission's fulfillment of its regulatory mandates, including monitoring systemic risk, market monitoring, and market abuse prevention. The Commission believed new § 45.6(d)(3) to require each DCO and each financial entity reporting counterparty executing a swap with a counterparty that does not have an LEI to cause an LEI to be assigned to the non-reporting counterparty would further the objective of identifying each counterparty to a swap with an LEI.

Proposed § 45.6(d)(3) did not prescribe the initial manner in which a DCO or financial entity reporting counterparty causes an LEI to be assigned to the non-reporting counterparty, though if initial efforts are unsuccessful, proposed § 45.6(d)(3) required the DCO or financial entity reporting counterparty to obtain an LEI for the non-reporting counterparty. The Commission explained in the Proposal that having a DCO or financial entity reporting counterparty serving as a backstop under new § 45.6(d)(3) to ensure the identification of the non-reporting counterparty with an LEI was appropriate because: (i) Each DCO and financial entity reporting counterparty already had obtained, via its “know your customer” and anti-money laundering compliance processes, all identification and relationship reference data of the non-reporting counterparty required by a local operating unit to issue an LEI for the non-reporting counterparty; (ii) multiple local operating units offered expedited issuance of LEI in sufficient time to allow reporting counterparties to meet their new extended deadline in § 45.3(a) through (b) for reporting required swap creation data; and (iii) the Commission anticipated that third-party registration in these instances would be infrequent, as the Commission expected most non-reporting counterparties to be mindful of their direct obligation to obtain their own LEIs pursuant to § 45.6.^[204]

The Commission received two comments on the proposed provision relating to use of the LEI in proposed § 45.6(f)(1) and moved to § 45.6(d)(1). CME suggests that the Commission revise the proposal to require a DCO to record the LEIs of all of its swap counterparties in its books and records, instead of “in all recordkeeping” and swap data reporting, to avoid DCOs identifying a swap counterparty by its LEI every time the name of that counterparty is in its records.^[205]

GLEIF suggests that, in the interest of clarity, the Commission reformulate § 45.6(d)(1) to state that alternative identifiers pursuant to § 45.13(a) can only be used for natural persons who are not eligible for an LEI, though no explanation was provided as to why it believes the alternative formulation is clearer than the Commission's proposal.^[206]

The Commission received six comments, all supporting the LEI maintenance and renewal requirements for SDs, MSPs, SEFs, DCMs, DCOs, and SDRs under proposed § 45.6(d)(2),^[207] with two of those commenters supporting additional expansion of the LEI renewal requirement and one commenter opposing additional expansion of the LEI renewal requirement. In particular, GFXD believes reporting counterparties should be required only to renew their LEI and that reporting counterparties should not be responsible for ensuring counterparties renew their LEI.^[208] LCH is concerned about the treatment of swap data that contains lapsed LEIs, specifically if that data is rejected by an SDR and recommends language be included to clarify that SDRs would not reject data in an LEI lapse.^[209] GLEIF believes the Commission should expand the requirement to include all swap counterparties.^[210]

Chatham opposes expanding the requirement to renew LEIs annually beyond SDs, MSPs, SEFs, DCMs, DCOs, and SDRs.^[211] Chatham notes many LEI applicants may not have problems with the insignificant cost of application, but often experience significant difficulty with the documentation requirements for some renewals.^[212] Chatham also requests clarification on whether § 45.6(d) requires counterparties to obtain an LEI to report for trades that have already been reported using a substitute identifier.^[213]

The Commission received four comments supporting obtaining an LEI for a counterparty that does not have one under proposed § 45.6(d)(3).^[214] GLEIF notes performing an LEI registration on behalf of a third-party is considered to satisfy the requirements of self-registration only if the registrant has provided explicit permission for such a registration to be performed.^[215] In particular, Chatham believes requiring each DCO and financial entity reporting counterparty to obtain an LEI on behalf of the counterparty through third-party registration is the most logical method to implement requiring an LEI instead of a temporary identifier.^[216]

The Commission received four comments opposing obtaining an LEI for a counterparty that does not have one, under proposed § 45.6(d)(3). GFXD believes the proposal disincentivizes smaller counterparties from obtaining their own LEI and places an administrative and financial burden on reporting counterparties.^[217] GFXD believes the requirement would “likely” cause unintended operational issues, such as reporting counterparties simultaneously creating an LEI for a counterparty.^[218] GFXD recommends following the EU approach, where all counterparties must obtain and maintain their own LEI (“no LEI, no trade”), with a sufficient implementation period and significant education effort for smaller counterparties.^[219]

JBA believes obtaining an LEI on behalf of the counterparty is impractical and costly.^[220] JBA requests changing this requirement and suggests that DCO and financial entities “recommend” the counterparty to obtain an LEI, or take other similar actions.^[221]

ISDA-SIFMA have concerns about a reporting counterparty's ability to comply with such a requirement because a DCO or financial entity reporting counterparty cannot obtain an LEI on behalf of a non-reporting counterparty without the non-reporting counterparty's permission, and ISDA-SIFMA anticipate that some counterparties would be resistant to obtaining an LEI.^[222] ISDA-SIFMA request clarification that a DCO or financial entity reporting counterparty may act as an agent for third-party registration to obtain LEIs on a counterparty's behalf only if it chooses to do so, instead of being mandated to do so.^[223] ISDA-SIFMA suggest adding a clarification that the LEI registrant (i.e., the non-reporting counterparty), has the regulatory obligation to obtain and maintain its own LEI, and that the maintenance obligation be placed on the entity to whom the LEI is issued, instead of a third-party.^[224] ISDA-SIFMA consider a non-reporting counterparty to include an investment manager executing a transaction for, and on behalf of, a swap counterparty (e.g., funds), and wants the Commission to clarify that an investment manager executing a transaction on behalf of a counterparty is required to obtain and maintain its own LEI and that an investment manager is required to obtain its own LEI sufficiently in advance of executing pre-allocation swaps, so that the reporting counterparty can report the investment manager LEI within the reporting counterparty's part 45 timing obligations.^[225]

ICE DCOs believe it is inappropriate for DCOs to backstop the compliance functions of other participants, especially since this may include clients of clearing members with which a DCO has no relationship, requests the Commission to either remove the LEI backstop entirely or exempt DCOs from the backstop.^[226]

For reasons articulated in the Proposal and informed by comments and analysis as further discussed below, the Commission is adopting the changes to § 45.6(f), re-designated as § 45.6(d), largely as proposed, with certain modifications in response to commenters and other considerations.

The Commission did not receive any comments on the proposals to retitle § 45.6(f) “Use of the legal entity identifier” or to remove § 45.6(f)(2) and (4) and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission also did not receive any comments on the proposals to move the requirements for the use of LEIs from § 45.6(f) to renumbered § 45.6(d) or to move the substantive requirements in § 45.6(f)(3) relating to substitute counterparty identifiers to § 45.6(d)(4) and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed.

The Commission is adopting the changes to the § 45.6(f)(1) regulations for the use of LEIs as proposed and the move to § 45.6(d)(1) as proposed. The Commission believes a change to the “all recordkeeping and all swap data reporting” language in § 45.6(f)(1) would only lead to confusion due to the term being used extensively elsewhere in § 45.6 and other sections of part 45, and therefore declines to adopt CME's suggestion. The Commission notes the requirement to identify entities using an LEI in “all recordkeeping and swap data reporting” has existed in § 45.6(f)(1) that all entities have complied with since part 45 was adopted in 2012, and the Commission has seen no evidence that any entity has encountered difficulty complying with this provision. The Commission notes nothing prevents an entity from supplementing the LEI with a human-readable alternative in its records.

The Commission also declines to adopt GLEIF's suggestion to rephrase the second sentence of § 45.6(f)(1) to state that alternative identifiers may only be used for natural persons who are not eligible for an LEI, as the Commission lacks sufficient knowledge of all entity structures and legal systems worldwide to know for certain that every non-natural person is eligible for an LEI.^[227] Even though the legal entities that have faced questions regarding their eligibility for LEIs are admittedly very small in number, GLEIF's suggested rephrasing of § 45.6(f)(1) would result in those few legal entities currently ineligible for LEIs to also not be allowed to be identified using alternative identifiers, and the resulting lack of acceptable identifier would hinder the Commission's ability to aggregate the total exposure of those entities.

The Commission did not receive any comments opposing the proposed requirements in § 45.6(d)(2) for each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance with the standards set by the Global Legal Entity Identifier System and for reasons articulated in the Proposal and reiterated above, is adopting § 45.6(d)(2) as proposed.

The Commission acknowledges LCH's request to clarify in § 45.6 that SDRs should not reject LEIs that have not been renewed, but declines to adopt this suggestion in the text of § 45.6, as the Commission has delegated to the DMO Director in § 45.15 to issue guidance on the form and manner of the technical specification governing reporting to SDRs. Nevertheless, the Commission notes DMO has not asked SDRs to validate the renewal status of LEIs in the technical specification being published concurrent with adoption of the revisions to part 45.

The Commission acknowledges GFXD's comment regarding the duty to renew should apply to a reporting counterparty's own LEIs and not that of the non-reporting counterparty, but believes GFXD conflates two separate requirements: The LEI renewal requirement for SDs, MSPs, SEFs, DCMs, DCOs, and SDRs in § 45.6(d)(2) and the requirements described in § 45.6(d)(3) below regarding efforts to obtain LEIs for counterparties without LEIs. The Commission believes § 45.6(d)(2) is clear that the renewal requirement applies only to an entity's own LEI. By definition, an LEI has to be issued before it can be renewed, so § 45.6(d)(3) would not apply to LEI renewals.

The Commission also acknowledges the alternative suggestions of expanding the LEI renewal requirement to either all reporting counterparties or all counterparties, but declines to adopt an expansion of the LEI renewal requirement, as the Commission continues to believe requiring each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI strikes the appropriate balance between the Commission's interest in accurate LEI reference data and the current cost to LEI holders. The Commission acknowledges and appreciates the reduction in the cost to LEI holders to obtain and renew LEIs since the start of the Global Legal Entity Identifier System, but does not believe further expansion of the renewal requirement and the resulting increased costs on LEI holders now premised solely on GLEIF's promises of future cost reductions and/or shifts of the LEI renewal fee to financial institutions resulting from Global Legal Entity Identifier System operating model changes is appropriate. Before the Commission mandates such a requirement, it will seek additional information to gain a better understanding what the benefits or costs of such a requirement will be. While the Commission declines to expand the renewal mandate in this release, it is open to considering expansions of the LEI renewal requirement in future releases upon further enhancements in LEI reference data or realized reductions in cost to LEI holders.

In response to Chatham's request for clarification, the Commission notes the requirements of § 45.6 would not apply retroactively to swap data reports previously reported before the adoption of the amendments to part 45, but do apply to creation data and continuation data submitted after the adoption of the amendments to part 45.

For reasons articulated in the Proposal and informed by comments and analysis as further discussed below, the Commission is adopting § 45.6(d)(3) largely as proposed, with certain modifications in response to commenters and other considerations.

Section 45.6(d)(3) of the final rule removes DCOs from the obligation, as DCOs may not have information regarding customers clearing trades through futures commission merchants. Section 45.6(d)(3) of the final rule also reflects the addition of “use best efforts to” before “cause a legal entity identifier to be assigned to the counterparty” to clarify that the obligation relates to actions within a financial entity reporting counterparty's control, instead of the obligation to ensure an outcome that may be outside of a financial entity reporting counterparty's control. Section 45.6(d)(3) of the final rule also removes the phrase “including if necessary, through third-party registration.” Finally, as the Commission still has a need to know the identity of the non-reporting counterparty despite the non-reporting counterparty's failure to obtain its own LEI pursuant to § 45.6, the Commission is adopting in § 45.6(d)(3) of the final rule a requirement for the financial entity reporting counterparty to promptly provide to the Commission the identity and contact information of the counterparty for whom the financial entity reporting counterparty's efforts to cause an LEI to be issued were unsuccessful.^[228]

As discussed in the Proposal, swap data that does not identify eligible counterparties with an LEI hinders the Commission's fulfillment of its regulatory mandates. However, the Commissioner declines to adopt a “no LEI, no trade” requirement that GFXD suggests due to concerns of the potential impact of such a requirement may have on market liquidity, as a “no LEI, no trade” rule would result in market participants without an LEI not being permitted to transact in the market. The Commission also notes part 45 relates to the reporting of swaps that already have been executed, whereas “no LEI, no trade” relates to who is eligible to engage in swap transactions, a completely different topic than the reporting of executed swaps and outside of the scope of the part 45 swap data reporting rule. With regards to GFXD's operational concerns, the Commission does not believe operational issues such as multiple LEI being issued to a counterparty are likely to arise, as checks in the Global Legal Entity Identifier System prohibit multiple LEIs being issued to an entity. The Commission also does not believe GFXD's concerns that the provision will result in a material shifting of costs for obtaining an LEI onto reporting counterparties are particularly realistic due to: (i) Most counterparties having already obtained an LEI due to significant LEI adoption by other authorities whose jurisdictions the counterparties may be subject to, (ii) the relatively sophisticated nature of counterparties in the swaps market, (iii) the financial due diligence that reporting counterparties such as GFXD's members perform on their counterparties, and (iv) the unlikelihood that those relatively sophisticated counterparties with adequate financial resources would willingly and knowingly disregard their own separate obligation to obtain their own LEIs pursuant to § 45.6 just so they may realize a one-time savings of $65.

The Commission also recognizes the concerns noted by commenters that obtaining an LEI for a counterparty via third-party registration requires the consent of the counterparty, consent that may potentially not be obtained despite a financial entity reporting counterparty's best efforts. The Commission believes § 45.6(d)(3) of the final rule addresses those concerns, as financial entities will only be required to “use best efforts to cause [an LEI] to be assigned to the counterparty,” so financial entities would not be required to obtain an LEI for a non-consenting counterparty. It was never the Commission's intent for anyone other than the entity to which an LEI is issued to be responsible for maintaining the reference data for that LEI, and the Commission has, in response to ISDA-SIFMA's suggestion, added a clarification in the introductory text of § 45.6 that each entity is responsible for maintaining its LEI, in addition to obtaining and being identified with an LEI.

G. § 45.8 ²²⁹ —Determination of Which Counterparty Shall Report

The Commission is changing the introductory text to the § 45.8 reporting counterparty determination regulations. The existing introductory text states the determination of which counterparty is the reporting counterparty for all swaps, except clearing swaps, shall be made as provided in § 45.8(a) through (h), and that the determination of which counterparty is the reporting counterparty for all clearing swaps shall be made as provided in § 45.8(i).

The Commission is changing the introductory text to state that the determination of which counterparty is the reporting counterparty for each swap shall be made as provided in § 45.8. The Commission believes this language is clearer, as much of the introductory text is superfluous given that the scope of what § 45.8 covers is clear from the operative provisions of § 45.8. The Commission is making non-substantive amendments to the rest of existing § 45.8.

The Commission received two comments beyond the non-substantive changes the Commission proposed. ICE SDR recommends the Commission allow swap counterparties to determine which entity is best suited to report swap data where both counterparties are non-SDs/MSPs and only one counterparty is a financial entity and where both counterparties are non-SDs/MSPs and only one counterparty is a U.S. person.^[230] The Commission declines to adopt ICE SDR's recommendation, as financial entities, being more active in the swaps market, are better suited to report swap data to SDRs than non-SD/MSP counterparties. In addition, between two non-SD/MSP/DCO reporting counterparties, the U.S. person counterparty should report swap data to SDRs given their stronger connection to the U.S.

ISDA-SIFMA propose deleting language that seems to address cross-border matters that do not fully align with Commission guidance or no-action letters and request the Commission confirm that, so long as both counterparties incorporate a widely accepted industry practice into their internal policies and procedures, they will have met the requirements of § 45.8.^[231] The Commission did not propose any amendments to reflect cross-border guidance or no-action letters, and believes the substantive amendments advocated by ISDA-SIFMA, are beyond the scope of this rulemaking and thus not amenable for adoption absent an notice and an opportunity for comment. The Commission believes the requirements of § 45.8 are clear from their operative provisions, and declines to comment on widely-accepted industry practices in this rulemaking.

For the reasons discussed above, the Commission is adopting the changes to § 45.8 as proposed.

H. § 45.10 ^[232] - Reporting to a Single Swap Data Repository

The Commission is changing the § 45.10 regulations for reporting swap data to a single SDR. The Commission is amending and removing existing regulations, and adding new regulations to § 45.10. In particular, new § 45.10(d) will permit reporting counterparties to change the SDR to which they report swap data and swap transaction and pricing data.

1. Introductory Text

The Commission is amending the introductory text to § 45.10. The existing introductory text states that all swap data for a given swap, which includes all swap data required to be reported pursuant to parts 43 and 45, must be reported to a single SDR, which must be the SDR to which the first report of required swap creation data is made pursuant to part 45.

First, the Commission is clarifying all “swap transaction and pricing data and swap data” (both terms that the Commission proposed to newly define and add to § 45.1(a)) ^[233] for a given swap must be reported. As newly defined, “swap transaction and pricing data” and “swap data” would expressly refer, respectively, to data subject to parts 43 and 45, making the existing § 45.10 introductory text's reference to the two parts redundant. Second, the Commission is adding a qualifier to the end of the introductory text specifying that all swap data and swap transaction and pricing data for a swap must be reported to a single SDR “unless the reporting counterparty changes the [SDR] to which such data is reported” pursuant to the new regulations proposed in § 45.10(d).^[234] Third, the Commission is making non-substantive changes in the introductory text to improve readability.

The Commission did not receive any comments on the changes to the introductory text in § 45.10. The Commission is adopting the changes as proposed.

2. § 45.10(a)—Swaps Executed On or Pursuant to the Rules of a SEF or DCM

The Commission is amending the § 45.10(a) regulations for reporting swaps executed on or pursuant to the rules of a SEF or DCM to a single SDR. Existing § 45.10(a) requires that to ensure all swap data, including all swap data required to be reported pursuant to parts 43 and 45, for a swap executed on or pursuant to the rules of a SEF or DCM is reported to a single SDR: (i) The SEF or DCM that reports required swap creation data as required by § 45.3 shall report all such data to a single SDR, and ASATP after execution shall transmit to both counterparties to the swap, and to any DCO, the identity of the SDR and the USI for the swap; and (ii) thereafter, all required swap creation data and all required swap continuation data reported for the swap reported by any registered entity or counterparty must be reported to that same SDR (or to its successor in the event that it ceases to operate, as provided in existing part 49).

First, the Commission is removing the phrase “(or to its successor in the event that it ceases to operate, as provided in part 49)” from § 45.10(a)(2).^[235] Second, the Commission is updating all references to swap data throughout proposed § 45.10(a) with “swap transaction and pricing data and swap data.” The Commission believes using the new defined terms for “swap data” and “swap transaction and pricing data” will provide clarity for market participants.

Third, the Commission is removing § 45.10(a)(1)(ii) and combining the text of § 45.10(a) and (a)(i) into a single provision § 45.10(a) to provide clarity as the requirement in § 45.10(a)(1)(ii) is already located in § 45.5(a)(2). Fourth, the Commission is adding the qualifier to the end of § 45.10(a)(2) that all swap data and swap transaction and pricing data for a swap must be reported to a single SDR “unless the reporting counterparty changes the [SDR] to which such data is reported” pursuant to the new regulations in proposed § 45.10(d).^[236]

The Commission did not receive any comments on the changes to § 45.10(a). For the reasons discussed above, the Commission is adopting the changes as proposed.

3. § 45.10(b)—Off-Facility Swaps with an SD or MSP Reporting Counterparty

The Commission is amending the § 45.10(b) regulations for reporting swaps executed off-facility with an SD/MSP reporting counterparty to a single SDR. Existing § 45.10(b)(1) requires that to ensure that all swap data, including all swap data required to be reported pursuant to parts 43 and 45, for off-facility swaps with an SD or MSP reporting counterparty is reported to a single SDR: (i) If the reporting counterparty reports PET data to an SDR as required by § 45.3, the reporting counterparty shall report PET data to a single SDR and ASATP after execution, but no later than as required pursuant to § 45.3, shall transmit to the other counterparty to the swap both the identity of the SDR to which PET data is reported by the reporting counterparty, and the USI for the swap created pursuant to § 45.5; and (ii) if the swap will be cleared, the reporting counterparty shall transmit to the DCO at the time the swap is submitted for clearing both the identity of the SDR to which PET data is reported by the reporting counterparty, and the USI for the swap created under § 45.5.

Thereafter, § 45.10(b)(2) requires that all required swap creation data and all required swap continuation data reported for the swap, by any registered entity or counterparty, shall be reported to the SDR to which swap data has been reported pursuant to § 45.10(b)(1) or (2) (or to its successor in the event that it ceases to operate, as provided in part 49).

First, the Commission is combining the requirements for SD/MSP reporting counterparties in § 45.10(b) for off-facility swaps with the requirements for non-SD/MSP reporting counterparties in § 45.10(c) for off-facility swaps. The Commission believes combining the requirements for SD/MSP reporting counterparties and non-SD/MSP reporting counterparties in § 49.10(b) and (c) will simplify the regulations in § 45.10. The Commission is re-titling § 45.10(b) “Off-facility swaps that are not clearing swaps.” ^[237]

Second, the Commission is removing the phrase “(or to its successor in the event that it ceases to operate, as provided in part 49)” from § 45.10(b)(2).^[238] Third, the Commission is updating all references to swap data throughout § 45.10(b) by replacing all references to “swap data” with “swap transaction and pricing data and swap data.”

Fourth, the Commission is removing existing § 45.10(b)(1) and combining the regulations in existing § 45.10(b)(1)(i) through (iii) into § 45.10(b)(1). The Commission believes existing § 45.10(b)(1) is unnecessary, as all reporting counterparties must report required swap creation data to an SDR pursuant to § 45.3 for off-facility swaps. Fifth, the Commission is removing the requirement in existing § 45.10(b)(1)(ii) for the reporting counterparty to transmit the USI to the non-reporting counterparty to the swap. The requirement in § 45.10(b)(1) is unnecessary, as it is already located in § 45.5(b)(2) and (c)(2), depending on the type of counterparty.

Finally, the Commission is adding the qualifier to the end of § 45.10(b)(2) that all swap data and swap transaction and pricing data for a swap must be reported to a single SDR “unless the reporting counterparty changes the [SDR] to which such data is reported” pursuant to proposed § 45.10(d).^[239]

The Commission did not receive any comments on the proposed changes to § 45.10(b). For the reasons discussed above, the Commission is adopting the changes as proposed.

4. § 45.10(c)—Off-Facility Swaps With a Non-SD/MSP Reporting Counterparty

The Commission is moving the requirements in § 45.10(d) to § 45.10(c). The Commission discusses the requirements of existing § 45.10(d) in the following section, II.H.5. The Commission discusses the requirements of existing § 45.10(c) that it proposed moving to § 45.10(b) in section II.H.3 above.

5. § 45.10(d)—Clearing Swaps

a. Amendments to Existing § 45.10(d) ^[240]

Existing § 45.10(d)(1) requires that to ensure that all swap data for a given clearing swap, and for clearing swaps that replace a particular original swap or that are created upon execution of the same transaction and that do not replace an original swap, is reported to a single SDR the DCO that is a counterparty to the clearing swap report all required swap creation data for that clearing swap to a single SDR, and ASATP after acceptance of an original swap by a DCO for clearing or execution of a clearing swap that does not replace an original swap, the DCO transmit to the counterparty to each clearing swap the LEI of the SDR to which the DCO reported the required swap creation data for that clearing swap.

Thereafter, existing § 45.10(d)(2) requires the DCO report all required swap creation data and all required swap continuation data reported for that clearing swap to the SDR to which swap data has been reported pursuant to § 45.10(d)(1) (or to its successor in the event that it ceases to operate, as provided in part 49). Existing § 45.10(d)(3) requires that for clearing swaps that replace a particular original swap, and for equal and opposite clearing swaps that are created upon execution of the same transaction and that do not replace an original swap, the DCO report all required swap creation data and all required swap continuation data for such clearing swaps to a single SDR.

Newly re-designated § 45.10(c) would include several changes to the requirements in existing § 45.10(d). First, the Commission is removing the phrase “(or to its successor in the event that it ceases to operate, as provided in part 49)” in existing § 45.10(d)(2) from re-designated § 49.10(c)(2).^[241]

Second, the Commission is updating all references to swap data now found throughout existing § 45.10(d) with references to “swap transaction and pricing data and swap data.” Third, the Commission is adding the following qualifier: “unless the reporting counterparty changes the [SDR] to which such data is reported” pursuant to the new regulations in § 45.10(d). Finally, the Commission is making numerous language edits to improve readability and to update certain cross-references.

The Commission did not receive any comments on the proposed changes to § 45.10(d), as moved to § 45.10(c). For the reasons discussed above, the Commission is adopting the changes as proposed.

b. New Regulations for Changing SDRs

The Commission is adding new § 45.10(d) to permit reporting counterparties to change the SDR to which they report swap data and swap transaction and pricing data. Existing § 45.10 provides all swaps must be reported to a “single [SDR].” ^[242]

The Commission is titling new § 45.10(d) “Change of [SDR] for swap transaction and pricing data and swap data reporting.” The introductory text to § 45.10(d) states a reporting counterparty may change the SDR to which swap transaction and pricing data and swap data is reported as outlined in § 45.10(d).

New § 45.10(d)(1) will require that at least five business days prior to changing the SDR to which the reporting counterparty reports swap transaction and pricing data and swap data for a swap, the reporting counterparty provide notice of such change to the other counterparty to the swap, the SDR to which swap transaction and pricing data and swap data is currently reported, and the SDR to which swap transaction and pricing data and swap data will be reported going forward. Such notification will include the UTI of the swap and the date on which the reporting counterparty will begin reporting such swap transaction and pricing data and swap data to a different SDR.

New § 45.10(d)(2) will require that after providing notification, the reporting counterparty: (i) Report the change of SDR to the SDR to which the reporting counterparty is currently reporting swap transaction and pricing data and swap data as a life cycle event for such swap pursuant to § 45.4; (ii) on the same day that the reporting counterparty reports required swap continuation data as required by § 45.10(d)(2)(i), the reporting counterparty also report the change of SDR to the SDR to which swap transaction and pricing data and swap data will be reported going forward, as a life cycle event for such swap pursuant to § 45.4, and the report identify the swap using the same UTI used to identify the swap at the previous SDR; (iii) thereafter, all swap transaction and pricing data, required swap creation data, and required swap continuation data for the swap be reported to the new SDR, unless the reporting counterparty for the swap makes another change to the SDR to which such data is reported pursuant to § 45.10(d).

When the Commission adopted § 45.10 in 2012, it believed regulators' ability to see necessary information concerning swaps could be impeded if data concerning a swap was spread over multiple SDRs.^[243] However, since then, the Commission has come to recognize it can aggregate swap data from different SDRs, and the Commission has received requests to permit reporting counterparties to change SDRs.^[244]

However, the ability to change SDRs cannot frustrate the Commission's ability to use swap data due to duplicative swap reports housed at multiple SDRs. For this reason, the Commission is permitting reporting counterparties to change SDRs in § 49.10(d), subject to certain notification procedures described below to ensure swaps are properly transferred between SDRs.

The Commission received five comments supporting new § 45.10(d).^[245] In particular, GFXD does not believe counterparties changing SDRs raises any operational issues and does not believe any additional requirements should be adopted.^[246]

The Commission did not receive any comments opposing § 45.10(d), but did receive comments seeking clarification or commenting on some aspects of the new regulation. Markit supports § 45.10(d), but does not believe the notice period and other formal procedures are necessary, and notes a swap transaction that has been moved will be evident from the “Events” data elements in appendix 1.^[247] The Commission agrees with Markit that data elements showing a swap has been moved to a different SDR will be beneficial, but as explained above, the Commission needs to ensure swaps are properly transferred. The Commission believes it has kept the notification requirements simple enough to provide the Commission the notification it needs without placing an unreasonable burden on the parties involved in the transfer.

ISDA-SIFMA suggest the § 45.10(d)(1) notification obligation could be satisfied via an email notification, reporting counterparty portal, or the reporting counterparty's public-facing website.^[248] The Commission agrees with ISDA-SIFMA and clarifies the aforementioned methods could satisfy the notification requirements in § 49.10(d).

ISDA-SIFMA and DTCC have questions relating to transferring historical swap data. ISDA-SIFMA believe, where a reporting counterparty elects to transfer from an SDR due to the deregistration of the SDR, the deregistering SDR should be required to bear the reporting counterparty's costs of porting.^[249] DTCC requests confirmation that the transferability requirement will only apply to trades that are live at the time of the transfer, not historical trades.^[250] Transferring historical data in the context of SDR withdrawals from registration is covered by § 49.4 regulations (Withdrawal from registration). New § 45.10(d) does not apply to that process, with respect to costs or the process itself, among other things. The Commission believes ISDA-SIFMA and DTCC's comments are addressed by § 49.4.

I. § 45.11—Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any Swap Data Repository

The Commission is making non-substantive changes to the § 45.11 regulations for reporting swaps in an asset class not accepted by any SDR. Existing § 45.11(a) requires that, should there be a swap asset class for which no SDR registered with the Commission currently accepts swap data, each registered entity or counterparty required by part 45 to report any required swap creation data or required swap continuation data with respect to a swap in that asset class report that same data to the Commission.

For instance, the Commission is removing the phrase “registered with the Commission” following the term SDR. The Commission believes this phrase is confusing, as the three SDRs are provisionally registered with the Commission pursuant to § 49.4(b) of the Commission's regulations. The Commission also believes this phrase is unnecessary, as provisionally registered SDRs and fully registered SDRs are subject to the same requirements in the CEA and the Commission's regulations. The Commission is also replacing “each registered entity or counterparty” with a reference to SEFs, DCMs, and DCOs, and the term “reporting counterparty.” The list of entities is more precise and does not modify the types of entities to which the requirements of § 49.11 would apply.

Existing § 45.11(c) and (d) contain a delegation of authority to the Chief Information Officer of the Commission concerning the requirements in § 45.11(a) and (b). The Commission is moving this delegation to a new section, § 45.15, for delegations of authority. The Commission discusses § 45.15 in section II.L below.

The Commission did not receive any comments on the proposed changes to existing § 45.11. For the reasons discussed above, the Commission is adopting the changes as proposed.

J. § 45.12—Voluntary Supplemental Reporting

The Commission is removing the § 45.12 regulations for voluntary supplemental reporting from part 45. Existing § 45.12 permits the submission of voluntary supplemental swap data reports by swap counterparties.^[251] Voluntary supplemental swap data reports are defined as any report of swap data to a [SDR] that is not required to be made pursuant to part 45 or any other part in this chapter.^[252]

When it adopted § 45.12 in 2012, the Commission believed voluntary supplemental reporting could have benefits for data accuracy and counterparty business processes, especially for counterparties that were not the reporting counterparty to a swap.^[253] The Commission recognized § 45.12 would lead to the submission of duplicative reports for the same swap,^[254] but believed an indication voluntary supplemental reports were voluntary would prevent double-counting of the same swaps within SDRs.^[255]

In practice, the Commission is concerned voluntary supplemental reports compromise data quality and provide no clear regulatory benefit. In analyzing reports that have been marked as “voluntary reports,” it is not immediately apparent to the Commission why reporting counterparties mark the reports as voluntary. In some cases, it appears these reports can be related to products outside the Commission's jurisdiction. The Commission believes it should not accept duplicative or non-jurisdictional reports at the expense of the Commission's technical and staffing resources with no clear regulatory benefit. The Commission adopted existing § 45.12 in 2012 without the benefit of having swap data available to consider the practical implications of existing § 45.12. However, after years of use by Commission staff, the Commission now believes existing § 45.12 has led to swap data reporting that inhibits the Commission's use of the swap data. The Commission believes eliminating § 45.12 will help improve data quality.

The Commission received three comments on the removal of § 45.12. NRECA-APPA and ISDA-SIFMA support removing § 45.12.^[256] Eurex believes this removal would lead non-U.S. DCOs to only report part 45 data for swap transactions involving SDs, MSPs, and other U.S. counterparties.^[257] Furthermore, Eurex agrees that this removal would significantly lessen the operational cost currently incurred from reporting data for all cleared swaps.^[258] However, Eurex requests a list of SDs, MSPs, and other U.S. counterparties so, as a non-U.S. DCO, Eurex can appropriately filter out swap transactions that do not fall under the jurisdiction of the Commission.^[259] The Commission believes Eurex is confusing voluntary supplemental reporting with cross-border reporting, possibly due to the Commission's example of some voluntary reports being non-jurisdictional. The Commission clarifies that removing the regulations for voluntary supplemental reporting does not impact cross-border reporting requirements, and non-U.S. DCOs should continue reporting swap data to SDRs, to the extent the Commission's cross-border rules and guidance require it.

K. § 45.13—Required Data Standards

1. § 45.13(a)—Data Maintained and Furnished to the Commission by SDRs

The Commission is changing the § 45.13(a) regulations for data maintained and furnished to the Commission by SDRs. Existing § 45.13(a) requires each SDR maintain all swap data reported to it in a format acceptable to the Commission, and transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission.

The Commission is removing existing § 45.13(a), and moving existing § 45.13(b) to § 45.13(a)(3). The May 2019 notice of proposed rulemaking relating to the Commission's SDR regulations in parts 23, 43, 45, and 49 (the “2019 Part 49 NPRM”) ^[260] proposed moving the requirements of § 45.13(a) to § 49.17(c).^[261] The Commission did not propose corresponding modifications to § 45.13 in that release.^[262] Therefore, the Commission is changing § 45.13(a) in this release by removing language that the 2019 Part 49 NPRM proposed incorporating in § 49.17(c). The Commission discusses the changes to § 45.13(b), including moving the requirement to § 45.13(a)(3), in this section.

Existing § 45.13(b) requires that in reporting swap data to an SDR as required by part 45, each reporting entity or counterparty shall use the facilities, methods, or data standards provided or required by the SDR to which the entity or counterparty reports the data. Existing § 45.13(b) further provides that an SDR 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 requirements of § 45.13(a) with respect to maintenance and transmission of swap data.

In new § 43.13(a)(1), the Commission is requiring that in reporting required swap creation data and required swap continuation data to an SDR, each reporting counterparty, SEF, DCM, and DCO shall report the swap data elements in appendix 1 in the form and manner provided in the technical specifications published by the Commission pursuant to § 45.15. This requirement is implied in the current regulations through the requirements in the introductory text to § 45.3 and § 45.4, the definitions of “required swap creation data” and “required swap continuation data,” and § 45.13(b) and (c), but new § 45.13(a)(1) would make the existing requirement explicit.

In new § 45.13(a)(2), the Commission is requiring that in reporting required swap creation data and required swap continuation data to an SDR, each reporting counterparty, SEF, DCM, and DCO making such report satisfy the swap data validation procedures of the SDR receiving the swap data. The Commission is adopting companion requirements for SDRs to validate swap data in § 49.10.^[263] New § 45.13(a)(2) will establish the regulatory requirement for reporting counterparties, SEFs, DCMs, and DCOs to satisfy the data validation procedures established by SDRs pursuant to § 49.10. The Commission is specifying the requirements for the validation messages in § 45.13(b). The Commission discusses these requirements, and comments received, in section IV.C.3 below.

Finally, the Commission is moving existing § 45.13(b) to § 45.13(a)(3) and changing the regulatory requirements. Existing § 45.13(b) requires that in reporting swap data to an SDR as required by part 45, each reporting entity or counterparty use the facilities, methods, or data standards provided or required by the SDR to which the entity or counterparty reports the data. An SDR may permit reporting entities and counterparties to use various facilities, methods, or data standards, provided its requirements in this regard enable it to meet the requirements of § 45.13(a) with respect to maintenance and transmission of swap data.

First, the Commission is replacing “each reporting entity or counterparty” with “each reporting counterparty [SEF, DCM, and DCO]” to be more precise. Second, the Commission is removing the second sentence in existing § 45.13(b) because it pertains to the requirements of § 45.13(a), which the Commission is moving to part 49.

The Commission did not receive any comments on the changes to § 45.13(a) and (b). For the reasons discussed above, the Commission is adopting the changes as proposed.

2. New Regulations for Data Validation Messages

The Commission is specifying the requirements for data validation acceptance messages for SDRs, SEFs, DCMs, DCOs, and reporting counterparties. New § 45.13(b)(1) will require that for each required swap creation data or required swap continuation data report submitted to an SDR, an SDR notify the reporting counterparty, SEF, DCM, DCO, or third-party service provider submitting the report whether the report satisfied the swap data validation procedures of the SDR. The SDR will have to provide such notification ASATP after accepting the required swap creation data or required swap continuation data report. An SDR satisfies these requirements by transmitting data validation acceptance messages as required by proposed § 49.10.

New § 45.13(b)(2) will require that if a required swap creation data or required swap continuation data report to an SDR does not satisfy the data validation procedures of the SDR, the reporting counterparty, SEF, DCM, or DCO required to submit the report has not yet satisfied its obligation to report required swap creation or continuation data in the manner provided by paragraph (a) within the timelines set forth in §§ 45.3 and 45.4. The reporting counterparty, SEF, DCM, or DCO has not satisfied its obligation until it submits the required swap data report in the manner provided by paragraph (a), which includes the requirement to satisfy the data validation procedures of the SDR, within the applicable time deadline outlined in §§ 45.3 and 45.4.

The Commission did not receive any comments on the new validations requirements in § 45.13(b). As the new regulations for data validations in § 45.13(b) are analogous to new regulations for SDRs to validate data in § 49.10, the Commission discusses its reasoning behind requiring validations in one section in section IV.C.3, below.

3. § 45.13(c)—Delegation of Authority to the Chief Information Officer

Existing § 45.13(c) and (d) contain a delegation of authority to the Chief Information Officer of the Commission concerning the requirements in existing § 45.13(a) and (b). The Commission is deleting § 45.13(c) and (d) and moving the delegation to new § 45.15 and delegating authority to the DMO Director. The Commission believes the updated delegation will enhance efficiency by including DMO. The Commission discusses new § 45.15 in the next section.

L. § 45.15 ^[264] - Delegation of Authority

1. New Regulation for Delegations of Authority

The Commission is adding a new regulation to part 45 for delegations of authority. New § 45.15 is titled “Delegation of authority” and contains the delegation of authority in existing § 45.11(c) and (d) and § 45.13(c) and (d) with a new delegation to the DMO Director regarding reporting under § 45.13.

Existing § 45.11(c) delegates to the Chief Information Officer of the Commission, or another such employee he or she designates, with respect to swaps in an asset class not accepted by any SDR, the authority to determine the manner, format, coding structure, and electronic data transmission standards and procedures acceptable to the Commission; whether the Commission may permit or require use by reporting entities or counterparties in reporting pursuant to § 45.11 of one or more particular data standards (such as FIX, FpML, ISO 20022, or some other standard), in order to accommodate the needs of different communities of users; and the dates and times at which required swap creation data or required swap continuation data must be reported to the Commission.

Existing § 45.11(d) requires the Chief Information Officer to publish from time to time in the Federal Register and on the website of the Commission, the format, data schema, electronic data transmission methods and procedures, and dates and times for reporting acceptable to the Commission with respect to swap data reporting pursuant to § 45.11.

Separately, existing § 45.13(c) delegates to the Chief Information Officer, until the Commission orders otherwise, the authority to establish the format by which SDRs maintain swap data reported to them, and the format by which SDRs transmit the data to the Commission. The authority includes the authority to determine the manner, format, coding structure, and electronic data transmission standards and procedures acceptable to the Commission for § 45.13(a); and the authority to determine whether the Commission may permit or require use by reporting entities or counterparties, or by SDRs, of one or more particular data standards (such as FIX, FpML, ISO 20022, or some other standard), to accommodate the needs of different communities of users, or to enable SDRs to comply with § 45.13(a).

Existing § 45.13(d) requires the Chief Information Officer to publish from time to time in the Federal Register and on the website of the Commission the format, data schema, and electronic data transmission methods and procedures acceptable to the Commission.

The Commission is moving the delegations in existing §§ 45.11(c) and (d) and 45.13(c) and (d) to new § 45.15(a) and (b). The Commission is also updating the delegations to reflect the changes to the cross-references resulting from the Commission's other proposed amendments to part 45, and changing the delegation in § 45.13 from the Chief Information Officer to the Director of the Division of Market Oversight due to different responsibilities over swap data within the Commission.

The Commission received one comment on new § 45.15. NRECA-APPA support the delegation to DMO.^[265] The Commission agrees with NRECA-APPA and believes delegation to DMO will benefit data element harmonization. The Commission did not receive any other comments on new § 45.15. The Commission is adopting the regulation as proposed.

2. Request for Comment on Data Standards

The Proposal solicited comment on whether the Commission should mandate a specific data standard for reporting swap data to SDRs, and whether that standard should be ISO 20022. Existing § 45.13(c) delegates to the Commission's Chief Information Officer the authority to determine whether the Commission may permit or require use by reporting entities or counterparties, or by SDRs, of one or more particular data standards, including ISO 20022, in order to accommodate the needs of different communities of users. The Commission is retaining this delegation but moving the authority to § 45.15(b)(2) and transferring it to the DMO Director.

While the Commission would mandate any standards via the delegated authority in § 45.15(b)(2), the Commission took the opportunity presented by the Proposal to solicit public comment on the topic.^[266] As explained in the Proposal, the Commission is currently part of an effort to develop a standardized ISO message for the data elements in the CDE Technical Guidance. The Commission sought comment on whether market participants believe mandating ISO 20022 would be beneficial.

The Commission received five comments supporting mandating data standards for swap data reporting.^[267] In particular, GFXD encourages the Commission to harmonize with the CPMI-IOSCO reporting standards to the extent the Commission chooses to implement those data elements.^[268] Similarly, XBRL “strongly” recommends the Commission “require all SDRs to adopt a single data standard.” XBRL believes allowing SDRs to choose any data standard will lead to inconsistencies in the data, and unnecessary spending by counterparties, SDRs, data users, and the Commission, to accommodate multiple data sets that are standardized in different ways.” ^[269]

The Commission received two comments opposing mandating standards for SDR reporting. ISDA-SIFMA state that, even if the Commission mandates that certain messaging formats (e.g., XML, FpML, CSV) for reporting from the SDR to the Commission, ISDA-SIFMA do not believe this should result in a mandate that the same message format type be required from the reporting counterparty to the SDRs, as not all reporting counterparties are built uniformly with respect to messaging formats and technology.^[270]

ICE SDR believes SDRs need flexibility to determine how to implement the requirement. For example, an SDR may choose to provide notifications through a graphical user interface so that less-sophisticated reporting entities are not forced to write an application programming interface.^[271]

The Commission received four comments supporting mandating the ISO 20022 standard specifically.^[272] In particular, GFXD believes including the CDE data elements in the ISO 20022 data dictionary would reduce the mapping required by market participants and third parties, but believes the Commission should coordinate with fellow international regulators to coordinate the adoption of CDE data elements.^[273] GFXD also believes it is “extremely advisable” for the Commission and ESMA to come to the same determination on the adoption of the ISO 20022 messaging scheme and coordinate on implementation to reduce operational complexity and risk to data quality from mapping different message schemes in the interim.^[274] DTCC also encourages the Commission to “adopt a messaging methodology that is broadly consistent and aligned with the methodology adopted and used in other jurisdictions” and notes ESMA has proposed ISO 20022 in its EMIR REFIT consultation published in March 2020.^[275]

The Commission received three comments opposing mandating ISO 20022. CME questions the value of using ISO 20022 values for reporting certain data elements given the significant implementation cost.^[276] ISDA-SIFMA oppose mandating ISO 20022 due to costs imposed on market participants without benefits to regulatory oversight.^[277] ICE SDR does not support prescribed facilities and methods for SDRs to communicate with and take in data from participants.^[278] According to ICE SDR, the Commission should not consider mandating the ISO 20022 message scheme for reporting to SDRs as non-SD/MSP reporting entities often are not as sophisticated as SDs/MSPs and cannot follow such a standard.^[279]

The Commission agrees with some commenters that mandating one standard for reporting swap data to SDRs is necessary to ensure data quality. The Commission believes if the data is reported using different standards or protocols, the data is then subject to interpretation by the SDRs, as it is transformed or translated into the SDRs' systems and further transformed when it is reported to the Commission. These successive layers of transformation inject ambiguity and data quality issues into the life cycle of the data. Such layers of transformation are unnecessary if the reporting solution is straight through processing. Consistency of data from the source, in a common format, regardless of SDR, will lead to better quality data.

Several commenters note aligning with other jurisdictions will help reduce burden on market participants. Staff supports the idea that having a consistent standard for reporting, such as ISO 20022, across the globe would reduce reporting burden, streamline processing and allow industry to leverage scaled solutions bringing down the cost of changes and updates. As previously noted by a commenter, ESMA has proposed ISO 20022 in its EMIR REFIT consultation published in March 2020 and has implemented ISO 20022 for other reporting regimes, including SFTR.

As discussed in the Proposal, CPMI-IOSCO assigned ISO to execute the maintenance functions for the CDE Technical Guidance because ISO has significant experience maintaining financial data standards and almost half of the CDE data elements in the CDE Technical Guidance are already tied to an ISO standard. CPMI-IOSCO also decided that the CDE data elements should be included in the ISO 20022 data dictionary and the development of an ISO 20022-compliant message for CDE data elements is in progress. Further, a majority of the data elements in the technical specification are from the CDE Technical Guidance. For these reasons, and because comprehensive and unambiguous rules regarding reporting format will ensure the quality and usefulness of the data, the Commission will mandate ISO 20022 for reporting to SDRs according to § 45.15(b)(2) when the standard is developed.

III. Amendments to Part 46

CEA sections 4r(a)(2)(A) and 2(h)(5) provide for the reporting of pre-enactment and transition swaps.^[280] Part 46 of the Commission's regulations establishes the requirements for reporting pre-enactment and transition swaps to SDRs. In some instances, the revisions to part 45 necessitate corresponding amendments to the regulations in part 46. The Commission describes any substantive amendments in this section. However, the Commission does not repeat the reasoning for changes if the Commission has discussed the reasoning for analogous part 45 provisions above.

A. § 46.1—Definitions

Existing § 46.1 contains the definitions for terms used throughout the regulations in part 46. The Commission is separating § 46.1 into two paragraphs: § 46.1(a) for definitions and § 46.1(b), which would state that terms not defined in part 46 have the meanings assigned to the terms in § 1.3, to be consistent with the same change in § 45.1.

The Commission is adding a definition of “historical swaps” to § 46.1(a). “Historical swaps” means pre-enactment swaps or transition swaps. This term will provide clarity as it is already used in part 46.

The Commission is adding a definition of “substitute counterparty identifier” to § 46.1(a). “Substitute counterparty identifier” means a unique alphanumeric code assigned by an SDR to a swap counterparty prior to the Commission designation of an LEI identifier system on July 23, 2012. The term “substitute counterparty identifier” is already used throughout § 46.4.

The Commission is making non-substantive minor technical changes to “asset class” and “required swap continuation data.”

The Commission is amending the definition of “non-SD/MSP counterparty” in § 46.1(a) to conform to the amendments proposed to the corresponding term in § 45.1(a).^[281] The Commission is updating the term throughout part 46.

The Commission is amending the definition of “reporting counterparty” to update the reference to “swap data.” Currently, “reporting counterparty” means the counterparty required to report swap data pursuant to part 46, selected as provided in § 46.5. As discussed in section II.A.1 above, the Commission is defining “swap data” to mean swap data reported pursuant to part 45. As a result, the Commission is changing the reference to “data for a pre-enactment swap or transition swap” to reflect the reference is to part 46 data.

The Commission is removing the following definitions from § 46.1. The Commission has determined that the following definitions are redundant because the terms are already defined in either Commission regulation § 1.3 or CEA section 1a: “credit swap;” “foreign exchange forward;” “foreign exchange instrument;” “foreign exchange swap;” “interest rate swap;” “major swap participant;” “other commodity swap;” “swap data repository;” and “swap dealer.”

The Commission is removing the definition of “international swap,” as there are no regulations for international swaps in part 46.

The Commission did not receive any comments on the changes to § 46.1.

B. § 46.3—Data Reporting for Pre-Enactment Swaps and Transition Swaps

Existing § 46.3(a)(2)(i) ^[282] requires that for each uncleared pre-enactment or transition swap in existence on or after April 25, 2011, throughout the existence of the swap following the compliance date, the reporting counterparty must report all required swap continuation data required to be reported pursuant to part 45, with the exception that when a reporting counterparty reports changes to minimum PET data for a pre-enactment or transition swap, the reporting counterparty is required to report only changes to the minimum PET data listed in appendix 1 to part 46 and reported in the initial data report made pursuant to § 46(a)(1), rather than changes to all minimum PET data listed in appendix 1 to part 45.

The Commission is amending § 46.3(a)(2)(i) to remove the exception from PET data reporting for pre-enactment and transition swaps to specify that reporting counterparties would report updates to pre-enactment and transition swaps according to part 45. The Commission believes this is current practice and would not result in any significant change for the entities reporting updates to historical swaps.

The Commission received one comment supporting the proposal. ISDA-SIFMA believe SDs should benefit from more limited part 46 reporting obligations. The Commission is adopting the changes as proposed.

C. § 46.10—Required Data Standards

Existing § 46.10 requires that in reporting swap data to an SDR as required by part 46, each reporting counterparty use the facilities, methods, or data standards provided or required by the SDR to which counterparty reports the data.

The Commission is adding a provision that in reporting required swap continuation data as required by this part, each reporting counterparty shall comply with the required data standards outlined in part 45 of this chapter, including those set forth in § 45.13(a) of this chapter. As discussed above in the previous section, the Commission believes this is current practice for reporting counterparties and should not result in any significant change for reporting counterparties. The Commission did not receive any comments on the changes to § 46.10. The Commission is adopting the changes as proposed.

D. § 46.11—Reporting of Errors and Omissions in Previously Reported Data

Consistent with the Commission's removal of the option to report required swap continuation data by the state data reporting method, discussed in section II.D.2 above, the Commission is removing the option in § 46.11(b) for pre-enactment/transition swaps reporting. Specifically, existing § 46.11(b) provides that for pre-enactment or transition swaps for which part 46 requires reporting of continuation data, reporting counterparties reporting state data as provided in part 45 may fulfill the requirement to report errors or omissions by making appropriate corrections in their next daily report of state data pursuant to part 45. Further to the removal of existing § 46.11(b), the Commission is re-designating existing § 46.11(c) and (d) as new § 46.11(b) and (c), respectively.

The Commission received two comments supporting the proposal. Consistent with its position supporting removing state data reporting in § 45.4, Chatham believes this will significantly reduce the number of reports as life cycle data reporting provides the same critical information as state data reporting.^[283] CEWG believes the proposal will improve the effectiveness and efficiency of reporting.^[284] The Commission agrees removing state data reporting from part 46 will be beneficial for the reasons described above relating to § 45.4. The Commission did not receive any other comments on the proposed changes to § 46.11. The Commission is adopting the changes as proposed.

IV. Amendments to Part 49

A. § 49.2—Definitions

The Commission is adding four definitions to § 49.2(a): “data validation acceptance message,” “data validation error,” “Data validation error message,” and “data validation procedures.” ^[285] The Commission discusses the impact of the four definitions in section IV.C below. The four definitions encompass the messages and validations reports SDRs would be required to send reporting counterparties under new regulations in § 49.10(c).

“Data validation acceptance message” means a notification that SDR data satisfied the data validation procedures applied by a SDR. “Data validation error” means that a specific data element of SDR data did not satisfy the data validation procedures applied by a SDR. “Data validation error message” means a notification SDR data contained one or more data validation error(s). “Data validation procedures” means procedures established by a SDR pursuant to § 49.10 to validate SDR data reported to the SDR.

B. § 49.4—Withdrawal From Registration

The Commission is amending the § 49.4 regulations for SDR withdrawals from registration. Existing § 49.4(a)(1)(iv) requires that a request to withdraw filed pursuant to § 49.4(a)(1) shall specify, among other items, a statement that the custodial SDR is authorized to make such data and records available in accordance with § 1.44.^[286]

Existing § 49.4(a)(2) requires that before filing a request to withdraw, a registered SDR shall file an amended Form SDR to update any inaccurate information. A withdrawal of registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the facility was designated by the Commission.

First, the Commission is removing the § 49.4(a)(1)(iv) requirement for SDRs to submit a statement to the Commission that the custodial SDR is authorized to make the withdrawing SDR's data and records available in accordance with § 1.44. The reference to § 1.44 is erroneous. Existing § 1.44 requires “depositories” to maintain all books, records, papers, and memoranda relating to the storage and warehousing of commodities in such warehouse, depository or other similar entity for a period of 5 years from the date thereof.^[287] The recordkeeping requirements for SDRs are located in § 49.12.^[288] The Commission is removing erroneous § 49.4(a)(1)(iv) to avoid confusion.

Second, the Commission is removing the § 49.4(a)(2) requirement that prior to filing a request to withdraw, a registered SDR file an amended Form SDR to update any inaccurate information.^[289] The Commission is adding a new requirement in § 49.4(a)(2) for SDRs to execute an agreement with the custodial SDR governing the custody of the withdrawing SDR's data and records prior to filing a request to withdraw with the Commission. New § 49.4(a)(2) will also specify that the custodial SDR retain such records for at least as long as the remaining period of time the SDR withdrawing from registration would have been required to retain such records pursuant to part 49.

The Commission did not receive any comments on the changes to § 49.4. The Commission believes the existing § 49.4(a)(2) requirement is unnecessary and does not help the Commission confirm the successful transfer of data and records to a custodial SDR. The Commission has a significant interest in ensuring that the data and records of an SDR withdrawing from registration are successfully transferred to a custodial SDR. In addition, the Commission needs confirmation that the custodial SDR will retain the data and records for at least the remainder of the time that records are required to be retained according to the Commission's recordkeeping rules. When an SDR is withdrawing from registration, the Commission would no longer have a regulatory need for the information in Form SDR to be updated. The Commission believes § 49.4(a)(2) will better address the Commission's primary concerns in an SDR withdrawal from registration.

The Commission is adopting the changes to § 49.4 as proposed.

C. § 49.10—Acceptance and Validation of Data

The Commission is changing the § 49.10(a) through (d) ^[290] and (f) requirements for the acceptance of data. As part of these changes, the Commission is re-titling the section to reflect new requirements for SDRs to validate data proposed in § 49.10(c) as “Acceptance and validation of data.”

1. § 49.10(a)—General Requirements

The Commission is making non-substantive amendments to the general requirements in existing § 49.10(a) for SDRs to have policies and procedures to accept swap data and swap transaction and pricing data. Existing § 49.10(a) requires that registered SDRs establish, maintain, and enforce policies and procedures for the reporting of swap data to the registered SDR and shall accept and promptly record all swap data in its selected asset class and other regulatory information that is required to be reported pursuant to parts 43 and 45 by DCMs, DCOs, SEFs, SDs, MSPs, or non-SD/MSP counterparties.

The non-substantive amendments include titling § 49.10(a) “General requirements” to distinguish it from the rest of § 49.10 and renumbering the sections. The Commission is revising the first sentence to specify that SDRs shall maintain and enforce policies and procedures reasonably designed to facilitate the complete and accurate reporting of SDR data. The Commission is removing the last phrase of § 49.10(a) beginning with “all swap data in its selected asset class” and create a second sentence requiring SDRs to promptly accept, validate, and record SDR data. Finally, the Commission is correcting references to defined terms.

Together, the amendments to § 49.10(a)(1) through (2) will improve the readability of § 49.10(a) while updating the terminology to use the proposed “SDR data” term for the data SDRs are required to accept, validate, and record pursuant to § 49.10.^[291]

The Commission did not receive any comments on the proposed changes to § 49.10(a). For reasons discussed above, the Commission is adopting the changes as proposed.

2. § 49.10(b)—Duty To Accept SDR Data

The Commission is adopting non-substantive amendments to the § 49.10(b) requirements for SDRs to accept SDR data. Existing § 49.10(b) requires a registered SDR set forth in its application for registration as described in § 49.3 the specific asset class or classes for which it will accept swaps data. If an SDR accepts swap data of a particular asset class, then it shall accept data from all swaps of that asset class, unless otherwise prescribed by the Commission.

The non-substantive changes include titling § 49.10(b) “Duty to accept SDR data” and updating references to data in § 49.10(b) to “SDR data” to use the correct defined term. The Commission did not receive any comments on the changes. For the reasons discussed above, the Commission is adopting the changes as proposed.

3. § 49.10(c)—Duty To Validate SDR Data

The Commission is adding new regulations for the SDR validation of SDR data in § 49.10(c). The Commission is moving the requirements in existing § 49.10(c) to § 49.10(d).^[292] In § 49.10(c), the Commission is requiring SDRs to apply validations and inform the entity submitting the swap report of any associated rejections. SDRs will be required to apply the validations approved in writing by the Commission. The Commission is also adopting regulations for SDRs to send validation messages to SEFs, DCMs, and reporting counterparties in § 45.13(b).^[293] The Commission discusses § 49.10(c) and § 45.13(b) together in this section.

The Commission believes the consistent application of validation rules across SDRs will lead to an improvement in the quality of swap data maintained at SDRs. SDRs currently check each swap report for compliance with a list of rules specific to each SDR. However, the Commission is concerned SDRs apply different validation rules that could be making it difficult for SDR data to either be reported to the SDR or the SDRs' real-time public data feeds. The SDRs applying different validations to swap reports creates numerous challenges for the Commission and market participants. While one SDR may reject a report based on an incorrect value in a particular data element, another SDR may accept reports containing the same erroneous value in the same data element. Further, the Commission is concerned responses to SDR validation messages vary across reporting counterparties, given the lack of current standards.

ESMA has published specific validations for TRs to perform to ensure that derivatives data meets the requirements set out in their technical standards pursuant to EMIR.^[294] ESMA's validations, for instance, set forth when data elements are mandatory, conditional, optional, or must be left blank, and specify conditions for data elements along with the format and content of allowable values for almost 130 data elements.^[295] The Commission believes similarly consistent SDR validations will help improve data quality.

The Commission received two comments supporting data validations regulations in § 45.13. FIA believes the validations should strengthen data accuracy and appreciates using the SDRs' current processes.^[296] Markit believes validation requirements will enable third-party service providers to develop data validation mechanisms that will substantially reduce the cost of complying with new SDR data validation procedures.^[297]

The Commission received two comments on the new validations requirements in § 49.10(c) and § 45.13(b). NRECA-APPA request the Commission provide evidence that the validation process will achieve a specific regulatory benefit to offset the significant additional burden on non-SD/MSP/DCO counterparties to off-facility swaps.^[298] As discussed above, the Commission believes consistent SDR validations will improve data quality without placing unnecessary burdens on any swap counterparties as SDRs validate data today.

GFXD believes limited exceptions to the validation requirements should be in place but believes such exceptions may have limited use.^[299] The Commission agrees, and believes the regulations, along with the existing delegations of authority that the Commission is moving to § 45.15, give the Commission the discretion to specify validations exceptions in the case of new products or changes that require flexibility.

The Commission did not receive any additional comments on § 49.10(c) or § 45.13(b). The Commission is adopting the regulations as proposed.

4. § 49.10(d)—Policies and Procedures To Prevent Invalidation or Modification

As described above, the Commission is moving the requirement in § 49.10(c) for SDRs to have policies and procedures to prevent invalidations or modifications of swaps to § 49.10(d). As a result, the Commission is re-designating § 49.10(d) as new § 49.10(f).^[300] Existing § 49.10(c) requires registered SDRs to establish policies and procedures reasonably designed to prevent any provision in a valid swap from being invalidated or modified through the confirmation or recording process of the SDR.^[301]

The Commission is making non-substantive amendments to existing § 49.10(c), moved to § 49.10(d). For instance, the Commission is titling § 49.10(c) “Policies and procedures to prevent invalidation or modification” to distinguish it from the other requirements in § 49.10.

The Commission did not receive any comments on the non-substantive changes to § 49.10(d). For the reasons discussed above, the Commission is adopting the changes as proposed.

5. § 49.10(f)—Policies and Procedures for Resolving Disputes Regarding Data Accuracy

As described above, the Commission is re-designating § 49.10(d) as § 49.10(f).^[302] The Commission is making non-substantive amendments to the requirements in existing § 49.10(d), re-designated as § 49.10(f). Existing § 49.10(d) requires that registered SDRs establish procedures and provide facilities for effectively resolving disputes over the accuracy of the swap data and positions that are recorded in the SDR.

The Commission is re-titling § 49.10(f) “Policies and procedures for resolving disputes regarding data accuracy” and updating terminology in the regulation. The Commission did not receive any comments on the amendments to § 49.10(f). For the reasons discussed above, the Commission is adopting the changes as proposed.

V. Swap Data Elements Reported to Swap Data Repositories

A. Proposal

The Commission is updating and standardizing the data elements in appendix 1 to part 45. The Commission's minimum PET for swaps in each swap asset class are found in existing appendix 1 to part 45. The existing PET for swaps contain a set of “data categories and fields” followed by “comments” instead of specifications such as allowable values, formats, and conditions.^[303] In some cases, these comments include directions, such as to use “yes/no” indicators for certain data elements.^[304] In others, the comments reference Commission regulations (e.g., to report the LEI of the non-reporting counterparty “[a]s provided in § 45.6”).^[305]

In adopting part 45, the Commission intended the PET would ensure uniformity in “essential data” concerning swaps across all of the asset classes and across SDRs to ensure the Commission had the necessary information to characterize and understand the nature of reported swaps.^[306] However, in practice, this approach permitted a degree of discretion in reporting swap data that led to a lack of standardization which makes it more difficult for the Commission to analyze and aggregate swap data. Each SDR has worked to standardize the data within each SDR over recent years, and Commission staff has noted the improvement in data quality. However, the Commission believes a significant effort must be made to standardize swap data across SDRs. As a result, the Commission is revisiting the data currently required to be reported to SDRs in appendix 1.

In the course of revisiting which swap data elements should be reported to SDRs, the Commission reviewed the swap data elements currently in appendix 1 to part 45 to determine if any currently required data elements should be eliminated and if any additional data elements should be added. The Commission then reviewed the CDE Technical Guidance to determine which data elements the Commission could adopt according to the CDE Technical Guidance.

As a general matter, the Commission believes the implementation of the CDE Technical Guidance will further improve the harmonization of SDR data across FSB member jurisdictions. This international harmonization, when widely implemented, would allow market participants to report swap data to several jurisdictions in the same format, allowing for potential cost-savings. This harmonization, when widely implemented, would also allow the Commission to potentially receive more standardized information regarding swaps reported to TRs regulated by other authorities. For instance, such standardization across SDRs and TRs could support data aggregation for the analysis of global systemic risk in swaps markets.

As part of this process, the Commission also reviewed the part 43 swap transaction and pricing data and part 45 swap data elements to determine whether any differences could be reconciled.^[307] Having completed this assessment, the Commission proposed listing the swap data elements required to be reported to SDRs pursuant to part 45 in appendix 1 to part 45. In a separate proposal, the Commission proposed listing the swap transaction and pricing data elements required to be reported to, and then publicly disseminated by, SDRs pursuant to part 43 in appendix A to part 43. The swap transaction and pricing data elements will be a harmonized subset of the swap data elements in appendix 1 to part 45.

At the same time as the Commission proposed updating the swap data elements in appendix 1, DMO published draft technical specifications for reporting the swap data elements in appendix 1 to part 45 to SDRs, and for reporting and publicly disseminating the swap transaction and pricing data elements in appendix A to part 43 described in a separate proposal. Once finalized, DMO would then publish the technical specification in the Federal Register pursuant to the delegation of authority proposed in § 45.15(b). Overall, DMO is establishing a technical specification for certain swap data elements according to the CDE Technical Guidance, where possible.

The swap data elements to be reported to SDRs will therefore consist of: (i) The data elements implemented in the CDE Technical Guidance; and (ii) additional CFTC-specific data elements that support the Commission's regulatory responsibilities.^[308] While much of this swap data is already being reported to SDRs according to each SDR's technical specifications, as explained below, the technical specification and validation conditions will be new. A discussion of the swap data elements and comments on the technical specification follows below. Data elements specific to part 43 are discussed in a separate part 43 final rule.

DMO's technical specification contains an extensive introduction to help reviewers. As a preliminary matter, the Commission notes the swap data elements in appendix 1 do not include swap data elements specific to swap product terms. The Commission is currently heavily involved in separate international efforts to introduce UPIs.^[309] The Commission expects UPIs will be available within the next two years.^[310] Until the Commission designates a UPI pursuant to § 45.7, SDRs will continue to accept, and reporting counterparties will continue to report, the product-related data elements unique to each SDR. The Commission believes this temporary solution will have SDRs change their systems only once when UPI becomes available, instead of twice if the Commission adopted standardized product data elements in this release before UPIs are available and then later designates UPIs pursuant to § 45.7.

In addition, the Commission is adopting the CDE Technical Guidance data elements as closely as possible. Where the Commission adopts a CDE Technical Guidance data element, the Commission adopts the terms used in the CDE Technical Guidance. This means that some terms may be different for certain concepts. For instance, “derivatives clearing organization” is the Commission's term for registered entities that clear swap transactions, but the CDE Technical Guidance uses the term “central counterparty.”

To help clarify, DMO includes footnotes in the technical specification to explain these differences as well as provide examples and jurisdiction-specific requirements. However, the Commission is not including these footnotes in appendix 1. In addition, the definitions from CDE Technical Guidance data elements included in appendix 1 sometimes include references to allowable values in the CDE Technical Guidance, which may not be included in appendix 1, but are in the technical specification.

Finally, the CDE Technical Guidance did not harmonize many data elements that would be particularly relevant for commodity and equity swap asset classes (e.g., unit of measurement for commodity swaps). CPMI and IOSCO, in the CDE Governance Arrangements, address both implementation and maintenance of CDE, together with their oversight. One area of the CDE Governance Arrangements includes updating the CDE Technical Guidance, including the harmonization of certain data elements and allowable values that were not included in the CDE Technical Guidance (e.g., data elements related to events and allowable values for the following data elements: Price unit of measure, Quantity unit of measure, and Custom basket constituents' unit of measure).

The Commission anticipates addressing implementation issues through the international working groups to help ensure that authorities follow the established processes for doing so. In addition, the Commission anticipates updating its rules to adopt any new or updated CDE Technical Guidance, as necessary.

B. Comments on the Proposal and Commission Determination

1. Category: Clearing

The Commission proposed requiring reporting counterparties report 12 clearing data elements.^[311] The Commission received two comments on whether it should require a data element for indicating whether a swap is subject to the Commission's clearing requirement in § 50.4 and the trade execution requirement in CEA section 2(h)(8). ISDA-SIFMA do not believe the Commission should add these data elements because it is static data and the Commission already gets all the data elements necessary to determine whether a swap is subject to the clearing requirement or trade execution requirement.^[312] They believe the data elements would be burdensome due to their granularity and the prescriptiveness of the clearing mandates under § 50.4, and that the Commission will ultimately be able to use the global UPI to analyze data related to swaps subject to clearing.^[313] Chatham believes the Commission can determine whether a product is subject to the clearing requirement or the trade execution requirement by other related data elements in the report.^[314] The Commission agrees with Chatham and ISDA-SIFMA and is declining to add the mandatory clearing and trade execution indicators in appendix 1 at this time.^[315]

The Commission is adopting the clearing data elements for clearing in appendix 1 as proposed. Nearly all of this information is currently being reported to SDRs. Three of these data elements are consistent with the CDE Technical Guidance. Four of these data elements would transition clearing swap and original swap USIs to UTIs. All of these data elements help the Commission monitor the cleared swaps market.

2. Category: Counterparty

The Commission proposed requiring reporting counterparties to report ten counterparty data elements.^[316] The Commission received eight comments on whether it should require an ultimate parent data element. GLEIF support the proposed addition of ultimate parent data elements, but acknowledges that the Commission could instead retrieve this information through its LEI data search engine.^[317] GFXD, ISDA-SIFMA, BP, CEWG, DTCC, Chatham, and FIA all oppose requiring this information at a transaction level, with most commenters pointing out that the Commission could obtain this information from the Global Legal Entity Identifier System.^[318] The Commission agrees with GFXD, ISDA-SIFMA, BP, CEWG, DTCC, Chatham, and FIA that the Commission can obtain this information outside of SDR data. As a result, the Commission is declining to adopt any parent/ultimate parent swap data elements.

Reflecting input received from the Department of Treasury, the Commission is adopting two counterparty swap data elements that were not in the Proposal: Counterparty 1 federal entity indicator and Counterparty 2 federal entity indicator.^[319] The Commission believes these swap data elements will help identify swaps use by federal entities. The Commission is adopting the rest of the counterparty data elements in appendix 1 as proposed. Nearly all of this information is currently being reported to SDRs. Six of these data elements are consistent with the CDE Technical Guidance.

3. Category: Events

The Commission proposed requiring reporting counterparties to report four event data elements.^[320] The Commission received four comments on the event model generally. GFXD encourages the Commission harmonize the event model with ESMA.^[321] CME and DTCC point out the differences between the Commission's event model and ESMA's.^[322] The Commission has worked to harmonize its event model with ESMA's as much as possible. Any remaining differences between its and ESMA's event models reflect differences in regulations referenced by the event model in the two jurisdictions.

The Commission is adopting the event data elements as proposed, with one modification. The Commission is adding an Amendment indicator data element to flag changes to a previously submitted transaction due to a newly negotiated modification. The Amendment indicator will notify the public a swap is being amended on the public tape pursuant to part 43, to indicate that the change to the previously disseminated swap transaction is price-forming.

The Commission is adopting the rest of the events swap data elements as proposed. Nearly all of this information is currently being reported to SDRs. Event data elements were not included in the CDE Technical Guidance. This information is, however, critical for the Commission to be able to properly utilize swap data. Without it, the Commission would be unable to discern why each swap event is reported following the initial required swap creation data report.

4. Category: Notional Amounts and Quantities

The Commission proposed requiring reporting counterparties report 12 notional data elements.^[323] The Commission requested comment on whether it should adopt the CDE Technical Guidance data elements for notional schedules. ISDA-SIFMA support the inclusion of “Notional Amount Schedule” data elements.^[324] They explain that the Notional amount data element does not provide a way to report changes (if applicable) in notional amounts, such as for amortizing swaps.^[325] The Commission agrees with ISDA-SIFMA that the Notional amount schedule data elements would remedy an issue with reporting changing notionals. As such, the Commission is adding the notional amount schedule data elements to appendix 1.

The Commission also requested comment on whether it should require the reporting of a USD equivalent notional amount data element. Four commenters oppose the data element on the grounds it would impose an unnecessary burden on reporting counterparties.^[326] The Commission agrees with commenters that the USD equivalent notional amount data element would be burdensome to compute and is declining to add the swap data element to appendix 1.

The Commission is adopting the notional data elements as proposed, with the modification described above for Notional amount schedule data elements and the data element Delta (109) which will be moved and included with valuation data elements. Nearly all of this information is currently being reported to SDRs. Eleven of the data elements are consistent with the CDE Technical Guidance. Exposure information, in conjunction with valuation information, is critical for, and currently used extensively by, the Commission to monitor activity and risk in the swaps market.

5. Category: Packages

The Commission proposed requiring reporting counterparties report four package transaction data elements.^[327] The Commission received three comments related to package data elements. GFXD supports the decision to implement package transaction elements, but GFXD requests the Commission coordinate with ESMA to ensure that implementation is consistent across jurisdictions.^[328] ISDA-SIFMA do not support additional package data elements because they are exceptionally complex and there is no consistent approach to decomposing a package transaction or their associated definitions.^[329] Markit opposes package transaction data elements because it believes they are too complex to provide a benefit to the Commission.^[330]

The Commission believes package transaction data is necessary for the Commission to monitor the exposure of its registrants to these complex transactions. As a result, despite the objections of ISDA-SIFMA and Markit, the Commission is adding three package transaction swap data elements to appendix 1 from the CDE Technical Guidance: Package transaction spread; Package transaction spread currency; and Package transaction spread notation. The Commission is also adding Package indicator data element to appendix 1. The Commission agrees with GFXD that it should harmonize with ESMA to ensure consistent implementation across jurisdictions, and that is why the Commission adopted the package data elements according to the CDE Technical Guidance where possible. The Package indicator will alert the public on the part 43 tape that the swap is part of a package, so the public will know the price is impacted by factors beyond the swap.

The Commission is adopting the rest of the package data elements as proposed. Some of this information is currently being reported to SDRs. Seven of these data elements are consistent with the CDE Technical Guidance. The Commission anticipates using this information to better understand risk in the swaps market, as the Commission understands that many swaps are executed as part of packages.

6. Category: Payments

The Commission proposed requiring reporting counterparties to report 12 data elements related to payments.^[331] The Commission did not receive any comments on adding or removing the payments data elements in appendix 1 and is adopting the data elements as proposed. Nine of these data elements are consistent with the CDE Technical Guidance. Nearly all of this information is currently being reported to SDRs.

7. Category: Prices

The Commission proposed requiring reporting counterparties to report 18 data elements related to swap prices.^[332] The Commission received two comments on whether the Commission should continue to require the reporting of the Non-standardized pricing indicator. ISDA-SIFMA and GFXD oppose the indicator ^[333] and raise a concern that it could lead to reporting counterparties reporting additional terms to address the vague direction the data element provides. The Commission disagrees with ISDA-SIFMA and GFXD and is declining to remove this data element from appendix 1. While broad, the Non-standardized term indicator alerts the public a price may be due to unique terms when SDRs disseminate it to the public. The Commission does not share ISDA-SIFMA's concerns about additional terms, as the data element is just an indicator to flag terms of the swap that may not be reported to an SDR.

The Commission is adopting the price data elements in appendix 1 as proposed. Nearly all of this information is currently being reported to SDRs. Seventeen of these data elements are consistent with the CDE Technical Guidance. This information is critical for, and used by, the Commission in understanding pricing in the swaps market.

8. Category: Product

The Commission proposed requiring reporting counterparties to report five product-related data elements.^[334] The Commission received two comments on its approach to product data elements until the UPI is available. GFXD and ISDA-SIFMA support the Commission's approach.^[335]

The Commission is adopting the product data elements in appendix 1 as proposed. Product data elements are currently being reported to SDRs. The Commission has determined these data elements are critical for monitoring risk in the swaps market, even though the Commission expects any additional product data elements to remain unstandardized until the UPI is introduced.

9. Category: Settlement

The Commission proposed requiring reporting counterparties to report two settlement data elements.^[336] The Commission received two comments on additional settlement data elements. GFXD and ISDA-SIFMA recommend the Commission consider including the Settlement location data element in the CDE Technical Guidance, as it would be an efficient option to collect additional information on trades involving offshore currencies.^[337] The Commission agrees with GFXD and ISDA-SIFMA that the Settlement location data element would help the Commission collect information on trades involving offshore currencies. As a result, the Commission is adding the CDE Technical Guidance data element for Settlement location to appendix 1. For reasons articulated in the Proposal and reiterated above, the Commission is adopting the rest of the settlement data elements in appendix 1 as proposed.

10. Category: Transaction-Related

The Commission proposed requiring reporting counterparties to report 15 data elements that provide information about each swap transaction.^[338] The Commission received one comment on whether the Commission should include the data element for Jurisdiction indicator. ISDA-SIFMA oppose the indicator as the reporting counterparty would need to reach out to each of its counterparties for each transaction at or shortly after execution.^[339] They also question whether and how the list of jurisdictions could change and whether they would be subject to the public rulemaking process, and note this is not a CDE data element.^[340] The Commission is adopting the data element with one change to address ISDA-SIFMA's concerns about complicated implementation: the data element will be named Jurisdiction and will include limited allowable values.

The Commission received one comment on whether the Commission should add a Prime brokerage transaction identifier data element in appendix 1. ISDA-SIFMA have significant concerns with the Prime brokerage transaction identifier data element and opposes its adoption.^[341] ISDA-SIFMA point out that the Commission can require any SD to provide any information relating to a swap, including asking any prime broker to map swaps that result from a trigger swap and to which such SD is a party.^[342] In addition, the Prime brokerage transaction indicator data element should help identify prime broker intermediated transactions in SDR data.^[343] The Commission agrees with ISDA-SIFMA that the identifier would be too complex to implement at this time. As such, the Commission is declining to add Prime brokerage transaction identifier to appendix 1.

The Commission is adopting the rest of the transaction data elements in appendix 1 as proposed. Most of this information is currently being reported to SDRs and the Commission requires data elements like transaction identifiers to properly track new and amended swaps.

11. Category: Transfer

The Commission proposed requiring reporting counterparties to report one data element related to changing SDRs.^[344] The Commission did not receive any comments on the New SDR identifier data element and is adopting the data element as proposed. This data element is necessary as the Commission is adopting § 45.10(d) permitting reporting counterparties to change the SDR to which they report data for a given swap. Without this data element, the Commission is concerned there would be swaps in the SDR that would appear open but not updated because the reporting counterparty reports to a different SDR.

12. Category: Valuation

The Commission proposed requiring reporting counterparties to report six valuation data elements.^[345] The Commission received several comments on the valuation data elements. ISDA-SIFMA, GFXD, and Markit generally oppose the valuation data elements. GFXD and ISDA-SIFMA do not support any valuation data elements outside of those required by the CDE Technical Guidance.^[346] Markit opposes the valuation data elements as it would be difficult for firms to report them each day because (i) valuation data comes from systems separate from risk management systems that hold the transaction information; and (ii) daily valuation reporting that is prepared for other jurisdictions only involves minimum transaction information (trade reference, USI or UTI) that are used to link the valuation to the right trade.^[347]

The Commission is adopting Next floating reference reset date, along with the other valuation data elements in appendix 1. Nearly all of this information is currently being reported to SDRs. Five data elements are consistent with the CDE Technical Guidance. Valuation information is critical for, and currently used by, the Commission to monitor risk in the swaps market.

13. Category: Collateral and Margins

The Commission proposed requiring reporting counterparties to report 14 collateral and margins data elements.^[348] In light of the importance of this information, the Commission is adopting the margin and collateral data elements as proposed, with one change. The proposed Collateral portfolio code is now two separate data elements, Initial margin collateral portfolio code and Variation margin collateral portfolio code. This information is not currently being reported to SDRs. Eleven of these data elements are consistent with the CDE Technical Guidance. One data element, Affiliated counterparty for margin and capital indicator (114), will help the Commission monitor compliance with the uncleared margin requirements. The three remaining CFTC-specific data elements are indicators and codes that will help the Commission understand how the margin and collateral data is being reported by reporting counterparties. Margin and collateral information is critical for the Commission to monitor risk in the swaps market. When other jurisdictions implement the CDE Technical Guidance, sharing this information with other regulators will permit regulators to create a global picture of swaps risk.

14. Category: Miscellaneous

CME requests clarification on whether SDRs can add proprietary data elements to its technical specification or whether an SDR can reject submissions due to validation failures of these data elements, and gave two examples of certain data elements for internal processing purposes (e.g., billing) and data elements to satisfy its regulatory obligations (e.g., implementation of certain data elements at the leg level).^[349] The Commission understands SDRs may have data elements for internal processing, and the Commission does not want to interrupt an SDR's ability to efficiently function. Beyond that, the Commission opposes SDRs adding data elements outside of those mandated by the Commission to satisfy the Commission's rules to avoid creating the issue SDRs and the Commission currently face of each SDR creating their own data elements according to different standards and thus inhibiting data quality.

ISDA-SIFMA request the Commission follows EMIR's process on the data elements in the future: ESMA publishes the data validation table on an “EMIR Reporting” web landing page, while only the data elements required to be reported, format and applicable types of derivatives contracts appear in the rule text.^[350] The approach would allow for public comment on any future changes to the data required to be reported to the SDRs, but would provide greater flexibility to make adjustments (e.g., due to industry feedback or completion of developing the ISO message for example) that do not change the data elements required to be reported.^[351] The Commission has endeavored to follow ESMA's approach as reflected by the steps taken to solicit public comment on the data elements and have DMO publish its technical specification.

VI. Compliance Date

In the Proposal, the Commission acknowledged that market participants will need a sufficient implementation period to accommodate the changes proposed in the three Roadmap proposals that would be adopted by the Commission. The Commission expected to finalize all rules at the same time, even though the three Roadmap proposals were approved separately. The Commission also expected that the compliance date for the Roadmap rules that the Commission adopts other than the rules on UTIs in § 45.5 would be one year from the date the final rulemakings are published in the Federal Register.

The Commission expected that the compliance date for the rules on UTIs in § 45.5 would be December 31, 2020, according to the UTI implementation deadline recommended by the FSB.^[352]

The Commission received three comments supporting the proposed one-year compliance period. ISDMA-SIFMA support a single compliance date for parts 43, 45, and 49 at a minimum of 12 months from the date the final rules are published in the Federal Register. If the Commission does not implement all rules at the same time, ISDA-SIFMA support a compliance date a minimum of 12 months from the date the last rule of the final set of rules is published in the Federal Register.^[353]

Similarly, LCH recommends the Commission set the compliance date for all requirements under the proposal to 12 months from publication to comply with all aspects of the rules, as LCH believes the current date of December 31, 2020, related to UTI implementation does not allow enough time for market participants to comply.^[354]

ICE SDR suggests the Commission allow voluntary early implementation before the compliance effective date, and points out that having SDRs and market participants implement immediately after publication would be advantageous to the market and would eliminate the need for reporting counterparties to report valuation data.^[355]

The Commission received five comments opposing the proposed implementation period. GFXD suggests 12 months from publication of final rules should be the minimum implementation period and that GFXD believes the changes to the technical specification in parts 43 and 45 should be implemented and allowed to imbed before the validation changes under part 49 are implemented.^[356]

CME believes SDRs will need an extra six months beyond the Commission's proposal because the Commission expects SDRs to implement all changes simultaneously. CME notes this timing assumes the technical specification would be finalized at the same time and would not be modified in any material respect prior. CME's DCO also believes the Commission underestimated the number of man-hours that it will take reporting entities, including CME's DCO, to implement the Commission's proposed changes to the reporting requirements.^[357]

DTCC requests clarification regarding the implementation period for any proposed changes to the reporting requirements in § 45.15(a)(1) through (3) and in § 45.15(b)(1) through (3), because certain changes, including the potential use and ingestion of prescribed message standards, may take significant time to implement.^[358]

ICE DCOs believe the Commission should adopt a realistic compliance period that allows for industry coordination.^[359] FIA suggests extending the compliance date for all aspects of the proposals to the later of two years following the effective date of the final rules or one year following finalization of the required data elements and validation processes of the reporting counterparty's SDR. FIA is concerned the proposed dates do not provide enough time for market participants to undertake the extensive system developments necessary for compliance.^[360]

The Commission received six comments opposing the UTI compliance date proposal. GFXD believes the December 31, 2020 compliance date for UTIs is “extremely ambitious,” and that there should be a later implementation period for UTI that is coordinated with the EU.^[361] CME requests the Commission align the UTI transition with the main compliance date to reduce the potential for unnecessary duplication of effort and to allow for potential project implementation synergies.^[362]

JBA believes aligning the UTI implementation timeline across jurisdictions will be more beneficial, and that deadlines should coincide with those of the UPI and CDE, in light of proposals offered in the ESMA consultation.^[363] ISDA-SIFMA note the proposed date would give only two months for entities to complete builds and test systems, accounting for year-end code freezes and the exacerbation of budgeting and resource constraints caused by the COVID-19 pandemic. ISDMA-SIFMA want § 45.5 to be implemented at least at the same time as the rest of part 45 but would prefer the Commission wait until closer to the Australian Securities and Investments Commission's or ESMA's compliance dates in 2022.

CS recommends the Commission not separate the Proposal's compliance dates. If the Commission does keep them separate, CS suggests working closely with fellow IOSCO members in considering an extended implementation timeline for the UTI. In light of other initiatives for global SDs, the operationalizing requirements and operational hurdles present challenges for SDs. CS requests the Commission continue to weigh concerns related to data fragmentation in evaluating a bifurcated implementation of the proposals. CS also suggests the Commission continue to engage in dialogue with the Harmonisation Group and could suggest a timeframe that takes into account the Commission's proposals and other data reform efforts in other IOSCO jurisdictions.^[364]

FIA believes the USI and UTI compliance changes will have to be addressed and should occur in tandem with the rest of the reporting rule requirements. It recommends eliminating the December 30, 2020 compliance date for UTIs and instead imposing one date for compliance for all final rules.^[365]

The Commission received two questions on going-forward amendments for UTIs. ISDA-SIFMA request the amendments to the Commission's swap reporting rules clarify that requirements should be applied on a “going forward” basis and only apply to swaps and events occurring on or after the compliance date of the amended rules, including the clarification that UTI requirements only apply to new swap transactions and not to swaps prior to the compliance date that have a USI.^[366] DTCC requests clarification on implementing UTI versus USI. It questions whether swaps that were reported using a USI prior to the end of the compliance period can continue being reported using the USI and only events requiring the creation of new UTIs will be reported using the UTI.^[367]

Based on the many comments that requested one compliance date for all aspects of the Proposal and all of the Roadmap proposals, including final § 45.5, and the many comments that requested a compliance date that is more than one year from the date the proposals are finalized, the Commission has determined to adopt a unified compliance date that is 18 months from the date of publication of the final rule amendments in the Federal Register. The Commission agrees with the suggestion from ICE SDR that market participants should be able to adopt the rule changes ahead of the compliance date.

Regarding the UTI implementation, the Commission clarifies that UTI implementation should be on a going-forward basis. This means that all new swaps entered into after the compliance date should have UTIs according to final § 45.5. As a result, SDRs will need to accommodate both USIs and UTIs for a certain amount of time after the compliance date, but the Commission anticipates SDRs would be able to phase it out at a certain point after swaps using USIs are terminated or reach maturity.

Part 20 of the Commission's regulations governing large trader reporting for physical commodity swaps contains a “sunset provision” in § 20.9 that would take effect upon a Commission finding that, through the issuance of an order, operating SDRs are processing positional data and that such processing will enable the Commission to effectively surveil trading in paired swaps and swaptions and paired swap and swaption markets.^[368] In the Proposal, the Commission asked whether in conjunction with the Commission's proposals to update its swap reporting regulations, should the Commission review part 20 to determine whether it would be appropriate to sunset part 20 reporting according to the § 20.9? ^[369]

The Commission received three comments on the appropriateness of sunsetting part 20. BP supports sunsetting part 20 since SDRs have been collecting and processing data for several years, Commission and industry resources should no longer be expended on part 20.^[370] CEWG believes once the improvements in the proposed rules are implemented, CFTC should look towards ending part 20.^[371] FIA believes the provisions in § 20.9 have been met and recommends CFTC sunset the part 20 reporting requirements.^[372]

Since part 20 data is reported directly to the Commission and not to SDRs, the Commission did not propose any changes to part 20 in the Roadmap or in the Proposal, and therefore, the Commission is taking no action on part 20 in this release. The Commission nonetheless acknowledges the commenters' responses to the question. The Commission may address part 20 reporting at a future date after implementation of the Roadmap rules.

VII. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”) requires federal agencies, in promulgating rules, to consider the impact of those rules on small entities.^[373] The Commission has previously established certain definitions of “small entities” to be used by the Commission in evaluating the impact of its rules on small entities under the RFA.^[374] The changes to parts 45, 46, and 49 adopted herein would have a direct effect on the operations of DCMs, DCOs, MSPs, reporting counterparties, SDs, SDRs, and SEFs. The Commission has previously certified that DCMs,^[375] DCOs,^[376] MSPs,^[377] SDs,^[378] SDRs, ^[379] and SEFs ^[380] are not small entities for purpose of the RFA.

Various changes to parts 45, 46, and 49 would have a direct impact on all reporting counterparties. These reporting counterparties may include SDs, MSPs, DCOs, and non-SD/MSP/DCO counterparties. Regarding whether non-SD/MSP/DCO reporting counterparties are small entities for RFA purposes, the Commission notes CEA section 2(e) prohibits a person from entering into a swap unless the person is an eligible contract participant (“ECP”), except for swaps executed on or under the rules of a DCM.^[381] The Commission has previously certified that ECPs are not small entities for purposes of the RFA.^[382]

The Commission has analyzed swap data reported to each SDR ^[383] across all five asset classes to determine the number and identities of non-SD/MSP/DCOs that are reporting counterparties to swaps under the Commission's jurisdiction. A recent Commission staff review of swap data, including swaps executed on or under the rules of a DCM, identified nearly 1,600 non-SD/MSP/DCO reporting counterparties. Based on its review of publicly available data, the Commission believes the overwhelming majority of these non-SD/MSP/DCO reporting counterparties are either ECPs or do not meet the definition of “small entity” established in the RFA. Accordingly, the Commission does not believe the rules would affect a substantial number of small entities.

Based on the above analysis, the Commission does not believe this Final Rule will have a significant economic impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, pursuant to 5 U.S.C. 605(b), hereby certifies that the Final Rule will not have a significant economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act (“PRA”) ^[384] imposes certain requirements on federal agencies, including the Commission, in connection with their conducting or sponsoring any collection of information, as defined by the PRA. The rule amendments adopted herein will result in the revision of three information collections, as discussed below. The Commission has previously received control numbers from the Office of Management and Budget (“OMB”) for each of the collections impacted by this rulemaking: OMB Control Numbers 3038-0096 (relating to part 45 swap data recordkeeping and reporting); 3038-0089 (relating to part 46 pre-enactment swaps and transition swaps); and 3038-0086 (relating to part 49 SDR regulations).

The Commission did not receive any comments regarding its PRA burden analysis in the preamble to the Proposal. The Commission is revising the three information collections to reflect the adoption of amendments to parts 45, 46, and 49, as discussed below, including changes to reflect adjustments that were made to the final rules in response to comments on the Proposal (not relating to the PRA). In addition, the Commission is revising the information collections for part 45 to include estimates of the burden hours that SDRs, SEFs, DCMs, and reporting counterparties could incur to report updated swap data elements in appendix 1 to part 45 in the form and manner provided in the technical specification published by the Commission, as discussed below, which were not included in the Proposal. The Commission has re-evaluated its analysis of the one-time costs that SDRs, SEFs, DCMs, and reporting counterparties could incur to modify their systems for part 45. These estimates have been updated to include software developer labor costs for amended § 45.3 related to the technical specification, as developed by staff in its Offices of the Chief Economist and Data and Technology. The Commission does not expect any ongoing costs after the initial builds. Further, the Commission previously included estimates for proposed § 45.4 of costs for SDRs and reporting counterparties to update systems for reporting required swap continuation data. However, after further analysis, the Commission is removing the estimates for § 45.4 to avoid double-counting, since the costs relate to reporting certain swap data elements that are included in the estimated one-time start-up costs for § 45.3. The Commission does not believe the rule amendments as adopted impose any other new collections of information that require the approval of OMB under the PRA.

Under the PRA, Federal agencies must obtain approval from OMB for each collection of information they collect or sponsor. “Collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3 and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires Federal agencies to provide a 60-day notice in the Federal Register for each proposed collection of information before submitting the collection to OMB for approval. The Commission is publishing a 60-day notice (“60-day Notice”) in the Federal Register concurrently with the publication of this final rule in order to solicit comment on burden estimates for part 45 that were not included in the Proposal.

1. Part 45: Revisions to Collection 3038-0096 (Swap Data Recordkeeping and Reporting Requirements)

a. § 45.3—Swap Creation Data Reports

Existing § 45.3 requires SEFs, DCMs, and reporting counterparties to report confirmation data reports and PET data reports when entering into new swaps. The Commission is adopting changes that will remove the requirement for SEFs, DCMs, and reporting counterparties ^[385] to report confirmation data reports, and instead report a single swap creation data report. Commission staff estimates that for these entities, the change will reduce the number of swap creation data reports sent to SDRs from 10,000 reports per 1,732 respondents to 7,000 reports per 1,732 respondents, or 12,124,000 reports in the aggregate. The annual hourly burden is estimated to remain .01 average hours per report for the remaining reports, and the gross annual reporting burden is estimated to be 121,240 hours.

The Commission is also adopting changes that will remove the § 45.3(i) requirement for SEFs, DCMs, and reporting counterparties to report TR identifiers and swap identifiers for international swaps. The changes remove the requirement to report two pieces of information within a required swap creation data report without impacting the number of reports themselves. The requirement to report swap identifiers is duplicative, and will not change the burden estimate, as SEFs, DCMs, and reporting counterparties are required to report swap identifiers for all swaps pursuant to § 45.5. However, the removal of the requirement to report TR identifiers will slightly reduce the amount of time required to make each report, as SEFs, DCMs, and reporting counterparties will not need to report this information anymore.

The Commission estimates the removal of this requirement will lower the burden hours by .01 hour per report. However, at the same time, as discussed further below in section VII.B.1.c, the Commission is adopting changes to require the reporting of UTIs instead of USIs, which are currently reported in every required swap creation data report. The Commission estimates the new rules requiring SEFs, DCMs, and reporting counterparties to report UTIs will impact the burden calculations for § 45.3 by increasing the burden hours by .01 hour per report. As a result, the Commission estimates there will be no net change to the .01 burden hours per report for § 45.3 required swap creation data reporting resulting from the amendments to § 45.3(i).

The aggregate burden estimate for § 45.3 required swap creation data reports is as follows:

Estimated number of respondents: 1,732.

Estimated number of reports per respondent: 7,000.

Average number of hours per report: .01.

Estimated gross annual reporting burden: 121,240.

In addition, the Commission estimates SDRs, SEFs, DCMs, and reporting counterparties will incur capital/start-up costs related to adopting the changes proposed in § 45.3. The Commission estimates that SDRs will incur one-time initial costs in a range of $144,000 to $1,010,000 per SDR to update their systems, with each SDR spending approximately 3,000 to 5,000 hours on the updates. The Commission estimates SEFs, DCMs, and reporting counterparties will incur one-time initial costs in a range of $24,000 to $73,225 per reporting entity, with each reporting entity spending approximately 500 to 725 hours per reporting entity on the updates.^[386] The cost per entity is estimated to be $28,923 for a total cost across entities of $50,094,636.

b. § 45.4—Swap Continuation Data Reports

Existing § 45.4 requires reporting counterparties to report data to SDRs when swap terms change, as well as daily and quarterly swap valuation data, depending on the type of reporting counterparty. As a preliminary matter, the Commission is correcting the estimated number of respondents for § 45.4 from 1,732 SDRs, SEFs, DCMs, and reporting counterparties to 1,705 SDRs and reporting counterparties to reflect that SEFs and DCMs do not report required swap continuation data.

Existing § 45.4(a) permits reporting counterparties to report changes to swap terms when they occur (life cycle reporting), or to provide a daily report of all of the swap terms (state data reporting). The Commission is adopting changes that will remove the option for state data reporting for reporting counterparties. The Commission estimates that this will reduce the number of § 45.4 continuation data reports that reporting counterparties report from 207,543 reports per respondent to 103,772 reports per respondent.

The Commission is also adopting changes to remove the requirement for non-SD/MSP/DCO reporting counterparties to report quarterly valuation data. For the 1,585 non-SD/MSP/DCO reporting counterparties, the Commission estimates this will further reduce the number of § 45.4 swap continuation data reports they send to SDRs by four quarterly reports per 1,585 non-SD/MSP/DCO reporting counterparties. This is estimated to reduce the number of § 45.4 continuation data reports sent by reporting counterparties from 103,772 reports per respondent to 97,431 reports per respondent.

Separately, the Commission is adopting changes to expand the daily valuation data reporting requirement for SD/MSP reporting counterparties to report margin and collateral data in addition to valuation data. This is a change from the Proposal, in which the Commission proposed requiring DCO counterparties to report the information as well. The frequency of the report will not change for SD/MSP reporting counterparties, but the Commission estimated SD/MSP/DCO reporting counterparties would require more time to prepare each report. However, since all of this information is reported electronically, the Commission expected the increase per report to be small, from .003 to .004 hours per report. Since the Commission is not requiring DCO reporting counterparties to report the information, the Commission is revising its estimate to .0035 hours per report. The reduction in this estimate from .004 hours in the Proposal reflects the Commission adopting a less burdensome rule than was proposed.

The aggregate burden estimate for § 45.4 required swap continuation data is as follows:

Estimated number of respondents: 1,705.

Estimated number of reports per respondent: 97,431.

Average number of hours per report: .0035.

Estimated gross annual reporting burden: 581,419.

In addition, in the Proposal, the Commission estimated SDRs and reporting counterparties would incur capital/start-up costs and ongoing operational/maintenance costs related to adopting the changes proposed in § 45.4. In reevaluating its analysis in the Proposal, the Commission recognizes the reporting costs created by the changes to § 43.4 relate to reporting swap data elements, which the Commission has included in the estimated costs for § 45.3. To avoid double-counting costs, the Commission is not estimating separate initial and ongoing costs for § 43.4 and removing the estimate that was included in the Proposal.

c. § 45.5—Unique Swap Identifier Reporting

Existing § 45.5 requires SEFs, DCMs, reporting counterparties, and SDRs to generate and transmit USIs, and include USIs in all of their § 45.3 creation data and § 45.4 continuation data reports to SDRs. As a preliminary matter, the Commission is correcting the estimated number of respondents and the estimated number of reports per each respondent. Currently, SDRs, SDs, MSPs, SEFs, and DCMs are required to generate USIs, but the Commission inadvertently had included the 1,585 non-SD/MSP/DCO reporting counterparties in the current estimated number of respondents. The Commission is updating the number of respondents to 147 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs. However, these entities generate USIs on behalf of non-SD/MSP/DCO reporting counterparties for all swaps, so the estimated number of reports per each respondent will increase proportionately to 115,646 reports per 147 respondents to account for the 17,000,000 new swaps reported each year with USIs.

Existing § 45.5 requires SDRs to generate and transmit USIs for off-facility swaps with a non-SD/MSP reporting counterparty. The Commission is adopting changes that will require non-SD/MSP/DCO reporting counterparties that are financial entities to generate and transmit UTIs for off-facility swaps. The Commission estimates that approximately half of non-SD/MSP/DCO reporting counterparties are financial entities. Therefore, the Commission estimates that the number of respondents will increase from 147 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to 940 respondents with the addition of financial entities. At the same time, however, this will lower the number of UTIs generated per respondent to account for the increase in the number of respondents generating UTIs. The Commission estimates the estimated number of reports per respondent will decrease from 115,646 reports per 147 respondents to 18,085 reports per 940 respondents.

The aggregate burden estimate for § 45.5 is as follows:

Estimated number of respondents: 940.

Estimated number of reports per respondent: 18,085.

Average number of hours per report: .01.

Estimated gross annual reporting burden: 169,999.

In addition, the Commission estimates that § 45.5 will create costs for entities required to generate USIs to update their systems to generate UTIs. The Commission estimates that SDRs and reporting counterparties required to generate UTIs will incur a one-time initial burden of one hour per entity to modify their systems to adopt the changes described below, for a total estimated hours burden of 940 hours. The cost per entity is estimated to be $72.23 for a total cost across entities of $67,896. The Commission additionally estimates one hour per entity annually to perform any needed maintenance or adjustments to reporting systems, at a cost of $72.23 per entity and $67,896 across entities.

d. § 45.6—Legal Entity Identifier Reporting

Existing § 45.6 requires reporting entities to have LEIs and report them to SDRs as part of their § 45.3 creation data and § 45.4 continuation data reports. As a preliminary matter, the Commission is revising the burden estimate for § 45.6. LEIs are reported in required swap creation data and required swap continuation data reports, which are separately accounted for in the estimates for §§ 45.3 and 45.4. The current estimate for § 45.6 double-counts the estimates for §§ 45.3 and 45.4 by calculating the burden per data report. Instead, the burden for § 45.6 should be based on the requirement for each counterparty to obtain an LEI. The Commission is revising the estimate to state that there are 1,732 entities required to have one LEI per respondent, and revise the burden hours based on this change.^[387]

The Commission is also adopting amendments to § 45.6 to require SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to renew their LEIs annually. The change will increase the burden estimates for these entities, but will not affect the burden for the majority of entities required to have LEIs. Nonetheless, the Commission expects the burden associated with these changes to increase from .01 to .02 hours per report, and 17 hours in the aggregate.

The aggregate burden estimate for § 45.6 is as follows:

Estimated number of respondents: 1,732.

Estimated number of reports per respondent: 1.

Average number of hours per report: .02.

Estimated gross annual reporting burden: 35.

e. § 45.10—Reporting Changing SDRs

The Commission is adopting new regulations in § 45.10(d) that require reporting counterparties to send SDRs and non-reporting counterparties notifications if they change the SDR to which they report swap data and swap transaction and pricing data. This is a new reporting burden that is not covered in the current collection.

The Commission estimates that no more than 15 reporting counterparties will choose to change the SDR to which they report data. As a result, the Commission estimates these 15 reporting counterparties will each send one report annually, with an average response time of .01 hours per report and a gross annual burden of .15 hours.

The aggregate burden estimate for § 45.10 is as follows:

Estimated number of respondents: 15.

Estimated number of reports per respondent: 1.

Average number of hours per report: .01.

Estimated gross annual reporting burden: .15.

2. Revisions to Collection 3038-0086 (Swap Data Repositories: Registration and Regulatory Requirements)

a. SDR Withdrawal from Registration Amendments

Existing § 49.4 requires SDRs to follow certain requirements when withdrawing from registration with the Commission. These requirements involve filing paperwork with the Commission. The Commission does not believe any of the changes the Commission is adopting will require any one-time or ongoing system updates for SDRs. In addition, the Commission notes it had not previously provided a burden estimate for § 49.4, so the Commission provided an estimate with the Proposal.

Existing § 49.4(a)(1)(iv) requires that an SDR's request to the Commission to withdraw from SDR registration specify, among other items, a statement that the custodial SDR is authorized to make such data and records available in accordance with § 1.44. The Commission is adopting changes to remove this requirement from § 49.4(a)(1)(iv).

Existing § 49.4(a)(2) requires that before filing a request to withdraw, a registered SDR shall file an amended Form SDR to update any inaccurate information. The Commission is adopting changes that eliminate the requirement for SDRs to file an amended Form SDR prior to filing a request to withdraw.

Separately, the Commission is adopting new § 49.4(a)(2) to require SDRs to execute an agreement with the custodial SDR governing the custody of the withdrawing SDR's data and records prior to filing a request to withdraw with the Commission.

The Commission estimates that at most one SDR will request to withdraw from registration each year pursuant to amended § 49.4. The Commission estimates that the SDR will provide one notification to the CFTC, which will take an estimated 40 hours for the SDR to complete.

The aggregate burden estimate for § 49.4 is as follows:

Estimated number of respondents: 1.

Estimated number of reports per respondent: 1.

Average number of hours per report: 40.

Estimated gross annual reporting burden: 40.

b. SDR Data Validation Requirement Amendments

Existing § 49.10 provides the requirements for SDRs in accepting SDR data. As an initial matter, the Commission is correcting the estimates for § 49.10 in the Proposal. In the Proposal, the Commission misstated the current burden estimate for § 49.10 as 5,652,000 messages per SDR respondent, for a total of almost 17,000,000 messages across SDRs. The correct current estimate for § 49.10 is 2,652,000 messages per SDR, for a total of almost 8,000,000 messages. The Commission will discuss the changes to the estimate for § 49.10 resulting from this rulemaking below according to the corrected estimate for § 49.10.

Existing § 49.10(a) requires SDRs to accept and promptly record all swap data. In the 2019 Part 49 NPRM, the Commission proposed amending the requirements in § 49.10 by detailing separate § 49.10(e) requirements for correcting swap errors. The Commission is adopting those changes in a separate release. In this release, the Commission is adopting separate § 49.10(c) requirements for validating swap messages. These changes further specify that SDRs must send validation acceptance and rejection messages after validating SDR data. The Commission estimates that this will increase the number of reports SDRs will need to send reporting entities.

The Commission estimates that the new requirement to send validation messages in § 49.10(c) will add 3,000,000 messages to each SDR's current burden estimate, at .00055 hours per message, or 4,950 aggregate burden hours for all three SDRs.

When added to the current estimate for § 49.10, the aggregate burden estimate for § 49.10 is as follows:

Estimated number of respondents: 3.

Estimated number of reports per respondent: 5,652,000.

Average number of hours per report: .00055.

Estimated gross annual reporting burden: 9,326. ^[388]

In addition, the Commission estimates that SDRs will incur capital/start-up costs and ongoing operational/maintenance costs related to adopting the changes proposed in § 49.10(c). The Commission estimates that SDRs will incur a one-time initial burden of 100 hours per entity to modify their systems to adopt the changes described above, for a total estimated hours burden of 300 hours, and that SDRs will additionally spend 100 hours per entity annually to perform any needed maintenance or adjustments to reporting systems. Based on a labor cost of $72.23 per hour, the total cost of the one-time initial burden is estimated at $21,669 across all three SDRs, and the total cost to perform any additional needed maintenance or adjustments to reporting systems annually is estimated at $21,669 across all three SDRs.

3. Revisions to Collection 3038-0089 (Pre-Enactment Swaps and Transition Swaps)

Existing § 46.11 provides that for pre-enactment or transition swaps for which part 46 requires reporting of continuation data, reporting counterparties reporting state data as provided in part 45 may fulfill the requirement to report errors or omissions by making appropriate corrections in their next daily report of state data pursuant to part 45. Since the Commission is adopting changes to remove the option for state data reporting from § 45.4, the Commission is also adopting changes to remove the option for state data reporting from § 46.11.

Because reporting counterparties will no longer be able to send daily state data reports for their part 46 historical swaps, the Commission estimates the changes adopted in § 46.11 will reduce the number of continuation data reports reporting counterparties send SDRs for historical swaps by 50%. As a result, the Commission estimates that the 125 ^[389] SD/MSP reporting counterparties that the Commission estimates are reporting historical swaps will each spend five hours on these reports annually instead of the previous estimate of 10 hours, and the 500 non-SD/MSP reporting counterparties will spend .64 hours on these reports annually, instead of the previous estimate of 1.275 hours.

The aggregate burden estimate for reporting historical swaps to SDRs under part 46 is as follows:

Estimated number of respondents: 625.

Estimated number of reports per respondent: 151.

Average number of hours per report: .01.

Estimated gross annual reporting burden: 945. ^[390]

The Commission does not believe the changes to § 46.11 being adopted will require SDRs or reporting counterparties to make any one-time or ongoing updates to their systems.

C. Cost-Benefit Considerations

1. Introduction

Since issuing the first swap reporting rules in 2012, the Commission has gained a significant amount of experience with swaps markets and products based on studying and monitoring swap data.^[391] As a result of this work, the Commission has identified ways to improve the existing swap data reporting rules. Limitations with the regulations have, in some cases, encouraged the reporting of swap data in a way that has made it difficult for the Commission to aggregate and analyze. As a result, the Commission is amending its rules to improve data quality and standardization to achieve the Group of Twenty (“G20”) goal for trade reporting to improve transparency, mitigate systemic risk, and prevent market abuse.^[392]

While the Commission believes the amendments will meaningfully benefit market participants and the public, some costs could result as well. Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating rules under the CEA.^[393] Section 15(a) specifies that the Commission evaluates costs and benefits in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) the efficiency, competitiveness, and financial integrity of markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations.^[394] The Commission considers the costs and benefits resulting from its discretionary determinations concerning the section 15(a) factors.

In this release, the Commission is adopting revisions to existing regulations in parts 45, 46, and 49. The Commission is also adopting new requirements in parts 45, 46, and 49. Together, these revisions and additions should further specify and streamline swap data reporting and improve the quality of swap data reporting. The Commission is making most of the changes to existing systems and processes, so nearly all costs considered are incremental additions or updates to systems already in place. The Commission believes many of the amendments, which are non-substantive or technical, will not have material cost-benefits implications.^[395]

The Commission is adopting multiple changes to harmonize the Commission's reporting regulations with those of other regulators as part of the FSB and CPMI-IOSCO harmonization efforts. As these efforts have incorporated industry feedback, and the Commission has been vocal about its support and participation,^[396] the Commission expects many market participants have been planning and preparing for updates to accommodate these important changes in efficient, cost-effective manners.

Many jurisdictions have committed to these harmonization efforts for which the Commission is adopting standards. If the Commission did not adopt these standards, but other jurisdictions—consistent with the technical guidance and implementation deadlines recommended by the FSB—did, SDRs and reporting entities could experience unnecessary costs due to unharmonized reporting infrastructures for CFTC reporting, while market participants in other jurisdictions enjoyed harmonization efficiencies.

The Commission discusses reasonably quantifiable costs and benefits in this section; the Commission discusses them qualitatively if they are not reasonably quantifiable. Throughout this release, the Commission estimates the cost-benefit impact of its changes using swap data, such as the prevalence of state data reporting and duplicative required swap creation data reports. Most of the changes affect reporting requirements for reporting counterparties, SDRs, SEFs, and DCMs. As a result, there will likely be some reasonably quantifiable costs related to either: (a) Creating new data reporting systems; (b) reprogramming existing data reporting systems to meet the new reporting requirements; or (c) canceling data streams, which might lead to archiving data and maintaining legacy systems. These estimates focus on the costs and benefits of the amended rules market participants are likely to encounter with an emphasis on technical details, implementation, and market-level impacts. Where software changes are expected, these costs reflect software developer labor costs only, not a blend of different occupations. Costs and benefits quantified at the respondent level are estimated in the PRA section in section VII.B above. Those costs are not repeated in this section, but where appropriate, quantified costs reflected in the PRA are noted below to reflect PRA costs have been taken into account in the cost-benefit analysis.

These costs are quantifiable if entities covered by the final regulations can price-out the changes to the information technology architecture to adopt the reporting requirement changes. These quantifiable costs, however, will likely vary because the sophistication of reporting entities varies. For example, some reporting entities operate their own data reporting systems and employ in-house developers and analysts to plan, design, code, test, establish, and monitor systems. Other reporting entities pay fees to third-party vendors. The quantitative costs associated with the reporting rules in this release will vary depending on the reporting entities' operations and number of swaps they execute. The Commission provides a monetary range for quantifiable costs as they relate to each change discussed below where possible.

This consideration of costs and benefits is based on the understanding that the swaps market functions internationally. Many swaps transactions involving U.S. firms occur across international borders and some Commission registrants are organized outside of the U.S., including many SDs. Many of the largest market participants often conduct operations both within and outside the U.S. Where the Commission does not always refer to location, the discussion of costs and benefits refers to the rules' effects on all swaps activity, whether by virtue of the activity's physical location in the U.S. or by virtue of the activity's connection with or effect on U.S. commerce under CEA section 2(i).^[397]

2. Background

The Commission has issued several rulemakings related to swaps reporting where it has considered the benefits and costs.^[398] Among others, the Commission has identified benefits such as increased transparency to both market participants and regulators; improved regulatory understanding of risk distributions and concentrations in derivatives markets; more effective monitoring of risk profiles by regulators and regulated entities through the use of unique identifiers; and improved regulatory oversight and more robust data management systems.^[399] The Commission also identified two main areas where costs may be incurred: recordkeeping and reporting.^[400]

Based on its experience with swap data and extensive feedback from market participants, the Commission believes improving data quality will significantly enhance the utility of the swap data while also reducing burdens on reporting entities and SDRs through harmonizing, streamlining, and clarifying data requirements. In this release, the Commission focuses on the swap data reporting workflows, the swap data elements reporting counterparties report to SDRs, and the validations SDRs apply to help ensure the swap data they receive is accurate. The Commission is also modifying several other regulations for clarity and consistency.

Three SDRs are currently provisionally registered with the Commission: CME, DTCC, and ICE. The changes the Commission is adopting should apply equally to all three SDRs. The current reporting environment also involves third-party service providers that help market participants fulfill their reporting requirements, though the reporting requirements do not apply directly to them. The Commission estimates that third-party service providers do not account for a large portion of the overall record submissions to SDRs, but provide an important service for entities that use them.

Finally, the current reporting environment depends on reporting counterparties. The Commission estimates reporting counterparties include 107 provisionally registered SDs, 24 SEFs, 3 DCMs, 13 DCOs, and approximately 1,585 non-SD/MSP/DCO reporting counterparties. Each of these reporting counterparty types varies as to size and activity. The Commission believes most SDs and nearly all SEFs, DCMs, DCOs, and SDRs have sophisticated technology dedicated to data reporting because of the frequency with which they enter into or facilitate swaps execution or accept swap data from reporting entities. The Commission also believes these entities have greater access to resources to update these systems as regulatory requirements change. Further, the Commission estimates that SDs will incur much of the costs and benefits associated with the Commission's changes, given they are the most sophisticated participants with the most experience reporting under the EU and U.S. reporting regimes. For instance, SDs accounted for over 70% of records submitted to SDRs in December 2019.^[401]

Non-SD/MSP/DCO reporting counterparties account for a small fraction of SDR reports. The Commission believes there is a wide variation in the reporting systems maintained by these entities and the resources available to them. These reporting counterparties can be large, sophisticated financial entities, including banks, hedge funds, and asset management firms, but a significant number are smaller, less-sophisticated swap end-users entering into swaps less frequently to hedge commercial risk.

The Commission has a significant interest in ensuring these smaller, less-sophisticated entities can access the U.S. swaps market without unnecessary costs or burdens, but the Commission has difficulty accurately estimating the cost impact of the changes on them. The challenge stems from the wide range of complexity of firms in this group: A large asset manager with billions of dollars in assets under management and a large swaps portfolio could have a reporting system as complex and sophisticated as an SD while a small hedge fund with a limited swaps portfolio might rely on third-party service providers to handle its reporting obligations. Commenters did not provide information to help the Commission quantify the costs to these smaller entities, notwithstanding the Proposal's request for data and other information to assist the Commission's quantification effort.^[402]

Swap data reports submitted under the existing regulations have posed data quality challenges. For example, the existing appendix 1 to part 45 provides no standards, formats, or allowable values for the swap data that reporting counterparties report to SDRs and there is no technical specification or other guidance associated with the existing rule. Since the industry has not identified a standard for all market participants to use, market participants have reported information in many different ways, often creating difficulties in data harmonization, or even identification, within and across SDRs.

It is not uncommon for Commission staff to find discrepancies between open swaps information available to the Commission and swap transaction data reported for the same swaps. In the processing of swap data to generate the CFTC's Weekly Swaps Report,^[403] for example, there are instances when the notional amount differs between the Commission's open swaps information and the swap transaction data reported for the same swap. While infrequent errors can be expected, the wide variation in standards among SDRs has increased the challenge of swap data analysis and often has required significant data cleaning and data validation prior to any data analysis effort. This has meant that the Commission has, in some but not all cases, determined that certain data analyses were not feasible, harming its ability to oversee market activity.

In addition to the lack of standardization across SDRs, the Commission is concerned the current timeframes for reporting swap data may have contributed to the prevalence of errors. Common examples of errors include incorrect references to underlying currencies, such as a notional value incorrectly linked to U.S. dollars instead of Japanese Yen. Among others, these examples strongly suggest a need for standardized, validated swap data as well as additional time to review the accuracy of the data report.

Based on its experience with data reporting, the Commission is amending certain regulations, particularly in parts 45, 46, and 49, to improve swap data accuracy and completeness. This release also adopts one amendment to part 49 to improve the process for an SDR's withdrawal from registration. Many of the final regulations have costs and benefits that must be considered. The Commission discusses these below.

The Commission summarizes the amendments ^[404] and identifies and discusses the costs and benefits attributable to the amendments below. Where significant software development costs are expected, CFTC staff estimated the hourly wages market participants will likely pay software developers to implement each change to be between $48 and $101 per hour.^[405] Relevant amendments below will list a low-to-high range of potential cost as determined by the number of developer hours estimated by technical subject matter experts (“SMEs”) in the Commission's Office of Data and Technology. The Commission did not receive any comments on its hourly wage estimates. Finally, the Commission considers the costs and benefits of all of the amendments jointly in light of the five public interest considerations in CEA section 15(a).

3. Baselines

There are multiple baselines for the costs and benefits that might arise from the regulations in this release. The Commission believes the baseline for measurement of costs and benefits attributable to the amendments to §§ 45.3, 45.4, 45.5, 45.6, 45.10, 45.12, 46.3, 46.10, 46.11, and 49.4 are the costs and benefits realized under current regulations, as discussed above in sections II, III, and IV. The baseline for § 49.10 is current practice, which is that SDRs may be performing validations according to their own specifications, as discussed above in section IV.C.

4. General Cost-Benefit Comments

The Commission received no comments on the general costs and benefits of the Proposal overall. The Commission received a few comments on the costs and benefits of the proposed amendments to individual sections, which are discussed in the relevant sections below. To the extent the Commission did not receive comments objecting to the Proposal's general cost-benefit consideration, or to its cost-benefit consideration of specific sections, the Commission views the absence of comment as affirmation that the Proposal's consideration of costs and benefits was sound, unless otherwise stated below.

The Commission also notes, with one exception discussed in section VII.C.5.a below, it did not receive specific data or information regarding costs and benefits from commenters in response to its requests for such information in the Proposal.^[406] The Commission therefore did not receive additional information making it reasonably feasible for the Commission to quantify overall costs and benefits, or costs and benefits for specific proposed amendments, to a degree beyond that presented in the Proposal, except as otherwise noted below.

5. Costs and Benefits of Amendments to Part 45

a. § 45.3—Swap Data Reporting: Creation Data

The Commission is changing § 45.3 to (i) remove the requirement for SEFs, DCMs, and reporting counterparties to report separate PET and confirmation data reports; (ii) extend the deadline for reporting required swap creation data and allocations to T+1 or T+2, depending on the reporting counterparty; (iii) remove the requirement for SDRs to map allocations; and (iv) remove the international swap reporting requirements.

The Commission believes: (i) Single required creation data report will reduce complexity for reporting counterparties, as well as for the Commission; (ii) extending the deadline to report required swap creation data and allocations will improve data quality without impacting the Commission's ability to perform its regulatory responsibilities; (iii) the requirements for SDRs to map allocations and the international swap requirements are unnecessary.

The Commission is also updating the swap data elements in appendix 1, which existing and amended § 45.3 require SEFs, DCMs, and reporting counterparties report to SDRs in the manner provided in § 45.13(b).^[407] The Commission believes this will improve data quality at SDRs and help market participants by removing ambiguity around what data they need to report to SDRs.

i. Benefits

Requiring a single confirmation data report for SEFs, DCMs, and reporting counterparties will benefit SDRs, SEFs, DCMs, and reporting counterparties by reducing the number of swap data reports being sent to and stored by SDRs. An analysis of SDR data by Commission staff found this change is likely to significantly reduce reported messages, which benefits the reporting parties sending data, and the SDRs who ingest, validate and store the data. The analysis showed 26% of all swap messages received by the Commission from DTCC, ICE, and CME in December of 2019 (48 million records in total) were separate PET and confirm messages, which means this amendment could reduce overall messages reported to and stored by SDRs by approximately 13% overall.

Extending the deadline to report required swap creation data will benefit SDRs, SEFs, DCMs, and reporting counterparties by giving SEFs, DCMs, and reporting counterparties more time to report swap data to SDRs, likely reducing the number of errors SDRs would need to follow-up on with reporting entities. Since reporting data ASATP requires reporting systems to monitor activity and report in real-time, the new deadline will also benefit SDRs, SEFs, DCMs, and reporting counterparties by allowing them to implement a simpler data reporting workflow that assembles and submits data once per day.

Removing the requirements to map allocations and international swaps will benefit SDRs by removing the need to manage separate processes to maintain this information. SEFs, DCMs, and reporting counterparties will benefit from reporting allocations directly via swap data reporting, and no longer reporting information about international swaps that will be rendered unnecessary given the UTI standards.

Through updating and further specifying the swap data elements required to be reported to SDRs, the Commission will benefit from having swap data that is more standardized, accurate, and complete across SDRs. As discussed in section V above, the Commission's use of the data to fulfill its regulatory responsibilities has been complicated by varying degrees of compliance with swap data standards both within and across SDRs.

ii. Costs

The Commission expects the initial cost of updating systems to adopt the changes in § 45.3—outside of updating the data elements in appendix 1—to be small.^[408] Most SEFs, DCMs, and reporting counterparties should have systems to report swap data to SDRs ASATP after execution, as well as systems that report separate PET and confirmation swap reports and information about international swaps. SDRs likewise have systems to accept both PET data and confirmation data reports, possibly separately or combined, as well as systems to map allocations and ingest information about international swaps.

In both cases, the changes will reduce complexity and software functionality. Reporting entities will no longer have to generate and submit multiple messages, which will require limited cost and effort to implement. SDRs will also require few, if any, updates to ingest fewer messages and will see data storage costs decline over time.

The Commission expects market participants to further mitigate costs by the fact they involve updates to current systems, rather than having to create new systems as most firms had to do when the CFTC first required swaps reporting. CFTC SMEs estimate the cost of these changes to be small, but not zero, for large reporting entities and SDRs due to the reduction in complexity and system features. However, over time, after entities implement these one-time system updates, the Commission expects SDRs, SEFs, DCMs, and reporting counterparties will recognize significant benefits through reduced costs and complexity associated with reporting streamlined data to SDRs.

The Commission received comments supporting its expectation that the changes to § 45.3 will improve data quality and reduce compliance and cost burdens. Specifically, DTCC believes these changes will improve data quality by reducing the number of corrections sent to the SDRs and streamline reporting for market participants.^[409] ISDA-SIFMA believe the extended timeline for reporting swap data will improve data quality ^[410] and CEWG comments that these changes will reduce the compliance burden on market participants.^[411] The Commission requested comments on the proposed cost-benefit analysis for § 45.3, but did not receive any providing data, significant cost-benefit alternatives, or opposing views on the costs and benefits.

Conversely, the Commission expects SEFs, DCMs, SDRs, and reporting counterparties will incur greater costs in response to the changes to the appendix 1 data elements in order to comply with § 45.3. Beyond the changes to appendix 1, the Commission expects SEFs, DCMs, SDRs, and reporting counterparties will update systems according to DMO's technical specification on website at www.cftc.gov, resulting in additional costs, even though the technical specifications help these entities implement reporting for the data elements in appendix 1.

The three SDRs will need to update their systems to accept the updated swap data elements in appendix 1. SEFs, DCMs, and reporting counterparties will need to update systems to report the swap data elements in appendix 1 to SDRs. SDRs will also need to update systems to validate swap data pursuant to the validations requirements in § 49.10(c). The costs are likely to differ across entities but, depending on current systems, as indicated in the estimates detailed below, could be significant, before accounting for likely mitigating factors, also discussed below.

The Commission believes some factors will mitigate the costs to these entities. First, most of the swap data the Commission is further standardizing with updated appendix 1 is currently being reported to SDRs. Commission staff recognizes that data quality has improved over the past years as SDRs adopted more technical standards on their own. However, for certain assets classes, the Commission expects the changes from current practice could be more pronounced. Costs to standardize data elements that had not previously been standardized in certain asset classes like commodities, or adding new data elements would be costlier; although the reporting entity could mitigate costs if it already saves this information but either does not currently send it to an SDR or sends it in a non-standard format.

To the extent SDRs operate in multiple jurisdictions, ESMA already requires many of the swap data elements the Commission is adopting. An SDR presumably will spend fewer resources updating its systems for the changes in appendix 1 if it has already made these changes for European markets. Similarly, SEFs, DCMs, and reporting counterparties reporting to European TRs may have to spend fewer resources.

Additionally, after the updates are made, the Commission expects SDRs, SEFs, DCMs, and reporting counterparties will see an offsetting reduction in costs through reporting a more streamlined data set than what is currently being reported to SDRs. In addition, entities reporting in multiple jurisdictions will be able to report more efficiently as jurisdictions adopt the CDE Technical Guidance data elements.

Finally, the changes adopted to the swap data elements makes the part 43 swap transaction and pricing data elements a subset of the part 45 swap data elements. This means the changes to parts 43 and 45 will require technological changes that could merge two different data streams into one. For example, SDRs will have to adjust their extraction, transformation, and loading (“ETL”) process to accept feeds that comply with the new technical specification and validation conditions, but these changes will apply to data elements in both parts 43 and 45.

Because many of the changes SDRs will make to comply with part 45 will likely also help them comply with part 43, the Commission anticipates significantly lower aggregate costs for complying with both rules relative to the costs for parts 43 and 45 separately. For this reason, the costs described below may most accurately represent the full technological cost of satisfying the requirements for both final rules but for purposes of this section focus on the part 45 swap data elements.

Based on conversations with ODT SMEs experienced in designing data reporting, ingestion, and validation systems, Commission staff estimates the cost per SDR to be in a range of $144,000 to $505,000.^[412] Staff based this estimate on several assumptions and covers the set of tasks required for an SDR to design, test, and implement a data system based on the list of swap data elements in appendix 1 and the technical specification.^[413] These numbers assume that each SDR will spend approximately 3,000-5,000 hours to establish ETL processes into a relational database on such a data stream.^[414]

For reporting entities, the Commission estimates the cost per reporting entity to be in a range of $24,000 to $73,225.^[415] This cost estimate is based on several assumptions and covers a number of tasks required by the reporting entities to design, test, and implement an updated data system based on the swap data elements, technical specification, and validation conditions.^[416] These tasks include defining requirements, developing an extraction query, developing an interim extraction format (e.g., comma-separated values (“CSV”)), developing validations, developing formatting conversions, developing a framework to execute tasks on a repeatable basis, and finally, integration and testing. Staff estimates it would take a reporting entity 200 to 325 hours to implement the extraction. Including validations and conversions would add another 300 to 400 hours, resulting in an estimated total of 500 to 725 hours per reporting entity.^[417]

The Commission received one comment, from CME, addressing these estimates.^[418] CME notes it expects the costs for its organization to be 8,000 to 10,000 developer hours, which is approximately double the 3,000 to 5,000 developer-hour estimate listed above. The costs CME references are specific to its organization. The costs may not directly apply to other SDRs and do not apply to the reporting counterparties, but provide useful information on the level of effort needed to comply with these amendments. Accordingly, the Commission deems it appropriate to expand the range of potential costs per SDR before mitigation upwards to between $144,000 and $1,010,000 for purposes of its cost-benefit assessment. Additionally, CME acknowledges they expect maintenance costs to decline over time due to the streamlined reporting requirements. The Commission did not receive any other comments related to the amendments to the data elements in appendix 1 that provided additional data, significant cost-benefit alternatives, or other opposing or critical views.

In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.^[419]

b. § 45.4—Swap Data Reporting: Continuation Data

The Commission is amending § 45.4 to (i) remove the option for state data reporting; (ii) extend the deadline for reporting required swap continuation data to T+1 or T+2; (iii) remove the requirement for non-SD/MSP/DCO reporting counterparties to report valuation data quarterly; and (iv) require SD/MSP reporting counterparties to report margin and collateral data daily.

The Commission believes: (i) Removing state data reporting will reduce the number of messages being sent to and stored by SDRs; (ii) extending the deadline to report required swap continuation data will improve data quality without impacting the Commission's ability to perform its regulatory responsibilities; (iii) removing the valuation data reporting for non-SD/MSP/DCO reporting counterparties will reduce burdens for these counterparties, which tend to be smaller and less active in the swaps market; and (iv) requiring SD/MSP reporting counterparties to report margin and collateral daily is reasonable given the sophistication of their trading and reporting systems, especially on a T+1 timeline, and essential for the Commission to monitor risk.

i. Benefits

Removing state data reporting will benefit reporting counterparties by reducing the number of messages they report to SDRs. This will also benefit SDRs by reducing the number of messages they need to ingest, validate, process, and store. In 2019, CFTC staff estimates the Commission received over 557 million swap messages from CME, DTCC, and ICE. Staff analysis from December 2019 shows over 50% of all records submitted were state data messages.

Extending the deadline to report required swap continuation data will benefit SDRs and reporting counterparties by reducing the number of validation errors SDRs must notify reporting counterparties about. Removing the requirement for non-SD/MSP/DCO reporting counterparties to report quarterly valuation data will reduce reporting costs for these estimated 1,585 counterparties, which tend to be smaller and less active in the swaps market. Because of their size, the Commission does not expect the lack of valuation data to inhibit the Commission's market oversight responsibilities.

ISDA-SIFMA note approximately 98% of uncleared swaps involve at least one SD. As such, this change will affect 2% of reported swaps, which they agree do not present systemic risk issues.^[420] Requiring SD/MSP reporting counterparties to report margin and collateral daily will benefit the swaps market by improving the Commission's ability to monitor swap markets and systemic risk within and across markets, particularly for uncleared swaps. In contrast, because existing part 45 reports do not include collateral information, while the Commission is often able to identify the level of risk inherent to a swap (or set of swaps), it may not fully understand the amount of collateral protection a counterparty holds to mitigate this risk.

ii. Costs

The Commission expects the initial costs of updating systems to adopt the changes in § 45.4 to range from low to moderate, offset by the decreased reporting burden for all reporting entities.^[421] For instance, the Commission understands many reporting counterparties have systems to report swap data, including snapshot data, to SDRs according to the current timelines. Extending the deadline reduces some of this complexity and removes a message type that accounts for over 50% of the existing message traffic, which will significantly reduce reporting burdens. Based on CFTC SME experience with similar systems, SDRs should require minimal updates to their systems that accept snapshot data and should ultimately experience reduced data storage costs.

Non-SD/MSP/DCO reporting counterparties will need to update their systems to stop sending valuation data to SDRs. In contrast, SD/MSP reporting counterparties will need to program systems to begin reporting margin and collateral data in addition to valuation data. The T+1 reporting timeline mitigates this by allowing end-of-day data integration and validation processes as opposed to near-real-time integration, which, according to CFTC SMEs and staff conversations with industry participants, provides flexibility in how and when system resources are used to produce the reports and better aligns trade and collateral and margin data reporting streams. The Commission understands SD/MSP reporting counterparties currently have access to the data they need to report collateral and margin data and the costs lie in integrating that information with the swap data reporting stream. The cost of implementing these changes is expected to be fully contained in and a subset of the costs associated with implementing the updated data elements in appendix 1 detailed in section VII.C.5.a above. As a result, the Commission expects the cost of reporting daily collateral and margin data for SD/MSP reporting counterparties on a T+1 basis to be fully encapsulated by the effort to implement the updated data elements in appendix 1.

Additionally, over time, after these one-time system updates, the Commission expects SDRs, SEFs, DCMs, and reporting counterparties will recognize the full benefits of the reduced costs associated with reporting streamlined data to SDRs in a more reasonable time frame. While the Commission understands reporting margin and collateral data to SDRs will likely involve costs for the estimated 107 SD/MSP reporting counterparties, it is unlikely to occasion significant, if any material, additional costs for the SDRs serving EU jurisdictions. This is because ESMA currently requires the reporting of much of the same information to EU-registered TRs.

The Commission expects this could also mitigate the costs for most of the 107 SD/MSP reporting counterparties given that they are likely active in European swap markets and thus already comply with similar requirements. The Commission also expects, for the smaller remaining group of reporting entities not active in European swaps markets, each entity already has access to the collateral and margin information. Accordingly, for them, the primary cost will be in integrating existing collateral data streams into SDR reporting workflows, which is less costly and burdensome than acquiring additional or outside data to integrate. CFTC SMEs estimate the cost of these changes to be small to moderate for large reporting entities and SDRs due to the reduction in complexity and system features, as well as the extended timeline to integrate potentially disparate data streams.

The Commission received comments supporting its expectation these amendments will benefit the market and mitigate costs incurred. FIA agrees the quarterly valuation data reported by non-SD/MSP/DCO reporting counterparties is not integral to the CFTC's systemic risk monitoring and the benefit of collecting this data do not justify the cost incurred by the impacted market participants.^[422] CEWG believes the burden of collecting the quarterly valuation data is not proportional to the limited value the data provides.^[423] Additionally, IECA notes many small counterparties contract with third-party reporting services to report the required quarterly valuations and the value derived from the data does not justify the cost.^[424]

The Commission received 12 comments related to the daily collection of collateral and margin data from SD/MSP/DCO counterparties, with four in favor and eight opposed. Of the supportive comments, Markit addresses the expected costs by noting the daily submission of both cleared and uncleared collateral and margin data is more streamlined and efficient (and therefore cost-effective) than making reporting for cleared trades optional.^[425] Other supportive commenters emphasize the need to harmonize collateral and margin data elements to the greatest extent possible across jurisdictions in order to not create unnecessary costs for market participants.^[426] Several of the opposing comments note the additional regulatory costs associated with reporting collateral and margin data,^[427] which as noted above is mitigated by the T+1 reporting deadline.

CME, Eurex, ICE DCOs, ISDA-SIFMA, and FIA raise concerns about duplicative reporting for DCOs regarding cleared swaps. Further, as noted in section II.D.4 above, the Commission acknowledges these concerns but believes the costs are warranted for uncleared swaps reported by SD/MSP reporting counterparties, as this information is not available elsewhere and is critical for monitoring systemic risk. For cleared swaps reported by DCOs, however, the Commission acknowledges the potential duplication with collateral and margin data reported by DCOs pursuant to part 39. While collateral and margin data is reported pursuant to part 39 using a different set of data elements than those contained in appendix 1, and collateral and margin data is reported for end-of-day positions pursuant to part 39 as opposed to a more granular transaction-by-transaction basis pursuant to part 45, the Commission believes the collateral and margin data reported by DCOs pursuant to part 39 is sufficiently similar to data reported pursuant to part 45 to meet the Commission's current needs.

In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.

c. § 45.5—Unique Swap Identifiers

The Commission is amending § 45.5 to (i) require reporting parties use UTIs instead of USIs for new swaps; (ii) require financial entities to generate UTIs for off-facility swaps; and (iii) permit non-SD/MSP/DCO reporting counterparties that are not financial entities to generate UTIs themselves or ask their SDR to generate UTIs for off-facility swaps. In general, the Commission believes transitioning to the globally standardized UTI system will benefit SDRs, SEFs, DCMs, and reporting counterparties by reducing the complexity associated with reporting swaps to multiple jurisdictions.

i. Benefits

The Commission believes amending § 45.5 will benefit SDRs by providing one identifier for multiple regulators to adopt to reduce the burdens associated with multiple jurisdictions requiring different, and possibly conflicting, identifiers. The Commission believes requiring SD/MSP and other financial entity reporting counterparties to generate UTIs for off-facility swaps will benefit SDRs by reducing the frequency with which they would be responsible for UTI generation, as compared to the current frequency with which they generate USIs.

The Commission believes permitting non-SD/MSP/DCO reporting counterparties that are not financial entities to either generate UTIs or ask their SDR to generate UTIs for off-facility swaps will benefit smaller, less-active swaps market participants by relieving them of the burden to generate UTIs unless they choose to do so. Non-financial entities may include end-users more likely to not maintain systems that automatically generate UTIs. Therefore, this group will benefit proportionally more from this change.

Permitting these entities to ask the SDRs to generate UTIs will maintain, but lower, an ancillary cost for the three SDRs that are currently required to generate USIs for off-facility swaps with non-SD/MSP reporting counterparties. The Commission believes giving these reporting counterparties the option, rather than a mandate, strikes the appropriate balance between avoiding undue costs for SDRs and significant burdens for the least-sophisticated market participants.

ii. Costs

In general, the Commission expects the initial costs of updating systems to adopt UTIs will be small to moderate for most reporting entities and SDRs.^[428] For instance, the Commission expects reporting counterparties and SDRs have systems that generate, report, accept, validate, process, and store USIs. CFTC SMEs estimate the cost of these changes to be small for large reporting entities and small to moderate for SDRs. However, over time, the Commission expects market participants will recognize the reduced costs associated with reporting a globally-standardized UTI.

In addition, the Commission understands ESMA mandates UTIs. The Commission views this as a significant mitigating factor when assessing what, if any, additional burden SDRs serving multiple jurisdictions as well as reporting counterparties active in the European markets, will experience, since they have likely already updated their systems to meet the European standards.

Commenters support the Commission's expectation implementing the global standard would streamline reporting across jurisdictions, reduce costs overall, and benefit markets by facilitating more accurate global swap data aggregation.^[429] LCH notes implementing the UTI will reduce cross-border reporting complexity, further encouraging global aggregation.^[430] Many commenters also support expanding the ability to generate UTIs to non-SD/MSP/DCO reporting counterparties that are not financial entities for off-facility swaps since they are in the best position to collect the required information (such as the LEI) from the non-reporting counterparty ^[431] and it removes a disparity between trade identifiers used by internal record-keeping systems and data reported to SDRs.^[432]

Some commenters disagree with keeping SDRs as the UTI “generator of last resort.” ^[433] However, other commenters recognize the need for it in some cases.^[434] Further, keeping SDRs at the bottom of the UTI generation hierarchy is consistent with the UTI Technical Guidance and is currently required by the Commission's regulations.

In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.

d. § 45.6—Legal Entity Identifiers

The Commission is amending § 45.6 to (i) require SDs, MSPs, DCOs, SEFs, DCMs, and SDRs to maintain and renew LEIs; (ii) require financial entity reporting counterparties to use best efforts to cause LEIs to be issued for swap counterparties that do not have one and if those efforts fail, to promptly provide the identity and contact information of the counterparty to the Commission; and (iii) update unnecessary and outdated regulatory text. The Commission believes accurate LEIs are essential for the Commission to use swap data to fulfill its regulatory responsibilities.

i. Benefits

Mandating LEI renewal will benefit the swaps market by improving the Commission's ability to analyze activity in the swaps market. Reference data provide valuable identification and relationship information about swap counterparties. Accurate reference data allow for robust analysis of risk concentration within and across entities, as well as a way to identify the distribution or transfer of risk across different legal entities under the same parent. The Commission believes accurate reference data is essential for it to satisfy its regulatory responsibilities because it clearly identify entities involved in the swaps market, as well as how these entities relate to one another—both key requirements for monitoring systemic risk and promoting fair and efficient markets. In addition, LEIs have already been broadly adopted in swaps markets and have reduced ambiguity for market participants previously using various unstandardized identifiers.

ii. Costs

LEI renewals will impose some costs.^[435] Currently, the Commission understands registering a new LEI costs $65 and renewals cost each holder $50 per year.^[436] One comment notes the mitigating fact these costs have fallen by more than 50% over the last 5 years due to increased efficiency as market adoption increased.^[437] To limit burdens, the Commission is limiting the renewal requirement to the estimated 150 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs, resulting in an aggregate cost of approximately $7,500 for this requirement. The Commission believes these entities have the most systemic impact on the Commission's ability to fulfill its regulatory mandates and thus warrant this small additional cost. The Commission will consider expanding the renewal requirement in future releases upon further enhancements in LEI reference data or realized reductions in cost to LEI holders.

Requiring financial entities to endeavor to cause LEIs to be issued for swap counterparties that do not have one (and, if those efforts fail, to report the identity and contact information of the counterparty to the Commission) will both further the Commission's objective of monitoring risk in the swaps market and incentivize LEI registration for counterparties that have not yet obtained LEIs. However, the Commission recognizes this requirement imposes some costs on both the entity encouraged to obtain an LEI and the financial entity in verifying that its counterparties have valid LEIs and encouraging them to obtain one (or obtaining an LEI for them) if they do not and informing the Commission if the financial entity's efforts fail. As mentioned above, the cost to an entity to obtain an LEI is minor, and has trended down over time. Further, financial entities collect the same information during the onboarding process when entering into a swap contract with a new counterparty that is needed to obtain an LEI for the counterparty, a mitigating factor for the financial entities to the extent they must be required to encourage their counterparties to obtain LEIs (or obtain an LEI for them). The cost to notify the Commission if the financial entity's efforts fail is also expected to be low. The Commission expects both cases to impose a limited burden on swaps markets as the widespread adoption of the LEI standard continues.

The number of current swap counterparties without LEIs is difficult to estimate because of the lack of standardization of non-LEI identifiers. The Commission cannot determine whether non-LEI identifiers represent an entity that has already been assigned an LEI or whether two non-LEI identifiers are two different representations of the same entity. However, the Commission expects the number of counterparties currently without LEIs to be small, given the results of an analysis from December 2019 that showed 90% of all records reported had LEIs for both counterparties. More generally, any swap data that does not identify eligible counterparties with an LEI hinders the Commission's fulfillment of its regulatory mandates, including systemic risk monitoring. Given the low cost of registering for a new LEI listed above, the small number of remaining entities engaging in swap transactions without an LEI, and the limited amount of additional effort financial entities need to exert so that every LEI-eligible counterparty has an LEI, the Commission expects the overall cost of this amendment to be minimal.

The Commission received comments supporting its expectation that requiring the most systemically important swaps market participants to maintain and renew their LEIs will facilitate better aggregation of entities and more accurate analysis of swaps market activity, market concentration, risk transfer, and systemic risk. Commenters, including DTCC, GLEIF, XBRL, LCH, Chatham, and Eurex, all support the requirement for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs to maintain and renew their LEIs to ensure their accuracy noting this improves transparency and aligns with the global adoption of LEIs.^[438] While the existing requirement for all LEI holders to update their LEI reference data remains, the Commission believes the confirmation of the accuracy of their reference data provided by LEI holders during LEI renewal serves as an additional assurance of data quality for the most systematically important entities, and therefore warrants the annual renewal requirement for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs.

In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.

e. § 45.10—Reporting to a Single SDR

The Commission is amending § 45.10 to permit reporting counterparties to transfer swap data and swap transaction and pricing data between SDRs in revised § 45.10(d). To do so, reporting counterparties will need to notify the current SDR, new SDR, and non-reporting counterparty of the UTIs for the swaps being transferred and the date of transfer at least five business days before the transfer. Reporting counterparties will then need to report the change of SDR to the current SDR and the new SDR, and then begin reporting to the new SDR. The Commission believes the ability to change SDRs will benefit reporting counterparties by permitting them to choose the SDR that best fits their business needs.

i. Benefits

The amendments to § 45.10(d) will benefit reporting counterparties by giving them the freedom to select the SDR that provides the best services, pricing, and functionality to serve their business needs instead of having to use the same SDR for the entire life of the swap. The Commission believes reporting counterparties could benefit through reduced costs if they had the ability to change to an SDR that provided services better calibrated to their business needs.

ii. Costs

The amendments will impose costs on the three SDRs. SDRs will need to update their systems to permit reporting counterparties to transfer swap data and swap transaction pricing data in the middle of a swap's life cycle, rather than at the point of swap initiation. However, the Commission believes SDRs will be able to accommodate these changes after initial system updates since they are only slightly more burdensome than current onboarding practices for new clients at SDRs.^[439]

The Commission received comments supporting its expectation that market participants will benefit from the flexibility to change SDRs and the SDRs themselves will be able to accommodate the changes with minimal additional burden.^[440] The Commission requested comments on the costs and benefits of the amendments to § 45.10, but did not receive any comments that provided additional data, significant cost-benefit alternatives, or other opposing or critical views on the costs and benefits.

In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the rule amendments notwithstanding their expected mitigated costs.

f. § 45.12—Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any SDR

The Commission is removing the § 45.12 regulations permitting voluntary supplemental reporting. Existing § 45.12 permits voluntary supplemental reporting to SDRs and specifies counterparties must report USIs, LEIs, and an indication of jurisdiction as part of the supplementary report. Existing § 45.12 also requires counterparties correct errors in voluntary supplemental reports. The Commission believes removing voluntary supplemental reports will reduce unnecessary messages at SDRs that do not provide a clear regulatory benefit to the Commission.

i. Benefits

Removing the option for voluntary supplemental reporting will benefit SDRs that will no longer need to take in, process, validate, and store the reports. This should reduce costs and any unnecessary complexities for SDRs concerning these reports that provide little benefit to the Commission.

ii. Costs

The change could impose initial costs on SDRs. SDRs may need to update their systems to stop accepting these reports. However, the Commission expects these costs will be minimal and after the initial system updates, SDRs should see reduced costs by not having to accommodate these reports. CFTC SMEs estimate the cost of these changes to be small for large reporting entities and SDRs.

The Commission received comments from Eurex, ISDA-SIFMA, and NRECA-APPA in support of this amendment.^[441] The Commission did not receive any comments providing additional data, significant cost-benefit alternatives, or other opposing or critical views on the costs and benefits. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.

6. Costs and Benefits of Amendments to Part 46

a. § 46.3—Swap Data Reporting for Pre-Enactment Swaps and Transition Swaps

The Commission is amending § 46.3 to remove an exception for required swap continuation data reporting for pre-enactment and transition swaps. Existing § 46.3(a)(2) provides that reporting counterparties need to report only a subset of part 45 swap data elements when reporting updates to pre-enactment and transition swaps. The Commission is removing that exception to specify that reporting counterparties would report updates to pre-enactment and transition swaps according to part 45.

The Commission believes this is current practice for SDRs and reporting counterparties, and therefore should not impact costs or benefits to SDRs and reporting counterparties. The Commission did not receive any comments on the cost-benefit considerations for the proposed changes to § 46.3.

b. § 46.10—Required Data Standards

The Commission is updating § 46.10 to require reporting counterparties to use the required data standards outlined in § 45.13(a) and data elements in appendix 1 for reporting historical swaps to SDRs. The Commission believes reporting counterparties currently use the same data standards for both parts 45 and 46 reporting. This change will ensure that reporting counterparties continue to do so under the updated list of swap data elements in appendix 1 and the new technical specification.

SDRs and reporting counterparties will both incur costs in updating their part 46 reporting systems to report according to any of the changes to part 45 reporting. However, given the diminishing number of historical swaps that have not yet matured or been terminated, the Commission expects these costs will be negligible compared to the costs associated with complying with new data elements in appendix 1. In addition, since the data elements are the same, any costs or benefits are captured in the Commission's analysis for § 45.3. The Commission did not receive any comments on the cost-benefit considerations for the proposed changes to § 46.10.

c. § 46.11—Reporting of Errors and Omissions in Previously Omitted Data

The Commission is removing § 46.11(b) to remove the option for state data reporting. This is consistent with the Commission's elimination of state data reporting in § 45.4. While the number of historical swaps that have not yet matured or been terminated is dwindling, SD/MSP and non-SD/MSP reporting counterparties would see a reduction in costs due to no longer having to submit daily reports for any open swaps.^[442] The Commission did not receive any comments on the cost-benefit considerations for the proposed removal of § 46.11(b).

7. Costs and Benefits of Amendments to Part 49

a. § 49.4—Withdrawal From Registration

The Commission is amending § 49.4 to (i) remove the erroneous requirement for SDRs to submit a statement to the Commission that the custodial SDR is authorized to make the withdrawing SDR's data and records available in accordance with § 1.44; and (ii) remove the § 49.4(a)(2) requirement that prior to filing a request to withdraw, a registered SDR file an amended Form SDR to update any inaccurate information and replace it with a new requirement for SDRs to execute an agreement with the custodial SDR governing the custody of the withdrawing SDR's data and records prior to filing a request to withdraw with the Commission. The Commission believes the amendments will simplify the regulations and help ensure that swap data is properly transferred to a different SDR when one SDR withdraws from registration.

i. Benefits

The Commission believes SDRs will benefit from the removal of the unnecessary requirement to update Form SDR prior to withdrawing from registration. The swaps market will benefit from having an explicit regulatory requirement for an SDR withdrawing from registration to have an agreement with the custodial SDR regarding the withdrawing SDR's data and records. This will also benefit market participants by ensuring the preservation of historical swap data which will improve the Commission's oversight abilities and promote the health and integrity of swaps markets.

ii. Costs

The Commission believes SDRs will not incur any material costs associated with the changes.^[443] SDRs will execute a custodial agreement to transfer the data as a matter of due course. The changes concerning timing and removing the erroneous reference will not result in costs for the SDRs. The Commission did not receive any comments on the cost-benefit considerations for the proposed changes to § 49.4. In the absence of material costs, the Commission believes the expected benefits justify this amendment.

b. § 49.10—Acceptance of Data

Most of the amendments to § 49.10 are non-substantive technical amendments. However, the Commission is adding new § 49.10(c) to require SDRs to validate SDR data. New § 49.10(c) will require that SDRs establish data validations. SDRs will also be required to send SEFs, DCMs, and reporting counterparties data validation acceptance and error messages that identify the validation errors. The Commission is prohibiting SDRs from rejecting a swap transaction and pricing data message if it was submitted jointly with a swap data message that contained a validation error.

i. Benefits

SDRs, SEFs, DCMs, and reporting counterparties will benefit by having a single set of validation rules in the technical specification instead of the current environment where each SDR applies different validations they designed independently. A common set of validations specified in the technical data standards will also benefit market participants by streamlining the data reporting process for market participants and ensuring more accurate data which facilitates more effective market oversight by the Commission.

ii. Costs

SDRs, SEFs, DCMs, and reporting counterparties will incur costs in updating their reporting systems to apply these validation rules.^[444] To the extent SDRs operate in multiple jurisdictions, ESMA already requires many data validations similar to those in the DMO technical specification to be published on cftc.gov. An SDR may have to spend fewer resources updating its systems for the changes in § 49.10(c) if it has already made these changes for European market participants. Similarly, SEFs, DCMs, and reporting counterparties reporting to European TRs may have to spend fewer resources making these updates. In both cases, the cost of implementing these changes is expected to be fully contained in the costs associated with implementing the data standards detailed in section VII.C.5.a above, since the validations are part of the data standards. As a result, the Commission expects the cost of implementing data validations to be fully encapsulated by the effort to implement the data standards.

The Commission received comments from FIA that they believe validations will improve data accuracy.^[445] Markit supports validations notes they will allow third-party service providers to develop data validation solutions for reporting parties that will substantially reduce the cost of complying with them.^[446] NRECA-APPA note these validations burden swap market participants and requests evidence of regulatory benefits that would offset their costs.^[447] In response, the Commission maintains the critical regulatory benefits of more accurate swap data noted multiple times throughout section VII.C of this final rule and consistent with Congressional goals reflected in the Dodd-Frank Act—including more effective market oversight by the Commission and streamlined reporting processes for market participants—provide the necessary degree of justifying benefits. The Commission did not receive any comments that provided additional data, significant cost-benefit alternatives, or other opposing or critical views on the costs and benefits.

In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.

8. Consideration of CEA Section 15(a) Factors

The Dodd-Frank Act sought to promote the financial stability of the U.S., in part, by improving financial system accountability and transparency. More specifically, Title VII of the Dodd-Frank Act directs the Commission to promulgate regulations to increase swaps markets' transparency and thereby reduce the potential for counterparty and systemic risk.^[448] Transaction-based reporting is a fundamental component of the legislation's objectives to increase transparency, reduce risk, and promote market integrity within the financial system generally, and the swaps market in particular. SDRs and SEFs, DCMs, and other reporting entities that submit data to SDRs are central to achieving the legislation's objectives related to swap reporting.

CEA section 15(a) requires the Commission to consider the costs and benefits of the proposed amendments to parts 45, 46, and 49 with respect to the following factors:

• Protection of market participants and the public;
• Efficiency, competitiveness, and financial integrity of markets;
• Price discovery;
• Sound risk management practices; and
• Other public interest considerations.

The Commission discusses the CEA section 15(a) factors below.

a. Protection of Market Participants and the Public

The Commission believes the reporting changes under parts 45, 46, and 49 will enhance protections already in place for market participants and the public. By lengthening reporting timeframes and standardizing data formats, the Commission believes it will receive more cohesive, more standardized, and, ultimately, more accurate data without sacrificing the ability to oversee the markets robustly. Higher-quality swap data will improve the Commission's oversight and enforcement capabilities, and, in turn, will aid it in protecting markets, participants, and the public in general.

b. Efficiency, Competitiveness, and Financial Integrity

The Commission believes the final rules will streamline reporting and improve efficiencies given the improved data standardization. By identifying reporting entities and more sharply defining reporting responsibilities by making DCO reporting duties clearer, the final rules strive to improve the reliability and consistency of swap data. This enhanced reliability, in turn, is an added support that might further lead to bolstering the financial integrity of swaps markets. Finally, the validation of swap data will improve the accuracy and completeness of swap data available to the Commission and will assist the Commission with, among other things, improved monitoring of risk exposures of individual counterparties, monitoring concentrations of risk exposure, and evaluating systemic risk.

c. Price Discovery

The Commission does not believe the final rules will have a significant impact on price discovery.

d. Risk Management Practices

The Commission believes the final rules will improve the quality of swap data reported to SDRs and, hence, improve the Commission's ability to monitor the swaps market, react to changes in market conditions, and fulfill its regulatory responsibilities generally. The Commission believes regulator access to high-quality swap data is essential for regulators to monitor the swaps market for systemic risk or unusually large concentrations of risk in individual swaps markets or asset classes.

e. Other Public Interest Considerations

The Commission believes the improved accuracy resulting from improvements to data entry by market participants and validation efforts by SDRs via the final rules has other public interest impacts including:

• Increased understanding for the public, market participants, and the Commission of the interaction between the swaps market, other financial markets, and the overall economy;
• Improved regulatory oversight and enforcement capabilities; and
• Enhanced information for the Commission and other regulators so that they may establish more effective public policies to monitor and, where necessary, reduce overall systemic risk.

D. Antitrust Considerations

CEA section 15(b) requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of the CEA, in issuing any order or adopting any Commission rule or regulation.

The Commission does not believe the changes to part 45 would result in anti-competitive behavior. The Commission believes the amendments to § 45.10(d) that would permit reporting counterparties to change SDRs would promote competition by encouraging SDRs to offer competitive pricing and services to encourage reporting counterparties to either stay customers or come to their SDR. The Commission did not receive any comments on the antitrust considerations in the Proposal.

List of Subjects

17 CFR Part 45

• Data recordkeeping requirements
• Data reporting requirements
• Swaps

17 CFR Part 46

• Data recordkeeping requirements
• Data reporting requirements
• Swaps

17 CFR Part 49

• Registration and regulatory requirements
• Swap data repositories

For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR chapter I as follows:

PART 45—SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS

1. The authority citation for part 45 continues to read as follows:

Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a, and 24a, as amended by Title VII of the Wall Street Reform and Consumer Protection Act of 2010, Pub. L. 111-203, 124 Stat. 1376 (2010), unless otherwise noted.

2. Revise § 45.1 to read as follows:

3. In § 45.2:

a. Remove all instances of “non-SD/MSP” and add in its place “non-SD/MSP/DCO”; and

b. For each paragraph indicated in the left column of the table below, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column:

4. Revise § 45.3 to read as follows:

5. Revise § 45.4 to read as follows:

6. Amend § 45.5 by:

a. Revising the section heading and paragraphs (a)(1)(i); (b)(1)(i); (b)(2)(ii); (c) introductory text; (c)(1) introductory text; (c)(1)(i); (d) introductory text; (d)(1)(i);

b. In the table below, for each paragraph indicated in the left column, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column:

c. Revising paragraph (f) and adding paragraphs (g) and (h); and

d. Removing all instances of “unique swap identifier” and “unique swap identifiers” and adding in their place “unique transaction identifier” and “unique transaction identifiers”, respectively.

The revisions and additions read as follows:

7. Revise § 45.6 to read as follows:

8. Amend § 45.7 introductory text by removing “subject to the jurisdiction of the Commission”.

9. In § 45.8:

a. Revise the section heading and the introductory text;

b. Remove “non-SD/MSP” wherever it appears and add in its place “non-SD/MSP/DCO”; and

c. In the table below, for each paragraph indicated in the left column, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column:

The revisions read as follows:

10. Amend § 45.9 by removing “swap counterparties” and adding in its place “reporting counterparties”.

11. Revise § 45.10 to read as follows:

12. Revise § 45.11 to read as follows:

13. Remove and reserve § 45.12.

14. Revise § 45.13 to read as follows:

15. Add § 45.15 to read as follows:

16. Revise appendix 1 to part 45 to read as follows:

Appendix 1 to Part 45—Swap Data Elements

PART 46-SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS: PRE-ENACTMENT AND TRANSITION SWAPS

17. The authority citation for part 46 continues to read as follows:

Authority: Title VII, sections 723 and 729, Pub. L. 111-203, 124 Stat. 1738.

18. Amend § 46.1 by:

a. Revising the introductory text and designating it as paragraph (a) introductory text;

b. Revising the definition of “Asset class”;

c. Removing the definitions of “Credit swap”, “Foreign exchange forward”, “Foreign exchange instrument”, and “Foreign exchange swap”;

d. Adding, in alphabetical order, a definition for “Historical swap”

e. Removing the definitions of “Interest rate swap”, “International swap”, and “Major swap participant”;

f. Removing the definition of “Non-SD/MSP counterparty” and adding a definition for “Non-SD/MSP/DCO counterparty”;

g. Removing the definition of “Other commodity swap”;

h. Revising the definitions of “Reporting counterparty” and “Required swap continuation data”;

i. Adding, in alphabetical order, a definition for “Substitute counterparty identifier”;

j. Removing the definitions of “Swap data repository” and “Swap dealer”; and

k. Adding paragraph (b).

The revisions and additions read as follows:

19. Remove from § 46.2 the text “non-SD/MSP” and add in its place “non-SD/MSP/DCO” wherever it appears.

20. In § 46.3:

a. Revise the section heading;

b. Remove from the end of paragraph (a)(1)(iii)(A) “; and” and add in its place a period;

c. Revise paragraph (a)(2)(i); and

d. Remove from paragraph (a)(3)(i) the text “first report of required swap creation data” and add in its place “first report of such data”.

The revisions read as follows:

21. In the table below, for each section and paragraph indicated in the left column, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column:

22. In § 46.10:

a. Remove the text “reporting swap data” and add in its place “reporting data for a pre-enactment or a transition swap”; and

b. Add a second sentence to read as follows:

23. Amend § 46.11 by:

a. Removing from paragraph (a) the text “report swap data” and adding in its place “report data for a pre-enactment or a transition swap”;

b. Removing paragraph (b);

c. Redesignating paragraph (c) as new paragraph (b) and revising it; and

d. Redesignating paragraph (d) as new paragraph (c).

The revision reads as follows:

PART 49—SWAP DATA REPOSITORIES

24. The authority citation for part 49 is revised to read as follows:

Authority: 7 U.S.C. 1a, 2(a), 6r, 12a, and 24a, as amended by Title VII of the Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (Jul. 21, 2010), unless otherwise noted.

25. In § 49.2(a),

a. Remove the paragraph designations of the definitions and arrange the definitions in alphabetical order;

b. Add, in alphabetical order, definitions for the terms “Data validation acceptance message”; “Data validation error”; “Data validation error message”; and “Data validation procedures”

c. Redesignate paragraphs (i) through (iii) under the definition for “Non-affiliated third party” as paragraphs (1) through (3);

d. Redesignate paragraphs (i) through (iii) under the definition for “Person associated with a swap data repository” as paragraphs (1) through (3); and

e. Redesignate paragraphs (i) through (vi) under the definition for “Position” as paragraphs (1) through (6);

The additions read as follows:

26. In § 49.4:

a. For each paragraph indicated in the left column of the table below, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column:

b. Remove paragraph (a)(1)(iv) and revise paragraph (a)(2).

The revision reads as follows:

27. Revise § 49.10 to read as follows:

Note:

The following appendices will not appear in the Code of Federal Regulations.

Appendices to Swap Data Recordkeeping and Reporting Requirements—Commission Voting Summary, Chairman's Statement, and Commissioners' Statements

Appendix 1—Commission Voting Summary

On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.

Appendix 2—Statement of Chairman Heath P. Tarbert

I am pleased to support today's final swap data reporting rules under Parts 43, 45, and 49 of the CFTC's regulations, which are foundational to effective oversight of the derivatives markets. As I noted when these rules were proposed in February, “[d]ata is the lifeblood of our markets.” ^[1] Little did I know just how timely that statement would prove to be.

COVID-19 Crisis and Beyond

In the month following our data rule proposals, historic volatility caused by the coronavirus pandemic rocketed through our derivatives markets, affecting nearly every asset class.^[2] I said at the time that while our margin rules acted as “shock absorbers” to cushion the impact of volatility, the Commission was also considering data rules that would expand our insight into potential systemic risk. In particular, the data rules “would for the first time require the reporting of margin and collateral data for uncleared swaps . . . significantly strengthen[ing] the CFTC's ability to monitor for systemic risk” in those markets.^[3] Today we complete those rules, shoring up the data-based reporting systems that can help us identify—and quickly respond to—emerging systemic threats.

But data reporting is not just about mitigating systemic risk. Vibrant derivatives markets must be open and free, meaning transparency is a critical component of any reporting system. Price discovery requires robust public reporting that supplies market participants with the information they need to price trades, hedge risk, and supply liquidity. Today we double down on transparency, ensuring that public reporting of swap transactions is even more accurate and timely. In particular, our final rules adjust certain aspects of the Part 43 proposal's block-trade ^[4] reporting rules to improve transparency in our markets. These changes have been carefully considered to enhance clarity, one of the CFTC's core values.^[5]

Promoting clarity in our markets also demands that we, as an agency, have clear goals in mind. Today's final swap data reporting rules reflect a hard look at the data we need and the data we collect, building on insights gleaned from our own analysis as well as feedback from market participants. The key point is that more data does not necessarily mean better information. Instead, the core of an effective data reporting system is focus.

As Aesop reminds us, “Beware lest you lose the substance by grasping at the shadow.” ^[6] Today's final swap data reporting rules place substance first, carefully tailoring our requirements to reach the data that really matters, while removing unnecessary burdens on our market participants. As Bill Gates once remarked, “My success, part of it certainly, is that I have focused in on a few things.” ^[7] So too are the final swap data reporting rules limited in number. The Part 45 Technical Specification, for example, streamlines hundreds of different data fields currently required by swap data repositories into 128 that truly advance the CFTC's regulatory goals. This focus will simplify the data reporting process without undermining its effectiveness, thus fulfilling the CFTC's strategic goal of enhancing the regulatory experience for market participants at home and abroad.^[8]

That last point is worth highlighting: Our final swap data reporting rules account for market participants both within and outside the United States. A diversity of market participants, some of whom reside beyond our borders and are accountable to foreign regulatory regimes, contribute to vibrant derivatives markets. But before today, inconsistent international rules meant some swap dealers were left to navigate what I have called “a byzantine maze of disparate data fields and reporting timetables” for the very same swap.^[9] While perfect alignment may not be possible or even desirable, the final rules significantly harmonize reportable data fields, compliance timetables, and implementation requirements to advance our global markets. Doing so brings us closer to realizing the CFTC's vision of being the global standard for sound derivatives regulation.^[10]

Overview of the Swap Data Reporting Rules

It is important to understand the specific function of each of the three swap data reporting rules, which together form the CFTC's reporting system. First, Part 43 relates to the real-time public reporting of swap pricing and transaction data, which appears on the “public tape.” Swap dealers and other reporting parties supply Part 43 data to swap data repositories (SDRs), which then make the data public. Part 43 includes provisions relating to the treatment and public reporting of large notional trades (blocks), as well as the “capping” of swap trades that reach a certain notional amount.

Second, Part 45 relates to the regulatory reporting of swap data to the CFTC by swap dealers and other covered entities. Part 45 data provides the CFTC with insight into the swaps markets to assist with regulatory oversight. A Technical Specification available on the CFTC's website ^[11] includes data elements that are unique to CFTC reporting, as well as certain “Critical Data Elements,” which reflect longstanding efforts by the CFTC and other regulators to develop global guidance for swap data reporting.^[12]

Finally, Part 49 requires data verification to help ensure that the data reported to SDRs and the CFTC in Parts 43 and 45 is accurate. The final Part 49 rule will provide enhanced and streamlined oversight of SDRs and data reporting generally. In particular, Part 49 will now require SDRs to have a mechanism by which reporting counterparties can access and verify the data for their open swaps held at the SDR. A reporting counterparty must compare the SDR data with the counterparty's own books and records, correcting any data errors with the SDR.

Systemic Risk Mitigation

Today's final swap data reporting rules are designed to fulfill our agency's first Strategic Goal: to strengthen the resilience and integrity of our derivatives markets while fostering the vibrancy.^[13] The Part 45 rule requires swap dealers to report uncleared margin data for the first time, enhancing the CFTC's ability to “to monitor systemic risk accurately and to act quickly if cracks begin to appear in the system.” ^[14] As Justice Brandeis famously wrote in advocating for transparency in organizations, “sunlight is the best disinfectant.” ^[15] So too it is for financial markets: the better visibility the CFTC has into the uncleared swaps markets, the more effectively it can address what until now has been “a black box of potential systemic risk.” ^[16]

Doubling Down on Transparency

Justice Brandeis's words also resonate across other areas of the final swap data reporting rules. The final swap data reporting rules enhance transparency to the public of pricing and trade data.

1. Blocks and Caps

A critical aspect of the final Part 43 rule is the issue of block trades and dissemination delays. When the Part 43 proposal was issued, I noted that “[o]ne of the issues we are looking at closely is whether a 48-hour delay for block trade reporting is appropriate.” ^[17] I encouraged market participants to “provide comment letters and feedback concerning the treatment of block delays.” ^[18] Market participants responded with extensive feedback, much of which advocated for shorter delays in making block trade data publicly available. I agree with this view, and support a key change in the final Part 43 rule. Rather than apply the proposal's uniform 48-hour dissemination delay on block trade reporting, the final rule returns to bespoke public reporting timeframes that consider liquidity, market depth, and other factors unique to specific categories of swaps. The result is shorter reporting delays for most block trades.

The final Part 43 rule also changes the threshold for block trade treatment, raising the amount needed from a 50% to 67% notional calculation. It also increases the threshold for capping large notional trades from 67% to 75%. These changes will enhance market transparency by applying a stricter standard for blocks and caps, thereby enhancing public access to swap trading data. At the same time, the rule reflects serious consideration of how these thresholds are calculated, particularly for block trades. In excluding certain option trades and CDS trades around the roll months from the 67% notional threshold for blocks, the final rule helps ensure that dissemination delays have their desired effect of preventing front-running and similar disruptive activity.

2. Post-Priced and Prime-Broker Swaps

The swaps market is highly complex, reflecting a nearly endless array of transaction structures. Part 43 takes these differences into account in setting forth the public reporting requirements for price and transaction data. For example, post-priced swaps are valued after an event occurs, such as the ringing of the daily closing bell in an equity market. As it stands today, post-priced swaps often appear on the public tape with no corresponding pricing data—rendering the data largely unusable. The final Part 43 rule addresses this data quality issue and improves price discovery by requiring post-priced swaps to appear on the public tape after pricing occurs.

The final Part 43 rule also resolves an issue involving the reporting of prime-brokerage swaps. The current rule requires that offsetting swaps executed with prime brokers—in addition to the initial swap reflecting the actual terms of trade—be reported on the public tape. This duplicative reporting obfuscates public pricing data by including prime-broker costs and fees that are unrelated to the terms of the swap. As I explained when the rule was proposed, cluttering the public tape with duplicative or confusing data can impair price discovery.^[19] The final Part 43 rule addresses this issue by requiring that only the initial “trigger” swap be reported, thereby improving public price information.

3. Verification and Error Correction

Data is only as useful as it is accurate. The final Part 49 rule establishes an efficient framework for verifying SDR data accuracy and correcting errors, which serves both regulatory oversight and public price discovery purposes.

Improving the Regulatory Experience

Today's final swap data reporting rules improve the regulatory experience for market participants at home and abroad in several key ways, advancing the CFTC's third Strategic Goal.^[20] Key examples are set forth below.

1. Streamlined Data Fields

As I stated at the proposal stage, “[s]implicity should be a central goal of our swap data reporting rules.” ^[21] This sentiment still holds true, and a key improvement to our final Part 45 Technical Specification is the streamlining of reportable data fields. The current system has proven unworkable, leaving swap dealers and other market participants to wander alone in the digital wilderness, with little guidance about the data elements that the CFTC actually needs. This uncertainty has led to “a proliferation of reportable data fields” required by SDRs that “exceed what market participants can readily provide and what the [CFTC] can realistically use.” ^[22]

We resolve this situation today by replacing the sprawling mass of disparate SDR fields—sometimes running into the hundreds or thousands—with 128 that are important to the CFTC's oversight of the swaps markets. These fields reflect an honest look at the data we are collecting and the data we can use, ensuring that our market participants are not burdened with swap reporting obligations that do not advance our statutory mandates.

2. Regulatory Harmonization

The swaps markets are integrated and global; our data rules must follow suit.^[23] To that end, the final Part 45 rule takes a sensible approach to aligning the CFTC's data reporting fields with the standards set by international efforts. Swap data reporting is an area where harmonization simply makes sense. The costs of failing to harmonize are high, as swap dealers and other reporting parties must provide entirely different data sets to multiple regulators for the very same swap.^[24] A better approach is to conform swap data reporting requirements where possible.

Data harmonization is not just good for market participants: it also advances the CFTC's vision of being the global standard for sound derivatives regulation.^[25] The CFTC has a long history of leading international harmonization efforts in data reporting, including by serving as a co-chair of the Committee on Payments and Infrastructures and the International Organization of Securities Commissioners (CPMI-IOSCO) working group on critical data elements (CDE) in swap reporting.^[26] I am pleased to support a final Part 45 rule that advances these efforts by incorporating CDE fields that serve our regulatory goals.

In addition to certain CDE fields, the final Part 45 rule also adopts other important features of the CPMI-IOSCO Technical Guidance, such as the use of a Unique Transaction Identifier (UTI) system in place of today's Unique Swap Identifier (USI) system. This change will bring the CFTC's swap data reporting system in closer alignment with those of other regulators, leading to better data sharing and lower burdens on market participants.

Last, the costs of altering data reporting systems makes implementation timeframes especially important. To that effect, the CFTC has worked with ESMA to bring our jurisdictions' swap data reporting compliance timetables into closer harmony, easing transitions to new reporting systems.

3. Verification and Error Correction

The final Part 49 rule has changed since the proposal stage to facilitate easier verification of SDR data by swap dealers. Based on feedback we received, the final rule now requires SDRs to provide a mechanism for swap dealers and other reporting counterparties to access the SDR's data for their open swaps to verify accuracy and address errors. This approach replaces a message-based system for error identification and correction, which would have produced significant implementation costs without improving error remediation. The final rule achieves the goal—data accuracy—with fewer costs and burdens.^[27]

4. Relief for End Users

I have long said that if our derivatives markets are not working for agriculture, then they are not working at all.^[28] While swaps are often the purview of large financial institutions, they also provide critical risk-management functions for end users like farmers, ranchers, and manufacturers. Our final Part 45 rule removes the requirement that end users report swap valuation data, and it provides them with a longer “T+2” timeframe to report the data that is required. I am pleased to support these changes to end-user reporting, which will help ensure that our derivatives markets work for all Americans, advancing another CFTC strategic goal.^[29]

Conclusion

The derivatives markets run on data. They will be even more reliant on it in the future, as digitization continues to sweep through society and industry. I am pleased to support the final rules under Parts 43, 45, and 49, which will help ensure that the CFTC's swap data reporting systems are effective, efficient, and built to last.

Appendix 3—Supporting Statement of Commissioner Brian Quintenz

I am pleased to support these amendments to part 45 regulatory reporting, which hopefully represent the beginning of the end of this agency's longstanding efforts to collect and utilize accurate, reliable swap data to further its regulatory mandates.

There is frequently a trade-off between being first and being right. That is especially true when it comes to regulation and specifically true when it comes to the CFTC's historical approach to data reporting. Although the CFTC was the first regulator in the world to implement swap data reporting requirements, it did so only in a partial, non-descriptive, and non-technical fashion, which has led to the fact that, even today—more than 10 years after Dodd Frank—the Commission has great difficulty aggregating and analyzing data for uncleared swaps across swap data repositories (SDRs).

Since the CFTC first implemented its swap data reporting requirements, the CFTC has continued to lead global efforts to reach international consensus on those reporting requirements so that derivatives regulators can finally get a clear picture of the uncleared swaps landscape. I would like to recognize the diligent efforts of DMO staff to finally get us over the finish line.

Today's amendments to part 45 regulatory reporting will provide the Commission with the homogeneous data it needs to readily analyze swap data for both cleared and uncleared swaps across jurisdictions. The final rule eliminates unnecessary reporting fields and implements internationally agreed to “critical data elements” (CDE fields) consistently with the detailed technical standards put forth by CPMI-IOSCO.^[1]

The final rule also provides reporting counterparties with a longer time to report trades accurately to an SDR by moving to a “T+1” reporting timeframe for swap dealer (SD), derivatives clearing organization (DCO), and swap execution facility (SEF) reporting parties, and a “T+2” reporting timeframe for non-SD/DCO/SEF reporting counterparties. I have long supported providing additional time for market participants to meet their regulatory reporting obligations given it is a matter of being right, not first. A later regulatory reporting deadline will help counterparties report the trade correctly the first time, instead of reporting an erroneous trade that then needs to be corrected later. This change also more closely harmonizes the CFTC's and ESMA's reporting deadlines.

For the first time, the final rule also requires SD reporting counterparties to report daily margin and collateral information for uncleared swaps to the Commission. However, the final rule would not require DCO reporting parties to report margin and collateral information with respect to cleared swaps. Instead, the Commission will continue to rely on the comprehensive margin and collateral data reported by DCOs pursuant to part 39. Importantly, in order to alleviate burdens on small reporting counterparties, non-SD/MSP reporting counterparties are not required to report valuation, margin, or collateral information to the Commission.

Although this final rule implements the lion's share of regulatory reporting requirements, it is not quite the capstone of the Commission's reporting efforts. The CDE technical guidance did not harmonize many data elements that are relevant to the physical commodity and equity swap asset classes. More work remains to be done with respect to how certain data elements should be reported, including how the prices and quantities of physical commodity swaps should be reported and how swaps on customized equity baskets should be represented. I know DMO will continue to play an active role through CPMI-IOSCO's CDE governance process to ensure that additional guidance and specificity are provided regarding the data elements for these asset classes.

I support the CFTC's efforts to adopt the CDE fields—the most basic data elements that are critical to the analysis and supervision of swaps activities—in a manner identical to other jurisdictions' reporting fields. Over time and through cooperative arrangements with other jurisdictions, global aggregation and measurement of risk, including counterparty credit risk, can become a reality. However, as the Commission moves closer to achieving its goal of global data harmonization, in my opinion, it should keep in mind that the benefits of harmonization should always be balanced against the burdens and practical realities facing reporting counterparties. I think the final rule before us today strikes an appropriate balance on this point.

Appendix 4—Concurring Statement of Commissioner Rostin Behnam

I respectfully concur in the Commission's amendments to its regulations regarding real-time public reporting, recordkeeping, and swap data repositories. The three rules being finalized together today are the culmination of a multi-year effort to streamline, simplify, and internationally harmonize the requirements associated with reporting swaps. Today's actions represent the end of a long procedural road at the Commission, one that started with the Commission's 2017 Roadmap to Achieve High Quality Swap Data.^[1]

But the road really goes back much further than that, to the time prior to the 2008 financial crisis, when swaps were largely exempt from regulation and traded exclusively over-the-counter.^[2] Lack of transparency in the over-the-counter swaps market contributed to the financial crisis because both regulators and market participants lacked the visibility necessary to identify and assess swaps market exposures, counterparty relationships, and counterparty credit risk.^[3]

In the aftermath of the financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Dodd-Frank Act).^[4] The Dodd-Frank Act largely incorporated the international financial reform initiatives for over-the-counter derivatives laid out at the 2009 G20 Pittsburgh Summit, which sought to improve transparency, mitigate systemic risk, and protect against market abuse.^[5] With respect to data reporting, the policy initiative developed by the G20 focused on establishing a consistent and standardized global data set across jurisdictions in order to support regulatory efforts to timely identify systemic risk. The critical need and importance of this policy goal given the consequences of the financial crisis cannot be overstated.

Among many critically important statutory changes, which have shed light on the over-the-counter derivatives markets, Title VII of the Dodd-Frank Act amended the Commodity Exchange Act (“CEA” or “Act”) and added a new term to the Act: “real-time public reporting.” ^[6] The Act defines that term to mean reporting “data relating to swap transaction, including price and volume, as soon as technologically practicable after the time at which the swap transaction has been executed.” ^[7]

As we amend these rules, I think it is important that we keep in mind the Dodd-Frank Act's emphasis on transparency, and what transpired to necessitate that emphasis. However, the Act is also clear that its purpose, in regard to transparency and real time public reporting, is to authorize the Commission to make swap transaction and pricing data available to the public “as the Commission determines appropriate to enhance price discovery.” ^[8] The Act expressly directs the Commission to specify the criteria for what constitutes a block trade, establish appropriate time delays for disseminating block trade information to the public, and “take into account whether the public disclosure will materially reduce market liquidity.” ^[9] So, as we keep Congress's directive regarding public transparency (and the events that necessitated that directive) in mind as we promulgate rules, we also need to be cognizant of instances where public disclosure of the details of large transactions in real time will materially reduce market liquidity. This is a complex endeavor, and the answers vary across markets and products. I believe that these final rules strike an appropriate balance.

Today's final rules amending the swap data and recordkeeping and reporting requirements also culminate a multi-year undertaking by dedicated Commission staff and our international counterparts working through the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions working group for the harmonization of key over-the-counter derivatives data elements. The amendments benefit from substantial public consultation as well as internal data and regulatory analyses aimed at determining, among other things, how the Commission can meet its current data needs in support of its duties under the CEA. These include ensuring the financial integrity of swap transactions, monitoring of substantial and systemic risks, formulating bases for and granting substituted compliance and trade repository access, and entering information sharing agreements with fellow regulators.

I wish to thank the responsible staff in the Division of Market Oversight, as well as in the Offices of International Affairs, Chief Economist, and General Counsel for their efforts and engagement over the last several years as well as their constructive dialogues with my office over the last several months. Their timely and fulsome responsiveness amid the flurry of activity at the Commission as we continue to work remotely is greatly appreciated.

The final rules should improve data quality by eliminating duplication, removing alternative or adjunct reporting options, utilizing universal data elements and identifiers, and focusing on critical data elements. To the extent the Commission is moving forward with mandating a specific data standard for reporting swap data to swap data repositories (“SDRs”), and that the standard will be ISO 20022, I appreciate the Commission's thorough discussion of its rationale in support of that decision. I also commend Commission staff for its demonstrated expertise in incorporating the mandate into the regulatory text in a manner that provides certainty while acknowledging that the chosen standard remains in development.

The rules provide clear, reasonable and universally acceptable reporting deadlines that not only account for the minutiae of local holidays, but address the practicalities of common market practices such as allocation and compression exercises.

I am especially pleased that the final rules require consistent application of rules across SDRs for the validation of both Part 43 and Part 45 data submitted by reporting counterparties. I believe the amendments to part 49 set forth a practical approach to ensuring SDRs can meet the statutory requirement to confirm the accuracy of swap data set forth in CEA section 21(c) ^[10] without incurring unreasonable burdens.

I appreciate that the Commission considered and received comments regarding whether to require reporting counterparties to indicate whether a specific swap: (1) Was entered into for dealing purposes (as opposed to hedging, investing, or proprietary trading); and/or (2) needs not be considered in determining whether a person is a swap dealer or need not be counted towards a person's de minimis threshold for purposes of determining swap dealer status under Commission regulations.^[11] While today's rules may not be the appropriate means to acquire such information, I continue to believe that that the Commission's ongoing surveillance for compliance with the swap dealer registration requirements could be enhanced through data collection and analysis.

Thank you again to the staff who worked on these rules. I support the overall vision articulated in these several rules and am committed to supporting the acquisition and development of information technology and human resources needed for execution of that vision. As data forms the basis for much of what we do here at the Commission, especially in terms of identifying, assessing, and monitoring risk, I look forward to future discussions with staff regarding how the CFTC's Market Risk Advisory Committee which I sponsor may be of assistance.

Appendix 5—Statement of Commissioner Dan M. Berkovitz

Introduction

I support today's final rules amending the swap data reporting requirements in parts 43, 45, 46, and 49 of the Commission's rules (the “Reporting Rules”). The amended rules provide major improvements to the Commission's swap data reporting requirements. They will increase the transparency of the swap markets, enhance the usability of the data, streamline the data collection process, and better align the Commission's reporting requirements with international standards.

The Commission must have accurate, timely, and standardized data to fulfill its customer protection, market integrity, and risk monitoring mandates in the Commodity Exchange Act (“CEA”).^[1] The 2008 financial crisis highlighted the systemic importance of global swap markets, and drew attention to the opacity of a market valued notionally in the trillions of dollars. Regulators such as the CFTC were unable to quickly ascertain the exposures of even the largest financial institutions in the United States. The absence of real-time public swap reporting contributed to uncertainty as to market liquidity and pricing. One of the primary goals of the Dodd-Frank Act is to improve swap market transparency through both real-time public reporting of swap transactions and “regulatory reporting” of complete swap data to registered swap data repositories (“SDRs”).^[2]

As enacted by the Dodd-Frank Act, CEA section 2(a)(13)(G) directs the CFTC to establish real-time and comprehensive swap data reporting requirements, on a swap-by-swap basis. CEA section 21 establishes SDRs as the statutory entities responsible for receiving, storing, and facilitating regulators' access to swap data. The Commission began implementing these statutory directives in 2011 and 2012 in several final rules that addressed regulatory and real-time public reporting of swaps; established SDRs to receive data and make it available to regulators and the public; and defined certain swap dealer (“SD”) and major swap participant (“MSP”) reporting obligations.^[3]

The Commission was the first major regulator to adopt data repository and swap data reporting rules. Today's final rules are informed by the Commission's and the market's experience with these initial rules. Today's revisions also reflect recent international work to harmonize and standardize data elements.

Part 43 Amendments (Real-Time Public Reporting)

Benefits of Real Time Public Reporting

Price transparency fosters price competition and reduces the cost of hedging. In directing the Commission to adopt real-time public reporting regulations, the Congress stated “[t]he purpose of this section is to authorize 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.” ^[4] For real-time data to be useful for price discovery, SDRs must be able to report standardized, valid, and timely data. The reported data should also reflect the large majority of swaps executed within a particular swap category. The final Reporting Rules for part 43 address a number of infirmities in the current rules affecting the aggregation, validation, and timeliness of the data. They also provide pragmatic solutions to several specific reporting issues, such as the treatment of prime broker trades and post-priced swaps.

Block Trade Reporting

The Commission's proposed rule for block trades included two significant amendments to part 43: (1) Refined swap categories for calculating blocks; and (2) a single 48-hour time-delay for reporting all blocks. In addition, the proposed rule would give effect to increased block trade size thresholds from 50% to 67% of a trimmed (excluding outliers) trade data set as provided for in the original part 43. The increases in the block sizing thresholds and the refinement of swap categories were geared toward better meeting the statutory directives to the Commission to enhance price discovery through real-time reporting while also providing appropriate time delays for the reporting of swaps with very large notional amounts, i.e., block trades.

Although I supported the issuance of the proposed rule, I outlined a number of concerns with the proposed blanket 48-hour delay. As described in the preamble to the part 43 final rule, a number of commenters supported the longer delay as necessary to facilitate the laying off of risk resulting from entering into swaps in illiquid markets or with large notional amounts. Other commenters raised concerns that such a broad, extended delay was unwarranted and could impede, rather than foster, price discovery. The delay also would provide counterparties to large swaps with an information advantage during the 48-hour delay.

The CEA directs the Commission to provide for both real-time reporting and appropriate block sizes. In developing the final rule the Commission has sought to achieve these objectives.

As described in the preamble, upon analysis of market data and consideration of the public comments, the Commission has concluded that the categorization of swap transactions and associated block sizes and time delay periods set forth in the final rule strikes an appropriate balance to achieve the statutory objectives of enhancing price discovery, not disclosing “the business transactions and market positions of any person,” preserving market liquidity, and providing appropriate time delays for block transactions. The final part 43 includes a mechanism for regularly reviewing swap transaction data to refine the block trade sizing and reporting delays as appropriate to maintain that balance.

Consideration of Additional Information Going Forward

I have consistently supported the use of the best available data to inform Commission rulemakings, and the periodic evaluation and updating of those rules, as new data becomes available. The preamble to the final rules for part 43 describes how available data, analytical studies, and public comments informed the Commission's rulemaking. Following press reports about the contents of the final rule, the Commission recently has received comments from a number of market participants raising issues with the reported provisions in the final rule. These commenters have expressed concern that the reported reversion of the time delays for block trades to the provisions in the current regulations, together with the 67% threshold for block trades, will impair market liquidity, increase costs to market participants, and not achieve the Commission's objectives of increasing price transparency and competitive trading of swaps. Many of these commenters have asked the Commission to delay the issuance of the final rule or to re-propose the part 43 amendments for additional public comments.

I do not believe it would be appropriate for the Commission to withhold the issuance of the final rule based on these latest comments and at this late stage in the process. The Commission has expended significant time and resources in analyzing data and responding to the public comments received during the public comment period. As explained in the preamble, the Commission is already years behind its original schedule for revising the block thresholds. I therefore do not support further delay in moving forward on these rules.

Nonetheless, I also support evaluation and refinement of the block reporting rules, if appropriate, based upon market data and analysis. The 30-month implementation schedule for the revised block sizes provides market participants with sufficient time to review the final rule and analyze any new data. Market participants can then provide their views to the Commission on whether further, specific adjustments to the block sizes and/or reporting delay periods may be appropriate for certain instrument classes. This implementation period is also sufficient for the Commission to consider those comments and make any adjustments as may be warranted. The Commission should consider any such new information in a transparent, inclusive, and deliberative manner. Amended part 43 also provides a process for the Commission to regularly review new data as it becomes available and amend the block size thresholds and caps as appropriate.

Cross Border Regulatory Arbitrage Risk

The International Swaps and Derivatives Association, Inc. (“ISDA”) and the Securities Industry and Financial Markets Association (“SIFMA”) commented that higher block size thresholds may put swap execution facilities (“SEFs”) organized in the United States at a competitive disadvantage as compared to European trading platforms that provide different trading protocols and allow longer delays in swap trade reporting. SIFMA and ISDA commented that the higher block size thresholds might incentivize swap dealers to move at least a portion of their swap trading from United States SEFs to European trading platforms. They also noted that this regulatory arbitrage activity could apply to swaps that are subject to mandatory exchange trading. Importantly, European platforms allow a non-competitive single-quote trading mechanism for these swaps while U.S. SEFs are required to maintain more competitive request-for-quotes mechanisms from at least three parties. The three-quote requirement serves to fulfill important purposes delineated in the CEA to facilitate price discovery and promote fair competition.

The migration of swap trading from SEFs to non-U.S. trading platforms to avoid U.S. trade execution and/or swap reporting requirements would diminish the liquidity in and transparency of U.S. markets, to the detriment of many U.S. swap market participants. Additionally, as the ISDA/SIFMA comment letter notes, it would provide an unfair competitive advantage to non-U.S. trading platforms over SEFs registered with the CFTC, who are required to abide by CFTC regulations. Such migration would fragment the global swaps market and undermine U.S. swap markets.^[5]

I have supported the Commission's substituted compliance determinations for foreign swap trading platforms in non-U.S. markets where the foreign laws and regulations provide for comparable and comprehensive regulation. Substituted compliance recognizes the interests of non-U.S. jurisdictions in regulating non-U.S. markets and allows U.S. firms to compete in those non-U.S. markets. However, substituted compliance is not intended to encourage—or permit—regulatory arbitrage or circumvention of U.S. swap market regulations. If swap dealers were to move trading activity away from U.S. SEFs to a foreign trading platform for regulatory arbitrage purposes, such as, for example, to avoid the CFTC's transparency and trade execution requirements, it would undermine the goals of U.S. swap market regulation, and constitute the type of fragmentation of the swaps markets that our cross-border regime was meant to mitigate. It also would undermine findings by the Commission that the non-U.S. platform is subject to regulation that is as comparable and comprehensive as U.S. regulation, or that the non-U.S. regime achieves a comparable outcome.

The Commission should be vigilant to protect U.S. markets and market participants. The Commission should monitor swap data to identify whether any such migration from U.S. markets to overseas markets is occurring and respond, if necessary, to protect the U.S. swap markets.

Part 45 (Swap Data Reporting), Part 46 (Pre-enactment and Transition Swaps), and Part 49 (Swap Data Repositories) Amendments

I also support today's final rules amending the swap data reporting, verification, and SDR registration requirements in parts 45, 46, and 49 of the Commission's rules. These regulatory reporting rules will help ensure that reporting counterparties, including SDs, MSPs, designated contract markets (“DCMs”), SEFs, derivatives clearing organizations (“DCOs”), and others report accurate and timely swap data to SDRs. Swap data will also be subject to a periodic verification program requiring the cooperation of both SDRs and reporting counterparties. Collectively, the final rules create a comprehensive framework of swap data standards, reporting deadlines, and data validation and verification procedures for all reporting counterparties.

The final rules simplify the swap data reports required in part 45, and organize them into two report types: (1) “Swap creation data” for new swaps; and (2) “swap continuation data” for changes to existing swaps.^[6] The final rules also extend the deadline for SDs, MSPs, SEFs, DCMs, and DCOs to submit these data sets to an SDR, from “as soon as technologically practicable” to the end of the next business day following the execution date (T+1). Off-facility swaps where the reporting counterparty is not an SD, MSP, or DCO must be reported no later than T+2 following the execution date.

The amended reporting deadlines will result in a moderate time window where swap data may not be available to the Commission or other regulators with access to an SDR. However, it is likely that they will also improve the accuracy and reliability of data. Reporting parties will have more time to ensure that their data reports are complete and accurate before being transmitted to an SDR.^[7]

The final rules in part 49 will also promote data accuracy through validation procedures to help identify errors when data is first sent to an SDR, and periodic reconciliation exercises to identify any discrepancies between an SDR's records and those of the reporting party that submitted the swaps. The final rules provide for less frequent reconciliation than the proposed rules, and depart from the proposal's approach to reconciliation in other ways that may merit future scrutiny to ensure that reconciliation is working as intended. Nonetheless, the validation and periodic reconciliation required by the final rule is an important step in ensuring that the Commission has access to complete and accurate swap data to monitor risk and fulfill its regulatory mandate.

The final rules also better harmonize with international technical standards, the development of which included significant Commission participation and leadership. These harmonization efforts will reduce complexity for reporting parties without significantly reducing the specific data elements needed by the Commission for its purposes. For example, the final rules adopt the Unique Transaction Identifier and related rules, consistent with CPMI-IOSCO technical standards, in lieu of the Commission's previous Unique Swap Identifier. They also adopt over 120 distinct data elements and definitions that specify information to be reported to SDRs. Clear and well-defined data standards are critical for the efficient analysis of swap data across many hundreds of reporting parties and multiple SDRs. Although data elements may not be the most riveting aspect of Commission policy making, I support the Commission's determination to focus on these important, technical elements as a necessary component of any effective swap data regime.

Conclusion

Today's Reporting Rules are built upon nearly eight years of experience with the current reporting rules and benefitted from extensive international coordination. The amendments make important strides toward fulfilling Congress's mandate to bring transparency and effective oversight to the swap markets. I commend CFTC staff, particularly in Division of Market Oversight and the Office of Data and Technology, who have worked on the Reporting Rules over many years. Swaps are highly variable and can be difficult to represent in standardized data formats. Establishing accurate, timely, and complete swap reporting requirements is a difficult, but important function for the Commission and regulators around the globe. This proposal offers a number of pragmatic solutions to known issues with the current swap data rules. For these reasons, I am voting for the final Reporting Rules.

Footnotes