Confirmation, Portfolio Reconciliation, and Portfolio Compression Requirements for Swap Dealers and Major Swap Participants, 81519-81532 [2010-32264]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 75, Number 248 (Tuesday, December 28, 2010)]
[Proposed Rules]
[Pages 81519-81532]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32264]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 23

RIN 3038-AC96


Confirmation, Portfolio Reconciliation, and Portfolio Compression 
Requirements for Swap Dealers and Major Swap Participants

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing regulations to implement new statutory provisions 
established under Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act). Section 731 of the Dodd-Frank 
Act added a new section 4s(i) to the Commodity Exchange Act (CEA), 
which requires the Commission to prescribe standards for swap dealers 
and major swap participants related to the timely and accurate 
confirmation, processing, netting, documentation, and valuation of 
swaps. The proposed rules would establish requirements for swap 
confirmation, portfolio reconciliation, and portfolio compression for 
swap dealers and major swap participants.

DATES: Submit comments on or before February 28, 2011.

ADDRESSES: You may submit comments, identified by RIN number 3038-AC96 
and Confirmation, Portfolio Reconciliation, and Portfolio Compression 
Requirements for Swap Dealers and Major Swap Participants, by any of 
the following methods:
     Agency Web site, via its Comments Online process at https://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
     Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as mail above.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.

Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://www.cftc.gov. You should submit only information that you wish 
to make available publicly. If you wish the Commission to consider 
information that may be exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the established procedures in 
Sec.  145.9 of the Commission's regulations, 17 CFR 145.9.
    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from https://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted

[[Page 81520]]

or removed that contain comments on the merits of the rulemaking will 
be retained in the public comment file and will be considered as 
required under the Administrative Procedure Act and other applicable 
laws, and may be accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Associate 
Director, 202-418-5684, sjosephson@cftc.gov; Frank N. Fisanich, Special 
Counsel, 202-418-5949, ffisanich@cftc.gov; or Jocelyn Partridge, 
Special Counsel, 202-418-5926, jpartridge@cftc.gov; Division of 
Clearing and Intermediary Oversight, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\ 
Title VII of the Dodd-Frank Act \2\ amended the Commodity Exchange Act 
(CEA) \3\ to establish a comprehensive regulatory framework to reduce 
risk, increase transparency, and promote market integrity within the 
financial system by, among other things: (1) Providing for the 
registration and comprehensive regulation of swap dealers and major 
swap participants; (2) imposing clearing and trade execution 
requirements on standardized derivative products; (3) creating rigorous 
recordkeeping and real-time reporting regimes; and (4) enhancing the 
Commission's rulemaking and enforcement authorities with respect to all 
registered entities and intermediaries subject to the Commission's 
oversight.
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at https://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
    \2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \3\ 7 U.S.C. 1 et seq.
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    Section 731 of the Dodd-Frank Act amends the CEA by adding a new 
Section 4s, which sets forth a number of requirements for swap dealers 
and major swap participants. Specifically, section 4s(i) of the CEA 
establishes swap documentation standards for those registrants.
    Section 4s(i)(1) requires swap dealers and major swap participants 
to ``conform with such standards as may be prescribed by the Commission 
by rule or regulation that relate to timely and accurate confirmation, 
processing, netting, documentation, and valuation of all swaps.'' Under 
section 4s(i)(2), the Commission is required to adopt rules ``governing 
documentation standards for swap dealers and major swap participants.'' 
The Commission is proposing the regulations on swap confirmation, 
portfolio reconciliation, and portfolio compression \4\ discussed 
below, pursuant to the authority granted under sections 4s(h)(1)(D), 
4s(h)(3)(D), 4s(i), and 8a(5) of the CEA. \5\ The Dodd-Frank Act 
requires the Commission to promulgate these provisions by July 15, 
2011.
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    \4\ The Commission may propose additional rules related to 
documentation provisions under section 4s(i) of the CEA.
    \5\ Section 8a(5) of the CEA authorizes the Commission to 
promulgate such regulations as, in the judgment of the Commission, 
are reasonably necessary to effectuate any of the provisions or to 
accomplish any of the purposes of the CEA.
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    The proposed regulations reflect consultation with staff of the 
following agencies: (i) The Securities and Exchange Commission; (ii) 
the Board of Governors of the Federal Reserve System; (iii) the Office 
of the Comptroller of the Currency; and (iv) the Federal Deposit 
Insurance Corporation. Staff from each of these agencies has had the 
opportunity to provide oral and/or written comments to the proposal, 
and the proposed regulations incorporate elements of the comments 
provided.

II. Proposed Regulations

    The proposed regulations would prescribe standards for the timely 
and accurate confirmation of swaps and would require the reconciliation 
and compression of swap portfolios. Confirmation, portfolio 
reconciliation, and portfolio compression have been recognized as 
important post-trade processing mechanisms for reducing risk and 
improving operational efficiency by both current market participants 
and their regulators.
    With respect to confirmation, prudent practice requires that, after 
coming to an agreement on the terms of a transaction, parties document 
the transaction in a complete and definitive written record so there is 
legal certainty about the terms of their agreement. Through portfolio 
reconciliation, counterparties are able to resolve any discrepancies or 
disputes as early as possible and arrive at an understanding of their 
overall risk exposure to one another. Portfolio compression allows for 
a reduction in outstanding trade count and outstanding gross notional 
value by replacing redundant trades with a smaller number of trades and 
reduced gross notional value. This process reduces operational risk and 
increases operational efficiency because there are fewer trades to 
maintain, and results in a more accurate expression of market size.
    In the past few years, market participants and regulators have paid 
particular attention to the post-trade processing of swaps. For 
example, operational issues associated with the over-the-counter (OTC) 
derivatives market have been the focus of reports and recommendations 
by the President's Working Group on Financial Markets (PWG).\6\ In 
response to the financial crisis in 2008, the PWG called on the 
industry to improve trade matching and confirmation and to promote 
portfolio reconciliation.
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    \6\ See, e.g., Press Release, ``President's Working Group on 
Financial Markets, Progress Summary on OTC Derivatives Operational 
Improvements'' (Nov. 2008).
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    Since 2005, the Federal Reserve Bank of New York (FRBNY) has led a 
targeted, supervisory effort to enhance operational efficiency and 
performance in the OTC derivatives market, by increasing automation in 
processing and by promoting the timely confirmation of trades. Known as 
the OTC Derivatives Supervisors' Group (ODSG), the FRBNY leads an on-
going effort with OTC derivatives dealers' primary supervisors, trade 
associations, industry utilities, and private vendors, through which 
market participants (including buy-side participants) regularly set 
goals and commitments to bring infrastructure, market design, and risk 
management improvements to all OTC derivatives asset classes. Over the 
years, the ODSG has expanded its focus from credit derivatives to 
include interest rate derivatives, equity derivatives, foreign exchange 
derivatives, and commodity derivatives. Along with this expanded focus 
has come increased engagement with market participants on cross-asset 
class issues. Specifically, the ODSG encouraged the industry to commit 
itself to a number of reforms, including improved operational 
performance with respect to the OTC derivatives confirmation process, 
portfolio reconciliation, and portfolio compression. The regulations 
proposed by the Commission would build upon the ODSG's work.
    It is important to note at the outset, that the Commission expects 
that swap dealers and major swap participants would be able to comply 
with each of the proposed rules by executing a swap on a swap execution 
facility (SEF) or on a designated contract market (DCM), or by clearing 
the swap through a derivatives clearing organization (DCO). For swaps 
executed on a SEF or a DCM, the SEF or DCM will provide the 
counterparties with a definitive written

[[Page 81521]]

record of the terms of their agreement, which will serve as a 
confirmation of the swap. Similarly, if a swap is executed bilaterally, 
but subsequently submitted to a DCO for clearing, the DCO will require 
a definitive written record of all terms to the counterparties' 
agreement prior to novation by the DCO; this too would serve as a 
confirmation of the swap.
    When a swap is cleared by a central counterparty, the problems that 
portfolio reconciliation is designed to solve (agreement on all terms 
and the valuation of the swap) no longer exist because the 
clearinghouse (1) requires a definitive written record of all terms of 
the swap; and (2) arrives at a settlement price for all cleared swaps 
on a daily basis. Additionally, the Commission is considering a 
proposed regulation that would require DCOs to offer portfolio 
compression exercises on a regular basis. The proposed rule for swap 
dealers and major swap participants has been designed to complement the 
proposed DCO rule.
    In designing these rules, the Commission has taken care to minimize 
the burden on those parties that will not be registered with the 
Commission as swap dealers or major swap participants. To the extent 
that market participants believe that additional measures should be 
taken to reduce the burden or increase the benefits of confirmation, 
reconciliation, and compression for the swaps market, the Commission 
welcomes all comments.
    The Commission requests comment on all aspects of proposed 
Sec. Sec.  23.500 (definitions), 23.501 (confirmation), 23.502 
(portfolio reconciliation), and 23.503 (portfolio compression), as well 
as comment on the specific provisions and issues highlighted in the 
discussion below. The Commission further requests comment on an 
appropriate effective date for final regulations, including comment on 
whether it would be appropriate to have staggered or delayed effective 
dates for some regulations based on the nature or characteristics of 
the activities or entities to which they apply. The Commission 
recognizes that there will be differences in the size and scope of the 
business of particular swap dealers and major swap participants. 
Therefore, comments are solicited on whether certain provisions of the 
proposed regulations should be modified or adjusted to reflect the 
differences among swap dealers and major swap participants or 
differences among asset classes.

A. Swap Confirmation

1. Background
    Over the past several years, OTC derivatives market participants 
and their regulators have paid particular attention to the timely 
confirmation of swaps. The Government Accountability Office (GAO) found 
that the rapid expansion of trading volume of swaps, such as credit 
derivatives since 2002, caused stresses on the operational 
infrastructure of market participants. These stresses in turn caused 
the participants' back office systems to fail to confirm the increased 
volume of trades for a period of time.\7\ The GAO found that the lack 
of automation in trade processing and the purported assignment of 
positions by transferring parties to third parties without notice to 
their counterparties were factors contributing to this backlog. If 
transactions, whether newly executed or recently transferred to another 
party, are left unconfirmed, there is no definitive written record of 
the contract terms. Thus, in the event of a dispute, the terms of the 
agreement must be reconstructed from other evidence, such as e-mail 
trails or recorded trader conversations. This process is cumbersome and 
may not be wholly accurate. Moreover, if purported transfers of swaps, 
in whole or in part, are made without giving notice to the remaining 
parties and obtaining their consent, disputes may arise as to which 
parties are entitled to the benefits and subject to the burdens of the 
transaction.
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    \7\ U.S. Government Accountability Office, ``Credit Derivatives: 
Confirmation Backlogs Increased Dealers' Operational Risks, But Were 
Successfully Addressed After Joint Regulatory Action,'' GAO-07-716 
(2007) at pages 3-4.
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    As the work of the ODSG demonstrates, the industry is capable of 
swift movement to contemporaneous execution and confirmation. A large 
back-log of unexecuted confirmations in the credit default swap (CDS) 
market created by prolonged negotiations and inadequate confirmation 
procedures were the subject of the first industry commitments made by 
participating dealers to ODSG.\8\ In October 2005, the participating 
dealers committed to reduce by 30% the number of confirmations 
outstanding more than 30 days within four months. In March 2006, the 
dealers committed to reduce the number of outstanding confirmations by 
70% by June 30, 2006. By September 2006, the industry had reduced the 
number of all outstanding CDS confirmations by 70%, and the number of 
CDS confirmations outstanding more than 30 days by 85%. The industry 
achieved these targets largely by moving 80% of total trade volume in 
CDS to confirmation on electronic platforms, eliminating backlogs in 
new trades. Today, over 90% of ``electronically eligible'' \9\ CDS 
trades are confirmed electronically, the majority on the day of 
execution and up to 98% within two days.\10\
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    \8\ See October 4, 2005 industry commitment letter to the 
Federal Reserve Bank of New York, available at https://www.newyorkfed.org/newsevents/news_archive/markets/2005/an050915.html.
    \9\ It remains unclear precisely how much of the total CDS 
market is not ``electronically eligible,'' as eligibility is 
determined by the OTC derivatives market participants.
    \10\ See March 1, 2010 Summary of OTC Derivatives Commitments 
provided to the Federal Reserve Bank of New York, available at 
https://www.newyorkfed.org/newsevents/news/markets/2010/100301_table.pdf.
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    The ODSG has established a supervisory goal for all transactions to 
be confirmed as soon as possible after the time of execution. Ideally, 
this would mean that there would be a written or electronic document 
executed by the parties to a swap for the purpose of evidencing all of 
the terms of the swap, including the terms of any termination (prior to 
its scheduled maturity date), assignment, novation, exchange, or 
similar transfer or conveyance of, or extinguishing of rights or 
obligations.
    In the case of electronically processed transactions, all such 
transactions should be matched and confirmed, at a minimum, on the same 
day the trade was executed. For electronically processed transactions, 
confirmation typically is effected by a third-party ``matching'' 
process. If transactions are not confirmed in a timely manner, backlogs 
of outstanding unconfirmed trades develop, increasing risk. Timely and 
accurate confirmation of transactions is critical for all downstream 
operational and risk management processes, including the correct 
calculation of cash flows and discharge of settlement obligations as 
well as accurate measurement of counterparty credit exposures. Timely 
confirmation also allows any rejections, exceptions, and/or 
discrepancies to be identified and resolved more quickly.
    Another ODSG objective is a marketplace that electronically 
processes as many transactions as possible in as many parts of the 
processing life cycle as possible, but particularly in the ``upstream'' 
parts of the life cycle, where transaction information is first entered 
into the system (trade capture). To achieve this objective, as many 
transactions as possible and practicable should be executed on 
electronic platforms, such

[[Page 81522]]

as SEFs, in order to approach the ideal of ``straight-through 
processing.'' Otherwise, transactions should be keyed into electronic 
systems as soon as possible after execution.
2. Proposed Confirmation Rule
    To promote the efficient operation of the swap market, and to 
facilitate market participants' overall risk management, the Commission 
is proposing confirmation Sec.  23.501.
    For the purposes of proposed Sec.  23.501, proposed Sec.  23.500 
would provide certain critical definitions pertaining to confirmation. 
An acknowledgment would be defined as a written or electronic record of 
all the terms of a swap signed and sent by one party to another. When 
one party acknowledges the terms of a swap and its counterparty 
verifies it, the result is the issuance of a confirmation that reflects 
the terms of the swap between the parties. A confirmation thus would be 
defined as a written or electronic record of a swap that has been 
signed and sent by one party and verified by the other where that 
record has been manually, electronically, or by some other legally 
equivalent means, signed by the receiving counterparty. Finally, 
proposed Sec.  23.500 would define execution to be a legally-binding 
oral, written, or electronic agreement by the parties. For the purposes 
of the confirmation rule, the term swap transaction is defined to 
include any event that would result in a new swap or a change in the 
terms of a swap, including execution, termination, assignment, 
novation, exchange, transfer, amendment, conveyance, or extinguishing 
of rights or obligations under a swap.
    With regard to both acknowledgments and confirmations, the 
Commission intends that all the terms of a swap transaction be provided 
for acknowledgment and confirmation. The objective is that parties have 
full written agreement on all terms as soon as practicable after 
execution and also upon any ownership event during the life of the 
swap. Such life cycle events would include any termination (prior to 
the scheduled maturity date of the swap), assignment, novation, 
exchange, transfer, amendment, or conveyance of, or extinguishing of 
rights or obligations under the swap.\11\ For each of these events, the 
parties should have written documentation evidencing all the terms of 
the transaction, as soon as possible after the transaction occurs. This 
approach to documenting ``life cycle event data'' is consistent with 
the Commission's proposed rules for reporting swap data to a swap data 
repository.\12\
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    \11\ Life cycle events would also include corporate actions 
affecting a security or securities on which the swap is based (e.g., 
a merger, dividend, stock split or bankruptcy).
    \12\ The Notice of Proposed Rulemaking for Swap Data 
Recordkeeping and Reporting Requirements is available on the 
Commission's Web site: https://comments.cftc.gov/FederalRegister/Proposed.aspx.
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    The timely and accurate confirmation of all swaps and life cycle 
events for existing swaps would ensure that the parties know the terms 
of their executed transactions and the identities of their 
counterparties at all times. Confirming all swap transactions on the 
day of execution should be standard for all market participants. 
However, the Commission recognizes some entities that will not be 
registered as swap dealers or major swap participants may not have the 
operational capacity to confirm their swap transactions as quickly as 
swap dealers and major swap participants. Accordingly, the Commission 
is proposing a bifurcated approach for confirmations. Swap dealers and 
major swap participants entering into swap transactions with other swap 
dealers or major swap participants would be required to obtain a 
confirmation on the same calendar day as execution (i.e., no later than 
T+0).
    On the other hand, swap dealers and major swap participants 
entering into swap transactions with counterparties that are not swap 
dealers or major swap participants would be required to send an 
acknowledgment for each swap on the same calendar day as execution 
(i.e., no later than T+0). Swap dealers and major swap participants 
would then have policies and procedures in place to confirm the swap 
with financial entities as defined in proposed Sec.  23.500 \13\ on the 
same calendar day as execution and with all other entities not later 
than the next business day following execution.
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    \13\ This definition is taken from the end user exception to the 
clearing requirement under section 2(h)(7)(C)(i) of the CEA. The 
term financial entity includes the following eight entities: (i) A 
swap dealer; (ii) a security-based swap dealer; (iii) a major swap 
participant; (iv) a major security-based swap participant; (v) a 
commodity pool as defined in section 1a(10) of the CEA; (vi) a 
private fund as defined in section 202(a) of the Investment Advisers 
Act of 1940 (15 U.S.C. 80-b-2(a)); (vii) an employee benefit plan as 
defined in paragraphs (3) and (32) of section 3 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002); or (viii) a 
person predominantly engaged in activities that are in the business 
of banking or financial in nature, as defined in section 4(k) of the 
Bank Holding Company Act of 1956. See 7 U.S.C. 2(h)(7)(C)(i). The 
definition would include the statutory exclusion and limitation as 
contained in section 2(h)(7)(C) and also would include any 
Commission regulations promulgated pursuant to the statutory 
section.
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    The Commission also is proposing that the times prescribed for 
achieving swap acknowledgment and confirmation vary depending upon 
whether transactions are electronically executed or electronically 
processed. Under proposed Sec.  23.501(a)(1), all swap dealers and 
major swap participants entering into swap transactions with other swap 
dealers or major swap participants would be required to confirm their 
swap transactions according to the following timeframe:
     For any swap transaction that has been executed and 
processed electronically, within 15 minutes of execution;
     For any swap transaction that is not electronically 
executed, but that will be processed electronically, within 30 minutes 
of execution; or
     For any swap transaction that cannot be processed 
electronically by the swap dealer or major swap participant, within the 
same calendar day as execution.
    Under proposed Sec.  23.501(a)(2), swap dealers and major swap 
participants entering into swap transactions with counterparties that 
are not swap dealers or major swap participants would be required to 
send an acknowledgment of each swap transaction according to the 
following timeframe:
     For any swap transaction that has been executed and 
processed electronically, within 15 minutes of execution;
     For any swap transaction that is not executed 
electronically, but that will be processed electronically, within 30 
minutes after execution; or
     For any swap transaction that cannot be processed 
electronically by the swap dealer or major swap participant, within the 
same calendar day as execution.
    For those swap transactions entered into with counterparties that 
are not swap dealers or major swap participants, under proposed Sec.  
23.501(a)(3), swap dealers and major swap participants would be 
required to establish written policies and procedures reasonably 
designed to ensure confirmation with financial entities on the same 
calendar day as execution and with all other entities by the next 
business day after the swap transaction is executed. These procedures 
must include a requirement that, prior to entering into any swap 
transaction, the swap dealer or major swap participant furnish to a 
prospective counterparty, or receive from a prospective counterparty, a 
draft acknowledgment specifying all terms of the swap transaction other 
than pricing and terms to be definitively agreed to at execution. As is 
currently the custom in many swap markets, including credit

[[Page 81523]]

and equity derivative markets, the parties may rely on a standard 
confirmation agreement.
    Under proposed Sec.  23.501(b), a swap dealer or major swap 
participant would be required to keep records regarding the processing 
of swap acknowledgments and confirmations. These records would include 
the time and date of transmission or receipt of any acknowledgment or 
confirmation, the length of time between transmission of any 
acknowledgment to a counterparty and receipt of the signed 
confirmation, and the length of time between execution and confirmation 
of the swap.
    In order to retain flexibility for all market participants, the 
proposed rules do not prescribe a particular venue or platform for 
confirmation. As noted above, currently many swap transactions are 
electronically processed by third-party ``matching'' services. While 
the Commission encourages the continued use and expansion of these 
services, the approach taken in the proposed rule would allow parties 
the ability to confirm bilaterally through whatever means they select, 
so long as they are able to meet the schedule laid out in the rule.
    In a similar effort to retain flexibility, at this time, the 
Commission is not prescribing the acknowledgment or confirmation 
documentation that market participants must use. The Commission 
encourages the use of master confirmation agreements and other 
standardized documentation that has been developed by the industry in 
an effort to reduce confirmation backlogs, among other things. However, 
the most critical aspect of the confirmation rule is that all the terms 
of the swap are agreed to in writing and in a timely manner.
    The proposed rules would apply to all new swaps and to all swap 
transactions, as that term is defined in the rules, entered into after 
the effective date of the regulation.
3. Comments Requested
    The Commission requests comment on all aspects of proposed Sec.  
23.501. In particular, the Commission requests comment on the following 
questions:
     Does the proposed rule appropriately allocate the 
responsibility for providing the swap acknowledgments?
     Is it feasible to require that all acknowledgments be 
provided electronically?
     Should the proposed rule require swap dealers and major 
swap participants to provide a swap acknowledgment or confirmation more 
quickly, particularly for transactions that are executed or processed 
electronically?
     Does the proposed rule provide sufficient time for swap 
dealers and major swap participants to provide swap acknowledgments to 
their counterparties?
     Are there swap transactions for which all of the terms 
required to be included on an acknowledgment or in a confirmation would 
not be known on the same calendar day as execution? If so, please 
describe these swap transactions and include the terms that would not 
be known on the same calendar day as execution, as well as the reason 
these terms would not be known.
     Is it necessary to clarify further that the confirmation 
rule would apply to life cycle events, such as termination, assignment, 
novation, exchange, transfer, amendment, or conveyance?
     Are there other post-execution events for which a 
confirmation should be executed?
     Should counterparties be permitted to agree expressly that 
certain life cycle events (such as assignment of payable rights), do 
not require subsequent confirmations? Are there life cycle events that 
can be carved out of the rule while still achieving the purpose of the 
rule? Should more time be permitted for confirmation of certain life 
cycle events, such as transfers resulting from a merger, consolidation, 
or transfer of all assets to another entity?
     Should the Commission require that electronic matching 
services or confirmation platforms be used where reasonably 
practicable?
     Does the term ``processed electronically'' require more 
clarification? If so, what definition would be effective and flexible 
enough to accommodate future market innovation?
     Should the Commission require that all swaps be processed 
electronically?
     Are there circumstances where swap dealers and major swap 
participants have the ability to process a transaction electronically, 
but should not be required to do so?
     Has the Commission properly accounted for current industry 
practice with respect to the time necessary to confirm swap 
transactions?
     Would the proposed rule unduly restrict the types of swaps 
that swap dealers and major swap participants may enter into or the 
persons that may be their counterparties?
     Should executing a swap on a SEF or DCM be deemed to 
satisfy the confirmation requirement?
     Should clearing a swap through a DCO be deemed to satisfy 
the confirmation requirement?
     Should the terms calendar day and business day be further 
defined and has the rule properly accounted for counterparties in 
different time zones executing swaps?

B. Swap Portfolio Reconciliation

1. Background
    Section 4s(i) of the CEA directs the Commission to prescribe 
regulations for the timely and accurate confirmation, processing, 
documentation, and valuation of all swaps entered into by swap dealers 
and major swap participants. Disputes related to confirming the terms 
of a swap, as well as swap valuation disputes,\14\ have long been 
recognized as a significant problem in the OTC derivatives market. 
Portfolio reconciliation is considered an effective means of 
identifying and resolving these disputes. Specifically, portfolio 
reconciliation is a post-execution processing and risk management 
technique that is designed to: (1) Identify and resolve discrepancies 
between the counterparties with regard to the terms of a swap either 
immediately after execution or during the life of the swap; (2) ensure 
effective confirmation of all the terms of the swap; and (3) identify 
and resolve discrepancies between the counterparties regarding the 
valuation of the swap. In some instances, portfolio reconciliation also 
may facilitate the identification and resolution of discrepancies 
between the counterparties with regard to valuations of collateral held 
as margin.
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    \14\ See ISDA Collateral Committee, ``Commentary to the Outline 
of the 2009 ISDA Protocol for Resolution of Disputed Collateral 
Calls,'' June 2, 2009 (stating ``Disputed margin calls have 
increased significantly since late 2007, and especially during 2008 
have been the driver of large (sometimes > $1 billion) un-
collateralized exposures between professional firms.'').
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    The Commission recognizes that the industry has made significant 
progress in adopting the use of portfolio reconciliation to decrease 
the number of swap disputes.\15\ In December 2008, the ODSG's group of 
14 major dealers committed to execute daily portfolio reconciliations 
for collateralized portfolios in excess of 500 trades between 
participating dealers by June of 2009.\16\ As of May 2009, all 
participating dealers were satisfying this commitment. In October 2009, 
the

[[Page 81524]]

ODSG committed to publishing a feasibility study on market-wide 
portfolio reconciliation that would set forth how regular portfolio 
reconciliation could be extended beyond the ODSG dealers to include 
smaller banks, buy-side participants, and derivative end users. 
Consistent with this publication, the ODSG dealers expanded their 
portfolio reconciliation commitment in March 2010 to include monthly 
reconciliation of collateralized portfolios in excess of 1,000 trades 
with any counterparty. Most recently, the industry has been preparing a 
new ``Convention on the Investigation of Disputed Margin Calls'' and a 
new ``Formal Market Polling Procedure'' that are intended to ``create a 
consistent and predictable process * * * that eliminates present 
uncertainties and delays.'' \17\
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    \15\ The Commission also recognizes and encourages the industry 
practice of immediately transferring undisputed collateral amounts.
    \16\ See June 2, 2009 summary of industry commitments, available 
at https://www.isda.org/c_and_a/pdf/060209table.pdf.
    \17\ See ``ISDA 2010 Convention on the Investigation of Disputed 
Margin Calls'' and ``ISDA 2010 Formal Market Polling Procedure.''
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    Accordingly, the Commission is proposing Sec.  23.502, which would 
require swap dealers and major swap participants to reconcile their 
portfolios with one another and provide counterparties who are not 
registered as swap dealers or major swap participants with regular 
opportunities for portfolio reconciliation. In order for the 
marketplace to realize the full risk reduction benefits of portfolio 
reconciliation, the Commission is proposing to expand portfolio 
reconciliation to all transactions, whether collateralized or 
uncollateralized. For the swap market to operate efficiently and to 
reduce systemic risk, portfolio reconciliation should be a proactive 
process that delivers a consolidated view of counterparty exposure down 
to the transaction level. By identifying and managing mismatches in key 
economic terms and valuation for individual transactions across an 
entire portfolio, overall risk can be identified and reduced.
2. Proposed Portfolio Reconciliation Rule
    For the purposes of proposed Sec.  23.502, swap portfolio 
reconciliation would be defined in proposed Sec.  23.500 as a process 
by which the two parties to one or more swaps: (1) Exchange the terms 
of all swaps in the portfolio between the parties; (2) exchange each 
party's valuation of each swap in a portfolio between the parties as of 
the close of business on the immediately preceding business day; and 
(3) resolve any discrepancy in material terms and valuations. Valuation 
would be defined in proposed Sec.  23.500 as the current market value 
or net present value of a swap, and material terms would be defined as 
all terms of a swap required to be reported in accordance with part 45 
of this chapter.
    Proposed Sec.  23.502(a) would require swap dealers and major swap 
participants to reconcile swap portfolios with other swap dealers or 
major swap participants with the following frequency: Daily for 
portfolios consisting of 300 or more swaps, at least weekly for 
portfolios consisting of 50 to 300 swaps, and at least quarterly for 
portfolios consisting of fewer than 50 swaps. Swap dealers and major 
swap participants would be required to resolve immediately any 
discrepancy in a material term identified as part of a portfolio 
reconciliation process. The Commission is proposing an immediate 
resolution requirement for material terms for the same reasons that 
necessitate timely confirmation--parties need to know the terms of 
their executed agreements with one another. A discrepancy in the terms 
of a swap likely indicates that the parties have failed to confirm the 
swap in accordance with Commission regulations, and, therefore, the 
parties should take immediate action to resolve the discrepancy. This 
requirement would support and ensure compliance with proposed Sec.  
23.501, which requires a confirmation of all terms of a swap.
    The Commission believes that requiring reconciliation of all swap 
portfolios among swap dealers and major swap participants (rather than 
only collateralized portfolios, as contemplated by the ODSG work) is 
appropriate because CEA section 4s(e) requires that swap dealers and 
major swap participants will be subject to minimum capital and margin 
requirements. As a result, the Commission anticipates that most, if not 
all, swaps entered by swap dealers and major swap participants will be 
subject to some form of collateralization. The Commission also believes 
that requiring more frequent reconciliation of smaller portfolios is 
appropriate because section 2(a)(13)(G) of the CEA requires all swaps 
to be reported to a registered swap data repository, and, therefore, 
the Commission anticipates that swap dealers and major swap 
participants will be able to efficiently reconcile their internal 
records with their counterparties electronically by reference to data 
in the repositories. The threshold of 300 swaps for daily 
reconciliation is intended to capture swap portfolios where there is a 
high likelihood that the swap dealer or major swap participant's 
counterparty will have the technological capacity to perform 
reconciliation processes electronically.
    Under proposed Sec.  23.502(a)(5), swap dealers and major swap 
participants would be required to resolve any discrepancy in a 
valuation identified as part of a portfolio reconciliation process 
within one business day. The Commission recognizes that there may be 
reasonable grounds for some variation in the calculation of swap 
valuation at any given time. Consequently, the proposed rule would not 
require that swap dealers and major swap participants expend resources 
to resolve all discrepancies in the valuation of the swap, but only if 
the difference between the lower valuation and the higher is greater 
than 10%.
    In addition, given that there are a number of services and 
industry-led initiatives that may facilitate resolution of valuation 
disputes, at this time the Commission is not proposing to mandate that 
swap dealers and major swap participants implement any specific 
procedure for resolution of a discrepancy in the valuation of a swap. 
Rather, it is only proposing a deadline for dispute resolution of one 
business day following discovery of such discrepancy.
    For swap portfolios with entities other than swap dealers or major 
swap participants, proposed Sec.  23.502(b) would require swap dealers 
and major swap participants to establish written policies and 
procedures to perform reconciliation, but would not prescribe the 
manner in which the reconciliation must be performed. For example, the 
exchange of terms and valuations between the counterparties may consist 
of one party reviewing the details and valuations delivered by the 
other party and either affirming or objecting to such details and 
valuations. The frequency parameters of portfolio reconciliation would 
be similar to those for swap portfolios between swap dealers or major 
swap participants.\18\ There are some important distinctions in the 
proposed treatment of swap portfolios between a swap dealer or major 
swap participant and others that promote flexibility for those entities 
that will not be registered with the Commission. Swap dealers and major 
swap participants would be required simply to establish written 
procedures reasonably designed to resolve any discrepancies in the 
material terms or valuation of each swap identified as part

[[Page 81525]]

of a portfolio reconciliation process in a timely fashion. Again, 
differences in valuation of a swap need not be deemed a discrepancy 
unless the difference between the lower valuation and the higher 
valuation is greater than 10% of the higher valuation.
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    \18\ The frequency thresholds are similar: Daily for portfolios 
consisting of 500 or more swaps, at least weekly for portfolios 
consisting of 100-500 swaps, and at least quarterly for portfolios 
consisting of less than 100 swaps.
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    Proposed Sec.  23.502(c) would create a safe harbor for cleared 
swaps because portfolio reconciliation is needed primarily for 
uncleared swaps. When swaps are cleared, the clearinghouse requires 
that each swap be matched prior to novation by the clearinghouse. 
Moreover, once cleared, clearinghouses determine daily settlement 
prices, which preclude any valuation disputes.
    The proposed rule would apply to all swaps within a swap portfolio 
as of the effective date of the regulation.
    Finally, proposed Sec.  23.502(d) would require that swap dealers 
and major swap participants maintain records of each discrepancy 
identified during portfolio reconciliation and the length of time taken 
to resolve that discrepancy.
3. Comments Requested
    The Commission requests comment on all aspects of proposed Sec.  
23.502(d). In particular, the Commission requests comment on the 
following questions:
     Are the proposed deadlines for swap portfolio discrepancy 
resolution in the proposed regulation appropriate?
     Are the reconciliation thresholds and frequency 
requirements appropriate?
     Are swap dealers and major swap participants likely to 
have a large number of counterparties with whom they would be required 
to perform daily reconciliation that do not have the technological 
capacity to perform reconciliation processes electronically?
     Is the proposal that a valuation difference of less than 
10% not be deemed to be a discrepancy appropriate? If not, please 
provide a suggested valuation discrepancy threshold.
     Should the proposed rule include a provision that requires 
discrepancy resolution if the aggregate of valuation differences of 
less than 10% across a portfolio exceeds a certain threshold? If so, 
please provide a suggested threshold.
     How would the requirement to resolve valuation 
discrepancies in one day for swaps among swap dealers and major swap 
participants affect the very detailed and complex industry initiatives 
currently being considered for resolving valuation disputes?
     Should all terms of a swap transaction be reconciled or 
just the key economic terms?
     Should all discrepancies in swap transaction terms be 
resolved or just the material ones?
     Should the definition of material terms be clarified?
     Should financial entities as defined in proposed Sec.  
23.500 be required to participate in portfolio reconciliation under 
proposed Sec.  23.502(a)?

C. Portfolio Compression

1. Background
    Section 4s(i) of the CEA directs the Commission to prescribe 
regulations for the timely and accurate processing and netting of all 
swaps entered into by swap dealers and major swap participants. 
Portfolio compression is an important, post-trade processing and 
netting mechanism that can be an effective and efficient tool for the 
timely and accurate processing and netting of swaps by market 
participants. Accordingly, the Commission is proposing Sec.  23.503, 
which would require swap dealers and major swap participants to engage 
in certain bilateral and multilateral portfolio compression exercises.
    Portfolio compression is a mechanism whereby substantially similar 
transactions among two or more counterparties are terminated and 
replaced with a smaller number of transactions of decreased notional 
value in an effort to reduce the risk, cost, and inefficiency of 
maintaining unnecessary transactions on the counterparties' books. In 
many cases, these redundant or economically-equivalent positions serve 
no useful business purpose, but can create unnecessary risk,\19\ as 
well as operational and capital inefficiencies. In a portfolio 
compression exercise, swap market participants whose combined 
portfolios include outstanding transactions that contain substantially 
similar economic terms and/or that would result in redundant payments 
wholly or partially net their swaps by terminating the original swaps 
and replacing them with a smaller number of new transactions that have 
a lower gross notional value.
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    \19\ Federal Reserve Bank of New York Staff Report No. 424: 
``Policy Perspectives on OTC Derivatives Market Infrastructure,'' 
Jan. 2010 (revised Mar. 2010).
---------------------------------------------------------------------------

    Market vendors assert that as many as 40,000 trades can be 
terminated in a single portfolio compression cycle.\20\ Because 
portfolio compression participants are permitted to establish their own 
credit, market, and cash payment risk tolerances and to establish their 
own mark-to-market values for the transactions to be compressed, the 
process does not alter the risk profiles of the individual participants 
beyond a level acceptable to the participant.
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    \20\ See https://www.trioptima.com.
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    Portfolio compression exercises can be performed on a bilateral or 
multilateral basis. Multilateral compression exercises are preferable 
because the larger number of participants significantly increases the 
number of trades that can be eliminated and removes the need for 
bilateral negotiation between counterparties. In a multilateral 
portfolio compression exercise, the replacement swaps may be with the 
same or different counterparties.
    The benefits of portfolio compression to both individual market 
participants and to the market as a whole are considerable. The reduced 
transaction count decreases operational risk generally as there are 
fewer trades to maintain, process, and settle.\21\ The reduction in the 
outstanding gross notional value of the swaps also allows for increased 
capital liquidity and efficiency. Firms can set aside less capital for 
their positions while maintaining their desired risk positions in the 
market. The diminished operational risk for the individual market 
participants achieved by portfolio compression, in turn, may lessen 
systemic risk and enhance the overall stability of the financial 
markets. Compression also may provide a more accurate expression of 
overall market size and composition, and provide market participants 
with a more precise picture of their exposures.
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    \21\ See ``ISDA 2009 A Yearbook of ISDA Activities,'' 
International Swaps and Derivatives Association, Inc. (2009).
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    The usefulness of portfolio compression as a risk management tool 
has been acknowledged widely. In 2008, the PWG identified frequent 
portfolio compression of outstanding trades as a key policy objective 
in the effort to strengthen the OTC derivatives market 
infrastructure.\22\ Similarly, the 2010 staff report outlining policy 
perspectives on OTC derivatives infrastructure issued by the FRBNY 
identified trade compression as an element of strong risk management 
and recommended that market participants engage in regular, market-wide 
portfolio compression exercises.\23\
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    \22\ ``Policy Objectives for the OTC Derivatives Markets,'' 
President's Working Group on Financial Markets (Nov. 14, 2008).
    \23\ Federal Reserve Bank of New York Staff Report No. 424: 
``Policy Perspectives on OTC Derivatives Market Infrastructure,'' 
Jan. 2010 (revised Mar. 2010).
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    The value of portfolio compression also is illustrated by existing 
market participation in compression exercises.

[[Page 81526]]

In March 2010, the Depository Trust and Clearing Corporation (DTCC) 
explicitly attributed the reduction in the gross notional value of the 
contracts in its warehouse to industry supported portfolio 
compression.\24\ TriOptima, which offers the TriReduce portfolio 
compression service, estimates that it has terminated $106.3 trillion 
gross notional of interest rate swaps and $66.9 trillion gross notional 
of credit swaps since its inception in 2003.\25\ Similarly, Creditex 
and Markit, which offer portfolio compression exercises in single name 
credit default swaps, have enabled participating institutions to 
eliminate $4.5 trillion in notional between late 2008 through 2009.\26\
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    \24\ DTCC Press Release, ``DTCC Trade Information Warehouse 
Completes Record Year Processing OTC Credit Derivatives'' (Mar. 11, 
2010). Notably, beginning in August 2008, ISDA encouraged 
compression exercises for credit default swaps by selecting the 
service provider and defining the terms of service.
    \25\ See https://www.trioptima.com. Between 2007 and 2008, 
TriOptima reduced $54.7 trillion gross notional of interest rate 
swaps and $49.1 trillion gross notional of credit swaps. In March of 
2010, the staff of the Federal Reserve Bank of New York estimated 
that since 2008 nearly $50 trillion gross notional of credit default 
swap positions has been eliminated through portfolio compression. 
Federal Reserve Bank of New York Staff Report No. 424: ``Policy 
Perspectives on OTC Derivatives Market Infrastructure,'' Jan. 2010 
(revised Mar. 2010).
    \26\ See https://www.isdacdsmarketplace.com.
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2. Proposed Compression Rule
    Based upon these considerations, the Commission is proposing Sec.  
23.503, which would impose certain portfolio compression requirements 
upon swap dealers and major swap participants. Specifically, swap 
dealers and major swap participants would be required to participate in 
multilateral compression exercises that are offered by those DCOs or 
self-regulatory organizations of which the swap dealer or major swap 
participant is a member. The Commission would encourage swap dealers 
and major swap participants to work with the DCOs and self-regulatory 
organizations of which they are members to develop portfolio 
compression opportunities.
    The portfolio compression obligation would be limited to swaps in 
which the counterparty is also a swap dealer or major swap participant 
and swaps that are eligible for inclusion in the exercise, as 
determined by those conducting the compression exercise and agreed to 
by those participating in the exercise. A swap dealer or major swap 
participant would be permitted to exclude swaps from a compression 
exercise if including the swap would be reasonably likely to increase 
significantly the risk exposure of the swap dealer or major swap 
participant. A swap dealer or major swap participant also would be 
permitted to establish counterparty, market, cash payment, and other 
risk tolerances and to exclude potential counterparties from the 
compression exercise, provided that the swap dealer or major swap 
participant is not using the risk tolerances or counterparty exclusions 
to evade the compression requirements.
    In recognition that portfolio compression currently is not 
available for all asset classes and all transactions within an asset 
class,\27\ the Commission also is proposing that swap dealers and major 
swap participants be required to terminate bilaterally all fully 
offsetting swaps between them by the close of business on the business 
day following the day the parties entered into the offsetting swap 
transaction and to engage annually in bilateral portfolio compression 
exercises with counterparties that are also swap dealers or major swap 
participants. Swap dealers and major swap participants need not engage 
in bilateral portfolio compression exercises, however, to the extent 
that the counterparties have mutually participated in a multilateral 
exercise involving the swaps between them during the same year.
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    \27\ At the present time, the principal portfolio compression 
vendors offer compression exercises for limited types of trades in a 
limited number of asset classes. Compression currently is available 
for certain interest rate swaps and credit default swaps and, to a 
lesser degree, specific energy products. For example, TriOptima's 
TriReduce service provides portfolio compression services for: (1) 
Interest rate swap transactions in twenty-three currencies; (2) 
credit default swaps (index, single name, and tranches); and (3) a 
more limited number of energy products. Markit and Creditex offer 
portfolio compression for credit default swaps.
---------------------------------------------------------------------------

    The Commission anticipates that portfolio compression exercises 
will be offered by additional vendors and will encompass additional 
products and asset classes as the industry progresses toward increased 
product standardization and centralized clearing. To afford the 
Commission the flexibility to react to the expected future availability 
and need for portfolio compression exercises, proposed Sec.  23.503 
also would require swap dealers and major swap participants to 
participate in all multilateral portfolio compression exercises 
required by Commission regulation or order.
    Proposed Sec.  23.503 would not mandate portfolio compression 
exercises for swaps outstanding between a swap dealer or a major swap 
participant and counterparties that are neither swap dealers nor major 
swap participants. Instead, swap dealers and major swap participants 
would be required to maintain written policies and procedures for 
periodically terminating all fully offsetting swaps and periodically 
engaging in compression exercises.
    The proposed rule would apply to all swaps within a swap portfolio 
as of the effective date of the regulation.
3. Comments Requested
    The Commission is requesting comment on all aspects of the 
portfolio compression rule, and specifically requests comment on the 
following questions:
     Should the Commission require swap dealers and major swap 
participants to engage in bilateral and multilateral compression 
exercises, particularly with respect to transactions where the 
counterparty is not a swap dealer or major swap participant?
     Should the compression requirement be restricted to 
particular asset classes?
     With what frequency should bilateral or multilateral 
compression be required?
     What are the costs associated with engaging in bilateral 
and multilateral compression and are such costs a barrier to 
participation?
     Should the Commission expressly define the transactions 
that are eligible for inclusion in a portfolio compression exercise or 
leave that determination to those conducting the compression exercise 
and/or to those participating in the exercise?
     What factors (e.g., sufficiently standardized terms) would 
render a particular swap eligible or ineligible for inclusion in a 
bilateral or multilateral compression exercise?
     Should the Commission provide specific risk management, 
accounting, regulatory, and other rationale under which a swap dealer 
or major swap participant may exclude particular swaps transactions 
from a multilateral portfolio compression exercise?
     How much time would be sufficient to allow swap dealers 
and major swap participants to come into compliance with the proposed 
portfolio compression requirements?
     Should the Commission require participation in compression 
exercises conducted only by registered derivatives clearing 
organizations or by all central counterparties of which the swap dealer 
or major swap participant may be a member?
     Should financial entities as defined in proposed Sec.  
23.500 be subject to the provisions of Sec.  23.503(a), (b), and (c)?

[[Page 81527]]

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that agencies 
consider whether the rules they propose will have a significant 
economic impact on a substantial number of small entities.\28\ The 
Commission previously has established certain definitions of ``small 
entities'' to be used in evaluating the impact of its regulations on 
small entities in accordance with the RFA.\29\ The proposed rules would 
affect swap dealers and major swap participants.
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    \28\ 5 U.S.C. 601 et seq.
    \29\ 47 FR 18618, Apr. 30, 1982.
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    Swap dealers and major swap participants are new categories of 
registrants. Accordingly, the Commission has not previously addressed 
the question of whether such persons are, in fact, small entities for 
purposes of the RFA. However, the Commission previously has determined 
that futures commission merchants should not be considered to be small 
entities for purposes of the RFA.\30\ The Commission's determination 
was based, in part, upon the obligation of futures commission merchants 
to meet the minimum financial requirements established by the 
Commission to enhance the protection of customers' segregated funds and 
protect the financial condition of futures commission merchants 
generally.\31\ Like futures commission merchants, swap dealers will be 
subject to minimum capital and margin requirements and are expected to 
comprise the largest global financial firms. The Commission is required 
to exempt from swap dealer designation any entities that engage in a de 
minimis level of swaps dealing in connection with transactions with or 
on behalf of customers. The Commission anticipates that this exemption 
would tend to exclude small entities from registration. Accordingly, 
for purposes of the RFA for this rulemaking, the Commission is hereby 
proposing that swap dealers not be considered ``small entities'' for 
essentially the same reasons that futures commission merchants have 
previously been determined not to be small entities and in light of the 
exemption from the definition of swap dealer for those engaging in a de 
minimis level of swap dealing.
---------------------------------------------------------------------------

    \30\ Id. at 18619.
    \31\ Id.
---------------------------------------------------------------------------

    The Commission also has previously determined that large traders 
are not ``small entities'' for RFA purposes.\32\ In that determination, 
the Commission considered that a large trading position was indicative 
of the size of the business. Major swap participants, by statutory 
definition, maintain substantial positions in swaps or maintain 
outstanding swap positions that create substantial counterparty 
exposure that could have serious adverse effects on the financial 
stability of the United States banking system or financial markets. 
Accordingly, for purposes of the RFA for this rulemaking, the 
Commission is hereby proposing that major swap participants not be 
considered ``small entities'' for essentially the same reasons that 
large traders have previously been determined not to be small entities.
---------------------------------------------------------------------------

    \32\ Id. at 18620.
---------------------------------------------------------------------------

    Moreover, the Commission is carrying out Congressional mandates by 
proposing this regulation. Specifically, the Commission is proposing 
these regulations to comply with the Dodd-Frank Act, the aim of which 
is to reduce systemic risk presented by swap dealers and swap market 
participants through comprehensive regulation. The Commission does not 
believe that there are regulatory alternatives to those being proposed 
that would be consistent with the statutory mandate. Accordingly, the 
Chairman, on behalf of the Commission, hereby certifies pursuant to 5 
U.S.C. 605(b) that the proposed rules will not have a significant 
economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \33\ 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. This proposed rulemaking would result in new collection of 
information requirements within the meaning of the PRA. The Commission 
therefore is submitting this proposal to the Office of Management and 
Budget (OMB) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 
1320.11. The title for this collection of information is 
``Confirmation, Portfolio Reconciliation, and Portfolio Compression 
Requirements for Swap Dealers and Major Swap Participants.'' An agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless it displays a currently valid 
control number. The OMB has not yet ass